Eastern European banks left out in the cold

Apart from stimulus packages and bank bail-outs, the talk is mostly of globalisation going into reverse. Free trade is out (even air traffic is badly down), protectionism is in. Depressingly, this seems to effect even the European Union's supposedly single market.

In this piece that I wrote with a colleague for this week's Magyar Narancs about the banking crisis spreading into Eastern Europe, we show that home-market preference forced on Western European banks by their national governments in return for the money is leaving their Eastern European subsidiaries out in the cold. Things are further complicated by the division of the EU into eurozone and non-eurozone states - the European Central Bank has a very limited role in helping the latter. Ultimately, though, it's the same old problem: these countries, especially Hungary, have borrowed well above their means to finance their investment and consumption growth. Now that easy credit has dried up, they're in trouble.

It's not all bad news: most people seem to recognise that there is problem - which is a start. Whether there will be a solution (the bailouts need to take the subsidiaries into account) is another question.