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Figure 2.3. Europe: Developing a Common Response1
Economic sentiment has plunged, and borrowing costs have risen sharply, despite
widespread monetary easing. Soaring fiscal deficits have led to widening sovereign
risk premiums. Amid the flight from risk, exchange rates in emerging Europe have
generally depreciated. A key challenge is to avoid a disorderly unwinding of leverage,
including for western European banks, given their large cross-border exposure to
emerging Europe.
Consumer Confidence and
130 Economic Sentiment
120
5
110
-5
100
-10
90
-15
80
-20
70 Economic
60 sentiment
Consumer
confidence
(left scale)
(right scale)
50
1985 90
0
95 2000
Private sector
400 credit growth
300
-25
200
-30
100
-35
05 Mar.
09
8
(right scale)
AAA
(left scale)
0
Jun.
2007
6
4
Apr.
09
2008
Government Bond Spreads over
150
Germany
(change in basis points since
June 2008)
Policy Rates
(percent change since June
2008)
2
IBOXX Corporate Spreads and
700 Private Sector Credit
12
BBB
600
(left scale)
10
500
0
100
-2
50
600
500
CDS Spreads 2
(change in basis points since
June 2008)
0
PRT
SVK
ITA
NLD
ESP
FIN
FRA
AUT
BEL
TUR
POL
ROM
HUN
CZE
EUR
GBR
-6
BGR
-4
Exchange Rates against the Euro
40
(percent change since June 2008)
30
20
400
10
300
0
200
-10
Share of Foreign-Owned Banks
120 (percent of total assets, 2004)
100
European Banks’ Claims in
Emerging Europe
(percent of destination
countries’ GDP)
80
80
70
60
50
60
40
30
40
20
20
SVN
SVK
LVA
POL
LTU
HUN
CZE
10
BGR
0
TUR
ROM
POL
CZE
HUN
BGR
GBR
USA
ROM
POL
IRL
LTU
GRC
HUN
-30
CZE
-20
0
BGR
100
2004
05
06
07
0
08:
Q3
Sources: Bank for International Settlements; European Central Bank; European
Commission; Eurostat; Haver Analytics; Thomson Datastream; and IMF staff estimates.
1AUT: Austria; BEL: Belgium; BGR: Bulgaria; CZE: Czech Republic; ESP: Spain; EUR: euro
area; FIN: Finland; FRA: France; GBR: United Kingdom; GRC: Greece; HUN: Hungary; ITA:
Italy; LVA: Latvia; LTU: Lithuania; NLD: Netherlands; POL: Poland; PRT: Portugal; ROM:
Romania; SVK: Slovak Republic; SVN: Slovenia; TUR: Turkey; USA: United States.
2CDS: Credit default swap.
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