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Swedish banks must curb Baltic's "casino economy"

Mar 26, 2007
BNS

The Swedish banks that have brought Baltic economies to the brink of overheating must choose between pushing them into an economic catastrophe as greedy commercial banks or acting responsibly, the Swedish business daily Dagens Industri said.

In an editorial published on March 23, the newspaper said that SEB and Swedbank, the owners of the Hansabank group, are facing a tough choice. If they continue acting as greedy commercial banks they will send the Baltic states tumbling into an economic abyss. Yet they also have the alternative of assuming the role of a responsible central bank and tightening the money supply.

In regards to Estonia, the paper said plans to lower taxes and raise public sector wages and pensions are economically irresponsible. It called on the Swedish banks to ease the overheating pressures.

If they were to increase interest rates or toughen loan requirements, the two banks could lose customers to smaller banks with looser borrowing policies, the paper acknowledges.

Economic developments in Estonia, Latvia and Lithuania increasingly resemble Sweden's "casino economy" in the second half of the 1980s with galloping inflation and ballooning foreign trade deficit, Dagens Industri said. Banks are issuing loans too generously which in turn is pushing up real estate prices.

The situation is the most pressing in Latvia where bank loans to households and enterprises are growing at an annual rate of almost 60 percent, the paper observed.

As a result of high inflation, Estonia, Latvia and Lithuania have disqualified themselves from membership in the European monetary union and their entry into the euro zone has been indefinitely postponed.
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