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Emerging Europe’s Deleveraging Dilemma

LONDON – Serbia’s Tigar Corporation, a privatized automobile tire and tube maker, was a poster child for corporate makeovers in transition economies. Then eurozone deleveraging kicked in, and now the child in the poster is in serious trouble.

When Tigar sold its tire division to France’s Michelin, it invested the entire proceeds in new businesses. Perhaps capital expenditures were overly ambitious, but they triggered rapid export growth, and more than 2,000 jobs were created in the small town of Pirot to manufacture boots for European fishermen and New York City firemen, as well as technical rubber products. Expansion was, for lack of other options, financed largely through short-term loans.