East as well as west needs shelter in this crisis (By Yulia Tymoshenko)

We offer you the article published by Prime-minister of Ukraine Yulia Tymoshenko in Financial Times. “As usual with European crises, the best solution for Europe is more Europe. That “more Europe” also needs to include every European nation” – writes Tymoshenko, You can read more here….

Tumbling stock markets and credit crunches always unnerve. Familiar fears rush in: of expanding waves of financial distress causing weak countries and firms to flounder, of a crippled real economy and, above all, of events stampeding out of control.

Voters want their governments to do something. Those demands can create a trap that is perhaps the biggest danger in any market slide. At first, governments have mostly avoided the “beggar thy neighbour” policies that helped cause the Great Depression. In Europe, old nationalistic sins were not revisited because of wise past decisions, in particular the creation of the euro and single European market. The European Central Bank has provided almost unlimited liquidity to eurozone financial systems. The stability pact has been relaxed so that governments can borrow all they need to recapitalise their banks. Eurozone members have thus been spared confronting a currency crisis and competitive devaluations as they resolve the banking crisis.

As some calm returns, however, unforeseen traps are being exposed. The biggest is in eastern Europe, where a financial fault line has appeared owing to the public guarantees European Union governments have given their financial sectors. While EU banks have been stabilised by the guarantees, their east European subsidiaries have been left out on a limb because some governments declared that taxpayer money could not be used abroad.

The result? There has been a flight to safety by investors and bankers who fear their stakes in Ukraine and elsewhere in the region are on the wrong side of a financial Iron Curtain that the bank guarantees have created between supposedly “safe” and “risky” assets.

One reason the EU has not given priority to the fallout in eastern Europe from its policies is its failure to recognise how critical the region has become to western Europe’s prosperity. Our countries are now the eurozone’s most important export markets. If the crises in Ukraine, Hungary, Poland, the Baltic states and elsewhere in eastern Europe linger, production processes across Europe will be disrupted. There is a risk of the contagion causing lasting damage to the EU’s real economy.

My government will use the agreement with the International Monetary Fund to pass new reforms. Although we borrowed responsibly in inter¬national markets, we now have to repay loans made to state-owned companies, many of which we did not know about. We will meet our obligations. But we will also ensure we are not blindsided in this way again. We will make it mandatory for all loans for which the government may be responsible to be reported – before they are made – to the finance ministry, something Austria has long required its state-owned companies to do.

Moreover, the privatisations that have been blocked for spurious political reasons for the past year will now be pushed ahead in a transparent way, with the revenues gained giving Ukraine a “rainy day” fund of the type it could have used to fight this crisis.

But nothing Ukraine and other eastern Europeans can do on our own will be enough to counter the extraordinary pressures we face. The region needs more than IMF support. We need a recognition that everyone in Europe is in this together.

The EU needs to recognise that its neighbourhood policy, never robust, must be rethought. To revive our financial systems western European banks must be allowed to use their recapitalisations to help subsidiaries in eastern Europe. The ECB must also act as a lender of last resort and provide liquidity to support eastern European currencies. We cannot print the euro liquidity that our banks need. Interest rate rises to attract euro liquidity cannot do the job. The swap arrangements the ECB has made with EU members not in the eurozone need to be extended to countries such as mine.

If European solidarity is not enough to get the EU to respond proactively, naked self-interest should be. Collapsing eastern European currencies, and resulting trade pressures, will make it harder for our governments to prevent unemployment and falling demand. Should this happen, European growth will be damaged for years to come.

Today, countries that once chose to remain outside the euro – Denmark, Sweden, Iceland, even Switzerland – are reconsidering. Hungary, Poland and others wanting to join the euro are committed to redoubling their efforts. As usual with European crises, the best solution for Europe is more Europe. That “more Europe” also needs to include every European nation.

The writer is Yulia Tymoshenko, prime minister of Ukraine

Copyright The Financial Times Limited 2008
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