World Bank warns new EU members over imbalances

Prague, Sep 27 | Updated: Sep 28 2007, 04:13am hrs
East Europe has sidestepped most of the turbulence caused by the global credit crunch so far, but several countries with large external balances remain vulnerable to a halt in financing flows, the World Bank said on Thursday.

The World Bank, the financing arm of the International Monetary Fund, said in a regular economic report on the 10 recent EU entrants that the drive to qualify for euro adoption has left them in a strong position to weather the current storm.

But, it warned, tightening credit lines will weaken economic growth in developed markets and that could still hurt emerging market growth via trade links.

"The second risk is that there might be a deepening financial crisis and the possibility of a sustained reduction in external finance. This would be most important for those emerging markets with large current account deficits," it said.

The report singled out Latvia and Bulgaria for their large external imbalances.

While Slovenia has already adopted the euro, only Slovakia appears headed to join the single currency by the end of the decade.

Other countries covered in the report are Poland, the Czech Republic, Hungary, Lithuania, Estonia and Romania.

Reuters