A Euromoney investment conference on South East Europe was held for the first time in Thessaloniki on October 21-22. Within the framework of the conference, Eurobank EFG hosted a round table discussion on “The financial crisis and the choice between recession and inflation in New Europe.”  The panel’s moderator was Porf. Gikas Hardouvelis, Eurobank’s Chief Economist, who also delivered the opening speech. Panelists included the Governor of the Central Bank of Serbia, Mr. Radovan Jelasic, the Deputy-Governor of the Romanian Central Bank, Mr. Eugen Dijmarescu and the Bulgarian Central Bank Deputy-Governor, Mr. Dimitar Kostov.

In his opening speech, Professor Hardouvelis underlined the significant progress of the SE European countries in the recent few years. Their progress has been marked by the participation of Cyprus and Slovenia to the Eurozone group, as well as the accession of Romania and Bulgaria to the EU. Prof. Hardouvelis stressed that these economies are today in a strong position, capable of overcoming the current crisis while preserving their long-term growth prospects intact. Their efforts to join the EU and/or the Eurozone encourage a discipline in choosing the right policies to ensure stability, economic growth and creation of an entrepreneurial environment that favors investment. The main question arising, concerning the future of these countries, is the extent to which the ongoing financial crisis will affect their real economies. Despite their fiscal and current account imbalances, they are much better positioned than the Baltic countries, which are now clearly in a recession. SE European economies benefited by  lower credit expansion rates, lower public and foreign debt levels, greater liquidity and a stronger banking system. Moreover, they can benefit from a number of readily available policies and measures, such as EU funding and SMEs guarantee facilities. Hence, while short-term risks may have clearly become more pronounced, longer-term prospects are still positive. Fast growth rates for the region will maintain their  pace and the continuation of structural reforms should constitute these economies even more attractive to enterprises and investors, both domestic and foreign.

Following the speech of Prof. Hardouvelis, other speakers elaborated on  the impact of the global financial crisis on individual markets and investment opportunities, while discussing issues pertaining to their infrastructure and financing, the operation of  capital markets, the banking system and, finally,  the long-term growth prospects for the wider region.

In Eurobank’s EFG round table, the Governor of the Central Bank of Serbia, Mr. R. Jelasic, reported that the upcoming recession in New Europe does not preemptively imply a deceleration of inflation rates. He underlined that the global crisis will lead to a containment of the credit expansion momentum. The latter is positive for the region since, historically, many developing economies such as the New Europe ones, had encountered in the past, difficulties in restraining their high credit expansion rates. He appeared optimistic on the Serbian economy as it is under no particular financial pressure, enjoying only a slight fluctuation on foreign exchange rates. Additionally, Serbia has recently taken measures to guarantee deposits up to €50,000. Mr. R. Jelasic, would have welcomed lower intervention rates than the current 15.75%. However, further drops in intervention rates are hampered by the fact that risk premia increase whenever there is a drop.

Mr. Dijmarescu mentioned that New Europe has been impacted by the financial crisis, as well as higher inflation rates during this year. Specifically, Romania’s currency’s slide may have created inflationary pressures as well, though it has been positive for its current account deficit. Inflation in Romania appears no longer to be a major problem, as there is a slow-down in global economic activity containing demand and, subsequently, price increases. Mr. Dijmarescu also mentioned that injecting liquidity into the market poses no problem for the Romanian Central Bank, yet at this point, he regards dealing with the inflationary pressures a priority. Concluding, he assured that deposits in Romania are safe.

Mr. D. Kostov said that the Bulgarian economy will not experience a hard landing in 2009. However, a slight decrease of the strong growth rates recorded in the previous years, is expected. This could be regarded as a result of prudent macroeconomic policy and a correct mix of structural changes. Mr. Kostov stressed that Bulgaria, in contrast to the Baltic states which are currently under strong pressure, has a strict fiscal policy that is observed very closely.