BRUSSELS, Feb 19 (Reuters) - There is growing concern that
the global economic crisis may hit eastern European countries so
hard that they would need outside help, mainly from the European
Union. The help could comprise bank rescues, currency support
and general stand-by facilities.
WHAT CAN THE EU DO TO HELP EU BUT NON-EURO ZONE GOVERNMENTS
* The EU may grant further loans to its members outside the
euro from the so-called medium-term financial assistance
facility, designed under EU law for countries "seriously
threatened with difficulties in their balance of current
payments or capital movements".
This fund, originally designed to help EU members stabilise
economies before adopting the euro currency, is now being used
to shield the bloc's poorer members from central and eastern
Europe from the impact of the global financial crisis.
It was increased to 25 billion euros from 12 billion euros
late last year and there are currently still some 15 billion
euros in it available for use.
The fund is not designed to rescue banks or help the real
economy and any change of its objective would have to be
unanimously approved by the EU's 27 member states.
Hungary received 6.5 billion euros from the fund and Latvia
3.1 billion as part of wider aid packages backed by the
International Monetary Fund. Diplomats say Romania and Lithuania
may be next in line to receive aid from the fund.
The Austrian Chamber of Commerce has proposed that the fund
be increased to 100 billion euros.
WHAT OTHER EU CASH COULD BE USED?
* The European Commission has pushed forward the release of
EU regional aid funds for east European member states, which
should make several extra billion euros readily available in
2009 and 2010.
The EU has earmarked some 160 billion euros of such funds
for those countries in 2007-2013, with most of them to be
released gradually, project by project, for example for
motorways construction or environmental clean-up.
The Commission will now increase the relatively small share
of the funds that is paid out in advance.
Poland's government has sold part of the 3.2 billion euros
of such money on Wednesday on the market, significantly boosting
the zloty's exchange rate <EURPLN=>.
The funds are part of the EU budget, worth some 125 billion
annually, which is fixed well in advance and is unlikely to be
used for any additional aid without long and torturous
negotiations.
CAN THE EUROPEAN INVESTMENT BANK HELP?
* EU finance ministers, who are the governors of the
European Investment Bank, could increase the amount of
soft-loans for the region from the EIB, the bloc's lending arm.
The bank finances a wide range of projects, mainly
infrastructure and makes its funds available via local banks.
The EU decided late last year to increase the bank's capital
so it can boost lending action, but additional loans are to go
all member states, for example to the car sector.
HOW CAN THE EBRD HELP?
* The EU is a shareholder in the European Bank for
Reconstruction and Development that makes equity investments in
central and eastern Europe. The EBRD is a shareholder in some
100 financial institutions in the region and a creditor to a
further 200.
The EBRD has increased its investment to 7 billion euros
this year from 6 billion with half of the extra money earmarked
for the financial sector in the region in the form of loans or
equity investment.
The EBRD has said it would stand by any viable bank in the
region. It has lent 100 million euros to Romania's Banca
Transilvania to boost its lending to small and medium sized
businesses. It has been involved in talks to strengthen the
balance sheet of Latvian bank Parex Banka.
WHAT OTHER POSSIBILITIES ARE THERE?
* Other aid, be it loans, cash injections or standby
facilities, would have to be extended by individual EU member
states or groups of them.
This would be done outside the EU legal framework, although
regular EU meetings could be used to negotiate the aid. Large,
rich EU members are likely to be more keen to help fellow EU
members than other countries to preserve political and economic
coherence of the 27-nation bloc.
WHAT IF A SUBSIDIARY OF WESTERN EUROPEAN BANK WAS THREATENED
WITH COLLAPSE IN ONE OF THE NON-EURO ZONE MEMBERS OF THE EU?
* These are uncharted waters. There is no fixed EU procedure
for such eventualities, although some solution may be proposed
in a report by a group of experts, led by former French central
banker Jacques de Larosiere, for the European Commission which
is to be presented later this month or in early March.
EU officials say the most likely scenario now is the one
that happened when other multinational banks like Fortis or
Dexia needed urgent help -- there is an emergency meeting of
representatives of governments of the host country and the home
country of the bank as well as supervisory authorities and
shareholders and they all hammer out a deal on who pays what to
keep the subsidiary afloat.
Government aid for indvidual banks would, however, have to
be in line with the EU's competition rules.
(Reporting by Marcin Grajewski and Jan Strupczewski, editing
by Ian Jones)
