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The Global Ditch: Is Eastern Europe Primed to Explode?
Mike Whitney
Counterpunch
Tuesday, February 17, 2009
Eastern Europe is about to blow. If it does, it could take much of the EU with it. It’s an emergency situation but there are no easy solutions. The IMF doesn’t have the resources for a bailout of this size and the recession is spreading faster than relief efforts can be organized. Finance ministers and central bankers are running in circles trying to put out one fire after another. Its only a matter of time before they are overtaken by events. If one country is allowed to default, the dominoes could begin to tumble through the whole region. This could trigger dramatic changes in the political landscape. The rise of fascism is no longer out of the question.
The UK Telegraph’s economics editor Edmund Conway sums it up like this:
“A ’second wave’ of countries will fall victim to the economic crisis and face being bailed out by the International Monetary Fund, its chief warned at the G7 summit in Rome….But with some countries’ economies effectively dwarfed by the size of their banking sector and its financial liabilities, there are fears they could fall victim to balance of payments and currency crises, much as Iceland did before receiving emergency assistance from the IMF last year.” (UK Telegraph)
Foreign capital is fleeing at an alarming rate; nearly two-thirds gone in matter of months. Deflation is pushing down asset prices, increasing unemployment, and compounding the debt-burden of financial institutions. It’s the same everywhere. The economies are being hollowed out and stripped of capital. Ukraine is teetering on the brink of bankruptcy. Poland, Latvia, Lithuania, Hungary have all slipped into a low-grade depression. The countries that followed Washington’s economic regimen have suffered the most. They bet that debt-fueled growth and exports would lead to prosperity. That dream has been shattered. They haven’t developed their consumer markets, so demand is weak. Capital is scarce and businesses are being forced to deleverage to avoid default. All of Eastern Europe has gotten a margin call. They need extra funds to cover the falling value of their equity. They need a lifeline from the IMF or their economies will continue to crumble.
The UK Telegraph’s economics correspondent Ambrose Evans-Pritchard has written a series of articles about Eastern Europe. In “Failure to save East Europe will lead to Worldwide meltdown” he says:
“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.
“A failure rate of 10pc would lead to the collapse of the Austrian financial sector,” reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc….
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.
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). (Ambrose Evans-Pritchard UK Telegraph)
An economic crisis is quickly turning into a political crisis. Riots have broken out in capitals across Eastern Europe. Mr. Geithner had better be paying attention. The prospects for political upheaval are growing. Public anxiety can spill out onto the streets at a moments notice. Governments must act quickly and with resolve. These countries need hard currency and guarantees of support. If they don’t get help, the simmering public fury will turn into something much more lethal.
UK Telegraph’s economics correspondent Ambrose Evans-Pritchard:
“Global banks have so far written down half the $2,200bn losses estimated by the IMF. On top of this, EU banks have $1,600bn of exposure to Eastern Europe — increasingly viewed as Europe’s subprime debacle, and EU corporate debts are 95pc of GDP compared to 50pc in the US, a mounting concern as default rates surge.
“It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems. Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance.” (UK Telegraph)
It’s the same wherever banks merged their commercial and investment branches. Debt has skyrocketed to unsustainable levels destabilizing the entire economy. The banks have been operating like hedge funds, concealing their activities on off-balance sheets operations and maximizing their leverage through opaque debt-instruments. Now the global economy is caught in the downdraft of a collapsing speculative bubble. East Europe has been hit hard, but it’s just the first of many bowling pins that will fall. All of Europe has been infected by the same virus which originated on Wall Street. Monday’s New York Times summarizes developments in the EU:
“Europe sank even deeper into recession than the United States in the closing months of last year, according to figures published Friday…The economy of the 16 countries sharing the euro currency declined by 1.5 percent in the fourth quarter, (an annualized drop of roughly 6 percent) according to the European Union’s statistics office. That is even worse than the 1 percent decline in the United States economy during that period, compared with the previous quarter.
“Today’s data wipes out any illusion that the euro zone is getting off lightly in this global downturn,” said Jörg Radeke, an economist at the Center for Economics and Business Research in London. (”Europe Slump Deeper than Expected” New york Times)
The “liquidationists” would like to see governments cut off the flow of funds to ailing financial institutions and let them fail by themselves. It’s Darwinian madness, like waiting out a heart attack on the kitchen floor instead of rushing to the hospital for emergency care. The global economy is decelerating at the fastest pace on record. 40 percent of global wealth has been wiped out. The banking system is insolvent, unemployment is soaring, tax revenues are falling, the markets are in shock, housing is crashing, deficits are soaring, and consumer confidence is at its lowest point in history. This is no time to cling to half-baked ideology. The global economy is undergoing a massive system-wide contraction which could spin out of control and plunge us into another world war. Political leaders need to grasp the urgency of the moment and keep the vehicle from careening into the ditch.
