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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 6: Foreign direct investment – the impact of foreign banks in Central and Eastern Europe

Herbert Stepic


Herbert Stepic My approach towards the subject of foreign direct investment (FDI) and the impact of foreign banks in Central and Eastern Europe (CEE) is an empirical one. Drawing on RZB’s (Raiffeisen Zentralbank Österreich) experiences, I aim to provide an overview of the region’s economic development and an assessment of the role that FDI in general and that FDI by foreign-owned banks in particular has played in the process. It is obvious that the political and economic transformation from centrally steered to market economies and imminent partners in an enlarged EU was dramatic in every sense of the word, and the contributions rendered by foreign financial sectors were and continue to be crucially important. Both the region itself as well as its neighbouring countries benefit from the economic perspectives and opportunities of these totally redesigned markets. In my opinion, financial intermediation and structural changes are strongly interconnected. Financial intermediation had a very strong effect on the catching-up process. Looking back to 1986, when RZB made its first – at that time revolutionary – step into the Hungarian market, the Eastern European banking landscape could be portrayed as one with practically no competition, coupled with a complete lack of customer orientation, a low degree of management know-how, insufficient technical equipment, a very poorly developed loan culture and risk awareness and last, but not least, widespread corruption at all levels of the economy and government. Throughout the region, structural changes were mainly driven by the individual government’s attitude regarding privatization, and...

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