As a result of the financial crisis and global recession public debt burdens have risen to critical levels in a number of Western European countries. Emergency loans from the EU and IMF have eased funding pressures, but have only bought the region time; painful fiscal adjustment and an improvement in competitiveness is required if the region is to enjoy a sustainable recovery. Eastern Europe, while rebounding through exports and industrial output, will underperform its emerging-market peers in 2010. Business and consumer sentiment in the region is fragile, and its currency and bond markets are vulnerable to contagion from problems in the euro zone or a rise in risk aversion more broadly. This presentation takes a look at the economic outlook for both Western and Eastern Europe.

1. The European debt crisis: Will confidence be restored? An EIU webinar analyzing the risk outlook for Europe John Bowler Director, Country Risk Service Matteo Napolitano Senior Editor / Economist November 23, 2010

3. Today’s Presenters John Bowler Director, Country Risk Service Matteo Napolitano Senior Editor, Economist

4. Weak public finances Italy Greece Ireland Portugal Spain UK 2010 data. Source: EIU, Country Data . - 30%

5. Market perception of eurozone sovereign risk 2010 data. Source: Haver Analytics.

6. Euro zone: Private-sector debt Bank claims on private sector, € bn. Source: IMF, International Financial Statistics . 211% of GDP 112% 111% 92% 234% 192% 150% 110%

7. Periphery has lost competitiveness Average real wage index, 1999 Q1=100. Source: Economist Intelligence Unit, CountryData .

13. East-central Europe: An uneven recovery… Seasonally adjusted GDP, rebased to Q1 2006=100 Source: Eurostat/Haver Analytics.

14. … that is stronger in countries with milder imbalances… Source: Eurostat/Haver Analytics.

15. … but which may now have peaked Source: Eurostat/Haver Analytics.

16. Currencies rally, but less than other emerging markets Currencies versus US$, Index Jan 4 2010= 100, Source: Haver Analytics

17. Sounder public finances than in eurozone periphery… Poland Greece Ireland Portugal Spain Czech Republic 2010 data. Source: EIU, Country Data . - 30% Romania Latvia Hungary Slovakia

18. … and sounder private finances as well Bank claims on private sector, % of GDP . Source: IMF, International Financial Statistics .

19. Few ratings upgrades to date Sovereign risk score and rating (latest rating in brackets) Source: EIU, Country Risk Service . Upgraded to BBB in September 2010 Downgraded to B in April 2009

24. Questions and Answers

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