For the first time after years of robust growth, Southeastern European states are now showing signs of economic downturn. Serious concerns are caused by macroeconomic imbalances, such as high deficits, inflation and appreciated currencies, while the situation is further aggravated by the US recession. Analysts believe that the side effects of the credit crisis will gradually spread throughout the world and also hit developing economies. Growth in SE European states in recent years has primarily been based on foreign investment funds. An end to such investments would surely mean hard times for these economies. However, a tough economic environment is now being followed also by political instabilities. For instance, in Turkey, the ruling party is facing the risk of being banned, Serbia’s EU admission has been frozen, developments in Kosovo are causing serious concern, and the Macedonia name issue is still unresolved. Compared to last summer’s high levels, National Bank last week was down by 35 percent, EFG Eurobank by 37 percent, while Piraeus was down 41 percent. Alpha Bank, which is regarded as having the most conservative approach to foreign operations, fell by 27 percent. In early 2008, Deutsche Bank lowered the rating of banks with strong activities in Romania, including EFG Eurobank. Deutsche Bank issued a report in which it underlined the risks emanating from SE European states’ macroeconomic instability, which had then caused a strong reaction from Eurobank. However, Deutsche’s warning did save those who were wise enough to take it into account. Bank officials say, however, that the sector’s growth potential has not been harmed. They believe 2008 would be another year of strong growth, coming primarily from mortgage and consumer loans. In the last fiscal year, National Bank saw its profits rise to -1.625 billion, an increase of 64 percent, of which -600 million was contributed by operations in Turkey and SE Europe. Eurobank’s subsidiaries outside Greece recorded net profits of -72.6 million. The bank forecasts that its profits in 2008 will rise to -170 million. Operations in SE Europe brought Alpha Bank’s pretax profits to -117 million, up 67.3 percent, while Piraeus group pretax profits rose by 93 percent to -113 million. Policy change In spite of global anxiety over the actual condition of the New Europe market, Greek bankers seem unwilling to back down. They have simply decided to move more conservatively. An interesting case to consider is the «Ukraine example» of National Bank. Even though negotiations for a takeover with the main shareholder of local Kreditprom had advanced, when that shareholder asked for more, National opted to halt all negotiations. It is very doubtful whether this practice, i.e. to freeze the deal, would have been followed under more healthy conditions. But now it was simply regarded imperative. On the other hand, National seems determined to bid for Egypt’s Banque du Caire. The case of National Bank is just indicative of the overall climate that currently prevails in the domestic financial market. Banks, depending on conditions, are willing to make moves only when they are feasible.