Maybe We Don’t Have It So Bad – The European side of the crisis

A few weeks ago I wrote about the simmering populace of Europe. The economic crisis had spurred riots throughout the continent. Well things haven’t gotten better. The situation has taken a dangerous nosedive. You think we have it bad. You ain’t seen nothin’ yet kid.

from The Moderate Voice

You think it’s bad here in the US of A?

Take a look at our friends across the pond – and across France and Germany – where you get to those great “emerging markets” that captured the world’s imagination after the fall of Communism. From about 1995 to the early 2000s, the story of growth in places like Poland, Hungary, Czech Republic and the Baltic nations was nothing short of astonishing. Many of these nations were even able to join the elite European Union and share in the great common market.

Oh, the good old days.

Well, they’re done. Kaput.

And now European leaders are asking the International Monetary Fund (IMF) to bail out the nations of Eastern Europe for a cool sum of $500 billion. This isn’t to bail out Eastern European banks. It’s to bail out Eastern European NATIONS.

In many ways the crisis in Eastern Europe mirrors ours: too much debt and speculative growth in real estate and retail, especially in Latvia and Estonia. Look at the debt ratios of some of these countries. They make the Asian crisis in 1997 look like child’s play.

Eastern European debt

Added to this was the complex problem of currency exchange, where millions of Poles and Hungarians and Czechs were encouraged to convert their debt into Swiss francs – low interest rates enticed borrowers to eschew the zloty and the forint for the stable Swiss currency. But, like resetting adjustable rate mortgages in the US, the Swiss-based mortgage rates have gone up, as have defaults in Poland. What’s worse, the Swiss franc is actually in danger of collapse as a result of Switzerland’s investments in Eastern Europe.

It’s as if Eastern Europe was a giant sub-prime market, and the resulting carnage is taking out the venerable banks of Western Europe.

So, yeah, we’ve got it bad here. But things are actually quite a bit worse in Europe, where they have to contend with multiple governmental positions (the ECB can only dictate continental policy so much without pushback from individual creditor nations). And the Euro, the pride and joy of the new European economy, will likely face devaluation vis-a-vis the dollar. (Which is a reason why concerns over a devaluing dollar at this point are unfounded – what would the dollar devalue in relation to?)

This will get worse before it gets better. I’m not trying to be an alarmist here. This is just the truth. How bad will it get? Are we on the brink of something like 1848(the Year of Revolutions)? Keep watching!


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