Financial Crisis in Eastern Europe: Road to Recovery

The Crisis of Capitalism in Europe, West and East
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It has become a role model for many other parts of the world, inspiring the creation of regional blocs like the Association of Southeast Asian Nations, the Southern African Development Community, and the Economic Community of West African States. What the Europeans have achieved over the last seven decades is even more impressive when compared to the relations between former enemies in East Asia. Japan, South Korea and China remain mutually suspicious and, even today, the wounds of the Second World War do not seem to have healed at all, as the issue keeps cropping up and leading to economic or political stand-offs between these countries.

However, for more than a decade now, the EU has been at a crossroads. The financial crisis was the turning point, as it hit the EU hard and because the European Central Bank failed to react in time, unlike the US Federal Reserve, which saw the tsunami coming and loosened the supply of money to allow the economy to absorb the unprecedented shock.

The financial crisis acted like a detonator and brought many issues to the surface.

IMF Survey: IMF Helping Counter Crisis Fallout in Emerging Europe

First, acerbic divisions saw the fiscally disciplined, but much better off, countries like Germany and the Nordic states blame the southern nations for their profligacy and spending beyond their means. Ties between Germany and Greece were especially hit as Athens was forced to adopt extremely strict, perhaps overly so, austerity measures that led to a sharp rise in discontent in the country. Discontent was not limited to these nations, but even spread to the relatively better-off economies like Germany, France and the UK.

Most people turned hostile to the idea of taxpayers funding the bailouts of banks and other companies, whose executives paid themselves tens of millions of euros even as they led their ships to be wrecked. With the middle and poorer classes taking the biggest hit, issues like inequality and pro-rich governments began coming up. The flood of refugees from Africa and the Middle East, fleeing terrible wars there, proved to be the final straw for many. The discontent over inequality and immigration has led to the rise of extreme right-wing parties all across the EU; in several countries they are either the principal opposition or in government itself.

It was also a key factor in the Brexit vote, with the EU becoming a favorite target in this condition. Today, the EU nations stand bitterly divided, unable to agree on a common course. And, in many nations, including France, the leadership stands undermined. The major threshold countries integrated in the G proved to be ineffective pioneers for the poorer developing countries. However, the latter hope to be able to benefit indirectly from the incipient technical reform process, e.

The World Bank and multilateral development banks would increase their loans to low-income countries by USD billion. The capital basis would be broadened proportionately. A further USD billion should be made available to finance trade. IMF and World Bank institutional reforms that have already been initiated should be speeded up and extended.

A Critical Perspective On Development Economics

In contrast, various comments on the results with respect to the development aspects were cautiously optimistic. The aid organisation added critically that, however, this would be for the most part in the form of loans and not gifts. Oxfam called for expeditious implementation. The voting reform and other governance questions remained mired in generalities. There was no call for a new IMF and World Bank policy; the strict conditionality of loans was only mildly modified see below. At the same time the summit emphasised that reforms of the IMF and World Bank mandate, mission and governance should be continued.

The conference also presented two extensive representations in table form of progress made, both with a fundamentally positive appraisal of what had been achieved G Woods did acknowledge IMF efforts for increased inflows of funds. However, it criticised the fact that the G had not yet provided the funds pledged.

Aid resources for the developing countries are linked to disadvantageous conditions.

Regulation of raw materials speculation and progress with tax havens, inter alia , are slow and insufficient. This network of 75 civil society organisations is examining, on the basis of 13 G aims, whether the G is indeed on the right road and whether the needs of the developing countries have been met.

Only in the event of a surveillance mechanism, to be created by the UN, monitoring the effects of the crisis on the poorest, does Jubilee come to a positive response on both counts. At the same time the G resolutions also added impetus.

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Vice versa, the heads of these organisations were not loath to call urgently on the G heads of State for speedier and more intensive action. They were able to attend the summits as observers. To this end, all the multilateral financing institutions had to significantly expand their own resources. This process had not been completed by autumn At the same time the financial crisis had entailed increased pressure on the reform of governance. However, the resistance of a few industrialised countries remained high; nevertheless, the reforms should be completed in The more the crisis spread, the more active the IMF became.

In October several countries had to apply to the IMF for aid. At the same time this about-turn in calls on the IMF challenged it to accelerate and complete the ongoing revision of its credit instruments. This also involved an examination of the frequently criticised economic policy conditions for granting loans. As the IMF recommended massive stimulation programmes to the industrialised countries impacted by the crisis, the developing countries accused the IMF of double standards in view of their previous experience with its stringent conditions.

And finally, the developing countries emphatically urged the IMF to at last step up the reforms on voting rights and other governance questions. In March the IMF published an important and comprehensive survey of how the poorest countries have been hit by the crisis and the measures that had to be taken IMF a.

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The IMF created the flexible credit line as a precautionary measure for countries whose policies are considered good and which post sound macro-economic data. The credit conditions were simplified and the credit lines raised. Switzerland also pledged to provide the IMF with an exceptional, set-period contribution to the stocking up in the amount of CHF On the other hand, the consultative commission adjourned the decision-making until it could examine the report announced by the Federal Council regarding the increase of official development assistance ODA to 0. IMF aid granted to the 15 countries which applied for credit in the past few months was successful IMF c.

The conditionalities have been simplified and limited IMF d. Some three international networks reproach the IMF for changing its policy only insignificantly.

How the euro caused the Greek crisis

Rather, fiscally restrictive IMF conditions in three countries examined 38 would impair the essential social protection Solidar, Global Network, and Eurodad Chowla also sees a restricted development potential in IMF resources. It is a fact that the IMF is now bound to implement quota reform and with it the revision of voting rights by January The blocking minority of the US should also be done away with.

At all events, in the IMF did undertake an extensive dialogue with civil society that led to the publication of a civil society report New Rules and to a joint event in Istanbul before the annual meeting. However, whenever there was a potential conflict of interests between the cautious financial gestures of the IMF and increased transfer of resources to the developing countries, Merz always upheld the former, e.

It was soon patent that the poorest countries, already depleted by the food and energy crisis, had few possibilities of providing the necessary responses from their own resources. One-third of this went to infrastructure projects in the hope of rapidly increasing employment and generally stimulating the economy.

The World Bank expects a further rise in the coming years. Financing can no longer be covered by the present World Bank capital basis.

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On one hand, it raised the interest on loans; on the other, it took up significantly more funds on the international capital markets. IDA accelerated its processes for the poorest countries to receive their funds more rapidly. They granted loans, participated in enterprises and put up guarantees. The latter is significant because local enterprises in developing countries had encountered increasing difficulties in obtaining trade credits or bank guarantees from the major international banks.

At the time this would have raised some USD 15 billion. However, the World Bank estimated the financing shortfall of the developing countries much higher. According to this scenario, the World Bank considered the financial needs for to be between USD and billion Development Committee a. Zoellick repeated the appeal in a call to the leaders of the G summit in Pittsburgh World Bank b.

The World Bank also published numerous studies and reviews.

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During the past few years all the regions of Europe have suffered from the effects of the World Financial Crisis. Most notably in Eastern Europe, countries have. Download Citation on ResearchGate | Financial crisis in eastern Europe: Road to recovery | During the past few years all the regions of Europe have suffered.

However, effective payments tended to lag behind the approvals. Further, there are doubts whether the massive investments in infrastructure would really help protect the socially weakest. They further demanded that the aid measures should not be coupled with economic policy provisos. The services should be rendered as concessionally as possible or even in the form of gifts.