Chasing the dragon east: exploring the frontiers of Western European finance

Abstract

Like many other developing countries in the past decade, Central European countries pursued financial market reforms based on the assumption that foreign finance would boost the depth and liquidity of their national financial systems, promote efficient economic management and enhance financial stability. Unlike other developing countries however, Central European countries expected to be shielded from the worst effects of global neoliberalism through the process of EU accession. This article evaluates the financial integration of Central Europe in the context of the global process of finance-led restructuring. The article concludes that the financial integration of Central Europe has failed to generate the promised optimisation of investment, let alone reduce macroeconomic risks. This is because the actual Eastward expansion strategies of Western European credit institutions were never geared towards addressing the developmental needs of the host Central European economies. Rather, they were always aimed at redressing the declining profitability of financial institutions operating in the already financialised economies of Western Europe. As a result, foreign financiers emerged as a powerful rentier class in Central Europe able to extract rent incomes far in excess of their profits in the west. The dominancy of foreign financiers in the region resulted in a reorientation of state policy, corporate strategy and households' behaviour, in line with the imperatives of financially based accumulation strategies. This lead not only to an unprecedented transfer of property rights from local society to foreign investors, but also to increased indebtedness and risk, which are ultimately unsustainable in the long run.