Mike Whitney lives in the Pacific Northwest and can be reached at fergiewhitney@msn.com
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February 17th, 2009 at 2:25 pm
The Rothschilds founded the Bank Creditanstalt which was the first to go bust in 1931 generating catastrophe and the successor Bank Austria is on the edge.
The Rothschild freemasons are repeating the same manouevre as 1931 – same “dud” assets amazingly sucked up by the same banks packed with the same freemasons and the same mistake by the rating agency, followed by the same credit downgradings.
The same group is financing the neo nazis and other extremist organisations in a bid to channel social unrest away from them and their government puppeteers onto foreigners etc
war is the next move. The EU under the Lisbon Treaty is a war bloc with its own military etc.
patriot2008 Reply:
February 17th, 2009 at 5:45 pm
HA HA HA
LOOKS LIKE WE DONT HAVE TO FIGHT THE NEW WORLD ORDER, IT’S CRASHING RIGHT BEFORE OUR EYES.
HA HA HA HA
February 17th, 2009 at 2:43 pm
This is a very real and very pressing risk. At the centre of it all, the Latvian government has to restructure almost $1 billion of debt facilities for Parex Bank before Thursday of this week. Today, they said that they would guarantee the obligations. Now, think about this. Latvia is a country of 2.3 million people. Their average GDP per capita on a PPP basis is less than $19,000. They have already incurred unthinkable levels of debt and given up the last fragment of their sovereignty by taking billions from the IMF. Now they need to come up with another $1 billion – all to rescue a failed banking sector which was dominated by oligarchs linked to Russian dirty money.
On New Year’s Eve, the Latvian prime minister gave a very pessimistic speech on national television, in which he referred to the image of penguins huddling together in the most desparate conditions in Antarctica. He told Latvians to take that as their model.
From the Soviet Union to the “March of the Penguins” in less than 20 years!
Rob in CT Reply:
February 17th, 2009 at 3:42 pm
Thanks! This is news you won’t hear on the regular “news.”
Well it is certainly sad to hear this. I wonder if he doesn’t pay them the money they will get rid of him.
They are bankrupt I guess. They will certainly not pay 100% of their taxes to the IMF or for interest.
February 17th, 2009 at 3:05 pm
The elected officials there are the same there as they are here. They did not want to fix the problem because they did not want to get blamed for it, whether or not they caused it. So they borrowed money to pass it along.
Now they can’t do that. So to save their jobs they will now blame someone else.
February 17th, 2009 at 3:07 pm
How can things ever get better if many out there believe, the laws of Economics are “half baked ideologies”? These aren’t the suggestions of economics, they are THE LAWS. By throwing more money at the problem and propping up incompetent institutions you only make the problem worse. This would be over in a year’s to three year’s time if only they would have allowed the correction to happen. The people would have been better off. But not the governments of the world, they would have gone down with the corrections. So this is another example of government trying to save it’s rotting caurcus at the expense of the people.
February 17th, 2009 at 4:38 pm
As long as our government and treasury and banksters say “the only way out of this is to get the credit moving again” we are all doomed. It’s like a drug addict saying the only way to feel better is to shoot-up double the heroin. I’m telling you all here and now, you have to depend on no one but yourself. Be self sufficient, grow your own food. It is insane to think the way out of this financial mess is to go out and buy a car or HDTV on credit. Remember when George W Bush gave us all a check in 2002 ? He told us to just go shopping? Then at the end of the year when I thought I would recieve a 700 dollar income tax refund it was only 400. Because freekin W deducted the stimulus check from my tax refund. What a joke. Don’t believe anything government is spreading, they are all liers because they think you can’t handle the truth.
February 18th, 2009 at 11:05 am
All fiat currency eventually reverts back to what is REALLY is, ink on paper. Real money is backed by gold or silver, all else is doomed to fail and we are witnessing that now all over the world. Read the book Patriots Surviving the Coming Collapse by James Rawles.
February 18th, 2009 at 1:09 pm
our government ni ers are sending your stimulus money to them these country sucks
February 18th, 2009 at 1:10 pm
lieing punks bailed out credit suisse to save mcain and gramm
February 18th, 2009 at 1:11 pm
eat s--- america die america liing ass thieving american you deserve to be nuked
Dilbert McGunnut Reply:
February 18th, 2009 at 1:49 pm
tell us what you really think!
February 18th, 2009 at 1:21 pm
every f---ing punk in washinton is world first america second they are stealing our money to give to other thieves subprime theives jew banker thieves white take it in the ass thieves jew black presidents thieves FTW