Aid for Eastern Europe

The World Bank, the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) said in a joint statement that the two-year initiative would seek to help banks and fund lending to businesses in the region hit by the global economic crisis.

"This initiative complements national crisis responses and will deploy rapid, large-scale and coordinated financial assistance from the international financial institutions to support lending to the real economy through private banking groups, in particular to small- and medium-sized enterprises," the statement said.

"The response takes into account the different macroeconomic circumstances in and financial pressures on countries in eastern Europe, acknowledging the diversity of challenges stemming from the global financial retrenchment."

Central and eastern European states such as Poland, Hungary, Latvia and the Czech Republic have been hit especially hard by the financial crisis.

The EBRD will provide up to six billion euros for debt, equity and trade financing for banks and businesses, the EIB is to provide 11 billion euros of lending facilities, while the World Bank will provide additional support worth around 7.5 billion euros, the statement from the institutions said.

European unity

World Bank President Robert Zoellick said Friday that a coordinated European effort was needed to help central and eastern Europe and ensure the "achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis.

"I welcome the close cooperation among the EBRD, the EIB and the World Bank Group, and am committed to making this partnership work as we move forward to address the risk of a crisis of the banking sector in eastern Europe," he said.

EIB President Philippe Maystadt said: "This joint action plan will help speed up the delivery of vital finance through the banks to support the real economy of hard-hit countries in central, eastern and southern Europe, and particularly to help small businesses survive in these turbulent times."

Eastern European "credit crunch"

EBRD President Thomas Mirow said Friday that a number of eastern European banks were at serious risk of failing.

"Our plan must be implemented as quickly as possible or there will be a credit crunch in eastern Europe, that is, insufficient financing for enterprises, households and foreign trade," he said. "In the current crisis, numerous banks need state support via national rescue plans as well as our aid."

The EBRD head said that at least 10 major western European banks were deeply involved in central and eastern Europe, adding that "if their branch banks fail in the east it will almost certainly have an impact on the euro zone."

Western European countries most vulnerable to a collapse of the eastern European banking system are France, Greece, Italy, Austria, Sweden and Germany, Mirow said.

The EBRD was set up in 1991 to help former Soviet republics shift to market economies.

(dfm/sp/afp/dpa/reuters)