Credit crunch comes to the East

Published on 24 November 2011 at 13:19

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“The Austrian Financial Market Authority and the National Bank of Austria put a brake on credit for the East,” headlines Die Presse, in the wake of a decision by both organisations to demand that Austrian banks increase their capital by 2% to 3%, and limit ”the excessive granting of loans” in the region.

The measure has been announced at a time when Moody’s is re-evaluating its outlook for Austrian debt, which currently holds a precious AAA rating that Vienna is determined to keep. In its editorial, the Viennese daily worries about a possible “state bankruptcy caused by banks along the lines of the Irish model,” because, “in the wake of several gold-rush years,” Austrian banks have 300 billion euros — more than the country’s GDP — in Central and Eastern Europe, and an estimated 6% to 40% of this is invested in toxic assets.

“The National Bank of Austria’s decision will end one phase of the ongoing crisis and probably introduce another,”points out România libera in Bucharest:

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The concrete effects will be severe — additional pressure on the leu, rising interest rates, and state borrowing difficulties — but these can be overcome. However, on a symbolic level it will be even more serious because we have been forced to acknowledge that Romania is now viewed as an emerging country offering significant profits associated with a high level of risk that is still a good destination for investors, but only if they already have a predefined exit strategy.

The Bucharest daily looks back on the high times of 2007, when “Greek and Austrian bankers were competing to be present in the Wild East,” which are now over: “Austria has sacrificed Romania, where it owns more than half of the banking system along with Greece, to save itself.” In short, this is “the tragic end of financial colonialism.”

In the Czech Republic, Respekt fears that -

... countries like Hungary, Romania, Serbia and Ukraine will be forced to contend with a sudden credit crunch, at least with regard to Austrian banks, who will be reluctant to lend.

The Prague daily notes that Czech Republic and Slovakia will also suffer, because the international press often overlooks the fact that their situation is very different to the one in other countries of the region: “there are a lot of savers in the Czech Republic and Slovakia, which are both relatively under-leveraged. And this applies not only to major corporations […] but more importantly to the small business sector. For example, mortgage loans in these countries amount to 25% of GDP, whereas in Western Europe this figure stands at 55%, and at more than 100% of GDP in the UK.”

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