{
  "title": "Taking Away the Punch Bowl: Lessons from the Booms and Busts in Emerging Europe",
  "publication": "IMF Blog, September 10, 2012",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe",
  "canonical": "https://www.imf.org/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe",
  "overlayPath": "/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/index.md",
  "summary": "Publication: Bas B. Bakker, Christoph Klingen, September 10, 2012",
  "sections": [
    {
      "heading": "Fiscal stance and context",
      "content": "- Publication: Bas B. Bakker, Christoph Klingen, September 10, 2012\n- Regional focus: emerging economies of Europe, from the Baltic to the Black Sea.\n- Underlying drivers of the precrisis boom:\n  - Easy global financial conditions.\n  - Confidence in rapid catch-up with western living standards.\n  - Initially underdeveloped financial sectors.\n  - Western banking groups funding eastern subsidiaries, enabling credit expansion."
    },
    {
      "heading": "Causes and features of the boom",
      "content": "- Key imbalances during the half decade before the crisis:\n  - Current account deficits as high as 15-25 percent of GDP in the Baltic countries and Bulgaria.\n  - Private sector credit surged, much of it denominated in foreign currency.\n  - Housing prices boomed.\n  - Non tradable sectors, such as construction, became bloated.\n  - Governments used buoyant taxes to fund rapid spending growth; headline fiscal balances looked good while underlying public finances deteriorated."
    },
    {
      "heading": "Crisis trigger, transmission, and impact",
      "content": "- Trigger event: Lehman Brothers defaulted in September 2008.\n- Transmission mechanism:\n  - Western banking groups came under pressure and new funding for eastern subsidiaries stopped.\n  - This halted credit and domestic demand booms as global trade collapsed.\n- Macroeconomic impact:\n  - The region’s economy contracted by 6 percent in 2009.\n  - Some countries experienced recessions comparable to the Great Depression in the United States.\n  - Housing prices collapsed and unemployment surged."
    },
    {
      "heading": "Policy responses and international support",
      "content": "- Rapid government actions helped contain the crisis:\n  - Stabilization of financial systems.\n  - Fiscal consolidation to get public finances back under control.\n- International and private sector support:\n  - The international community committed €100 billion of financing under IMF-supported programs.\n  - Western banks contributed by refraining from recalling previously provided financing in a coordinated effort under the Vienna Initiative."
    },
    {
      "heading": "Recovery, outcomes, and indicators of improvement",
      "content": "- Recovery achievements:\n  - Currency and systemic banking crises largely avoided.\n  - Growth in the region bounced back—4½ percent in 2010-11.\n  - Unemployment has started to come down.\n  - Repair of public finances and financial systems is well underway.\n  - External flow imbalances have disappeared.\n  - Renewed focus on exports: Estonia’s sales abroad now account for 100 percent of GDP, up from 70 percent of GDP in 2007.\n- Country example:\n  - Poland implemented preemptive policies and avoided a recession in 2009, later achieving healthy growth."
    },
    {
      "heading": "Lessons and policy recommendations",
      "content": "- Preventive action:\n  - Deal forcefully with domestic demand booms before they get out of hand.\n  - “Taking away the punch bowl” in good times helps mitigate imbalances and creates buffers for downturns.\n- Fiscal policy:\n  - Keep a lid on expenditure growth in boom periods, even if the government’s fiscal balance is in surplus and higher spending seems easily affordable.\n- Financial sector and credit:\n  - Keep credit growth in check.\n  - Require more effective cooperation with bank supervisors in Western Europe, where emerging Europe’s banks are headquartered.\n  - Adopt a tougher line on foreign-currency lending.\n- Crisis adjustment:\n  - Determined post-crisis adjustment works—examples include reducing government debt and deficits, bank restructuring, labor cost reductions, and measures to restore competitiveness."
    },
    {
      "heading": "Remaining vulnerabilities and outlook",
      "content": "- Ongoing challenges:\n  - External debt is still high.\n  - Fiscal repair has further to go.\n  - Banks need to resolve a large stock of non-performing loans.\n  - The crisis in the euro area poses new challenges given tight linkages with emerging Europe.\n- Forward-looking observation:\n  - Risk premiums for sovereigns in emerging Europe are now often lower than those in Western Europe, marking a significant turnaround since 2009.\n\nSource: Taking Away the Punch Bowl: Lessons from the Booms and Busts in Emerging Europe (IMF blog post, September 10, 2012).\n\n---\n\n\n References\n\n- Europe\n- Vienna Initiative\n- non-performing loans\n\nSource: https://www.imf.org/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe"
    }
  ],
  "bullets": [
    "[Markdown version](/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/index.md)",
    "[Structured JSON version](/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/index.json)",
    "[Bundle manifest](/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/bundle-manifest.json)",
    "Authors: Bas B Bakker, Christoph Klingen",
    "Published: September 10, 2012",
    "Publication: Bas B. Bakker, Christoph Klingen, September 10, 2012",
    "Regional focus: emerging economies of Europe, from the Baltic to the Black Sea.",
    "Underlying drivers of the precrisis boom:",
    "Key imbalances during the half decade before the crisis:",
    "Trigger event: Lehman Brothers defaulted in September 2008.",
    "Transmission mechanism:",
    "Macroeconomic impact:",
    "Rapid government actions helped contain the crisis:",
    "International and private sector support:",
    "Recovery achievements:",
    "Country example:",
    "Preventive action:",
    "Fiscal policy:",
    "Financial sector and credit:",
    "Crisis adjustment:",
    "Ongoing challenges:",
    "Forward-looking observation:",
    "[Europe](http://www.imf.org/external/region/eur/index.htm)",
    "[Vienna Initiative](http://www.imf.org/external/pubs/ft/survey/so/2009/INT102809A.htm)",
    "[non-performing loans](http://blogs.imf.org/2012/03/29/debt-hangover-nonperforming-loans-in-europes-emerging-economies/)"
  ],
  "alternates": {
    "markdown": "/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/index.md",
    "json": "/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/index.json",
    "bundleManifest": "/en/blogs/articles/2012/09/10/taking-away-the-punch-bowl-lessons-from-the-booms-and-busts-in-emerging-europe/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-08-28T03:04:57.183Z"
}