By Michael Winfrey
VIENNA, Jan 20 (Reuters) - No country in emerging Europe is
safe from economic upheaval and a commitment by Western-owned
banks to their subsidiaries there is vital to preventing
banking-sector crises, an EBRD official said on Tuesday.
Erik Berglof, chief economist for the European Bank for
Reconstruction and Development, said countries that believed
they were safe because of well-capitalised banking systems were
still at risk.
As in Ukraine and Latvia, both thrown lifelines from the
International Monetary Fund to ward off crisis, unseen events in
could spark distrust among banking depositors, he told Reuters.
"No country is completely safe in the region," he said.
"We have had deposit withdrawals in almost all the countries
where the EBRD operates. That's the way for depositors to react
to uncertainties, and if you get uncertainties in parent banks."
Most of the biggest banks in the European Union's new
ex-communist members are owned by foreign lenders, with Austrian
and Italian banks holding the biggest market share.
Some economists have expressed concern that financial crises
could erupt either if the foreign owned banks face trouble, or
conversely if they were to cut ties with local branches that
themselves were to fall into difficulty.
A rising number of bailouts by older EU states for their
banks at home has brought this question into focus, as those
countries' taxpayers could question whether they should support
banks in the EU newcomers as well or leave that to potentially
less-able governments in Warsaw, Prague, Budapest and elsewhere.
Berglof said the key would be for parent banks to maintain
their support of their subsidiaries and that it could
potentially require an EU-wide deal.
"The absolute key factor now is with the parent banks," he
said. "That can only be solved in coordination with parent bank
home governments, host governments and international financial
institutions, possibly including the European Commission."
The EBRD was established after the fall of Communism to
finance development projects in the former Soviet Union, Central
and Eastern Europe and other countries in the region, with most
funding coming from Western governments.
Earlier in the day, Berglof said he expected economic growth
across central and Eastern Europe to fall below 2 percent, but
"closer to zero" [].
He told Reuters the crisis would not end this year and a
stage had begun where the impact of the struggling economy would
begin to filter bank into the financial sector. He also said the
seriousness of the crisis had yet to hit home in some countries.
"We haven't seen the full real impact. Not in the West, and
not in Eastern Europe... That's why we have to be very, very
careful. That's where the parent bank stability is critical," he
said.
"There is some awareness... but still, this hasn't really
sunk in in many countries in the region."
