The World Bank, EBRD and EIB agreed to provide € 24.5bn in lending to Eastern Europe. The three supranational banks will offer equity and debt finance, credit lines and political risk insurance to the banking sector and small and medium-sized enterprises, according to an article in today's Wall Street Journal. The EU will hold a summit meeting on 1 March to discuss a separate financial package for the new member states. Hungarian Prime Minister Gyurcsany said he would propose a rescue package totalling € 180bn, including IMF and ECB support.
The World Bank-led financial package is positive news as it provides tangible financial support at relatively short notice. Banks should be the first to benefit as the package is mainly aimed to help their recapitalization. We are less certain about the outcome of this weekend's EU summit. We are sceptical whether EU leaders will agree to the amount proposed by the Hungarian . Moreover, his proposal also includes early euro entry, which has already been rejected by the EU. That said, we expect the EU to agree on a financial package for Eastern Europe, maybe amounting to € 50-100bn in short-term finance and possibly other long-term commitments that do not necessarily include cash hand-outs but credit guarantees for example. We are managing our expectations in the run up to the meeting based on the experience that EU summits tend to deliver less than they promise.