Debt Overhang in Emerging Europe?
Citation:
Martin Brown and Philip R. Lane, Debt Overhang in Emerging Europe?, 2011Download Item:
Abstract:
This paper assesses the extent to which debt overhang
poses a constraint to economic activity in Emerging
Europe, as the region emerges from the recent financial
and economic crisis. At the macroeconomic level, it
finds that the external imbalance problem for Emerging
Europe has been in most cases more one of flows (high
current account deficits in the pre-crisis years) rather
than large stocks of external debt. A high reliance on
equity funding means that net external debt is far lower
than net external liabilities. Domestic balance sheets
have expanded quite rapidly but sector liabilities remain
relatively low compared with advanced economies. With
the important exception of Hungary, public debt levels
also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt
overhang in the corporate sector is limited to a few
countries: Latvia, Lithuania, Estonia, and Slovenia.
Due to the low incidence of household debt, hardly any
country, except Estonia, seems to face a threat of debt
overhang in the household sector. The strong increase
in non-performing loans compared with pre-crisis bank
profitability suggests that debt overhang in the banking
sector is a threat in Ukraine, Latvia, Lithuania, Hungary,
Georgia, and Albania. Financial integration of Emerging
Europe seems to have contributed to the transmission of
the crisis to the region. At the same time, this integration
is helping the region in managing the crisis by concerted
actions of the major players.
Author's Homepage:
http://people.tcd.ie/planeDescription:
PUBLISHED
Author: LANE, PHILIP RICHARD
Type of material:
Working PaperCollections
Availability:
Full text availableMetadata
Show full item recordLicences: