Eastern Europe About To Go Bust, Taking Western Europe With It

[girl gone mad]

Eastern Europe About To Go Bust, Taking Western Europe With It
Henry Blodget


If you think things are bad here, take a quick peek at what's going on across the pond:

The Telegraph: Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

http://www.businessinsider.com/eastern-europe-about-to-go-bust-taking-western-europe-with-it-2009-2

[izquierdista]

1. Windows are easily broken

By nine year olds with a baseball, and I don't think windows slammed shut kept out the waters of Hurricane Katrina. There is a saying that goes "If you owe $10,000 to the bank and can't pay it, you're in trouble; if you owe $10 billion to the bank and can't pay it, the bank is in trouble".

What will happen to the loans is that they will be written down and rolled over. And what will be left as life goes on are a bunch of sputtering bankers that are moaning over how ugly their spreadsheets have become.

[Jeroen]

2. There is no EU Federal Reserve?

As far as I know the ECB (European Central Bank) acts much like the Federal Reserve in the US.
It can print Euros like the Fed can print Dollars. Or am I missing the point?

[tama]

4. Yes

ECB's mission is to fight inflation - or rather, to keep inflation at 2 %. Germans, who remember hyperinflation, wanted it that way and got it that way. Also, ECB is governed by all "national" central banks(ters) of Eurozone member states, and even if they thought for a second about using the printing machine, that thought died allready in the face of inevitable quarrel between member states about who gets more than others of the newly printed cash.

[Jeroen]

5. Thanks for the clarification

So, this has the potential to destabilize Europe.
I guess we will soon find out how united Europe really is.

[Joanne98]

6. It's beginning to look like the Euro Zone will break apart. Too much bickering

between the countries. The ECB being unable to deal with the situation shows the weakness. And quite frankly. The business sector was too intent on using the Eurozone as an excuse for pulling Milton Friedman crap like busting the unions. Now the people hate the Euro and couldn't care less if it falls apart.

It has no support anymore.

[tama]

3. Good thing about European (neo)imperialism

of financial domination is that when wind changes, the pee comes back and lands on tailored pants and Gucci shoes... and I mean this in best possible way, barefoot nudity never heart nobody and urine has many usefull uses. Maybe Bruxelles will smarten up when Irish feisty spirit turns down Lissabon Treaty second time and declare Jubilee Orgy of tender and raunchy love-making in all of EU... :)