Leading article: We need to support our East European neighbours

Members of the EU must stand together in this economic whirlwind

Share
Related Topics

In the carefree years earlier this decade, the countries that cluster around the eastern frontiers of Europe – the likes of Poland, Hungary, Latvia and Estonia – were some of the brightest stars of the boom. Their economies grew merrily and attracted piles of foreign investment. But with the advent of the global banking crisis and the subsequent world economic downturn, those stars are looking more like black holes.

Collapsing global demand has hammered the exports of the emerging economies of Central and Eastern Europe. Investors are frantically pulling out their money, pushing down the value of national currencies. Almost all of these former darlings of global capitalism are likely to see their economies contract sharply in 2009. The quicker you rise the harder you can fall, and these former Soviet satellites are falling hard indeed. Unemployment is rising and borrowers are being cruelly squeezed.

The latter group is in particular trouble. Many private citizens and firms took out loans denominated in euros from foreign-owned banks, attracted by the lower interest rates. In Latvia, lending in foreign currency rose from 60 per cent in 2004 to an astonishing 90 per cent in 2008. Euro borrowing seemed a rational thing to do as the conventional wisdom was that these countries would enter the single currency sooner or later. Now the folly of that conventional wisdom stands revealed. The sharp falls in the value of the Hungarian forint and the Polish zloty, among others, have pushed up the real value of these borrowings to punitive levels.

Some respite from the credit crunch arrived yesterday. The local banks of these countries were promised €34.5bn in aid from the European Bank for Reconstruction and Development, the European Investment Bank and the World Bank yesterday. But further support might be requested. There will be a strong temptation for the cash-strapped governments of Western Europe to decline to provide funds for such a bailout. Yet this would be a grave mistake.

For one thing, helping these countries is in our own direct economic interest. Swedish, Austrian and Italian banks invested heavily in Central and Eastern Europe during the boom. The Western financial sector will be hit by massive losses if they go under. Already our banks are seeing the cost of their borrowing rise because of their exposure in the East. There are even greater dangers lurking ahead. A South Asian domino-style collapse could conceivably drive these nations back into the arms of Russia. All the geopolitical gains made by Europe since the fall of the Iron Curtain could be lost.

But this is not charity. Support for our Eastern European economies is a sensible investment. The political leadership of these countries made mistakes in allowing their economies to become dangerously reliant on construction, consumption and foreign capital. But their people are hard working and educated. And, in time, when global demand picks up, the currency slides should make their economies more internationally competitive.

It would be madness to allow this economic downturn to jeopardise the peace dividend from the collapse of Communism and the integration of these countries into the European family. The overriding lesson of this crisis is that we are all economically connected. If we do not hang together, we shall hang separately. If our European neighbours need our help, they should get it.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

SQL Technical Implementation Consultant (Java, BA, Oracle, VBA)

£45000 - £55000 per annum + Benefits + Bonus: Harrington Starr: SQL Technical ...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Lead C# Developer (.Net, nHibernate, MVC, SQL) Surrey

£55000 - £60000 per annum + Benefits + Bonus: Harrington Starr: Lead C# Develo...

Day In a Page

 

i Editor's Letter: Still all to play for at our live iDebate

Oliver Duff Oliver Duff
'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering