Full transcript of interview with Erik Berglof, the chief economist of the European Bank for Reconstruction and Development
On how Berglof assesses the situation across the region:
It's a difficult period. Having said that, in terms of what they have experienced to date in many ways it's not much worse -- or in terms of growth it's less [badly hit] -- than Western Europe. But what we worry about is [the] next year, what that will bring. Here what's important is that there is a policy response and that there is some degree of coordination of policy response across countries.
On the key elements needed to manage the crisis:
One element that came out of the EU summit the other weekend is the commitment or promise to make sure that the very important state support going into Western European banks is not in any way restricted in terms of what it can be used for in the subsidiaries of these Western European banks within the EU. That's a very important element of addressing the crisis now because these parent banks are critical to supporting the banks in the region. To date they have essentially done so when all other sources of finance has dried up this parent-bank link has been essentially intact."
There are a number of other issues that need to be addressed, one of them is how to get any shortfalls in terms of financing funded. The initiative we have been involved in together with the World Bank and the European Investment Bank to get capital to the main banks in the region, both international and local, to make sure that we work together in meeting these needs -- that's another initiative that is an important part of managing the response to this difficult time for Eastern European countries.
First of all, these bank-support packages are important also for Eastern Europe because they support these banks that are so important for the region. That's why I meant the declaration from EU leaders that these bank-support programs should not be restricted in terms of supporting the subsidiaries.
When you look at the actual practice, if you look at the Nordic counties and Baltic states, substantial flows have continued in terms of the Scandinavian banks that are active in the Baltic states and have been backed up by government guarantees and support programs. On top of that, Nordic governments have participated in the program together with the IMF and the EU in Latvia and moreover the Swedish central bank has extended credit lines to the central bank of Estonia to help them stabilize their currency. You can point to a number of cases where there is continued support, maybe when you look at Europe as a whole there is a need to do more.
On his prognosis for Ukraine:
"I think Ukraine is possibly the most exposed country at the moment, it was very exposed because of its reliance on a few industries particularly steel, you also had very large exposure in terms of foreign exchange in the corporate and household sectors. So it was quite vulnerable to the crisis, so clearly there are reasons to be concerned about Ukraine.
Having said that, so far the response from the international banks and the major local banks state and private, they have continued to operate and support their subsidiaries and more or less the government has been supportive. The problem now is a politically difficult situation and on top of that there are some key positions that are still unfilled, the minister of finance and deputy minister of finance, those positions are important in this crisis management. There is no central-bank governor and the acting central-bank governor is sick so there are a lot of issues that are specific to Ukraine and makes them a bit vulnerable in terms of their response to the crisis.
On differentiating between the countries in the region:
It's true that the situation is quite different across the region, Ukraine is quite different from that of Poland, and that's again different from Slovenia, which is a already a member of the euro. That's a fair point and in thinking about the crisis response one should take these specific situations into account and tailor specific responses to these situations.
But it's also important to realize there is also a systemic aspect to this and this is what we're trying to address in this joint initiative with the World Bank and the EIB, which is the links through the banking system and that is undeniable fact. There are some variations also in terms of the penetration of these foreign banks into the region, but it is a genuine feature of most of the banks of the region and that needs to be addressed. It's sad that this differentiation which is important and real can sometimes be used as a pretext for not doing anything. That's what we worry about.
On the idea of "fast-track" euro entry for some countries whose currencies have been hit:
The important thing is to provide them with a clear road map toward euro accession. That's incumbent on these European leaders to provide that road map, combining that with some tailored measures, for example some support from the ECB to increase the availability of foreign exchange in some of these countries that are on the path to euro accession. There could be two measures, so a clear road map and using some of the tools that the ECB has at its disposal, that could help them in this difficult period.