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Next Wave of Banking Crisis to come from Eastern Europe
- Text size
F. William Engdahl
Global Research
February 18, 2009
European banks face an entirely new wave of losses in coming months not yet calculated in any government bank rescue aid to date. Unlike the losses of US banks which derive initially from their exposures to low-quality sub-prime real estate and other securitized lending, the problems of western European banks, most especially in Austria, Sweden and perhaps Switzerland arise from the massive volumes of loans they made during the 2002-2007 period of extreme low international interest rates to clients in eastern European countries.
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| German Finance Minister Peer Steinbrück reportedly flatly rejected any EU rescue funds for the east, claiming it was not Germany’s problem. | |
The problems in Eastern Europe which are just now emerging with full force are, if you will, an indirect consequence of the libertine monetary policies of the Greenspan Fed from 2002 until 2006, the period where Wall Street’s asset backed securitization Ponzi Scheme took off.
The riskiness of these eastern European loans is now coming to light as the global economic recession in both east and west Europe is forcing western banks to pull back, refusing to renew loans or ‘rollover’ the credits, leaving thousands of borrowers with unpayable loan debts. The dimension of the eastern European emerging loan crisis pales anything yet realized. It will force a radical new look at the entire question of bank nationalizations in coming weeks regardless what nice hopes politicians in any party entertain.
Moody’s Rating Service has just announced it ‘might’ downgrade a number of western European banks with large exposures to eastern Europe. On the report, the Euro fell to 2 and a half month lows against the dollar.
The Moodys report mentioned especially banks in eastern Europe owned by western European banks including specifically Raiffeisen Zenetralbank Oesterreich and Sweden’s Swedbank. The public Moody’s warning will now force western banks with subsidiaries in eastern Europe to dramatically tighten lending conditions in the east at just the time the opposite is needed to keep economic growth from collapsing and thereby setting off chair-reaction loan defaults. The western banks are caught in a devil’s circle.
According to my well-informed City of London sources, the new concerns over bank exposures to eastern Europe will define the next wave of the global financial crisis, one they believe could be even more devastating than the US sub-prime securitization collapse which triggered the entire crisis of confidence.
As a result of the Moody’s warning, west European banks will now likely be selective in supporting their subsidiaries. Moody’s report noted that ‘banks in countries that are associated with higher systemic risks might face reduced support.’ Western European governments may also establish rules to ensure banks receiving state support are forbidden to aid foreign subsidiaries. This is already the case with Greek banks and the Greek Government. The result is to make a bad situation far worse.
The size of risks are staggering
The amount of loans potentially at risk involve mostly Italian, Austrian, Swiss, Swedish and it is believed German banks. Once the countries of the former Soviet Union and Warsaw Pact declared independence in the early 1990’s west European banks rushed in to buy on the cheap the major banks in most of the newly independent east countries. As US interest rate cuts after the stock crisis in 2002 pushed interest rates around the world to new lows, easy credit led to higher risk lending across borders in foreign currencies. In countries such as Hungary Swiss and Austrian banks promoted home mortgage loans denominated in Swiss Franc where interest rates were significantly lower. The only risk at the time was if the Hungarian currency were to devalue, forcing homeowners in Hungary to repay sometimes double the monthly amount in Swiss Francs. That is what has happened over the past 18 months as western banks and funds have dramatically reduced their speculative investments in eastern countries to repatriate capital back home where the mother banks had serious problems caused by the US banking catastrophe. In the case of the Polish Zloty, the currency has dropped in recent months by 50%. The volume of mortgages existing in foreign currencies in Poland is not known but London estimates are that it could be huge.
In the case of Austrian banks, the country faces a rerun of the 1931 Vienna Creditanstalt crisis which in chain-reaction spread to the German banks and brought Continental Europe into the economic crisis of 1931-33. At the recent EU Finance Ministers’ meeting in Brussels, Austrian Finance Minister Josef Pröll reportedly pleaded with his colleagues to come up with a €150 billion rescue package for the banks in eastern Europe. Austrian banks alone have lent €230 billion there, equivalent to 70% of Austria’s GDP. Austria’s largest bank, Bank Austria, which in turn is owned by Italy’s Unicredito along with the German HypoVereinsbank, faces what the Vienna press calls a ‘monetary Stalingrad’ over its loan exposure in the east. In a botter historic irony, Bank Austria bought the Vienna Creditanstalt in recent years in its wave of mergers.
According to estimates published in the Vienna financial press, were only 10% of the Austrian loans in the east to default in coming months, it ‘would lead to the collapse of the Austrian financial system.’ The EU’s European Bank for Reconstruction and Development (EBRD) in London estimates that bad debts in the east will exceed 10% and ‘may reach 20%.’
- A d v e r t i s e m e n t
German Finance Minister Peer Steinbrück reportedly flatly rejected any EU rescue funds for the east, claiming it was not Germany’s problem. He may soon regret that as the crisis spreads to German banks and results in far greater costs to German taxpayers. One of the most striking aspects of the present crisis which first erupted in summer of 2007 is the increasingly evident incompetence of leading finance ministers and central bankers from Washington to Brussels to Paris and Frankfurt and Berlin to deal resolutely with the crisis.
