Until a few months ago Central-Eastern Europe was considered relatively immune from the international financial crisis. Against the background of high energy prices and a huge stock of foreign reserves, Russia was even considered a “safe heaven”. For different reasons, countries of Central and South-Eastern Europe were also considered rather safe, being either members of the European Union or candidates to entry in the EU. The EU umbrella was considered an effective institutional protection against the global storm.
Since last June Russia has been one of the hardest hit countries in the emerging world. The stock market has plunged, capital has flown out of the country and inflows have stopped. A liquidity crisis in the domestic banking sector emerged and even corporate giants in the energy sector have begun to have difficulties in refinancing or even repaying their debts. One could argue that this is hardly surprising, as the current financial crisis is a global one and thus no country will be spared. However, one needs to explain why Russia is doing much worse than her peers in the emerging world, even worse than countries with huge external imbalances, e.g. Baltic countries and countries in South-Eastern Europe.