Three international development banks pledged well-nigh $30 billion to shore up the troubled Eastern European banking system

By Steve LeVine

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International development banks, concerned that financial and public turmoil in Eastern Europe could spread to Western Europe, are stepping in with billions of dollars in loans to buoy struggling banks and to unfreeze trade.

Emergency lending of about $30 billion was announced Feb. 27 by three banks: the World Bank Group), the London-based European Bank conducive to Reconstruction & Development, and the European Investment Bank in Luxembourg. In addition, World Bank President Robert Zoellick has proposed a package of $25 billion in trade credits to help unlock frozen lending in Eastern Europe. And European leaders have suggested stratagem the International Monetary Fund’s lending resources to $500 billion to cope with the global crisis.

"This is a vacant time for Europe to advance together to render certain that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis," Zoellick said in a statement.

Western European banks are highly exposed to the turmoil in Central and Eastern Europe, with some estimates putting the total assets at risk at $1.25 trillion. Austria’s loans to emerging markets, largely in Eastern Europe, with a view to instance, are equivalent to about 80% of that country’s gross domestic product. Looked at another habitual method, Austria’s Raiffeisenbank controls 21% of the banking market in both Bosnia-Herzegovina and Albania, 18% in Slovakia, and 16% in Montenegro. The governments of Iceland and Latvia collapsed because of the crisis, and riots own broken out in numerous European countries.

In a fame this week, Standard & Poor’s (which, like BusinessWeek, is a unit of the The McGraw-Hill Companies (MHP)), said advancement in Eastern Europe is "horror to a halt." S&P aforesaid that some of the countries are "crumbling in the make heavy of high foreign currency debt," and that "all the ingredients of a greater push are in place."

Lars Thunell, cardinal executory of the World Bank’s International Finance Corp. fiord, said in an interview that one problem is that Western European countries are looking out for their own banks, while leaving affiliates of those banks in Eastern Europe exposed. "They are using taxpayer money to benefit their own country," Thunell said. "It’s momentous that you get the governments in Western Europe to be directed after their banks’ operations in Eastern Europe. Because their economies since the [Berlin] Wall fell [in 1989] have become very integrated."

In response to the crisis, the IMF has lent billions of dollars to six European countries: Belarus, Hungary, Iceland, Latvia, Serbia, and Ukraine. Critics have accused the European Union of doing too little to live in continence building turbulence in the country, but on Mar. 1 the EU will suitable in strait session to discuss, amidst other topics, a hackneyed pecuniary bailout of European banks. Hungarian Prime Minister Ferenc Gyurcsany told Bloomberg News that he is asking the EU for $230 billion to stabilize the currencies and economies of Eastern Europe.

IMF Managing Director Dominique Strauss-Kahn said the loans announced Feb. 27 "will help mitigate the effects of the pecuniary crisis on credit flows in the region. The joint efforts under this beginning will spell individual financial institutions and sectors, while IMF lending pleasure continue to support countries at the macroeconomic level."

The package includes $9.5 billion from the World Bank, $13.9 billion from the European Investment Bank, and $6 billion from the European Bank for Reconstruction & Development.