Pessimism Porn: Eastern Europe as Spark for Financial Meltdown

From the indefatigably and empirically apocalyptic Ambrose Evans-Pritchard, this ode to the ongoing awfulness of the banking and financial situation in Eastern Europe.

Failure to save East Europe will lead to worldwide meltdown
The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

…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.

More here. And sure to read AFOE on Germany’s incredible shrinking economy.

Related posts:

  1. Pessimism Porn: The New Depression
  2. What Europe Really Needs is a Skype
  3. Financial Panics are Undiscerning, Example XXXIX in a Series
  4. Central Bank Chairs, Fed Futures, Assassinations, and Rational Pessimism
  5. Want Less Intrusive Venture Investors? Go to Europe