Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Whereas Russia had reacted to its humiliation in the 1990s by accumulating a substantial currency reserve, the East European states had no such defense. For them security lay in integration with the West, or at least so they imagined. With the Fed having used swap lines to stabilize a core group of economies in which American interests were undeniable, one might have expected the ECB to extend similar support to the East European neighbors of the eurozone. Certainly this was the expectation of the Fed. If one applied the three criteria set out by Nathan Sheets to Eastern Europe, the case for ECB assistance was clear-cut.31 The East Europeans were EU members and aspired to future eurozone membership. As such, the respectability of their economic policy was vouched for in general terms. The crisis in Eastern Europe was immediately caused by a sudden stop in foreign credit supply. And the eurozone’s own banks were deeply involved and stood to suffer substantial losses. The risk of blowback was acute. As Sheets remarked to the FOMC: “I think it is very appropriate for all the European EMEs to report to the ECB for their liquidity needs.”32 But whereas the Fed had effectively licensed the ECB to issue dollars, the ECB had no intention of extending equivalent privileges to Poland or Romania. With Sweden and Denmark the ECB established publicly announced swap lines. Their banks would supply liquidity to Eastern Europe. Meanwhile, the central banks of Poland and Hungary were fobbe...

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