[Fwd: [Marxism] Contagious East Europe]

[w.t. jouwstra]

REPLY TO: D66 at nic.surfnet.nl

Antid,

Ik zie in dat je Henk E nadoet, maar deze undercover is me wat al te
gemakkelijk

Charles Connell (1810 - June 28, 1873) was a Canadian politician, now
remembered mainly for placing his image on a 5-cent postage stamp. Born in
the then-British colony of New Brunswick to a family of Loyalists, who fled
the American Revolution, he entered politics in 1846, serving in the
colony's Legislative Assembly and House of Assembly.

En dan moet ik ooi nog zoeken naar Cornell. Een vijf cent ostzegel! Henk E.
zou al fleureren op een 1 cent image.

Groet,

Tjerk



-----Oorspronkelijk bericht-----
Van: owner-d66 at nic.surfnet.nl [mailto:owner-d66 at nic.surfnet.nl] Namens
Charles Cornell
Verzonden: dinsdag 24 februari 2009 17:34
Aan: Discussielijst over D66
Onderwerp: [Fwd: [Marxism] Contagious East Europe]

REPLY TO: D66 at nic.surfnet.nl

-------- Original Message --------
Subject: 	[Marxism] Contagious East Europe
Date: 	Tue, 24 Feb 2009 11:22:35 -0500
From: 	Louis Proyect <lnp3 at panix.com>
Reply-To: 	Activists and scholars in Marxist tradition
<marxism at lists.econ.utah.edu>
To: 	aorta <aorta at home.nl>



NY Times, February 24, 2009
As It Falters, Eastern Europe Raises Risks
By NELSON D. SCHWARTZ

PARIS - Since the fall of the Berlin Wall, the countries of Eastern
Europe have emerged as critical allies of the United States in the
region, embracing American-style capitalism and borrowing heavily from
Western European banks to finance their rise.

Now the bill is coming due.

The development boom that turned Poland, Hungary and other former Soviet
satellites into some of Europe's hottest markets is on the verge of
going bust, raising worrisome new risks for the global financial system
that may ricochet back to the United States.

Last week, Wall Street plunged after Moody's Investors Service warned
that Western banks that had recently beat a path to Eastern Europe's
doorstep now faced "hard landings," spooking investors with new fears
that the exposure could spread beyond Europe's shores.

"There's a domino effect," said Kenneth S. Rogoff, a professor at
Harvard and former chief economist of the International Monetary Fund.
"International credit markets are linked, and so a snowballing credit
crisis in Eastern Europe and the Baltic countries could cause New York
municipal bonds to fall."

The danger is on several fronts. The big European economies, including
Britain, France, Germany and Spain, are already in recession, and many
of their largest banks have curbed lending at home and abroad.

For Central and Eastern Europe, which enjoyed breakneck growth thanks to
a wave of credit from these banks, the squeeze could not have come at a
worse time. Already bruised by the global downturn, they are on the
verge of a downward spiral as the flow of credit dries up. Average
growth among countries in the region slid to 3.2 percent last year, from
5.4 percent in 2007. This year, it is forecast to contract by 0.4
percent - and very likely more.

"These numbers will be coming down," said Charles Collyns, deputy
director of the research department at the International Monetary Fund.

Add to that a new worry: International finance officials fret that the
worst regional economic crisis since the Berlin Wall came down could set
off a contagion among the region's currencies, with echoes of the Asian
financial crisis of the late 1990s. Then, emerging markets like Thailand
borrowed in foreign currencies to fuel growth, but suddenly owed more
than they could afford to pay back once their own currencies lost value.

Since peaking last summer, Poland's currency has slumped 48 percent
against the euro; Hungary's has fallen 30 percent and the Czech
Republic's is off 21 percent. "Very simply, Eastern Europe has become
Europe's version of the subprime market," said Robert Brusca of FAO
Economics in New York.

On Monday, the central banks of Poland, Hungary, Romania and the Czech
Republic sought to restore calm by issuing statements arguing that the
recent sell-off was not justified by economic fundamentals.

In addition, Western banks could very likely suffer a further increase
in nonperforming loans. "Most of the banks in this region are from the
euro countries and will have to undergo further recapitalization,"
Gillian Edgeworth, an economist with Deutsche Bank in London, said.

Another problem is that big institutional investors in Western Europe -
banks, pension funds and insurance companies - have large holdings of
East European debt. If the banks need further infusions of capital from
Western governments already straining to pay for stimulus packages and
to maintain their social safety nets, it could put additional pressure
on the euro as well.

"The threat to more developed economies goes through the banking
channel," Dominique Strauss-Kahn, the head of the monetary fund, said in
a recent interview.

As the downturn worsens across the Continent, Mr. Rogoff explained, risk
aversion can quickly spread to other parts of the world. Some investors
hurt by plunging markets in Europe are having to sell American assets to
raise money, adding pressure to a United States stock market already
weakened by fears of nationalization.

"It's one big trans-Atlantic money market out there, and these banks
lend money to each other all the time," said Simon Johnson, another
veteran of the monetary fund who is a now a professor at the Sloan
School of Management at the Massachusetts Institute of Technology.
"Deutsche Bank and UBS and Goldman Sachs and Citi are all intertwined."

In Eastern Europe itself, the risks for Western companies doing business
there have also surged.

Until recently, for example, Eastern Europe and Russia were rare bright
spots for the beleaguered American automakers Ford Motor and General
Motors. In Poland, where G.M. has a major factory, sales rose 10 percent
last year to 38,000 cars, while sales in Russia soared 30 percent to
338,000 vehicles.

Since then, demand has fallen sharply. In the Baltic countries, which
were among the first to feel the chill, G.M.'s sales dropped an average
of 57 percent in the final months of 2008.

Among the biggest victims of the crisis are tens of thousands of workers
who had clawed their way to more prosperity, only to see their dreams
crumble as jobs and the financial system eroded.

Because their declining currencies make it more expensive to import
goods and to pay off foreign debts, governments have cut spending and
reduced public services, leading to a wave of increasingly violent
protests across the region that is threatening governments.

On Friday, the coalition government in Latvia - where the economy
contracted more than 10 percent on an annualized basis last month -
became the second European government, after that of Iceland, to collapse.

Meanwhile, in the Ukrainian capital, Kiev, demonstrators took to the
streets Friday as depositors rushed to pull their money out of local banks.

The crisis has forced the monetary fund to step into the breach. In
recent months, it has extended Ukraine, Iceland, Hungary and Latvia
billions in aid. "I'm expecting a second wave of countries to knock at
the door," Mr. Strauss-Kahn said.

Two years ago, "the idea was very, very consistently projected that the
I.M.F. would not have to help emerging countries any more," and that the
"financial markets would take care of it," Jean-Claude Trichet,
president of the European Central Bank, said Friday. Now, he said, this
has proved to be "totally false."

For Mr. Johnson and other students of financial history, the latest
developments in Europe - especially in Austria, whose banking industry
is heavily exposed to its Eastern neighbors - raise eerie parallels with
the 1930s. Mr. Johnson notes that it was the failure of a Viennese bank,
Creditanstalt, in 1931 that was a turning point in what became the Great
Depression.

Mr. Johnson said he did not expect a repeat of that calamity, but he
does foresee a long period of minimal growth, akin to Japan's "lost
decade" of the 1990s, in both the United States and Europe.

And while the United States may have been the trigger for this
international financial crisis, it is hardly alone in shouldering the
blame. "We set off the sticks of dynamite, but a lot of people had
tinderboxes under their houses," he said.

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