Feb 15/09. The unfolding debt
drama in Russia, Ukraine, and the EU states of Eastern Europe has
reached acute danger point.
If mishandled by the world
policy establishment, this debacle is big enough to shatter the fragile
banking systems of Western Europe and set off round two of our financial
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.
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.
Not even Russia can easily cover
the $500bn dollar debts of its oligarchs while oil remains near $33 a
barrel. The budget is based on Urals crude at $95. Russia has bled 36pc
of its foreign reserves since August defending the rouble.
"This is the largest run on a
currency in history," said Mr Jen.
Spain is up to its neck in Latin
America, which has belatedly joined the slump (Mexico's car output fell
51pc in January, and Brazil lost 650,000 jobs in one month). Britain and
Switzerland are up to their necks in Asia.