Hungarian Prime Minister Ferenc Gyurcsany wants the European Union to arrange a package of as much as 180 billion euros ($230 billion) to help east European economies, banks and companies weather the financial crisis, Bloomberg reported.
A “European Stabilization and Integration Program” would include short-term financing for governments, coordinated restructuring for private debt, the recapitalization of banks and liquidity for companies in as many as 12 countries, Gyurcsany, 47, said in an interview in Budapest yesterday. He will present the plan at a March 1 EU summit in Brussels.
Some Eastern European economies are in meltdown as the global crisis throttles demand for their exports while investment and credit evaporate. Hungary, Ukraine, Latvia, Serbia and Belarus have sought international bailouts. Regional currencies, stocks and bonds plunged as investors fled riskier assets.
“We must reduce the region’s risk and that won’t happen with words alone,” Gyurcsany said. “The EU must take a lead role. This package can surely stop the quick depreciation of national currencies, which is the biggest risk in the region right now. We must raise awareness of the region’s challenges and build a framework for coordinated action”
The Polish zloty has dropped 29 percent against the euro in the past six months, the Hungarian forint fell 22 percent, the Romanian leu declined 17 percent and the Czech koruna lost 13 percent. The Ukrainian hryvnia plunged 38 percent since August.
To help mitigate currency risk, Gyurcsany is also proposing faster euro adoption for eastern EU members. While economic terms including controlling inflation rates and budget deficits shouldn’t be eased, the time needed to spend in the pre-euro test of currency stability known as the exchange-rate mechanism could be shortened from the current two years, he said.
“A program like this in itself, along with the clear intention that everyone is headed” toward the euro “at an accelerated pace, can create the currency stability needed for ERM entry,” Gyurcsany said. That would allow many of the EU’s eastern members to adopt the euro in the next two to three years.
The program would aim to help European Union members Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Romania; two non-EU states, Croatia and Ukraine; and two euro-region economies, Slovakia and Slovenia, the premier said.
“Since the world sees the region as a unit, we need a program for the region as a unit,” Gyurcsany said. “The EU should aim to extend the program beyond its borders.”
Loans to GDP
The total combined international debt exposure to the 12 countries is about 700 billion euros, according to the Hungarian government.
While the plan would provide a framework for the region, each country needs different measures, Gyurcsany said. Hungary has started overhauling its economy and doesn’t need short-term financing, he said, adding that the country would most benefit from help to stimulate growth.
As part of his plan, the European Central Bank and the International Monetary Fund would provide between 40 billion euros and 60 billion euros of liquidity to governments for the next year through credit lines and currency swaps.
Hungary wouldn’t rely on this part of the plan after the government secured 20 billion euros of loans from the IMF, the EU and World Bank last year. Gyurcsany said that provides enough stability for the nation.
“Quick and strong liquidity is needed to manage regional and national risk,” Gyurcsany said. “Hungary is doing okay. Since Hungary’s position is stable, we have to take steps to make similar tools available to other countries in the region.”
The plan would also help reschedule loans, mostly corporate and household debt, to longer durations. The European Bank for Reconstruction and Development could lead an effort to inject between 35 billion and 45 billion euros of capital into banks, most of which are owned by western European lenders, he said.
As much as 90 billion euros of financing and guarantees, mainly from the World Bank, would help exporters and smaller companies, he said. The plan would also urge western European banks to raise credit lines for their units in the region to stimulate economic growth.
The Hungarian plan builds on Austria’s call for an EU initiative to support eastern Europe’s financial system and a proposal by European leaders to increase the IMF’s resources for crisis management to $500 billion, Gyurcsany said.
“We need political openness and European solidarity,” he said. “Here and now, we have the same situation as at the time the Berlin Wall crumbled. This, in essence, means the acceleration of financial and economic integration. This is national, European and global interest at the same time. The sooner the better.”