Loan Growth in Eastern Europe

Ewald Nowotny, member of the European Central Bank Governing Council, recently discussed loan growth in Eastern Europe, claiming that it will need to be monitored closely in order to avoid another crisis like 2009.

According to Nowotny, it is hard to tell whether former communist states’ economies were overheating or converging with their western counterparts before the recession in the region. The obscurity of the situation makes it difficult to understand the full picture, he says.

“It’s rather difficult to distinguish what was the catching up process and what was a bubble,” Nowotny says. “The medium-term perspective is still a catching-up process. We do have room for financial deepening. But we do have also some countries where we see that we have very high growth of demand, where we have to be very careful.”

He added, “It’s my conviction that ring-fencing will not help us move forward. Regulatory and supervisory measures with regard to capital and liquidity in individual countries should be taken in a European spirit.”

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