The countries of central and eastern Europe have shown moral clarity in the face of crisis. As millions of people flee the war in Ukraine, Poland and others have thrown open their borders to offer refuge. A sense of solidarity between former Soviet-bloc states seeking to create new paths for themselves in Europe has driven much of this response. These countries are bearing the cost of a broad European imperative to offer support to those who need it the most.
In return, the rest of Europe needs to come to the aid of these countries in a moment of economic turmoil. The proximity of central and eastern Europe to the conflict has spooked investors and prompted significant pressure on national currencies. Action is required now to help prevent this volatility from mutating into something altogether more serious.
Central and eastern European central banks have certainly not been complacent in their response. Foreign exchange interventions have been paired with interest rate rises to help support national currencies. While this combination has brought momentary calm, more can be done to stave off further volatility. Investors’ lingering doubts about how well these economies will cope with the strain of a protracted conflict could result in sustained pressure on their currencies as they bet on depreciation or take fright.