Will Eastern Europe Trigger a Financial Meltdown?
We've commented from time to time that a possible financial flashpoint is countries that got themselves in the same fix as Iceland , of having a banking sector engaged in the generally risky practices that were standard form recently, and was outsized relative to the economy (Willem Buiter also points out that that precarious situation is made worse by having your own teeny currency).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.
Note EU-Digest: most of the quotes in this blog come from the conservative British newspaper the Telegraph, one of the most anti-EU newspapers in the UK, who would love to see the EU disintegrate. It won't happen and to make matters worse for them, Britain might even be forced to accept the euro as its currency in order not to implode economically.
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