Foreign currency indebtedness: a potential systemic risk in emerging Europe

Foreign currency indebtedness in new EU member states has had serious post-crisis consequences, where a substantial currency mismatch has contributed to an alteration in the macroeconomic and financial risk profile of individual countries. A pivotal challenge ahead for emerging Europe will be to strengthen institutional and monetary credibility and reinforce stable and efficient capital markets that are less dependent on foreign capital inflows. This would ultimately reduce countries’ vulnerability to future shocks to the economy, and facilitate their full-blown recovery.