Western banks flooded REBLL markets with foreign-currency consumer credit after buying local banks

Evidence

Encouraged by the prospect of EU membership for the REBLLs, which made these countries appear to be undervalued assets that would appreciate simply by adopting the euro, Austrian, French, German, Swedish, and even Greek banks went on a shopping spree to buy Eastern European banks in the early 2000s. REBLL banking sectors became between 80 percent and nearly 100 percent foreign owned in short order. These banks made little contribution to industrial investment, in part because there wasn’t much industry in some of those states in which one could invest, so they provided instead plenty of consumer credit to cash-strapped REBLL citizens and real estate speculators. Given the spread between the home banks’ funding costs and the rates they could loan at locally, this was a good deal for all concerned. This also encouraged local actors to load up on foreign currency loans, thereby building time bombs into their balance sheets set to explode the minute exchange rates moved against them. — Mark Blyth, Austerity, 597

Categorization

• XREF: Directly connects to the book’s earlier treatment of banking crises ending up on state balance sheets, and to Mattei’s argument that austerity punishes populations for private-sector recklessness. — connects to: REBLL growth was built on foreign borrowing and structurally vulnerable to external shocks — Mark Blyth, Austerity: The History of a Dangerous…, 595

Broader Connections

• REBLL growth was built on foreign borrowing and structurally vulnerable to external shocks #corroborates (0.85) — Mark Blyth, Austerity, 595