Bubbles Everywhere (The 2000s)

In the 2000s under the surface of the great moderation, there were huge imbalances accumulating: overspending households and governments, accumulated debts, overleveraged people, and institutions. Endlessly flowing cheap credit. The story of the precrisis credit bubble was similar in emerging Europe. However, in these countries, the precrisis credit booms started with the spread of foreign currency loans. All capital controls had been lifted, and the accelerating capital inflow boosted not only local lending but consumption and investment as well. Households, SMEs and local authorities had no natural hedge. This chapter analyses the causes and the potential threats of these bubbles.