Table of Contents

European Integration in a Global Economy

European Integration in a Global Economy

CESEE and the Impact of China and Russia

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

The expert contributors focus on global imbalances and accompanying policy challenges, competitiveness and trade, the sustainability of current growth strategies, and banking and financial stability in the light of the global economic and financial crisis. They provide a multi-disciplinary assessment, combining the views of high-ranking central bankers, policymakers, commercial bankers and academics, and demonstrate that a broad view of European economic integration is crucial given that spillovers and contagion were major issues of the recent economic crisis.

Chapter 18: Banking and financial stability in the light of the crisis from the perspective of UniCredit

Gianni Franco Papa

Subjects: economics and finance, international economics, money and banking

Extract

Question: In terms of instruments aimed at maintaining banking and financial stability in the light of the crisis, which instruments have been most effective in maintaining stability in Central and Eastern Europe and for the countries UniCredit is represented in? What additional instruments might be needed? Papa: I’m trying to give a commercial spin to that question. We have seen a number of policy actions taking place in 2011 in light of the current phase of uncertainty that is also touching the CEE region. Some of these actions stem from the crisis in 2008 and were aimed at containing the spillover effect the crisis might have also on the CEE region. First, the presence of the IMF was very important as the IMF adopted a more flexible approach and reacted in strong coordination with the EU. It is present through stand-by programmes or flexible credit lines and continues to support a balance-of-payment adjustment or readjustment of countries. Second, we had and have the action of central banks that are responding in accordance with the local specificities. On the one hand, we have central banks providing liquidity to the interbank market (for instance the Central Bank of Russia); then we have some central banks tightening reserve requirements in order to cool down lending growth or in order to decrease liquidity and contain speculation on the local currency. In some countries where the FX weakness does not pose a risk to financial stability, central banks have allowed devaluation of the local currency in order to boost exports and support growth. On the other hand, some central banks in the region did exactly the opposite by tightening liquidity whenever it became excessive, also through outright effects of market intervention. Last but not least, the ‘Vienna Initiative’ is definitely one of the most important initiatives that have helped CEE. As part of the ‘Vienna Initiative’ , we committed to keeping capital and funding to the subsidiaries constant throughout the crisis. This has unquestionably been a success story and played a crucial role in avoiding a full-fledged crisis in CEE. I do believe that – in light of the economic context in which we are working at the time of writing – it is going to be essential to have a direct dialogue with international financial institutions and with home and host regulators in order to avoid a new debt crisis.

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