East European banks to get 24 billion euro rescue package

East Europe's banking sector, reeling under financial crisis, has been pledged a lifeline of more than 24 billion euros by three global lenders – the World Bank or IBRD, the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB).

The move came as the European Union prepared for emergency talks on Saturday on the economic crisis in Eastern Europe, where plunging currencies, mounting job cuts and a deepening debt crisis have sparked riots and stoked fears of widespread social unrest.

The EBRD, set up in the early 1990s to help countries in the region make the transition from communist rule, will be providing up to 6 billion euros for the financial sector in 2009-10, while the EIB will commit 11 billion euros and the World Bank the remaining 7.5 billion euros.

"We are acting because we have a special responsibility for the region and because it makes economic sense," said EBRD president Thomas Mirow.

The initiative by the three financial institutions came as Hungary's prime minster Ferenc Gyurcsany continues to lobby for an extensive rescue package from the European Union and the International Monetary Fund for the Eastern European countries and banks. He has asked the Brussels group to spend up to 180 billion euros to bolster the region.

Ukraine, Hungary and Latvia have already been helped out by the International Monetary Fund.

Over the last week or two, fears over the future of the region have grown, creating concerns that troubles there would hurt the already stressed banking system in Western Europe, many of whose banks have heavy exposure in the east. 

Credit rating agency Moody's said recently that faltering economic conditions in Eastern Europe will continue to hit local subsidiaries of major Western banks, which could spill over to their corporate parents, primarily in Austria, Italy, France, Belgium, Germany and Sweden.

World Bank President Robert Zoellick urged European officials to join in supporting Eastern Europe so that progress since the collapse of communism is not threatened by economic woes. "This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis," said Zoellick.

Earlier this week, credit ratings agency Standard & Poor's said "all the ingredients for a crisis are in place" in Eastern Europe because of rising government debt and a heavy reliance on foreign lending.

Gyurcsany is expected to make a strong pitch at an hour-long meeting of East European leaders in Brussels ahead of an informal meeting of EU leaders. No binding decisions are expected this weekend. Any East European bailout will have to wait for the Council meeting of EU leaders on 19-20 February.