Brown, MartinLane, Philip R.2012-03-192012-03-192011-08-01https://hdl.handle.net/10986/3606This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance problem for Emerging Europe has been in most cases more one of flows (high current account deficits in the pre-crisis years) rather than large stocks of external debt. A high reliance on equity funding means that net external debt is far lower than net external liabilities. Domestic balance sheets have expanded quite rapidly but sector liabilities remain relatively low compared with advanced economies. With the important exception of Hungary, public debt levels also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt overhang in the corporate sector is limited to a few countries: Latvia, Lithuania, Estonia, and Slovenia. Due to the low incidence of household debt, hardly any country, except Estonia, seems to face a threat of debt overhang in the household sector. The strong increase in non-performing loans compared with pre-crisis bank profitability suggests that debt overhang in the banking sector is a threat in Ukraine, Latvia, Lithuania, Hungary, Georgia, and Albania. Financial integration of Emerging Europe seems to have contributed to the transmission of the crisis to the region. At the same time, this integration is helping the region in managing the crisis by concerted actions of the major players.CC BY 3.0 IGOADVANCED ECONOMIESASSET POSITIONASSET PRICESBALANCE SHEETBALANCE SHEETSBANK ASSETSBANK BALANCE SHEETSBANK BONDSBANK CREDITBANK DEBTBANK FINANCINGBANK LENDINGBANK LOANBANK LOANSBANK PROFITABILITYBANKING CRISESBANKING CRISISBANKING SECTORBANKING SYSTEMBIASESBONDBOND ISSUANCEBORROWINGBUSINESS CYCLESCAPITAL BASECENTRAL BANKCOMMODITY PRICESCOMMON CURRENCY AREACONCEPT OF DEBTCONSUMER CREDITCORPORATE DEBTCORPORATE FINANCECORPORATE INVESTMENTCREDIT ACCESSCREDIT AVAILABILITYCREDIT CARDCREDIT CARD DEBTCREDIT CARDSCREDIT LINECREDITORCREDITOR RIGHTSCREDITORSCURRENCY DEPRECIATIONCURRENCY MISMATCHCURRENCY SHORTAGESCURRENT ACCOUNTCURRENT ACCOUNT DEFICITSDEBTDEBT BURDENDEBT CRISESDEBT CRISISDEBT DEFAULTDEBT FINANCINGDEBT FORGIVENESSDEBT LEVELDEBT LEVELSDEBT LIABILITIESDEBT LIABILITYDEBT OVERHANGDEBT PAYMENTSDEBT PROBLEMDEBT RATIODEBT RATIOSDEBT RELIEFDEBT RESCHEDULINGDEBT RESOLUTIONDEBT RESTRUCTURINGDEBTORDEBTORSDEBTSDEFAULTSDEPOSITDEPOSIT MONEY BANKSDEVELOPING COUNTRIESDEVELOPING COUNTRYDISTRIBUTION OF CREDITDOMESTIC BANKINGDOMESTIC BANKSDOMESTIC CREDITDOMESTIC CURRENCYDOMESTIC MARKETDUMMY VARIABLEEARNINGSECONOMIC ACTIVITYECONOMIC CRISISECONOMIC GROWTHECONOMIC POLICIESECONOMIC POLICYEDUCATION LEVELEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET ECONOMIESEMERGING MARKETSENTERPRISE CREDITENTERPRISE PERFORMANCEEQUITY CLAIMEQUITY FINANCINGEQUITY FUNDINGEQUITY RETURNEQUITY RETURNSEQUITY SHAREEXCHANGE RATEEXCHANGE RATESEXISTING CREDITORSEXISTING DEBTEXPORTEREXTERNAL DEBTEXTERNAL DEBTSEXTERNAL FINANCEEXTERNAL FUNDINGFACE VALUEFAMILY BUSINESSFINANCIAL ASSETSFINANCIAL ASSISTANCEFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL HEALTHFINANCIAL LIABILITIESFINANCIAL MARKETSFINANCIAL PORTFOLIOSFINANCIAL STABILITYFINANCIAL STATEMENTFIRM PERFORMANCEFOREIGN BANKSFOREIGN CURRENCYFOREIGN CURRENCY LOANFOREIGN CURRENCY LOANSFOREIGN DEBTFOREIGN EQUITYFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVESFOREIGN INVESTORSGOVERNMENT DEBTGUARANTORHIGH DEBTHOME IMPROVEMENTHOME MARKETSHOUSEHOLD DEBTHOUSEHOLD INCOMEINCOME LEVELINCOME SHOCKSINDEBTEDINDEBTED HOUSEHOLDSINDEBTEDNESSINDIVIDUAL BANKSINDIVIDUAL CREDITORSINFORMATION ASYMMETRIESINSURANCEINTEREST RATEINTEREST RATE DIFFERENTIALSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL BANKSINTERNATIONAL BONDINTERNATIONAL DEBTINTERNATIONAL DEBT SECURITIESINTERNATIONAL FINANCIAL INSTITUTIONSINVESTMENT ACTIVITYINVESTMENT BEHAVIORINVESTMENT DECISIONSINVESTMENT LOANINVESTMENT OPPORTUNITIESISSUANCELENDERSLENDING DECISIONSLEVEL OF DEBTLEVELS OF CREDITLEVERAGELIABILITYLIQUIDITYLIVING STANDARDSLOANLOAN LOSSESLOAN PORTFOLIOSLOAN QUALITYLOANS FROM BANKSLOCAL CURRENCYLOCAL DEBTLONG-TERM COSTLONG-TERM COSTSLOWER DEBTMATURITIESMONETARY FUNDMORAL HAZARDMORTGAGEMORTGAGE CREDITMORTGAGE DEBTMORTGAGE LOANSMORTGAGESMULTINATIONALNEGATIVE SHOCKNEGATIVE SHOCKSNET DEBTNON-PERFORMING LOANNON-PERFORMING LOANSNPLOUTPUT LOSSESOUTSTANDING STOCKOVERDRAFTOVERDRAFT FACILITYPAYOFFPENALTYPENSIONPOLICY RESPONSEPRIVATE CREDITPRIVATE SAVINGPRIVATE SECTOR CREDITPRIVATE SECTOR LOANSPROPERTY RIGHTSPUBLIC DEBTPUBLIC DEBTSPUBLIC FUNDSREAL EXCHANGE RATEREMITTANCEREMITTANCESRENEGOTIATIONREPAYMENTREPAYMENT DISCIPLINEREPAYMENTSRESERVESAVINGSSELF-EMPLOYMENTSHARE OF ASSETSSHAREHOLDERSSOVEREIGN DEBTSOVEREIGN DEBTSSTOCKSTAXTRADE BALANCETRANSPARENCYURBAN AREAUSE OF BANK CREDITVALUE OF DEBTVULNERABLE HOUSEHOLDSWHOLESALE BANKWorld Bank10.1596/1813-9450-5784