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Central and Eastern European Countries in the Global Financial Crisis: A Typical Twin Crisis?

Lookup NU author(s): Dr Diemo DietrichORCiD

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Abstract

This article shows that during the Great Recession banking and currency crises occurred simultaneously in Central and Eastern Europe. Events, however, differed widely from what happened during the Asian crisis that usually serves as the model case for the concept of twin crises. We look at three elements that help to explain the nature of events in Central and Eastern Europe: the problem of currency mismatches, the relation between currency and banking crises and the importance of multinational banks for financial stability. We show that theoretical considerations concerning internal capital markets of multinational banks help us understand what happened on capital markets and in the financial sector of the region. We discuss opposing effects of multinational banking on financial stability and find that institutional differences are the key to understanding different effects of the global financial crisis. In particular, we argue that it matters whether international activities are organised by subsidiaries or by cross-border financial services, how large the share of foreign currency-denominated credit is and whether the exchange rate is fixed or flexible. Based on these three criteria we give an explanation why the pattern of the crisis in the Baltic countries differed markedly from that in Poland and the Czech Republic, the two largest countries of the region.


Publication metadata

Author(s): Dietrich D, Knedlik T, Lindner A

Publication type: Article

Publication status: Published

Journal: Post-Communist Economies

Year: 2011

Volume: 23

Issue: 4

Pages: 415-432

Print publication date: 07/11/2011

ISSN (print): 1463-1377

ISSN (electronic): 1465-3958

Publisher: Routledge

URL: http://dx.doi.org/10.1080/14631377.2011.622561

DOI: 10.1080/14631377.2011.622561


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