Financial Transition in Central and Eastern Europe. A Note

The 5 years following the terrorist attack on the World Trade Center have witnessed what may be called the initiation and pursuit of a war-time monetary policy on the part of the main world monetary authorities, in particular those of the United States (US), Japan and the European Monetary Union (EMU). The very day the terrorist attack was perpetrated, the Federal Reserve put into action a strategy of flooding markets with very cheap liquidity, and persevered in it for almost 5 years, in order to allay any fear of implosion of the US and the international financial and monetary system. The Central Bank of Japan and the European Central Bank (ECB) followed suit. This created extremely expansionary conditions from which the US and other Pacific Basin countries particularly benefited. The easy money atmosphere, however, especially helped other countries too, like those of Latin America, and the ones which are now called ‘New Europe’, the transition economies of Central and Eastern Europe (CEE; in what follows I do not include the former Soviet Union countries in my definition of CEE).