East Europe recovery may begin in 2010, says EBRD chief[de] 

"Banks are reporting better results than expected and confidence indicators are starting to point upwards again," said Mirow. 

Speaking at the bank's economic policy forum on the eve of its annual meeting in London, Mirow said: "EBRD economists are predicting a 'bottoming out' of the crisis in our region in 2009 and the beginning of a slow recovery in 2010 - but still under big caveats." 

The EBRD earlier this month slashed its 2009 forecast for emerging Europe to a 5.2 percent contraction, compared to 0.1 percent growth predicted earlier this year, and said the global credit crisis was severely affecting the corporate sector and leading to large declines in output and domestic consumption. 

But the EBRD predicts a mild recovery next year with growth of 1.4%, matching the positive outlook presented earlier this week by European Central Bank President Jean-Claude Trichet and other central bankers. 

Mirow nevertheless warned that the economies in the region would recover more slowly than after previous crises, because finance would be more scarce than before. 

Even if more funds were eventually made available, a new global financial framework with binding regulations is needed to avoid the excesses that led to the collapse of the system, said Mirow, stressing that government would have to assume a pivotal role in the economy in many countries. 

"Once the situation has stabilised we will have to pay for this: through higher taxes and reduced capacity for state expenditure, because the state will have to start cleaning-up its balance sheet," said Mirow. 

Boosting financial aid

In an earlier interview with Dow Jones Newswires, Mirow had said Eastern Europe and the former Soviet Union would need injections of financial aid from western institutions to fuel their economic recovery. 

As Western banks and manufacturers draw back to their home markets, flows of private-sector foreign investment to emerging European economies are unlikely to return to their previously high levels, said Mirow, who stressed that institutions like the EBRD may have to increase investments in the region for many years to come. 

The EBRD said yesterday it will invest EUR 432.4 million in subsidiaries of Italy's UniCredit SpA (UCG.MI), which operates in eight Eastern European countries. 

The investment is part of a joint programme with the World Bank Group and the European Investment Bank to provide over EUR 24 billion in support of banks in the region during 2009 and 2010. The EBRD is in talks with a number of other Western European banks on similar investments.

(EurActiv with Reuters and other agencies.)