6342440446f86f380e1b0e27_ms5436.jpg Margaret Scott

New Europe’s Surprising Resilience

Two years ago, five of the ten new East European EU appeared to be devastated by the global financial crisis, with social unrest, huge devaluations, and populist protests looming. Yet no disaster ensued, and today all of these countries are returning to financial health and economic growth without significant disruption.

KIEV – Two years ago, five of the ten new East European members of the European Union – the three Baltic states, Hungary, and Romania – appeared to be devastated by the global financial crisis. Social unrest, huge devaluations, and populist protests loomed.

And then nothing. Today, all of these countries are returning to financial health and economic growth without significant disruption. No country has even changed its exchange-rate regime. Old Europe should learn from New Europe’s untold success.

The cause of the East European financial crisis was a standard credit boom-and-bust cycle. East European countries attracted large international capital flows, owing to loose global monetary policy and accommodating business conditions. In the end, short-term bank lending became excessive and was used to finance a splurge on real-estate investment and consumption, while inflation took hold.

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