EU worries over eastern Europe currency moves

19th February 2009, Comments 0 comments

Fears of capital flight have resulted eastern European currencies to fall sharply in recent days.

BRUSSELS – Concerns over currency turbulence in eastern Europe nations were raised in the European Union Wednesday, as Hungary revived calls for a massive EU aid plan.

The European Commission said it was concerned by the volatility of eastern European currencies, several of which have fallen sharply in recent days amid fears of capital flight.

"I am... concerned by the evolution of the volatility in exchange rates of some EU members that have floating regimes," EU Economic Affairs Commissioner Joaquin Almunia told a press conference in Brussels.

In London, British Prime Minister Gordon Brown said the currency problems in eastern Europe were an example of the danger of problems in one region spilling over to other parts of the world.

"If (for example) the problems in eastern Europe spill over to the rest of Europe because banks are withdrawing from eastern Europe to their home bases then that has an effect on the amount of trade, and the amount of jobs and the amount of prosperity there is in the rest of the world," he told reporters.

Hungarian Prime Minister Ferenc Gyurcsany called for a 100-billion-euro (126-billion-dollar) rescue plan from the European Union for crisis-hit banks in Central and Eastern Europe.

He said the issue should be discussed at an EU crisis summit on 1 March.

Austria, whose banks are highly exposed to debt in Central and Eastern Europe, said in January it would spearhead a campaign for EU aid to banks that had run into trouble as a result of the global financial crisis.

Almunia, without pointing any fingers, said he was also concerned that "some public statements have accelerated this evolution."

"I would ask all the authorities, the economic and financial authorities... of all the member states of the EU to be careful when they make public statements. Because the markets are very nervous and sometimes they don't understand very well," he added.

Polish Prime Minister Donald Tusk said on Tuesday his government was prepared to intervene to defend the zloty if it fell to five to the euro, as it reached 4.92.

Poland's central bank governor has also questioned the government's goal to join the euro zone in 2012.

The euro common currency, used in 16 of the 27 EU nations, struck a new two-month low against the dollar on Wednesday as concerns mounted surrounding the ill health of European banks, dealers said.

In Asian trade, the European single currency dropped to USD 1.2558, a level last seen in December, before recovering slightly.

Credit ratings agency Moody's Investors Service on Tuesday warned Western European banks over their exposure to struggling Eastern European countries.

On Wednesday, the Hungarian forint was changing hands at around 306.71 forint per euro, not far from the all-time low it hit the previous day.

That was enough to prompt prime minister Gyurcsany to say that Hungary is looking to adopt the euro "no later than 2014".

Czech deputy premier Alexandr Vondra, in Brussels Wednesday, said his government saw no immediate need to intervene on the forex markets to support the koruna which has fallen to its lowest levels against the euro since 2005.

Meanwhile the Romanian currency is also approaching it all-time low against the European common currency.

[AFP / Expatica]

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