Recent weeks have brought a massive number of negative stories on CEE, calling the region a hotspot of problems for Eurozone. Frequent concerns stated that CEE is highly indebted, or that specific countries could incur heavy losses as a consequence of their exposure to the region. On top of that, alarming news that Eastern Europe has borrowed $1.7 trillion abroad and has to repay or roll over $400 billion in 2009 have been fuelling these concerns. Based on an in-depth look at the datasets, methodology and logic behind these figures , Erste Group analysts say data consolidated by BIS have been heavily misinterpreted, leading to an overblown scenario on CEE indebtedness.
“The major distinction that needs to be made regarding the $ 1.7 trillion figure is the fact that it includes both money borrowed from abroad, as well as loans provided (and funded) by local subsidiaries of foreign banks on local markets”, says Juraj Kotian, co-head macro/fixed income research CEE at Erste Group.
“While extensively analyzing the BIS data, we found out that CEE’s indebtedness and dependence on foreign funding is actually negligible compared to Western Europe’s. For instance, several West-European countries “have borrowed abroad” more (Germany $2.3 trillion, Netherland $1.9 trillion, UK $4.5 trillion) than the whole Eastern European region consisting of 20 countries including Ukraine, Turkey and Russia”, says Erste Group analysts. “Some mid-size Western Europe countries have to repay or roll over this year an even higher amount of debt (Belgium $375 billion, Ireland $477 billion and Netherlands $550 billion) than the whole of Eastern Europe.”
“The impression one might get from recent reports is that CEE is a highly indebted region. The very opposite is true: countries within CEE with the highest debt levels are only close to the average of Eurozone,” says Rainer Singer, co-head CEE macro/fixed income research at Erste Group.
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