EBRD to puzzle over E.Europe crisis

May 14, 2009

Ministers and bankers meeting at the European Bank for Reconstruction and Development‘s annual gathering in London tomorrow and Saturday have a sorry mess to scrutinise.

By the bank’s own (revised) forecasts, its region of central and eastern Europe will contract by over 5 percent this year. Many countries in eastern Europe took too much advantage of western banks’ lending spree, and businesses and households are struggling to pay back foreign currency loans.

Falling commodity prices have hit countries like Russia and Kazakhstan, and a burst consumer credit bubble is risking double-digit contraction in the Baltic states and Ukraine.

The bank’s 61 country members together with the European Union and its development bank the European Investment Bank will be discussing how to cope with the crisis and manage any recovery.

They will be looking at whether to continue giving help to several EU member countries which were due to stop receiving EBRD funds next year. Some countries may also be asking for an increase in the EBRD’s capital from its current 20 billion euros, to cope with the crisis.

The EBRD operates in 30 countries, mainly in the former communist bloc, and most recently Turkey. Those countries may be wondering if the bank could have done more to help them through the crisis, and seek more help now.

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The EBRD is probably doing all that it can, but with almost 30 countries in distress it sees the bottom of its financial resources.