Turning the Corner in Eastern Europe

LONDON – There are various kinds of facts, the Russian satirist Mikhail Saltykov- Shchedrin once quipped: “There are convenient facts and inconvenient ones; and there are some that aren’t even facts.”

As we enter 2010, a convenient fact is that the world economy has stopped its dramatic decline and started to recover. An inconvenient fact is that the recovery remains fragile. And a non-fact is that the next 12 months will be smooth sailing. On the contrary, serious challenges remain, and they must be addressed with urgency.

The region covered by the European Bank for Reconstruction and Development – Central, Eastern and South-Eastern Europe, Russia, the Caucasus and Central Asia – has been hit particularly hard by the financial and economic crisis that began in 2008. Massive and determined state intervention (Russia and Kazakhstan), or unprecedented coordinated support by international financial institutions (Ukraine, Hungary, and Latvia), has been necessary to prevent even more dramatic falls.

As the real economy adjusts to changed circumstances and much weaker domestic and global demand, we at the EBRD expect an increase in non-performing loans in our region. In addition, companies will be forced to restructure in order to cut costs and increase competitiveness. This will lead to higher unemployment, with inevitable social strains and further stress on already heavily burdened state coffers.