LONDON – After years of rapid growth, the countries of Eastern Europe have been especially hard hit by the world financial crisis. Some required billions of dollars of international support. Even those countries that were better prepared were made painfully aware of the after-effects of crisis: export markets collapsed, commodity prices fell, and credit markets seized up.
In many countries, economic output sank dramatically, more so than in Europe’s west. This decline seems to have stopped, and the most recent data indicate that the bottom may have been reached.
Yet it is premature to declare the crisis over, because much of the impact and many of the consequences of the crisis have yet to be felt. We must reckon with a huge increase in bankruptcies – as well as with impaired credit markets and high unemployment. This, in turn, will place a burden on national budgets and banking systems – and will challenge politicians across the region. A number of countries have already been forced into drastic budget cuts, which have had a knock-on effect on standards of living.
One must add structural problems to this mix – problems that have not been dealt with since the crisis erupted. For Eastern Europe, this boils down to four major areas: (1) an overdependence on natural resources; (2) export imbalances, in terms of product mix and foreign markets; (3) small, inadequate capital markets; and (4) inefficient production and use of energy.