Recovery In Europe Could Trigger A Large Gap Between The Economies Of These Countries

Recovery In Europe Could Trigger A Large Gap Between The Economies Of These Countries

Eastern Europe is recovering from recession, but the process is more cumbersome in some countries, including Romania, so that once the crisis passes some states will be better positioned in the struggle to attract investors.

Even if they are far from reaching the prosperity of Western Europe, the countries of central and eastern old continent have managed to record economic contractions in several cases more moderate than in the West in 2009. The recession has changed many leaders in the region gave lectures and showed how fragile are some imbalances emerging markets of developed countries, according to a survey by British business newspaper Financial Times.

Austerity measures adopted in the countries of the area have caused dissatisfaction among the population, but the protests were much more moderate than those of Greece, for example.
Moreover, political leaders had to “hit” the ordinary people to take the country out of crisis have been re-elected, proving that East Europeans are keen to get out of trouble, regardless of means. Latvia is the case where the center-right coalition has imposed the most severe austerity program in Europe was re-elected this month.

The crisis, a lesson for leaders

Central and Eastern Europe was “particularly affected by the crisis and even if we see a return to growth in some countries, the revival remains anemic, lasting and far from being stable,” said Jan Fischer, a former Czech prime minister and now vice president of the European Bank for Reconstruction and Development. However, countries in the region again became attractive destinations for investors prefer emerging markets, given that labor is cheap and Asian rivals.

The crisis at the end of the first decade of the twentieth century can be considered a lesson for leaders in the region and not only because it created a parallel between the way the previous crises were prevented from emerging markets and the measures that were imposed amid recent recession.

In retrospect, what happened in the past almost two years is a shift to 180 degrees. In general, the public debt of the countries of Central and Eastern Europe were much lower than those of the Western continent, where the crisis began. Due to massive loans contracted in the middle of 2000 and economic growth to a maximum revolution, consumption boomed and leading to the emergence of current account deficits.

Once you have frozen lending and trade, following the bankruptcy of U.S. investment bank Lehman Brothers in September 2008, households in the region remained in a position to finance its massive debts. Often denominated in euros or Swiss francs, the debts have become more burdensome as the local currencies have experienced a strong depreciation. There were even fears that foreign banks dominate the sector profile of the region would withdraw financing in Central and Eastern Europe to support its operations in the parent countries. Moreover, even surfaced speculation that the recession will demonstrate how capitalism is inefficient to the former eastern bloc from the old continent tended for almost two decades.

Regional diversity

However, we cannot say that there was a regional recession, although countries like Latvia, Estonia, Lithuania and Ukraine have fallen prey to economic contractions hard to imagine in times of peace. In contrast, other countries in the region have experienced economic decline significantly lower than that of countries in Western Europe, Poland remains even further, becoming the only EU country that has not entered a recession last year.

The number of banks that collapsed was small, there were no systemic banking crisis and no country became insolvent. In part, the great merit of world leaders is that the G20 summit in April 2009 allowed the International Monetary Fund has sufficient resources to provide financial support to countries such as Hungary, Romania, Latvia and Ukraine. Also, international financial institutions have agreed in the so-called Vienna Initiative to not withdraw from the markets of Central and Eastern Europe, since chaos would create a banking system in the region.

Main conclusions can be drawn from what happened in the past two years are second in number. First, that the process by which countries of the region will reach Western levels of prosperity will be much longer. Secondly, this process will be completed in two speeds: some states will delay much longer than others until they converge in living standards and economic power in the West. Romania, unfortunately, could go into the second category.

Recovery factors

* Loans provided by the IMF and the European Union and other international institutions, have helped Europe to the eastern entrance to avoid default.
* Countries of Eastern Europe have led the platoon to Chapter austerity measures, adopting draconian programs or to comply with commitments to the IMF, or to meet its economic objectives (for example, deficit targets).
* The recovery in demand from Western countries was a breath of oxygen and for the economies of the East, since West is the main export destination.11