The Other European Periphery Is At Risk

Emerging economies in Eastern Europe are at increased risk because of the crisis in the eurozone. European banks are tightening credit that they had been extending to Eastern Europe. The capital flight out of these countries has caused the value of their currencies to fall. That makes imports more expensive and can lead to inflation. Some countries have raised interest rates to deal with inflation and to reduce the flight of capital. That is the worse thing that emerging market countries, with limited foreign currency reserves can do. It will slow down growth and lead to recession. Hungary is facing that problem and Poland is worried about its economy which is closely linked to what happens in the eurozone.