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Joshua Kurlantzick says Europe is turning to emerging economies to help solve its debt crisis, but it's too bad they can't deliver.
Interviewee: Robert Cottrell, Editor, TheBrowser.com
Interviewer: Lee Hudson Teslik, Associate Editor, CFR.org
March 18, 2009
In late February, Latvia's government collapsed, due largely to tensions stemming from the country's severe financial problems. Riga's center-right coalition was the second European government to fall casualty to the global economic crisis. Perhaps just as significantly, it also spotlighted an eastward shift in Europe's economic woes. Eastern Europe now stands as one of the worst hit regions not just of Europe but the world, says Robert Cottrell, a former Moscow correspondent for the Economist and Financial Times who now lives in Riga and runs the website TheBrowser.com.
Cottrell says Riga's economic turmoil, and that of Eastern European states more broadly, reflects the degree to which Western and Western European banks piled into Eastern Europe's financial sector in the years preceding the crisis. They did this, Cottrell says, as Eastern European states rushed to open their systems to foreign capital as they entered or prepared for entry into the European Union.
Now Eastern European states face the opposite problem. As Western Europe withdraws money from the region, Cottrell says, they devalue the local currencies of the region and thereby increase the chance of Eastern European states defaulting on loans they took in foreign currencies. As a result, strains are emerging between Eastern and Western Europe, particularly as eastern EU states lean on their western partners for financial bailouts. Cottrell says that "on balance, if it's a yes-no question, you have to expect the European Union to emerge weaker from all this."
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