Mojmir Hampl (The International Herald Tribune 11.9.2009 p. 7)
ABSTRACT
The Western members of the European Union have less to teach their Eastern neighbors than they might think.
FULL TEXT
The West has less to teach than it might think
Do you recall the beginning of this year? Central and Eastern European countries suddenly emerged as a new endangered species likely to be hit hardest by the economic crisis. It took some time to explain that the region is incredibly heterogeneous, with more differences than similarities, and so in essence is not a "region" at all. However, the flow of advice from the West has not stopped since then. There seems to be something systemic about it - primarily a lack of information among Westerners about what is going on beyond their borders.
Take the fact that, according to the European Union, 9 out of the 27 member states have not had to adopt any rescue measures in their financial systems so far. Surprisingly to many Westerners, all these countries are among the E.U. newcomers - from the 2004 and 2007 waves of enlargement. It is the Western part of the Union which seems to be in much more financial trouble.
There are many areas where at least some Central and Eastern European countries long ago managed not only to catch up with the West, but to outperform it. The better health of the banking systems in some E.U. newcomers is only partly due to luck. Much of it lies in better local financial regulation and supervision. For instance, in the Czech Republic, regulation and supervision have since 2006 been consolidated within a single institution, the Czech central bank. This prevents the breakdown in communication between various regulatory, supervisory and policymaking institutions that has been observed in some advanced economies. Many of the "wiser" Western European countries now want to aggravate the existing Western European regulatory mess by establishing new, E.U.-wide supervisory bodies. Trapped in their old ways of thinking, they are simply not able to imagine that the Eastern solution - streamline your domestic system before creating a continent-wide superstructure - may be better.
Also, the Czech National Bank has been conducting stress tests of the local banking sector for some three years now. Some Western European members of the Union are only now starting to think that these tests might be useful.
The West also tends to make a sweeping judgment that all the Eastern economies hunger for euro area membership only because their domestic monetary policies are so much poorer than those of the European Central Bank. But in terms of the conduct and transparency of monetary policy, we could teach the ECB a thing or two, even after taking into account its sensitive position as a central bank serving a multi-country currency union. For the Czech Republic, where the central bank discloses its forecast for interest rates and the exchange rates right after the bank board's rate-setting meeting, entry into the euro area would be a step backwards. As regards macro-economic performance, most of Western Europe does not seem to be a good role model any more.
For some players, the focus on Eastern Europe as a region to be helped can be understood in purely pragmatic terms. In its World Economic Outlook, the I.M.F. published data on the region that were scandalously wrong. And the same institution was "surprised" in April of this year when its "confidential" report juggling some bad scenarios for Eastern Europe was leaked. These lapses - explained away as mere accidents - look almost like elements of a perverse scheme in which the I.M.F. is trying to artificially create a "bailoutable" region, big enough to be relevant, but small enough to still be within the saving powers of - guess who - the I.M.F. itself. Such efforts by a lending institution to secure enough customers for itself in the years ahead should come as no surprise. Even bureaucrats can display very entrepreneurial instincts.
Apart from such pragmatic motives, many public figures in the West and in Western-dominated international institutions seem unable to rid themselves of the fear of the "Eastern wind." I suspect this is due to long-term information asymmetry: The East knows much more about the West than vice versa. Few Westerners make the effort to get familiar with the eastern part of the E.U. It is much easier for both policymakers and the media to work with age-old prejudices or with distorted stories from international institutions, led mainly by Westerners.
The West will help the East most if it solves its own problems first. The E.U.'s Eastern countries, just like everybody else, hate decisions involving their future that are made without them.
While the East has already managed to shed its prejudice that everything in the West is just great, the West should get rid of the opposite prejudice. Otherwise the West must prepare for more misunderstandings and resistance, or even for a loss of its own credibility.
Mojmir Hampl is vice governor of the Czech National Bank and a member of the E.U.’s economic and financial committee.