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2 Mar, 2009 07:35

Financial forecast for Eastern Europe following bailout failure

The European Union has rejected a 190 billion euro bailout for Central and Eastern European members in deep economic crises. Now the prospects for Eastern Europe are gloomy at best.

An economic storm has hit the region, leaving national economies shaking to the core. The Baltic States will find it hardest to recover, with their hopes for help from their western neighbours fading.

“The European Union can provide credits but now when even in Western Europe credits are hard to obtain, the problems for these countries will be even greater,” says Dmitry Babich, Editor-in-Chief of Russia’s Profil Magazine.

Looking at the current trends, RT has its own predictions over what will happen in the coming months:


Latvia is facing a true financial drought with foreign investments almost evaporating.

All of its rates are down, according to the Standard & Poor’s ratings agency. Its GDP dropped by more than 10 per cent in late 2008 – the worst result among all 27 members of the EU.

The country is seeking help from the International Monetary Fund, but many doubt it'll happen any time soon, as Latvia's credit rating has been cut to ‘junk’ status.

The country's government resigned about a week ago, which further complicates the situation.

“They tried to tie their economies to the EU and to lessen the amount of economic contacts with Russia to a minimum. When the economic crisis hit, instead of having two supports, they had just one,” Babich adds.

Lithuania and Estonia

Standard & Poor’s is also set to downgrade the ratings of Latvia's sister republics Lithuania and Estonia, which means the storm has affected them almost as much.

“If the EU really wanted to help – it would help. That needs a political will. But as far as it hasn't happened yet – the EU left the Baltic States on their own,” says Aleksandr Razuvaev, SobinBank analytical department’s deputy head.


This intemperate crisis seems to be moving further inland with another obvious epicenter found in Ukraine which is not a EU member.

Ukraine's economy is lying in ruins. The country's GDP slumped by 20 per cent year-on-year in January, badly affecting many people.

Almost a million unemployed have already been officially registered, and their number is expected to increase five-fold by the end of the year.

Ukraine is close to default. Its rating is now the lowest in Europe and matches the likes of Pakistan.

S&P left the outlook negative, suggesting there may even be worse to come.

“Emergency loans from European countries or the IMF would definitely help Ukraine. The Fund gave Kiev $US four billion of ‘standby credit’, but is holding back from further handouts. The current political instability and a high level of corruption in the country make the situation even worse. A sovereign default is now an entirely possible scenario,” Aleksandr Razuvaev says.