The three major shortcomings in the domestic economic policy could mean irresponsible credit booms, huge loans in foreign currencies and in some cases pre-fixed exchange rates. But it is not as dramatic in all countries as it is in the Baltic States and Ukraine. Look at the Czech Republic, with less than 1 percent of their total credits in foreign currency.

It was not a long time ago the reform countries in Eastern Europe provoked a strong involvement of Western investors and to some extent in Asia. The Investment interest encompassed both the production and more short-term financial investments. Today, the same countries are rated as the worst-hit regions in the financial crisis. However, this is a truth with modification.

It is important to realize that the crisis in the relatively new market economies, not only - and in some cases not very much - can be blamed on the global growth crisis. Of course, the crisis weakens the export opportunities in the West and East. This fact does not explain previously irrational lending increases, and at times even crazy credit exposure in foreign currencies, in a number of countries too early currency locking and the overly rapid deterioration of competitiveness, mostly generated by multi-annual wage growth.

However, it would be wrong to directly judge all the European reform countries as one. Czech Republic, for example, has done quite well, especially through a better-balanced monetary policy, that has not done interest rate futures with the rest of the world as interesting as in other reforming countries. The Euro countries Slovenia and Slovakia are also much better than average, by all appearances, including Poland.

The problems in the ERM II- countries Estonia, Latvia, Lithuania and the currency board country Bulgaria has been written much about lately. The situation is also trouble for Ukraine and Hungary, which together with Latvia and Belarus have already received IMF assistance. Romania is likely to be the next country in this crowd.

Individual country solutions are also necessary to avoid a generalization of the country risk assessments - and therefore of the view from the foreign investors. We already note- just as in China - a strongly declining foreign interest from foreign direct investors. It would be even worse if the risk assessments were also generalized. Such risk, however, is obvious right now.
                                                                                Tony Harkén