(Repeats to additional subscribers)
By Sujata Rao and Michael Winfrey
LONDON, May 15 (Reuters) - Central and eastern Europe faces
at least another year of economic pain even if the worst of the
crisis has passed, regional policymakers and bankers said on
Friday, urging western European institutions to do more to help.
Speaking at the annual meeting of the European Bank for
Reconstruction and Development, many delegates and EBRD
officials said the European Central Bank and the European
Commission could do more to help the region overcome the
financial shock.
The EBRD, who says its 2.3 billion euros of loans and
investments to the region so far this year is up more than 50
percent on the year, held out some hope for a recovery in 2010.
"We are now predicting a slow 'bottoming out' of the
recession this year followed by the beginnings of recovery in
2010," EBRD President Thomas Mirow said.
But officials at the development bank, set up in 1991 to
help the region's transition from communism to market economies,
said help from the ECB and the rest of the European Union would
be important -- particularly in the banking sector.
EBRD chief economist Erik Berglof said that while the region
was adjusting it was important to help reduce the large foreign
exchange exposure in both household and corporate sectors.
"Banks can also be supported by the provision of swap lines
from international financial institutions," he told the meeting.
"The extensions of such lines from the European Central Bank
could help central banks in a few countries to improve the
liquidity of foreign exchange markets."
Regional policymakers said existing support lines were not
enough and bemoaned the reluctance of the ECB to do more than
its existing euro swap lines with Poland and Hungary.
"The European institutions can be more active," Czech
central bank governor Zdenek Tuma told Reuters. "If Poland had a
swap with the ECB, it probably wouldn't have applied for the
(International Monetary Fund) flexible credit line.
"The ECB doesn't want to do that... It's a question for the
ECB and the European Commission in which they can be more
active," Tuma added.
Tuma's comments came a day after the ECB rejected several
Central European central banks' request to accept non-euro zone,
local currency bonds as collateral, meaning banks cannot use
bonds issued by the region's governments in short-term repo
deals to borrow euros from the ECB.
The EBRD's Berglof also said that European Union and euro
zone candidates should be encouraged by their western neighbours
to keep on track and avoid "accession fatigue". "There must be a
clear time path to the euro for EU countries," he said.
OUTLOOK STAYS GLOOMY
Data released on Friday showed regional economies shrank
faster than expected in the first quarter after imploding demand
in key export markets hit industries, while weak GDP data from
key export market Germany leaves a grim near-term outlook.
Both the EBRD and IMF see some of the region's biggest
economies -- notably Poland and the Czech Republic -- returning
to minimal growth next year. But that remains a poor result
compared to years of booming expansion and private sector
bankers attending the conference were much gloomier.
"I am very far from saying we are seeing a turnaround," said
Herbert Stepic, chief executive at Austrian bank Raiffeisen
International, which has extensive business in eastern Europe.
"The real downturn is starting now. We are coming to the
real deep crisis in the real economy," he said.
Stepic said the toxic structured credit assets affecting
global banks were not a major problem for east Europe's banks
but that recession this year would be a bigger issue.
Burdened by high external deficits and with trouble
borrowing in the global credit crunch, the eastern Europeans
have mostly steered clear of the fiscal stimulus used by major
western economies.
Most have actually cut spending, either on their own or as
part of deals with the International Monetary Fund. Many of the
region's western-owned banks have been pressing for governments
to do more to shore up the financial sector.
Georgy Suranyi, regional chief for Italian bank Intesa
Sanpaolo and a former Hungary central bank chief, said he was
worried that fiscal and monetary policies being adopted across
the region could exaggerate the downturn.
"Most of them, except perhaps the Czechs responded
pro-cyclically which will cause an even deeper recession (in the
coming months)," he said.
The EBRD currently forecasts a 5.2 percent contraction this
year for the entire region it operates in -- which includes
non-EU countries further east.
Regional policymakers said they would try to get through the
crisis as best they could without the need for external help.
"Currently we are able to do it by our own. But we also have
to think about our future prospects and of course if additional
risks appear we (could go to) the European Commission,"
Lithuania's Finance Minister Algirdas Semeta, told Reuters.
(Additional reporting by Sebastian Tong; writing by Mike
Dolan; editing by Patrick Graham)
