[Marxism] "Is Eastern Europe Primed to Explode?"

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

"The rise of fascism is no longer out of the question." No doubt. But I 
disagree with Whitney's citing this as the only option in case of collapse of 
the status quo. Other than that, I think this is good summary of the discussion 
of the rapidly deepening East Europe crisis.
Fred Feldman

http://www.counterpunch.org/whitney02172009.html
February 17, 2009

The Global Ditch 
Is Eastern Europe Primed to Explode? 
By MIKE WHITNEY 

Eastern Europe is about to blow. If it does, it could take much of the EU with 
it. It's an emergency situation but there are no easy solutions. The IMF 
doesn't have the resources for a bailout of this size and the recession is 
spreading faster than relief efforts can be organized. Finance ministers and 
central bankers are running in circles trying to put out one fire after 
another. Its only a matter of time before they are overtaken by events. If one 
country is allowed to default, the dominoes could begin to tumble through the 
whole region. This could trigger dramatic changes in the political landscape. 
The rise of fascism is no longer out of the question.

The UK Telegraph's economics editor Edmund Conway sums it up like this:

"A 'second wave' of countries will fall victim to the economic crisis and face 
being bailed out by the International Monetary Fund, its chief warned at the G7 
summit in Rome....But with some countries' economies effectively dwarfed by the 
size of their banking sector and its financial liabilities, there are fears 
they could fall victim to balance of payments and currency crises, much as 
Iceland did before receiving emergency assistance from the IMF last year." (UK 
Telegraph) 

Foreign capital is fleeing at an alarming rate; nearly two-thirds gone in 
matter of months. Deflation is pushing down asset prices, increasing 
unemployment, and compounding the debt-burden of financial institutions. It's 
the same everywhere. The economies are being hollowed out and stripped of 
capital. Ukraine is teetering on the brink of bankruptcy. Poland, Latvia, 
Lithuania, Hungary have all slipped into a low-grade depression. The countries 
that followed Washington's economic regimen have suffered the most. They bet 
that debt-fueled growth and exports would lead to prosperity. That dream has 
been shattered. They haven't developed their consumer markets, so demand is 
weak. Capital is scarce and businesses are being forced to deleverage to avoid 
default. All of Eastern Europe has gotten a margin call. They need extra funds 
to cover the falling value of their equity. They need a lifeline from the IMF 
or their economies will continue to crumble. 

The UK Telegraph's economics correspondent Ambrose Evans-Pritchard has written 
a series of articles about Eastern Europe. In "Failure to save East Europe will 
lead to Worldwide meltdown" he says: 

"Austria's finance minister Josef PrÃll made frantic efforts last week to put 
together a â150bn rescue for the ex-Soviet bloc. Well he might. His banks 
have lent â230bn 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....

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed 
$1.7 trillion abroad, much on short-term maturities. It must repay â or roll 
over â $400bn this year, equal to a third of the region's GDP. Good luck. The 
credit window has slammed shut.

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). (Ambrose 
Evans-Pritchard UK Telegraph)

An economic crisis is quickly turning into a political crisis. Riots have 
broken out in capitals across Eastern Europe. Mr. Geithner had better be paying 
attention. The prospects for political upheaval are growing. Public anxiety can 
spill out onto the streets at a moments notice. Governments must act quickly 
and with resolve. These countries need hard currency and guarantees of support. 
If they don't get help, the simmering public fury will turn into something much 
more lethal. 

UK Telegraph's economics correspondent Ambrose Evans-Pritchard:

"Global banks have so far written down half the $2,200bn losses estimated by 
the IMF. On top of this, EU banks have $1,600bn of exposure to Eastern Europe 
-- increasingly viewed as Europeâs subprime debacle, and EU corporate debts 
are 95pc of GDP compared to 50pc in the US, a mounting concern as default rates 
surge.

âIt is essential that government support through asset relief should not be 
on a scale that raises concern about over-indebtedness or financing problems. 
Such considerations are particularly important in the current context of 
widening budget deficits, rising public debt levels and challenges in sovereign 
bond issuance." (UK Telegraph)

It's the same wherever banks merged their commercial and investment branches. 
Debt has skyrocketed to unsustainable levels destabilizing the entire economy. 
The banks have been operating like hedge funds, concealing their activities on 
off-balance sheets operations and maximizing their leverage through opaque 
debt-instruments. Now the global economy is caught in the downdraft of a 
collapsing speculative bubble. East Europe has been hit hard, but it's just the 
first of many bowling pins that will fall. All of Europe has been infected by 
the same virus which originated on Wall Street. Monday's New York Times 
summarizes developments in the EU: 

"Europe sank even deeper into recession than the United States in the closing 
months of last year, according to figures published Friday...The economy of the 
16 countries sharing the euro currency declined by 1.5 percent in the fourth 
quarter, (an annualized drop of roughly 6 percent) according to the European 
Union's statistics office. That is even worse than the 1 percent decline in the 
United States economy during that period, compared with the previous quarter.


âTodayâs data wipes out any illusion that the euro zone is getting off 
lightly in this global downturn,â said JÃrg Radeke, an economist at the 
Center for Economics and Business Research in London. ("Europe Slump Deeper 
than Expected" New york Times)

The "liquidationists" would like to see governments cut off the flow of funds 
to ailing financial institutions and let them fail by themselves. It's 
Darwinian madness, like waiting out a heart attack on the kitchen floor instead 
of rushing to the hospital for emergency care. The global economy is 
decelerating at the fastest pace on record. 40 percent of global wealth has 
been wiped out. The banking system is insolvent, unemployment is soaring, tax 
revenues are falling, the markets are in shock, housing is crashing, deficits 
are soaring, and consumer confidence is at its lowest point in history. This is 
no time to cling to half-baked ideology. The global economy is undergoing a 
massive system-wide contraction which could spin out of control and plunge us 
into another world war. Political leaders need to grasp the urgency of the 
moment and keep the vehicle from careening into the ditch. 

Mike Whitney lives in the Pacific Northwest and can be reached at 
fergiewhitney@xxxxxxx





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