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".. to prevent default on the edges of the eurozone
leading to a full-blown collapse of Europe's monetary system"
Cirka 300 miljarder kronor
The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank
unveiled a lending package of up to $31bn to help central and eastern Europe’s battered banking systems
Financial Times February 27 2009
Eastern crisis that could wreck the eurozone
The crisis started in the US, but Europe is where it might turn into catastrophe
Wolfgang Münchau, Financial Times February 22 2009
Austrian banks have lent a total of $300bn to clients in the region (Eastern Europe),
equivalent to 68 per cent of Austrian gross domestic product, according to (BIS).
If Bank Austria, which is owned by Italy’s Unicredit, were included, the figure would rise to about 100 per cent
Financial Times February 25 2009
Will Germany deliver on the Faustian bargain that created monetary union?
The German finance ministry is drafting rescue plans to prevent
default on the edges of the eurozone
leading to a full-blown collapse of Europe's monetary system.
Ambrose Evans-Pritchard, Daily Telegraph 23 Feb 2009
Cirka 300 miljarder kronor
The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank
unveiled a lending package of up to $31bn to help central and eastern Europe’s battered banking systems
Financial Times February 27 2009
The Hungarian forint, Polish zloty and the Czech koruna gained against the euro after news of the package.
East European currencies have fallen to their lowest levels for several years amid concern about the effects of the global credit crisis in eastern Europe, particularly in vulnerable states with big external financing needs, including Ukraine, the Baltic states and Hungary.
Eastern crisis that could wreck the eurozone
The crisis started in the US, but Europe is where it might turn into catastrophe
Wolfgang Münchau, Financial Times February 22 2009
A senior policymaker told me last week that the present situation reminded him of the 1992 crisis of Europe’s exchange rate mechanism, when one country after another became subject to speculative attacks – leading to the expulsion of the UK and Italy from the system.
In a monetary union, you can no longer bet on exchange rates. But thanks to credit default swaps, you can place convenient bets on the break-up of the eurozone.
Last week, speculators bet on an Irish default, and these bets make it more expensive for Ireland to refinance its debt, thus threatening to turn into a self-fulfilling prophecy.
But Ireland is not the biggest danger for the eurozone. If the country goes down, the eurozone will bail it out. Even the Germans accept this now.
A far more imminent danger lurks in central and eastern Europe. The possibility of a financial collapse there is the most urgent policy issue the European Union must confront at this point. If mishandled, it could bring down the eurozone.
The crisis has hit central and eastern Europeans so disproportionately hard because of two policy errors by their governments
The first was to encourage households to obtain mortgages in foreign currencies. In Hungary, almost every mortgage is a foreign currency mortgage, mostly denominated in Swiss francs.
The choice of Swiss francs is plainly ludicrous – testimony to economic illiteracy.
The second policy error is directly related to the first. The new EU members treated eurozone membership as a voluntary policy choice
But the central and eastern Europeans got one thing right. They made sure their banks were owned by foreigners.
Austrian banks are among the most active. Their exposure to eastern Europe is about 80 per cent of Austria’s gross domestic product.
If Hungarian households default, it is not Hungary that will go down, but Austria.
Italy and Sweden are also exposed. A central and east European crisis is therefore a systemic event for the eurozone
Austrian banks have lent a total of $300bn to clients in the region (Eastern Europe),
equivalent to 68 per cent of Austrian gross domestic product, according to (BIS).
If Bank Austria, which is owned by Italy’s Unicredit, were included, the figure would rise to about 100 per cent
Financial Times February 25 2009
An economic collapse in the east would wipe out the capital of Austria’s banks and force the government to launch a hugely expensive bail-out
Market jitters about the crisis in eastern Europe have driven up the spreads on Austrian state debt over German bunds since the beginning of the year.
Last week they widened sharply amid talk that Austria might lose its triple-A credit rating.
Will Germany deliver on the Faustian bargain that created monetary union?
The German finance ministry is drafting rescue plans to prevent
default on the edges of the eurozone
leading to a full-blown collapse of Europe's monetary system.
Ambrose Evans-Pritchard, Daily Telegraph 23 Feb 2009
The vast imbalances that have been allowed to build up under the seductive protection of EMU leave German taxpayers facing bail-out liabilities that exceed the cost of reparations after the First World War, in proportional terms.
Berlin is at last having to deliver on the Faustian bargain made by Germany's political class when it swapped the D-Mark for French acquiescence in reunification.
It must either go the whole way towards EMU fiscal union and take responsibility for Italy's public debt (111pc of GDP by next year), Austria's loans to Eastern Europe (70pc of GDP), the adventures of Ireland's 'Canary Dwarf' (€400bn or so in liabilities), and Spain's housing collapse (1m unsold homes),
or jeopardize its half-century investment in the political order of post-war Europe.
Letting EMU fail at this stage would have far higher costs than never having launched the project in the first place.
The German economy contracted at an 8.4pc annual rate in the fourth quarter as exports to Eastern Europe, Club Med, and the Anglo-sphere collapsed. The GM subsidiary OPEL is running out of cash and risks going the way of Sweden's SAAB without a €3.3bn rescue.
Mortgage lender Hypo Real Estate is imploding despite €87bn in state guarantees and capital injections. Mr Steinbruck said nationalisation is inevitable. If Hypo collapses with €400bn of liabilities, it would risk a "second Lehman Brothers", he said.
Like Northern Rock, it relied on short-term funding to lend long.
Game over.