The European Central Bank (ECB) could have done more to provide liquidity to new member states in Eastern Europe, such as extending its currency swap lines to the countries' central banks, argues Zsolt Darvas, from the Brussels-based Bruegel think-tank.
A hearing organised at the European Parliament yesterday (2 March) discussed the impact of the crisis on new EU member states (see 'Background') and what EU institutions could have done to provide the region with more liquid markets.
Analysts at the event said that secrecy over currency swaps with non-euro countries has prompted fears that the ECB is more willing to help 'old' Europe than 'new' Europe.
Swap agreements, say analysts, would not only have provided countries like Poland with precious more liquidity, but also would have restored investor confidence in those markets.
"ECB swaps would have had a strong demonstrative effect, especially in Poland, where the currency would have appreciated as a result, instead of the huge fall and panic that did occur," according to Bruegel's Darvas.
ECB prompts suspicions
"The ECB announced swaps with the US Federal Reserve and with Switzerland but hid its swap agreement with Sweden in case Hungary and Poland would have sought the same," argues one analyst who wished to remain anonymous.
A currency swap with Sweden's central Riksbank in 2009 was kept quiet by the ECB, leading analysts to believe that the bank did not want to extend its lines of credit to new member states in Eastern Europe.
Euro losing its appeal
On the whole, the euro system is in disarray as eurozone countries, caught up in a possible bail-out of a Greek debt crisis not of their doing, question its benefits (EurActiv 02/03/10).
Darvas agreed that the situation in Greece threatened the enlargement of the euro area.
First of all, Greece's "fiscal irresponsibility" will make eurozone countries more cautious of new entrants to European Monetary Union.
Moreover, euro applicants may be watching the euro system with trepidation, fearing that Greece's problems will spread to other countries with high deficits, like Spain, Italy and Portugal.
In addition, a Greek bail-out would set a dangerous precedent, says Darvos, that other countries that are either in trouble or have made similar mistakes to Greece will eventually be bailed out.
