- DOJ reaches largest-ever federal government settlement over auto loan discrimination
- U.S. Navy to start giving gay couples marriage benefits in Japan
- Sen. Harry Reid goes to hospital as a precaution
- Fla.’s Trey Radel exits rehab, ‘excited’ to resume congressional role
- U.S. nuclear general boozed it up, chased ‘hot women’ in Russia: report
- 45 Calif. students at one school test positive for tuberculosis exposure
- Rob Ford on women: Give them cash ‘and they are happy’
- Ku Klux Klan group holds recruitment meeting in Maryland
- Airport assassination: Mayor, 3 others killed at Manila airport
- Tea party-type lawmakers take mysterious, off-books trip to Mideast
BRIEFING: Newest EU economies ‘overheated’
Question of the Day
BRUSSELS — Growth, salaries and asset appreciation all are through the roof in the new EU countries of Eastern Europe, but so are current account deficits, inflation and imprudent lending, prompting alarm among some economists.
“Latvia has such a high current account deficit that it makes the U.S. deficit look like a walk in the park,” said Fredrik Erixon, director and co-founder of the European Center for International Political Economy in Brussels.
Eastern European countries have exhibited the sort of financial disruption and volatility that is typical of emerging markets at the peak of a business cycle, he said.
“What differs this one from other emerging markets we”ve seen is that we have this huge current account deficit,” Mr. Erixon added.
These deficits, though, have been masked by large foreign investments.
Romania“s $10 billion trade deficit last year was offset by $9 billion in foreign direct investment, according to the Financial Times. However, this year”s projected trade gap of $17 billion — almost 15 percent of Romania“s gross domestic product — won”t be covered by the $10 billion in investment that the country has seen.
Latvia“s trade deficit has been estimated at 20 percent of its GDP.
Mr. Erixon said that nearly all of the Central and Eastern European countries have problems with labor shortages, given the increases in demand — two factors that, with wage increases, drive inflation, he said.
Insufficient production has increased Romanian inflation from a 4 percent to 6 percent annual rate in the past four months, Mr. Erixon said.
Salaries have been growing from 8 percent to 25 percent a year throughout the region, and increased pay and easy credit have been mostly responsible for the region’s substantial import growth.
Romanians, though, are still only paid an average of $10,000 a year, one of the lowest averages in the bloc, so an implosion of the credit bubble seems inevitable.
“Some countries are a little blinded by economic growth,” Mr. Erixon said. “We are far beyond the point of being able to mitigate the circumstances with interest rates.
“Inflation is already a serious problem and it will get worse,” he said.
The only way to avert disaster in the region — still catching up from its spell under Soviet-era communism — is for local central banks to keep interest rates high, encouraging saving and slowing consumption growth to rebalance the trade deficit and lower financial risk, Mr. Erixon said.
By John McAfee
- Huge backlash mounts over suspension of 'Duck Dynasty' star Phil Robertson
- D.C. to tout Obamacare among youth waiting for Air Jordans
- Dems use new filibuster rules to approve DHS nominee Alejandro Mayorkas under investigation
- TARGET credit card theft swells to 40 million victims
- Obamacare 'pajamas boy' gets roundly mocked
- Special ops vets slam military benefit cuts
- Deportations under Obama plunged to just 1 percent last year
- Homeland Security helps smuggle illegal immigrant children into the U.S.
- Citing 'unfair system,' Obama commutes sentences for 8 crack offenders
- EDITORIAL: Red faces at the White House
Independent voices from the The Washington Times Communities
Politics, economics, and business from a real world perspective.
We’re human: we don’t always think things through, so we accept many ideas that are, well, ideas that are wrong. We also look past certain truths without recognizing them.
Consummate traveler Todd DeFeo explores the unique stories that make destinations worth going to.
Happiness is attainable. Morning to night. I love to teach, deal with folks that have an issue and really wish to tackle it and write.
Top 10 handguns in the U.S.
Extraordinary day at Redskins Park
White House pets gone wild!
Let it snow