Wasn`t expecting this - Austria about to implode

piggeh

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4623525/Failure-to-save-East-Europe-will-lead-to-worldwide-meltdown.html

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).
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.
Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.
Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.
But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.
Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.
The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.
Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.
"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.
"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."
Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.
If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.
The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.

Think I'll pack my bags and head to Oz!

harrup

well, if Austria is imploding....their daily newspapers sure don't let on! I just checked and apart from moaning about hefty snowfalls, the odd murder and some banalities they don't shout "let's panic".

We've just come back from a long vacation there and it seemed vibrant & healthy with small & large industries, tourism, etc.

In fact, that was a discrepancy I really noticed. WHERE are all OUR small local industries? Our carpentry businesses, joiners, stonemasons, blacksmiths, bakers, craftsmen? Over there, every small town abounds with them. They all have long standing employees and young apprentices. We just buy cheap junk from China.

I wouldn't worry about Austria. They'll be fine. We, conversely, are snookered.

StevieJ

Any wrote: »

Yep, and half of the people from Ukraine is in the Czech Republic... :eek:

And the other half in Poland

StevieJ

harrup wrote: »

well, if Austria is imploding....their daily newspapers sure don't let on! I just checked and apart from moaning about hefty snowfalls, the odd murder and some banalities they don't shout "let's panic".

They are being coached by the BBC :rolleyes:

Wookster

This is dire news.

20% contraction in Ukraine is just awful and it could breed serious instability which could dramatically affect Europe - just remember that quite a large amount of Europe's gas supply comes through Ukraine. Not good.

I'm beginning to think that Generali is right - that we just need to let the insolvent banks go down, though even that is a thoroughly unpalatable situation. It looks like the sums of money required to prop up the institutions is literally unending.

Generali

Wookster wrote: »

I'm beginning to think that Generali is right - that we just need to let the insolvent banks go down, though even that is a thoroughly unpalatable situation. It looks like the sums of money required to prop up the institutions is literally unending.

Propping up the banks isn't going to work because the losses are too large.

The Bank of England and Government should have spent the time and energy on propping up insolvent banks on preparing a nationalised credit and banking system (through Post Office network perhaps?) to replace the insolvent private one.

The nationalised system could be broken up into perhaps fifty banks and privatised in a few years time.

purch

well, if Austria is imploding....their daily newspapers sure don't let on! I just checked and apart from moaning about hefty snowfalls, the odd murder and some banalities they don't shout "let's panic

Yeah, but you should read the Forums on GeldRettenExperte, they really go in for doom-mongering big time on there !!!!

baby_boomer

Telegraph - Failure to save Eastern Europe will lead to worldwide meltdown

".....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. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East...."

Ian_Griffiths_Halifax

All I can say is........... Fokking Fokk! :eek:

Reaper

I saw an interview with the head of the IMF a couple of days ago. He was saying that people don't appreciate the economies of several countries are heading for collapse.

The only good news is that when the interviewer asked if he thought Britain would need IMF help he laughed and said no.

I think our problems pale into insignificance compared to others.