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- Feb 28, 2008
The European Union rejected pleas from Hungary to bail out Eastern Europe last Sunday, according to Bloomberg. The requested loan, to the tune of €180 billion, was metwith criticism from Western European leaders, who directed the struggling ex-Soviet economies to the IMF for aid.
With Berlin and Paris issuing protectionist sentiments in recent weeks, and now this, the imminent collapse of Eastern Europe seems closer and closer at hand.
Germany, by far the largest Euro economy, is at the forefront of the Eastern Europe bailout debate, receiving repeated pleas for aid. However, unlike theAmerican situation, Germany fell 20% short at a recent government bondauction last month, making it clear it can't even finance its own domestic bailout, let alone the entire CEE.
Whether or not the EU bails our Eastern Europe, the Euro appears on the brink of freefall. Massive deficit spending, whether for bailing out Eastern Europeor capitalizing/socializing Western European banks with leveraged exposure to Eastern Europe, will have to be financed with a great deal of monetaryeasing.
According to a terrificarticle by John Mauldin, EU banks hold £16.3 trillion of toxic assets related to the Eastern European debacle. With Germany unable to finance bailing outits own domestic crisis, a lot of monetary easing is going to occur, and the Euro is going to face sharp devaluation.
Just like the subprime debacle was poetic justice to the inverventionalist/micromanagement policies of Greenspan, Clinton, and Bush, the Eastern Europeancrisis is poetic justice to the socialist, self-important, arrogant community known as the EU. Once conceitedly priding itself on its integration and union,its nations are resorting to beggar thy neighbor and are very hesitant to help others.
Eastern Europe will be just as bad if not worse than subprime, which Western European banks also have to deal with. European banks will have to besocialized. Austrian banks like Raischerfein and Erste Bank are TOASTTTTT. Royal Bank of Scotland will probably be nationalized. Credit Suisse and DeutscheBank are going to face sharp equity decline. Europe is toast.
Looking at a chart of EUR/USD, a breach of the 1.23-1.24 level should lead to much lower valuations. With still-existent demand for Treasuries (much of it fromthe Federal Reserve), the Dollar appears to be the "best of the worst" and is a good currency to pair against the Euro to play the Euro'sinevitable selloff. The recent exodus into gold may have been primarily from Euro positions, as bank worries heightened Euro devaluation risk.
Latvia, Hungary, and Ukraine lead the pack of Eastern European nations on the verge of collapse, with Austria, Italy, France, Sweden, and Germany being theprimary financiers of those CEE economies. Russia, at risk for default, Poland, and Estonia also face strong headwinds.
With Berlin and Paris issuing protectionist sentiments in recent weeks, and now this, the imminent collapse of Eastern Europe seems closer and closer at hand.
Germany, by far the largest Euro economy, is at the forefront of the Eastern Europe bailout debate, receiving repeated pleas for aid. However, unlike theAmerican situation, Germany fell 20% short at a recent government bondauction last month, making it clear it can't even finance its own domestic bailout, let alone the entire CEE.
Whether or not the EU bails our Eastern Europe, the Euro appears on the brink of freefall. Massive deficit spending, whether for bailing out Eastern Europeor capitalizing/socializing Western European banks with leveraged exposure to Eastern Europe, will have to be financed with a great deal of monetaryeasing.
According to a terrificarticle by John Mauldin, EU banks hold £16.3 trillion of toxic assets related to the Eastern European debacle. With Germany unable to finance bailing outits own domestic crisis, a lot of monetary easing is going to occur, and the Euro is going to face sharp devaluation.
Just like the subprime debacle was poetic justice to the inverventionalist/micromanagement policies of Greenspan, Clinton, and Bush, the Eastern Europeancrisis is poetic justice to the socialist, self-important, arrogant community known as the EU. Once conceitedly priding itself on its integration and union,its nations are resorting to beggar thy neighbor and are very hesitant to help others.
Eastern Europe will be just as bad if not worse than subprime, which Western European banks also have to deal with. European banks will have to besocialized. Austrian banks like Raischerfein and Erste Bank are TOASTTTTT. Royal Bank of Scotland will probably be nationalized. Credit Suisse and DeutscheBank are going to face sharp equity decline. Europe is toast.
Looking at a chart of EUR/USD, a breach of the 1.23-1.24 level should lead to much lower valuations. With still-existent demand for Treasuries (much of it fromthe Federal Reserve), the Dollar appears to be the "best of the worst" and is a good currency to pair against the Euro to play the Euro'sinevitable selloff. The recent exodus into gold may have been primarily from Euro positions, as bank worries heightened Euro devaluation risk.
Latvia, Hungary, and Ukraine lead the pack of Eastern European nations on the verge of collapse, with Austria, Italy, France, Sweden, and Germany being theprimary financiers of those CEE economies. Russia, at risk for default, Poland, and Estonia also face strong headwinds.
