Are Emerging Europe Sovereigns Particularly At Risk?
Emerging sovereigns globally are in much more robust shape than they were on the eve of any tumultuous financial conditions during the past quarter of a century. Many sovereigns have bolstered their insurance against adverse market conditions through the accumulation of sometimes colossal foreign exchange reserves. This is in marked contrast, for example, to the central bank of Thailand’s forward-selling of its scarce reserves in the run-up to the Thai Baht’s collapse in 1997 that triggered the Asian crisis. However, while many key emerging markets have made good use of the benign financial environment of the past few years and bolstered their liquidity cushion, there are exceptions to this. Parts of emerging Europe clearly lie outside the global trend of stronger external and fiscal accounts. There, optimism about the economic consequences of EU and eventually EMU accession has led to a surge in confidence and credit-fuelled domestic consumption and investment booms. As much of this c
