rationalist

Emerging Markets Watch: Upcoming Eastern European Economic Cataclysm

this is another shallow "analysis" of East Europe. First - it puts all the countries into one bucket, although there are substantial differences between them.

Second - while some countries like the baltics have clearly overheated economies by too lax domestic monetary policies, others have had quite prudent domestic monetary policy (E.g. Romania), but have been impacted by the easy money flowing from Euro-zone.

The second type of overheating is less damaging to the economy (it is less pervasive), although it creates large FX exposure.

FX now is the largest problem, because it can cause defaults and some cleaning in the economy. However - those that have been sticking to the domestic currency are nt impacted directly.

This is balanced by the fundamentally good position of most countries in the region (comparing to the US). These countries have competitive advantages in form of cheaper labor markets and in the same time are located in close proximity to large potential clients in western Europe. The workforce is educated and becoming more mobile. The drag could be bad government policies, but actually in the last couple of years these countries have become the lowest-taxed in Europe (e.g. Slovakia 19% flat tax, Romania 16% flat tax) - so the policy trend is positive. Those contries that are in the EU are additionally facing an increased scrutiny on their economic policies by other member-states. Budget deficits are largely under control (copare that to the US!).

So - while there are panics in Ukraine and Russia, which can be explained in large part by recent experiances of these populations with bad government policies, most countries in the region are fairly safe. My Polish friends are actually joking that there is a crisis, but no one has seen it yet. Some industries are impacted - notable financial industry - but this is due to precautionary actions and often an order from western-based owner, rather than a worsening of potfolio quality. As long as currency panic will be avoided (which seems likely except for Ukraine and Russia), the slowdown will be rather mild comparing to what will be happening in the US, UK, Spain, Ireland, etc.