Westernization of banks is the biggest change in East European countries' financial sectors in the past decade. Large West European or international financial institutions have purchased more than two thirds of the stakes in East European countries' banks. Some East European banks have even been wholly acquired. That's part of the reason why drastic currency depreciation and shrinking stock markets in East European countries became the most visible signs of the international financial crisis as soon as it broke out.

Deficit spending

East European countries' external debts currently stand at about $1.7 trillion, surpassing the region's aggregate gross domestic product (GDP) in 2008. Most of these debts are due in the short term. Banks in East European countries are under pressure to repay or refinance $400 billion in debts this year, accounting for one third of the region's GDP. Given the economic recession and the depreciation of their currencies, East European countries face increasing costs in paying off their debts.

In an attempt to balance their fiscal deficits and repay debts, East European governments have increasingly resorted to borrowing from foreign banks at high interest rates. As the lending rate in some East European countries is higher than in the eurozone, residents and businesses tend to borrow in foreign currencies, heightening the countries' debt burdens. In 2008, every East European country was saddled with external debts amounting to more than 50 percent of its GDP.

East European residents like to consume on credit. It is only natural for some countries to run a per-capita foreign debt of several thousand dollars. Take Hungary, Europe's second biggest debtor nation after Iceland, for example. For the nation of just 10 million people, a total of 30 billion euros ($39.81 billion), or 3,000 euros ($3,981) per person, in debts are due this year. Of the total, government debts amount to 3 billion euros ($3.98 billion).

Because of East European countries' huge demand for external financing and their colossal debts in foreign currencies, foreign capital flight is inevitable during the financial crisis. Worse still, this allows international hot money to engage in speculation in these countries.

Gloomy prospects

East European economies have become extremely vulnerable because of their fiscal imbalances, huge debts and major balance-of-payments deficit. Following Western Europe's suggestions, they opened their markets for trade and investment, while selling stakes in their banks to West European banks in large quantities. The moves led to a temporary increase in their exports. At the same time, they rendered their economies prone to a financial crisis. East European countries, which had expected to narrow the gap between them and their West European peers through stable economic growth, are now desperate and helpless, fully aware that the post-Cold War growth pattern has failed.

The World Bank warned on February 21 that Western Europe should make greater efforts to assist the precarious economies in Eastern Europe in an effort to prevent the outbreak of an even more destructive financial crisis. Moreover, if Western Europe does not abandon trade protectionism, Eastern Europe's economic and political achievements over the past two decades will be ruined. East European countries are all taking measures to reverse the disastrous situation.