(Repeats, without changes, story first published on Saturday)
By Michael Winfrey
LONDON, May 16 (Reuters) - Calls on the European Union for
more direct help for its ailing eastern members and neighbours
look futile and the bloc will likely continue to depend on the
International Monetary Fund to provide the main safety net.
With the financial and economic shocks over the last six
months yet to abate in central and Eastern Europe, the situation
for many cash-strapped governments in the region could get worse
before it gets better.
Mindful of threat of further financial seizures, bankers and
policymakers at this weekend's meeting of the European Bank for
Reconstruction and Development complained that the EU's
executive body and the European Central Bank should be doing
more to backstop the region.
Yet, Brussels effectively passed the buck to the IMF at the
G20 summit in April, when EU leaders rejected a Hungarian-led
proposal for a bailout fund for the region instead threw its
weight behind an expansion of IMF coffers.
Little they have said since indicates willingness to take a
more leading role.
"The IMF should not be looked at as a non-European
institution... It's funded by Europe," said EBRD President
Thomas Mirrow. "The Europeans, with their own institutions,
should join forces with the IMF, and this applies to EBRD."
Central to the recent crisis has been how a sudden financing
and economic stop has been exaggerated by the effects of
plummeting local currency rates on huge Swiss franc and euro
borrowings by some countries' corporations and households.
The EBRD, for one, says stabilising these foreign exchanges
rates should be a priority in drawing a line under the crisis.
But short of calling on the IMF, the region has no real
lender of last resort to do this and the ECB has been extremely
wary of expanding its role outside the 16-nation euro bloc.
On Thursday, Hungary said the ECB had rejected accepting
local currency bonds from it and Poland as collateral for bank
financing [].
That decision means non-euro zone countries cannot use
locally issued bonds to borrow euros from the ECB -- robbing
them of a potential tool to stabilise local banks and firms
starved of hard currency.
ECB RESISTANT
IMF European Department senior advisor Anne Marie Gulde-Wolf
said the ECB's position was firm.
"This is clearly an ECB policy, and the ECB clearly tells us
that they have a mandate for the euro area in the first place,"
she told Reuters.
"They make it very clear to us that they have a clear
mandate and have to operate within their treaty obligations."
According to the International Institute of Finance banking
group, the lack of access to foreign currency will continue to
reverberate through the financial sector.
"With activity sharply reduced and foreign exchange
liquidity shortages persisting despite IMF support for
several countries, banking sector concerns are likely to
grow," the Washington-based group said.
"Credit losses will rise, especially among corporations,
whose revenues have been hit hard by export losses."
The IMF has invested more than $45 billion in eight
countries ranging from the Baltics to the Black Sea - dwarfing
the amounts laid out in direct financing from the EU, which has
agreed to give $100 billion in additional capital to the Fund
instead.
The funding needs may well rise. On Saturday, Gulde-Wolf
said that, in general, it was possible non-EU member Ukraine
could be given additional funds on top of its current $16.4
billion loan after an official said Kiev may seek funds.
There has also been speculation among some economists that
Hungary could potentially ask for more financing.
On Saturday, European Union representatives indicated that
existing EBRD plans for 7 billion euros of spending this year
should also be adequate.
"I would like to underline the fact that the European
Community is fully committed and supportive in the risks
currently undertaken by the bank," Vassili Lelakis, Alternate
Governor for the European Community said in a statement.
"But I would like to caution against any significant further
expansion of the bank's operation at this stage."
