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The crisis in Eastern Europe: What is to be done?

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Author Info

  • Vladimir Gligorov

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Michael Landesmann

    () (The Vienna Institute for International Economic Studies, wiiw)

Abstract

This policy note argues that the current global economic crisis enforces an adjustmentprocess in the countries of Central, Eastern and Southeastern Europe (CEE and SEE) inthe form of real exchange rate depreciation. Because of the weakness of financialinstitutions and built-up foreign currency debt such a process has inherent dangers to leadto overshooting and a possible capital flight out of these economies. In such circumstancesthe economies are severely constrained in putting the types of policies in place which arecurrently pursued in most of Western Europe, the USA and Japan, that is of backing uptheir banking system through recapitalization and through fiscal stimulus packages. Giventhe rather low levels of public debt in most of the CEE and SEE economies and the needto reinitiate the operation of the credit system, such policies have as much justification tobe pursued in these economies as in the higher income countries. We hence advocate adetermined approach by EU institutions and a coordinated approach by EU governments(in cooperation with IFIs) to back up a measured process of real exchange rate adjustment(in both flexible and fixed exchange rate countries) and to provide the backing necessary topursue growth initiating policies in these economies.

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Bibliographic Info

Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Policy Notes with number 2.

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Length: 5 pages
Date of creation: Mar 2009
Date of revision:
Publication status: Published as wiiw Policy Note
Handle: RePEc:wii:pnotes:pn:2

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Cited by:
  1. Bordo, Michael D. & Meissner, Christopher M. & Stuckler, David, 2009. "Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View," Working Papers 09-21, University of California at Davis, Department of Economics.

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