From Triple Crisis by Cornel Ban:
Before the PIIGS entered the collective consciousness of European elites, the East-Central European member states of the E.U. were supposed to be at the root of the European financial woes. Just as the beginnings of the Great Depression were tied to the financial imbroglio of a Viennese bank, it was Austria’s massive exposure to the financial sectors of countries like Hungary or Romania by 2008 that was expected to trigger collapse in the rest of Europe. Yet this did not happen. Why not and with what costs for the economies of the region?
The story of this averted meltdown in the East begins years before Lehman entered a tailspin. After the end of state socialism and especially as these states ran for E.U. membership, the I.M.F. and the E.U. abetted and at times coerced a wholesale transformation of their banking systems. The rules of the game were clear: privatization, deregulation, central bank independence, and trans-nationalization of the interbank market.
It took a little more than a decade for this transformation to occur. Financial systems that had been 100 percent owned by domestic state capital in 1990 had become almost entirely foreign owned within 15 years. A recent report found that two thirds of transition countries in 2005 had banking systems controlled by foreign banks. With the exception of Slovenia-the only eastern social-democracy-all other new E.U. members from the East became little more than subsidiaries of (largely) West European banks. What was even more striking was that the share of foreign-owned assets in total banking assets was unprecedented among middle-income countries, with most banking sectors in new E.U. member states reaching between 80 and nearly 100 percent foreign ownership.
So what’s wrong with this picture? After all, the privatization of East European banking systems with foreign capital was a brilliant idea because this privatization broke the links between government incumbents, state banks and state-owned enterprises, right? This creative destruction was credited with ending seemingly endless cycles of non-performing loans, bank recapitalizations, and inflation.