The Challenge of Economic Rebalancing in Europe
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The Challenge of Economic Rebalancing in Europe

Perspectives for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

In the long aftermath of the acute global financial crisis of 2008/09, “rebalancing” the economy with new sources of growth and productivity remains a persistent necessity. This book addresses the resulting trade-offs and challenges. These needs, and the corresponding policy challenges, are especially prevalent in Europe, in particular Central, Eastern and South-Eastern Europe. On this issue, this book contributes lessons learned from earlier balance sheet recessions. It also addresses the often overlooked link between macroeconomic imbalances and economic inequality. Further contributions focus on the interaction between monetary policy and financial stability, adding a regional perspective to these important issues.
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Chapter 4: Rebalancing the CESEE economies: a crucial agenda for future years

Sir Suma Chakrabarti


Against the backdrop of conditions in 2014, ‘rebalancing’ is a topic that some might think of as backward looking. After all, rebalancing the economies of Central, Eastern and South-Eastern Europe (CESEE) has been under way for some time. Indeed, the rapid withdrawal of international liquidity from the markets of countries in which the EBRD is active, and the sharp spike in risk premia in the immediate aftermath of the 2009 crisis in essence forced the EBRD to address a number of vulnerabilities. National banking systems have adopted much more balanced funding: less foreign and more local sources of funding. As foreign wholesale and parent bank funding was rapidly withdrawn, banks began to compete more for domestic deposits. The loan-to-deposit ratio has come down significantly as a result. More recently, we have seen good success in opening domestic bond markets to bank refinancing, for instance in Romania, and a number of countries have pressed forward with developing a framework for securitised transactions. The European Bank for Reconstruction and Development (EBRD), since 2010, has strongly supported the development of local currency and capital markets through its dedicated initiative.

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