20 years after Berlin Walls falls, Eastern Europe has yet to catch up with world economies
By Howard Schneider
The fall of the Berlin Wall brought broad hopes that the former Soviet and Warsaw Pact states would get the economic equivalent of a full body makeover.
But 20 years on, with China in the World Trade Organization, Brazil anchoring growth in Latin America, and countries such as South Korea tapping international investment, Eastern Europe is at risk of becoming an also-ran among the world's emerging markets.
That's something Thomas Mirow is battling to prevent as head of the European Bank for Reconstruction and Development (EBRD), but it is a tough environment.
The region, in a sense, is trapped between fast-growing Asia and the laggard pace of the Western European economies next door.
"For investors looking at emerging markets, Central and Eastern Europe is not at the top of the list," Mirow said. "If it remains so for long, it will be a problem."
Countries such as Poland and the Czech Republic were at the forefront of an economic revival that was assumed would spread throughout the region of former Soviet influence -- with market and political reforms spurring a higher standard of living and a deepening commitment to Western-oriented policies. But while those two countries remain bright spots, the pace of growth has stalled elsewhere. Romania needed recent help from the International Monetary Fund; Hungary also needed aid but is now in a spat with the IMF and is trying to go it alone. Latvia has had to push through a deep set of budget cuts.
The EBRD and other multilateral banks helped stave off the worst of the crisis, putting $25 billion behind regional banks to avoid major failures. More recently, they have backstopped regional subsidiaries of Greek banks to ensure the region was not hit hard by the financial meltdown in that country.
But the answer to the main question remains unclear: Will any Eastern and Central European countries aside from a few star performers break out? Among the large emerging markets Russia is the straggler. A host of smaller countries still need to overhaul Soviet-era infrastructure, bring energy policies into the 20th century, and diversify their economies -- goals that the bank is working to accomplish.
It will take time, but given where things stood 20 years ago that's to be expected, MIrow said.
"Nineteen-ninety was a global event. The end of the divide of Europe," Mirow said. "Don't underestimate the great deal that has happened, but don't underestimate what it takes to transform these societies."
| October 8, 2010; 2:24 PM ET
Categories: China, International Monetary Fund
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