1. Resilience of SEEs to the crisis
Bank of Greece – University of Oxford (SEESOX) Conference
Challenges and Prospects of South East European Economies
in the wake of the financial crisis
Bank of Greece
Friday, 16 October 2009
Resilience of SEEs to the crisis
Paul Mylonas
Chief Economist, Chief of Strategy, National Bank of Greece Group
National Bank of Greece Group – Strategy & Economic Research

2. What people saw and what they expected
What happened and current prospects
Why a better-than-expected outcome
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

3. What people saw and what they expected
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

4. Booming activity, albeit from a low base … but above potential?
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

5. Evidence of excess demand reinforced by the build-up of a large external imbalance
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

6. Additional indicators of imbalances – real exchange rate appreciation and large credit impulse
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

7. Banking sector imbalances: large share of F/X denominated loans and dependence on foreign funding
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

8. Very large real wage increases (again from a low base), but were they hampering competitiveness? Also a house price bubble had emerged
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

9. With the global economy in turmoil, markets and analysts envisaged a grim end to the boom years
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10. What happened and current prospects
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

11. Much larger-than-initially-expected drop in output, similar to more advanced economies, and with a higher “β”…
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

12. … due to openness and manufacturing bias
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

13. Further evidence of the important role of the inventory correction in the nascent recovery in exports
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

14. Contraction in activity reflects a sharp slowdown in exports and credit expansion
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

15. External imbalances correcting rapidly, despite drop in exports, reflecting …
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

16. -- yet better than expected
… a cut-off of oxygen to the economy from large capital inflows of the past
-- yet better than expected
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

17. As a result, FX reserves have not suffered greatly, and appear adequate in relation to the external financing gaps
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18. Overall, leading and coincident indicators suggest that the worst is over, and activity will recover by Q4:2009
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

19. Markets clearly have changed their mind regarding the outlook for SEE, as well
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20. Why a better-than-expected outcome
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

21. Government Effectiveness
EU membership (or on path towards) and/or IFI umbrella, combined with solid Governments (in most cases) provided much needed support…
EU Membership
Government Effectiveness
IFI Support
Turkey
Candidate country
Started negotiations in October 2005
Strong single party Government, especially after the July 2007 Constitutional Court decision
Negotiations of a new agreement with the IMF are in progress
Romania
Member country since January 2007
Strong centre-left Government until its collapse in early-October 2009
Signed a 2-year agreement with the IMF in May 2009, amounting to EUR 12,9 bn.
Further support is expected from the EU (EUR 5 bn), the World Bank (EUR 1 bn), and the EBRD, the EIB and the IFC (EUR 1 bn).
Bulgaria
Member country since January 2007
Strong centre-right Government took office in July 2009
Remains open to seal a deal with the IMF if global conditions deteriorate further
Serbia
Potential candidate country
Signed a Stabilisation and Association Agreement in April 2008
Strong centre-left coalition Government
Signed a 15-month agreement with the IMF in January 2009, amounting to EUR 2.9 bn.
FYROM
Signed a Stabilisation and Association Agreement in October 2005
EU Commission recommends entry talks with FYROM (14 October 2009)
Strong centre-right coalition Government
Albania
Signed a Stabilisation and Association Agreement in June 2006
Strong right-left coalition Government
Ukraine
- - -
Weak coalition Government until the January presidential elections
Signed a 2-year agreement with the IMF in November 2008, amounting to USD 16.5 bn.
Egypt
Strong and pro-reform Government since July 2004
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

22. … allowing monetary policy to be countercyclical (in contrast to other EM crises)
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

23. FP is also countercyclical, with automatic stabilizers allowed free reign, permitted by good initial debt conditions…
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

24. A traditional Achilles’ heel of EM crises -- the health of the banking system -- was in good shape
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

25. Several years of adjustment effort has made these economies very competitive
NBG - Strategy & Economic Research Resilience of SEEs to the crisis

26. Thank you
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