Eurozone should expand eastward to prevent spread of financial crisis

Jun 26, 2009

Anders Åslund writes in the July issue of ‘Development and Transition’

Bratislava, Slovak Republic – With the financial crisis hitting Central and Eastern Europe harder than any other region of the world, the eurozone should be expanded eastward, argues Anders Åslund in the July issue of Development and Transition.

‘The European Central Bank should prepare for the expansion of the eurozone to the most faithful – Estonia, Latvia, Lithuania, and Bulgaria as well as Denmark,’ says Åslund of the Peterson Institute. 'For the eurozone, the current crisis is a great opportunity which must not be missed.’

Balázs Horváth of the UNDP Bratislava Regional Centre calls for policies that address the crisis’s individual components – and their links to such longer-term development challenges as climate change, demographics, and migration.

‘The crisis is an opportunity to get things right,’ argues Horváth, who leads UNDP’s Regional Poverty Reduction Practice. ‘Minds are now concentrated, and society’s desire for decisive action grows, opening the door for policy change.’

Saul Estrin of the London School of Economics writes that transition processes in the long run are likely to continue in Eastern Europe and the Commonwealth of Independent States (CIS), but the short term may involve setbacks.

‘In the interim, some of the transition economies are likely to suffer rather more than the developed economies, implying that for some years the convergence process may go into reverse,’ writes Estrin. Transition processes likely will be accompanied by greater elements of state direction and regulation, he adds.

Anja Shortland of Brunel University writes that nationalizing some banks may be prudent policy, as it can help retain savings, particularly when the regulation of private banks is of poor quality.

‘Nationalization of banks should not be avoided at all costs,’ writes Shortland. Her research suggests that government ownership restores fragile depositor confidence, and the threat of nationalization sends a better signal to managers than tacit balance sheet support.

Evgeny Levkin of UNDP sheds light on the vulnerable position of one-company towns in Russia, where workers have recently taken to the streets to protest non-payment of wages.

Levkin says that what is needed is closer coordination between governmental and business anti-crisis responses, stronger federal support for the reorganization of company towns, and greater efforts to provide vocational training for cities with more competitive companies.

Development and Transition is a joint publication of the United Nations Development Programme (UNDP) and the London School of Economics that focuses on Central and Eastern Europe and the Commonwealth of Independent States (CIS). The July issue is devoted to the regional impact of the global economic crisis and features six articles by UNDP authors and a number of contributions by outside scholars and experts.

The July 2009 issue of the newsletter will be available for viewing in both English and Russian on 29 June 2009 at To receive an email message free of charge announcing publication of the issue, please visit and subscribe.

About the newsletter: Development and Transition ( aims to be a forum for policy-oriented discussions and debates about how the nature, evolution and challenges of development and transition intersect in Central and Eastern Europe and the former Soviet Union and also Turkey.

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