Banks ask for crisis funds for E Europe

Banks ask for crisis funds for E Europe
By Stefan Wagstyl in Vienna

Published: January 21 2009 23:36 | Last updated: January 22 2009 09:52

Leading international banks operating in central and eastern Europe have clubbed together to lobby the European Union and the European Central Bank to extend their anti-crisis policies to ease the credit crunch in the region.

The group of ten, which wants action to ease liquidity shortages and help revive lending, is urging Brussels and the ECB to extend support beyond the EU’s new member states, such as Poland, to prospective members, such as Serbia, and to Ukraine, which has few prospects of joining the bloc soon.

Herbert Stepic, chief executive of Raiffeisen International, the Austrian bank, who brought the group together, said it was important that any action to support banks was not limited to western Europe.

“We fought for 50 years, many of us, to get these countries away from communism and now we have a free market economy in the region, we can’t leave them alone when there is an extremely harsh wind blowing,” he said.

The group has kept a low profile until now, but Mr Stepic told the Financial Times he was speaking out “because of the deteriorating economic circumstances”.

He said the costs of possible support would be “relatively” modest in comparison with the huge sums pledged to assist western European banks. The total gross domestic product of formerly communist central Europe was €740bn and for south-east Europe €270bn. This compared with €290bn for Austria alone.

His remarks come amid a week of fresh turmoil in the financial markets and a darkening economic outlook. The European Commission released a forecast of a 1.8 per cent decline in EU economic output for 2009, its gloomiest prediction in years, while Moody’s, the credit ratings agency, on Wednesday said the outlook for the Ukrainian banking system was negative.

EU institutions have already played a role in the emergency financial packages assembled by the International Monetary Fund in the region. The ECB has extended liquidity support to Hungary and the EU is contributing to Latvia’s bail-out. The ECB has also extended liquidity support to Poland, where the IMF has not been involved.

But the international banks want Brussels and the ECB to make clear that they stand ready to assist vulnerable non-EU members. Mr Stepic declined to specify which countries might need such support but bankers said they could include those with high external financing needs, including Serbia and Bosnia, as well as Ukraine.

As well as Raiffeisen, the banks involved are Italy’s Unicredit and Intesa Sanpaolo, Austria’s Erste Bank, Société Générale from France, Belgium’s KBC, German Bayern Landesbank, Sweden’s Swedbank and SEB and EFG Eurobank from Greece.