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The “Vienna Initiative”, a public/private platform that was instrumental in staving off a collapse of the financial sector in central and eastern Europe at the height of the 2008/2009 financial crisis, is now turning its sights on combatting the impact of the coronavirus on the region’s banks.
International financial institutions (IFIs), the European Union, monetary authorities and banking regulators are reaching out to commercial banks in central and south eastern Europe to make sure responses to the COVID-19 pandemic are coordinated and take account of the interests of banks across all of Europe, whether inside or outside of the European Union or the eurozone.
When it was first formed in early 2009, the Vienna Initiative helped to avoid a chaotic withdrawal of western banks from central and eastern Europe and also channelled finance from the development banks to companies at a time when other sources of funding had dried up.
In response to the current crisis, the Vienna Initiative is bringing together IFIs including the European Bank for Reconstruction and Development (EBRD), the International Monetary Fund (IMF), the World Bank and the International Finance Corporation and the European Investment Bank.
They are joined by representatives of the European Commission, the national bank in Croatia, which currently holds the EU Presidency, the central bank of North Macedonia, representing the Western Balkans, as well as the National Bank of Poland, and the chair of the European Central Bank’s supervisory board.
The participants in the Vienna Initiative note that financial conditions in Europe have tightened considerably and that banks have come under pressure. Emerging market bond spreads have widened, outflows from emerging bond and equity markets have surpassed levels seen even during the global financial crisis and emerging market currencies have seen significant depreciation.
After holding an initial discussion within the public sector groups, participants will next engage with the commercial banks to seek information on the sorts of problems the financial sector is facing and to help better coordinate the response to COVID-19 across different jurisdictions.
A full Vienna Initiative Steering Committee meeting, involving both the private and public sectors, will be held shortly afterwards. Representatives from Ukraine, Belarus and Turkey will be asked to join the participants from central and south eastern Europe in order to determine whether the coordinated response would be relevant for their financial sectors.
Another aim of the Vienna Initiative in the current crisis is to coordinate funding from multilateral development banks like the EBRD, the World Bank and the EIB aimed primarily at small and medium-sized enterprises in emerging Europe and to assess the absorption capacity for such funding across the region.
Following its initial response to the 2008/2009 crisis, the Vienna Initiative has continued its work to address financial sector challenges, including support for European Union priorities, such as the establishment of the Capital Market Union and the implementation of the recovery and resolution framework, and has looked into creating a more conducive environment for financing.