Nov. 4 (Bloomberg) -- A failure by Greece to restructure its economy may halt international efforts to resolve its debt crisis and damage the recovering economies of central and eastern Europe, European Bank for Reconstruction and Development President Thomas Mirow said.
Europe has already made it clear Greece won’t receive the sixth tranche of its original bailout until it commits to austerity measures. The country’s political turmoil threatens to precipitate the first default by a European Union member.
Eastern Europe runs the risk of seeing credit dry up as the euro region’s debt crisis forces western lenders to focus on recapitalizing themselves, making it difficult to fund their units in the region, the EBRD said last month.
The “worst case” would be if Greece fails to implement decisions made by EU leaders last week “because then it’s difficult to see how an international effort to help Greece can go on,” potentially resulting in “many contagion effects on central and especially eastern Europe through the financial sector, through reduced growth prospects and through impediments of trade relations,” Mirow said in an interview in Belgrade.
The current situation with subsidiaries of Greek banks across the region, which encompasses 29 east European and central Asian nations where the EBRD operates, doesn’t signal an “immediate risk in terms of the solvency of the banks” as they have good “capital bases and strong deposit holds,” he said.
‘Ready to Act’
The London-based EBRD and other international financial institutions “certainly will be ready to act again” if the crisis dries up funding in eastern Europe, Mirow said, adding he spoke with World Bank President Robert Zoellick about the issue.
“So if need be, we would be in a position to quickly convene,” Mirow said.
Developments in western Europe will also affect the EBRD’s new region of operations, which comprises Egypt, Morocco, Tunisia and Jordan. The expansion of operations to the four was endorsed by shareholders on Oct. 5 and the EBRD “will start with technical cooperation and technical assistance projects in the coming days literally, we will not be able to make financial investments out of our own resources before early summer next year,” Mirow said.
Growth perspectives of the new region remain linked to what happens in Europe, Mirow said. “The more difficulties there are in Europe, especially in the south of Europe, the more difficult it will be to establish to establish the kind of intense free trade between southern Mediterranean and Europe.”
--Editors: Alan Crosby, Douglas Lytle
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