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East European Financial Crisis Likely To Hit Overexposed Western Europe

Oct. 29, 2008 11:51 AM ETIEV, SPEU, ADRU, EWL, EWD, EWU, EWP, EWI, EZU, FXE, GUR, EWO1 Comment

Emerging East European countries are set to become the worst nightmare of Eurozone banks with a heavy exposure to these once so profitable markets. Looking at the share prices of Italian Unicredit or Austrian Erste Bank and Raiffeisen International - all down more than 60% from their record highs seen a year earlier - the worries appear to have a very real background.

Ambrose Evans-Pritchard offers the saucy details in yesterday's web edition of the Telegraph. After a wave of Eurozone bank insolvencies that lead to a industry concentration through rescue mergers in Germany, the Netherlands, Spain, and the UK, it now appears that tiny Austria may be left holding the bucket in Eastern Europe. Loans to Eastern emerging markets have reached a critical level of 85% of Austria's GDP which is around €240 billion or €32.600 per inhabitant.

According to the Telegraph:

Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund. Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

While the world has so far focused on the US banking crisis, the centre of attention will soon shift to Europe as loans in danger of default dwarf the US losses.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May

This article was written by

The Prudent Investor is written by Toni Straka. Straka, who is 41, currently resides in Vienna, Austria. Straka is an independent certified financial analyst (OeVFA, EFFAS) who worked as a financial journalist for 15+ years and now evaluates global market trends. The Prudent Investor's subtitle is "Seeing Too Many Bubbles" - Straka believes we are in an era of global redistribution of wealth in which the US-European centric approach will not work much longer. "Five billion people in the developing countries will demand their fair share of the world's resources," he writes. When not blogging, the Prudent Investor enjoys taking long trips to "far off" destinations. Visit his site: http://prudentinvestor.blogspot.com/

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Comments (1)

ScottyEconomist profile picture
Great article, I had no idea that Western Europe was so heavily invested in Eastern Europe.
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