The London office of US investment bank, Morgan Stanley has issued a report estimating the total of western European bank lending to the east. According to the report Eastern Europe has borrowed a total of more than $1.7 TRILLION abroad from mainly west European banks. Much of that has been short-term borrowing of less than a year. In 2009 eastern countries must repay or roll-over (renew) some $400 billion, fully 33% of the region’s total GDP. As global recession deepens the chances of that are fading by the day. Now western banks are refusing to roll-over such loans, under political pressure and financial pressure back home. The credit window in the east, only two years ago the source of booming profits for the west European banks, have now slammed shut.
Even Russia which a year ago had more than $600 billion foreign exchange reserves, is in a difficult situation. Russian large companies must repay or roll-over $500 billion this year. Russia has bled 36pc of its foreign reserves since August defending the rouble.
In Poland, 60% of all mortgages are in Swiss francs. The Polish zloty has just fallen in half against the Swiss franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this same story. As an act of collective folly – by lenders and borrowers – it matches America’s sub-prime debacle. This crisis, for European banks comes atop their losses in US real estate securities. In is the next wave of the crisis that is about to hit. Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. Europeans account for an astonishing 74% of the entire $4.9 trillion portfolio of loans to emerging markets. They are five times more exposed to this latest crisis than American or Japanese banks, and they are 50pc more leveraged according to the IMF.
Whether it takes months, or just weeks, Europe’s financial system now faces a major test and the situation is complicated by the fact that when the rules of the European Central Bank were finalized in the late 1990’s, governments could not agree to surrender total national central banking powers to the new ECB. As a result, in this first test of the ECB in a systemic crisis, the bank is unable to act in the same manner as say the Federal Reserve and fiull the role of lender of last resort or to flood the markets with emergency stimulus.
By some estimates 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. The EBRD estimates that eastern Europe needs at least €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 €155bn reserve, forcing it to sell its gold reserves to raise cash.
The recent IMF $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is going towards default, leaving Unicredit, Raffeisen and ING facing disaster. 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.
Perhaps most alarming is that 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.
Clear at present is that for small-minded political reasons, 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 boycott Italy’s exploding public debt, hitting 112% of GDP next year, just revised up from 101%.
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February 18th, 2009 at 2:05 pm
or in the words of my generation, “we b Fooked”
FIGHT THE NEW WORLD ORDER! Reply:
February 18th, 2009 at 6:44 pm
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#########################################################
HEY PEOPLE! IF YOU GET CHANCE! PLEASE CLICK ON MY NAME TO HEAR MY SONG!
IT IS CALLED — A NEW WORLD ORDER –
PLEASE LET ME KNOW WHAT YOU THINK! I AM JUST TRYING TO SPREAD THE MESSAGE ABOUT THE NEW WORLD ORDER! IT JUST HAPPENDS THAT I DO IT THROUGH MUSIC!
#########################################################
THE TIME IS GETTING NEAR NOW!
THE NEW WORLD ORDER HAVE NO REGARD FOR HUMAN FREEDOMS OR LIFE!
9/11 WAS AN INSIDE JOB, THE LONDON BOMBINGS OF 7/7 WERE A STAGED EVENT!
WE CAN -NEVER- FORGET THAT!
PEACE!
masterkyiron Reply:
February 19th, 2009 at 4:16 am
http://www.healthfreedom.org dr laibow needs you to sign fast!farmers under attack from monsanto!obamas criminals pass bill in 2 weeks!
February 18th, 2009 at 2:05 pm
Alex ~ THE CALLED WAS A PSY OP. Basic psychology is to put you on the defensive by ASKING QUESTIONS. Even normal questions to normal healthy people subtly puts ANYONE in a defensive stance. Just THINK BASKETBALL on the phone. The moment you hear something absurd like an inference that you do not talk about WHAT WE SHOULD DO ~ unless it is a dimwit on the line (and you could tell) TURN THE TABLES ALEX. YOU start asking HIM what HE HAS DONE for the cause. Ask him to be specific and LIST WHAT HE HAS DONE TO HELP. That caller was a sophisticated psy op and obviously more effective at COVERT operations than most of the callers that are not in our camp. We are watching your back Alex ~ always. So that is Ethel’s BEST ADVICE of the day.
Oh, P.S. you were FABULOUS on Coast to Coast. I honest to god think you are helping snap George out of his timidity. He knows only he feels uncomfortable being too militant. It is time he came around to the NWO big time and you are making HUGE inroads into that. We watch Alex ~ and we listen. We are your following. And we are alert.
God bless,
Ethel
February 18th, 2009 at 2:09 pm
WARNING!!! WARNING!!! WARNING!!!
U.S. GOVERNMENT CIA, FBI, BATF, NSA, DIA AND THE ISRAELI MOSSAD REGULARLY MONITOR THE ALEX JONES WEBSITES ALONG WITH MANY OTHERS.
