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




This policy note argues that the current global economic crisis enforces an adjustment process in the countries of Central, Eastern and Southeastern Europe (CEE and SEE) in the form of real exchange rate depreciation. Because of the weakness of financial institutions and built-up foreign currency debt such a process has inherent dangers to lead to overshooting and a possible capital flight out of these economies. In such circumstances the economies are severely constrained in putting the types of policies in place which are currently pursued in most of Western Europe, the USA and Japan, that is of backing up their banking system through recapitalization and through fiscal stimulus packages. Given the rather low levels of public debt in most of the CEE and SEE economies and the need to reinitiate the operation of the credit system, such policies have as much justification to be pursued in these economies as in the higher income countries. We hence advocate a determined 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 to pursue growth initiating policies in these economies.

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  • Vladimir Gligorov & Michael Landesmann, 2009. "The crisis in Eastern Europe: What is to be done?," wiiw Policy Notes 2, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:pnotes:pn:2

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    References listed on IDEAS

    1. Konstantin Kholodilin & Dirk Ulbricht & Georg Wagner, 2014. "Are the Economic Sanctions against Russia Effective?," DIW Roundup: Politik im Fokus 28, DIW Berlin, German Institute for Economic Research.
    2. Vasily Astrov & Vladimir Gligorov & Peter Havlik & Olga Pindyuk & Sandor Richter & Miklós Somai, 2014. "Monthly Report No. 1/2014," wiiw Monthly Reports 2014-01, The Vienna Institute for International Economic Studies, wiiw.
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    1. Bordo, Michael D. & Meissner, Christopher M. & Stuckler, David, 2010. "Foreign currency debt, financial crises and economic growth: A long-run view," Journal of International Money and Finance, Elsevier, vol. 29(4), pages 642-665, June.

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