Are central and east European economies heading for trouble?
Newsweek has become the latest international media outlet to raise the prospect of serious economic problems in the pipeline for the European Union's newest member states. In an article entitled:"Europe's Fallen Angels" (http://www.msnbc.msn.com/id/17081618/site/newsweek/) the magazine quotes Simeon Djankov, chief economist at the World Bank as saying:"I think every one of these countries is going to have some sort of fiscal crisis in the next 10 years."
The article also quotes a forthcoming IMF report suggesting that borrowing costs are lower than one would expect in the region given prevailing levels of financial and political risk. Noting that current account and budget deficits are becoming increasing problems the article adds:"Over the long run, Eastern Europe's heavy debts will result in higher interest rates on loans, or even a credit cutoff, which could trigger an economic meltdown Ã la Italy in the mid-1990s." To cite just two examples, Hungary has twin deficits (budget and current account deficits) of around 10 percent of gross domestic product (GDP) each. Latvia's current account deficit is 24 percent of GDP.
GMF is hosting a conference in Bratislava on March 1/2 to discuss precisely these issues. The conference is also intended to give rise to a book on the subject.
The views expressed in GMF publications and commentary are the views of the author alone.