2012年-CEPS欧洲政策研究中心_Collapse_in_Eastern_Europe_The_rationale_for_the_creation_of_a_European_Financial_Stability_Fund_4页_114kb

Collapse in Eastern Europe? – Summary

Core Content

The document, authored by Daniel Gros and published on 25 February 2009, discusses the financial challenges faced by Eastern European countries during the global financial crisis. It argues that the crisis is not primarily a result of excessive government deficits, but rather a systemic issue within the EU banking sector, which has become overexposed to the financial vulnerabilities of the European periphery.

Main Points

• Financial Exposure: European banks have significant exposure to Eastern Europe, with total cross-border claims estimated at over $600 billion. The total exposure of all BIS reporting banks to the region (including Turkey and Ukraine) is around $800 billion, with about two-thirds being loans.

• Current Account Deficits: Most Eastern European countries have large current account deficits, which are not sustainable. However, the magnitude of these deficits is relatively small compared to EU GDP, at about €60 billion or 0.5% of EU GDP.

• Currency and Mortgage Risks: In Poland and Hungary, the proportion of foreign currency-denominated mortgages is high, but still below 15% of GDP. This suggests that balance sheet problems for households, even with depreciation, are manageable. In contrast, the Baltics and Balkans face more severe risks due to higher mortgage exposure and potential credibility issues with currency boards.

• Collective Action Problem: EU banks are hesitant to provide additional capital or credit to Eastern Europe due to a lack of coordination and the risk of losses. This creates a collective action problem, as no single government has an incentive to support the region.

• Need for a European Financial Stability Fund (EFSF): The document proposes the establishment of a large-scale EFSF to address the crisis. It suggests that the fund should be set up through the European Investment Bank (EIB), which already has a solid institutional base and significant capital.

• EFSF Structure and Purpose: The EFSF would function as a "bad bank" for the European periphery, buying existing credits at a discount, recapitalizing banks, and providing liquidity to the private sector. It would help stabilize financial flows and reduce the risk of systemic collapse in the region.

• Funding and Operations: The fund could be funded with a capital base of around €500–700 billion, or 5% of EU GDP. It would operate on a 4:1 gearing ratio, allowing the EIB to expand its loan portfolio to €1,000 billion. The EFSF would be wound down after a predetermined period, such as 5 years, and its bonds would be considered low-risk due to the backing of EU member states.

• Benefits of Collective Action: A unified EU response would provide high-quality euro public sector debt, which is in demand by international investors. It would also reduce political tensions between new EU members and core countries, as it would shift the responsibility from national governments to a collective EU institution.

• Political and Economic Implications: Germany, despite initial opposition, could be a major beneficiary of the EFSF, as its banks are heavily involved in Eastern Europe, and its export sector would benefit from a stable financial environment in the region.

Key Information

• Current Account Deficits: Eastern Europe's deficits are large but manageable, especially in the context of the region's economic size.

• Mortgage Exposure: Mortgages in Poland and Hungary account for less than 15% of GDP, making balance sheet risks for households relatively low.

• EU Banking Sector Weakness: EU banks have not received significant new capital despite government rescue plans, leaving them vulnerable to further losses.

• EFSF as a Solution: The EFSF is proposed as a way to provide liquidity, recapitalize banks, and stabilize financial systems in Eastern Europe without burdening national budgets.

• EIB as a Platform: The EIB is suggested as the ideal institution to host the EFSF due to its existing capital and institutional strength.

• Risk Mitigation: The EFSF would help reduce the risk of systemic collapse by stabilizing the financial system and providing support to the private sector.

• Political Economy Dynamics: A collective EU approach would address the political conflict between new members and core countries, as well as complement existing EU instruments for balance-of-payments support.

Conclusion

The document emphasizes the need for a coordinated EU response to the financial instability in Eastern Europe. By establishing a European Financial Stability Fund, the EU can provide necessary liquidity and support to the region, ensuring the stability of its financial systems and preventing a potential collapse. This approach would not only benefit the periphery but also strengthen the overall financial resilience of the EU.