YOU CAN USUALLY TELL WHO THEY ARE BY THE AUTHORITATIVE TONE THEIR REPLYS TAKE.
THEY ARE USUALLY THE FIRST TWENTY OR SO BLOGGERS TO DISTORT THE TRUTH.
THEY USE A VARIETY OF TACTICS, SUCH AS:
CHANGING THE SUBJECT OF THE THREAD. AGREEING WITH THE CHANGE AND CONTINUING THE SAME CHANGE.
THEIR REPLYS ARE USUALLY VEHEMENT AND AUTHORITATIVE IN NATURE.
THEY CHANGE THEIR NAMES IN ORDER TO MAKE MULTIPLE ENTRYS IN ORDER TO SHOW NUMEROUS NEGATIVE REPLYS IN AN ATTEMPT TO DISSUADE THE READER.
THEY TRY TO DISCREDIT OTHERWISE RELIABLE SOURCES.
I THINK YOU GET THE PICTURE. SEE IF YOU CAN SPOT THEM.
JW 2305 Reply:
February 18th, 2009 at 2:22 pm
A Priest, Rabbi and a monk were walking down the street……………………. oops did i change the subject
February 18th, 2009 at 2:44 pm
*** WE CAN SUGAR-COAT or SPIN this anyway we want to but bottom line is THIS is the JUDGMENT of GOD for turning away from His Word, His WILL and His Way!!!========John3:36!!! Repent Morons! GOD will NOT be mocked!!!!
A Lion among Sheep Reply:
February 18th, 2009 at 4:02 pm
Repent for what? Not following a certain dogma?
You speak of judgment, of will and mocking. Do you honestly find peace in what you preach? Not one ounce of your accusation reflects the love and peace you say your religion preaches.
Your fundamentalist attitude is not something I’d expect from the follower of peaceful and harmonious being. If your god is who you claim as all knowing and loving, I can guarantee you that you have picked the wrong god.
February 18th, 2009 at 2:49 pm
Who wants to bet B.O. will use American tax payer money to help out the EU?
February 18th, 2009 at 3:38 pm
It is very obvious that the International Banksters intend to crash all the economies of the world so they can rule everybody in every nation!! Even the poor Russian Oligarches are losing their airplanes and yaghts and mansions!! Instead of having 3 to 4 mansions; the poor Russian KGB/mobsters are now having to do with just 2 or even just one!! And the CIA is still spreading chaos and drugs and murders and assasinations all over the planet to cause much dispair and chaos as they are controlled and rules by the antichrist luciferian elites!! But all of their days are numbered!! The Great God of Heaven will plague them all for 42 months of hell on the Earth for killing and martyring His Children who wouldn’t take their zombie making Mark of the Beast Chip that is spoken of in Revelation 13th and 14th chapters!!
February 18th, 2009 at 3:48 pm
REPENT.UNITE.RESIST.
February 18th, 2009 at 4:33 pm
The same old trick they used in 1931, they’re using again to crash the economy and buy up the assets.
Many banks are v active in the branch “debt restructuring”, ie nailing the asset for next to nothing.
And just like in 1931, this same group is financing the rise of the far right and other extremists in order to control the social unrest with divide and rule tactics, pitting one group against the other, and so deflect the anger arising from such a sudden pauperisation onto other groups, who will (they hope) destroy each other.
In addition, unkown to most people, the EU under the Lisbon Treaty is about to flip over into an out and out totalitarian bureaucractic state under an unelected EU President (illuminati toady Blair) with a strong military (own army, compulsory military service, compulsory pact of mutual assistance).
So, there is war is on the horizon. The financial cult will try to use war to make yet more money, smash rivals and deflect attention from them as they did in 1930s.
February 18th, 2009 at 5:28 pm
Barry: there is no evidence whatsoever your God is nothing more than a con of delusional hypocrite narcissistic control freaks. Your blanket judgment on people you don’t know, pressuming your knowledge of their violations of your religion’s code of laws, is ignorant. Deal with yourself and stop projecting your internal guilt (for your sins!) onto strangers and their lives.
February 18th, 2009 at 6:07 pm
The banking industry in Eastern Europe is a sinking ship, and a lot of its western neighbors will follow it right down to the bottom.(And you can take that to the bank) if you can find one?????
February 18th, 2009 at 6:35 pm
Speaking of presumptions, Praesumitur quod fieri debet facile.
February 18th, 2009 at 9:12 pm
This is kind of news, but is really a re-hash of a Feb. 15 article by Ambrose Evans-Pritchard.
In today’s environment, three days is a generation gap. In this case, though, it really does not make a difference. The message either way is clear. Do not leave home without your helmet!
February 18th, 2009 at 10:00 pm
Make fliers and put them everywhere. My flier “Care about the loss of your constitution watch these videos (Youtube) and spread the word.” List all of your favorite videos. I Put them on car wind shields, in books everywhere!!!!!!!!!!!