EBRD's Berglof Raises Alarm over Bank Exodus from Eastern Europe

Erik Berglof, chief economist at the European Bank for Reconstruction and Development. Photo from Radio Free Europe

EBRD chief economist Erik Berglof has started to drum support for a new Vienna Initiative in a bid to stop an outflow of capital from emerging Europe.

"What I took away from this meeting was a remarkable consensus," Erik Berglof, chief economist of the European Bank for Reconstruction and Development, said at a Euromoney conference in Vienna on Tuesday.

"Now it's to sit down and work out the details together with the private sector."

A day earlier speaking in a telephone interview for Reuters, Berglof warned that west European countries' scramble to protect themselves from the debt crisis while banks shrink their balance sheets risked a double blow to the region.

He said he hopes to contain the urge of many banks to sell or reduce assets to hit the new capital adequacy targets.

"We shouldn't have same expectations in terms of exposure commitment that we had (in 2009). There is an adjustment that needs to happen. We just have to make sure it happens in a more managed, gradual way. That is my hope."

The EBRD and other agencies have also been working with emerging economies on the outskirts of Europe, such as Bulgaria, Romania, and Serbia, which are most at risk of a slow-down in the wake of Greece's financial crisis.

Greek banks hold nearly a 30% of the Bulgarian banking market, a 20% share of the bank loans and one-third of all deposits.

Some of the biggest lenders in Bulgaria are managed by Italy's UniCredit, Greece's National Bank of Greece, Hungary's OTP and Austria's Raiffeisen.

Other Greek banks present in Bulgaria include EFG Eurobank, Piraeus, Emporiki and Alpha Bank.

Experts have warned that Bulgaria, the European Union member boasting one of the the bloc's smallest budget deficit, risks seeing its banks sucked under by the fiscal sins of neighboring Greece.

Bulgaria's central bank and finance minister however have repeatedly tried to assuage fears over funds outflow from Greek bank subsidiaries in the country to headquarters in Greece, saying this is part of the free movement of capital.

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