EBRD Chief Warns of Worst Crisis Since '91

LONDON -- Emerging European economies face their worst crisis since the end of communism, the head of the European Bank for Reconstruction and Development said, adding that the bank might be open to new requests from its members.

Set up in 1991 to help former Soviet-dominated economies in Central and Eastern Europe, often through lending to or taking stakes in small and medium enterprises, the bank faces a full-year loss because of recent falls in investments and the prospect of nonrepayment of some of its loans.

"Clearly, this is the deepest and most complex crisis we have faced since our inception," bank president Thomas Mirow said in an interview, referring to the situation in the economies the bank covered. "This time, the crisis has not emanated from the emerging markets, but they are feeling the heat. I think anyone who predicts a date when things will turn around is not being very responsible."

He said the bank should not see a significant impact on its activities, as it was one of the best-capitalized international financial institutions, with total assets of 33.6 billion euros ($42.04 billion), supported by 13.1 billion euros in paid-in capital and reserves and 14.6 billion euros in callable capital.

The EBRD has continued to add new recipients as far afield as Mongolia, as more developed Eastern and Central European economies had no problems attracting capital.

Mirow said some countries were showing clear risks, although he was reluctant to give details about individual states or necessary action.

"Ukraine we are obviously particularly worried about because of the mixture of economic and political problems," he said. "At least one of the countries in the Western Balkans will probably have problems. The Baltic states are particularly vulnerable, and we have also seen problems in Hungary."

Mirow said structural reforms made since 1991 would not literally be "getting back to zero," but there were risks. "It is clear that some or almost all of these countries will have to undergo time of austerity," he said. "We are talking about damage in terms of people's belief that structural reforms will always bring benefits."