Introduction

February 2009 was an unusual month for Central and Eastern Europe. (CEE). First, the international press started referring to it as the sub-prime region (Ahamed 2009). The association to the infamous subprime mortgage market in the USA described the same process with different actors. In the USA, NINJA (no income no job no assets) borrowers and imprudent banks together created an explosive cocktail that nearly destroyed international financial markets. The CEE countries similarly borrowed beyond their means to finance a fast process of convergence with their neighbouring European countries, mostly through Western European banks present in their banking systems. Austrian banks, for instance, had outstanding loans to the region amounting to 70 percent of Austria’s gross domestic produce (GDP). As the collapse of Lehman Brothers in September 2008 saw European bank losses spiral, nothing seemed far-fetched, not even the possibility that these would abandon the region. In the event, global finance faced, according to The Economist (2009), a shock at least comparable to the US subprime mortgage market debacle. Second, the central banks of the Czech Republic, Romania, Poland, and Bulgaria accused the foreign-owned banks of speculating in currency markets and amplifying the negative effects of the international financial crisis. While concerns about speculative activity had been expressed on an individual basis during October 2008 (most vocally by the Central Bank of Romania), the coordinated public statement was unprecedented. Poland went further, calling developed countries to carefully assess the bailout strategies for Western banks operating in Eastern Europe. These, the governor of the Polish central bank charged, were using the bailout liquidity to speculate in CEE currency markets rather than to restart lending in home countries (Kaminska 2009).