The Eastern Europe’s crisis, which begun since the worldwide credit crunch, is now raging. The sirens are also sounding for Western Europe’s governments and banks. The most evident sign of the crisis is the downfall of the east European currencies as the capital of the western beats a pricey retreat.
This situation may possibly cause problems in the burst-property-bubble economies of the UK and the US, comparatively small and unbubbly economies within the eurozone, such as Belgium, Austria, and Italy, a huge deal. Outside the eurozone, Sweden was badly exposed to the termination of the Baltic party it has financed, as well as Swiss banks, which both face losses.
Eastern Europe is also considered a burst bubble. Foreign money streamed to the region, hurried there by the western banks in Europe that are eager to establish and to gain profits from the region’s potential after attaining freedom from communism. In the west, too much risk-taking and credit creation has created property bubbles.
As the credit-fuelled growth started to bubble, supported in the case of goods exporters like Kazakhstan and Russia by the inflating oil price, similar vulnerabilities were made. However, the eastern froth has one disastrous additional element: that much of the loan came from banks from other countries and in other foreign currencies, particularly Swiss francs and Euros.
Several western European banks are currently facing big losses in east Europe. The Erste Bank and Raiffeisen of Austria, Wedbank of Sweden, Intesa Sanpaolo of Italy, Societe Generale of France, and KBC of Belgium are considered to be the most vulnerable.
Eastern investments losses will go back to Rome, Vienna, Stockholm, and Brussels. The position of Austria is particularly severe because the claims of their banks on Eastern Europe are approximately worth two-thirds of Austria’s Gross Domestic Product. The economy of Austria, so far somewhat affected by the worldwide slowdown, is extraordinarily susceptible to the banking crisis. If it happens, the only probable remedy will be a major intervention and assistance by the government of Austria.
There are several calls for a huge increase in structural funds of EU for the members of Eastern Europe as well as for EU support for countries such as Russia and Ukraine that are not expected to gravitate to the western association.
Nevertheless, the concern being offered to the east can just be palliative. The involved sums to rescue the entire region will run to hundreds of billions of dollars. But the west can’t afford that, due to its own serious financial difficulties.
Previously, bank rescues more secure countries in the eurozone, which experience the consequence of the crisis in the east. The question is how the governments will be able to finance the cope.
The eurozone needs to discuss how to keep weaker countries buoyant. The single currency region, more shackled fiscally and monetarily than the US and UK, will need to create tough choices.
With all nations heading into downturn, none is expected to bail weaker countries out. If a solution failed to found, this will not be the first time the eastern face has took an extensive western empire to its own knees.