Socio-Economics History Blog

Socio-Economics & History Commentary

Eastern Europe on the Edge

  • The elephant in the room now is Eastern Europe. Things can get out of hand very rapidly. The EU is taking too small a step to prevent the crisis from escalating. Merkel rejects bailout plan for eastern EU nations :
     
    German Chancellor Angela Merkelhas rejected calls for a multibillion-euro bailout plan for eastern European Union member states.
     
    She says the situation is very different in each EU country and aid should be handled on a case-by-case basis. She adds that a one-size-fits-all bailout of poor eastern members is unwise.
     
    Merkel told reporters during Sunday’s summit of EU leaders that “you cannot compare” the dire situation in Hungarywith that in other countries. Germany, the EU’s largest and richest economy, is under growing pressure to offer more help.
     
    Eastern states, led by Hungary, are pushing for richer EU members to provide more financial aid to help them out of their economic troubles.

     
  • Bloomberg reports in EU’s Eastern States Plead for Aid as Crisis Escalates :
      
    Eastern European leaders pleaded with richer western European countries to boost financial aid and keep trade flowing, warning that the recession risks splitting the European Union.
      
    The worst slump since World War II is devastating the ex- communist economies in the EU’s east, sinking their currencies and driving two countries — Hungary and Latvia — to tap international aid to avert default.
     
    “They are in a deep crisis and they need our solidarity,” Swedish Prime Minister
    Fredrik Reinfeldt told reporters before a meeting of EU leaders in Brussels today. 
      ……
    Nine eastern leaders held a pre-summit meeting early today to warn the West against putting up new walls in Europe, five years after the EU overcame the division of the continent by admitting its first eastern members.
     
    “We all wish that Europe avoids the temptation of protectionism,” Polish Prime Minister
    Donald Tusk said after the eastern-only gathering.
        ….
    Hungarian Prime Minister
    Ferenc Gyurcsany last week called for an EU aid package of as much as 180 billion euros for eastern European economies and banks, including funds for non-EU members Croatia and Ukraine.
       
    Gyurcsany also called on the EU to extend the euro currency more quickly into eastern Europe by shortening the 24- month waiting period during which countries must peg their currency to the euro.
     

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March 2, 2009 Posted by | Economics | , , , , , , | 2 Comments

Eurozone Nears Breaking Point !

  • This crisis is putting a lot of strain on the Eurozone. The Eastern Europe collapse is not close to being resolved despite a US$30B bailout assistance. Western European banks loaned something like US$1.7T to Eastern Europe. US$30B is hardly 2% of US$1.7T. Something like 20x that amount will be needed.
     
  • Daniel McLaughlin writes in £20bn bailout to defuse East Europe’s timebomb :
      
    Three global development banks pledged more than £20bn yesterday to avert potential financial meltdown in eastern Europe, where plunging currencies, mounting job cuts and a deepening debt crisis have sparked riots, rocked governments and stoked fears of widespread social unrest.
     
    The move came as the European Union prepared for emergency talks tomorrow on the economic crisis, and Hungary’s Prime Minister, Ferenc Gyurcsany, asked Brussels to spend up to €180bn (£160bn) to bolster eastern Europe.  …..
     
    Hungary and Latvia have already sought billions of euros from the International Monetary Fund (IMF) to help them survive the crisis, and Romania is expected to follow suit; non-EU members Ukraine, Serbia, Belarus and Iceland have also received rescue packages from the IMF.
     
    While Hungary, the Baltic states and the Balkans are wrestling with the most serious debt and budget imbalances, even the region’s most stable countries are entering a sharp slowdown: Poland, Slovakia and the Czech Republic are not facing financial catastrophe, but their export-driven economies are slowing as demand dives across the EU. The Polish zloty and Czech koruna have been pummelled on the currency markets, falling 14 and 6 per cent respectively just in the past two months.  …..
     
    Experts say the problem could become “Europe’s sub-prime” – a reference to the bad mortgages that dragged the US economy into crisis – because many of eastern Europe’s lenders are owned by big Western banks. Huge losses in the east could drag down those parent banks, sending financial “contagion” tearing across the continent and beyond. Yesterday’s announcements were aimed at reducing that risk. The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank launched a €24.5bn plan to finance banks and small companies across eastern Europe. But analysts said far more would be needed to quell the danger of meltdown. “Ultimately we will have to get a much bigger package and a co-ordinated response from the IMF, the EU and maybe the G7,” said Nigel Rendell, emerging markets strategist at Royal Bank of Canada in London.
     
    This year is living up its billing as special one for eastern Europe – but for all the wrong reasons. As the World Bank chief Robert Zoellick said this week: “It would certainly be a political and human tragedy if you saw the reuniting of Europe from 20 years ago come to a crisis now.”

     
  • Instead of Eastern Europe breaking the back of the Eurozone, could one country of Western Europe cause a collapse? Gordon Rayner writes in Breaking point for the eurozone?:
      
    Ireland’s ‘miracle’ economy has turned terrifyingly sour – and as it strains against the inflexibility of the euro, its next crisis may shake the entire EU.
     
    They can barely let the words pass their lips, but some of the EU’s most important policymakers were forced this week to discuss what was once unthinkable: that at least one of the 16 eurozone countries might be on the brink of ditching the single currency.
     
    Jean-Claude Trichet, president of the European Central Bank, admitted that the 10-year-old eurozone was under “extreme strain”, with weaker countries struggling to keep their economies afloat in the face of the devaluation of other currencies, such as sterling and the dollar.
      
    Joschka Fischer, Germany’s former foreign minister, darkly suggested that we would soon find out whether the eurozone would turn out to be “a disaster”, while the German finance ministry is vacillating on whether it would be prepared to bail out insolvent states.
     
    The current thinking is that Germany and France, as the strongest economies in the zone and “lenders of last resort”, would have to bail out failing states: the prospect of the eurozone breaking up would bring the future of the EU into question.
     
    But the most startling fact to emerge this week is that the country which is seen as the most vulnerable, and therefore the most likely to ditch the euro, is not Slovenia, or Cyprus, or Greece, but Ireland.
     
    Until a year ago, the Republic’s Celtic Tiger economy, which attracted such blue-chip companies as Dell, Microsoft and Intel, seemed unstoppable. In a decade, the Irish economy grew by almost 90 per cent, catapulting it from one of the poorest countries in Europe to the fourth-richest per capita. Government advisers from as far afield as Chile and Israel made pilgrimages to marvel at a model that they were desperate to emulate.
      
    Not any more. All of a sudden, Ireland’s debt-fuelled economy, built largely on a construction boom, has collapsed in a more spectacular manner than almost any other in Europe. Irish government bonds are rated as the riskiest in the EU (see graphic), and there has been panicky talk of Ireland as “the next Iceland”.
      …..
    But if the Irish economy, and that of other struggling EU states, continues to nosedive, the cohesion of the eurozone is likely to be tested to breaking point.

       
  • Landon Thomas, with an even more pessimistic view point, Is Ireland fated to be another Iceland? :
      
    Known in this country as Dr Doom, Kelly, whose eyes burn with the intensity of his prophecy, calls himself the Nouriel Roubini of Ireland – a nod to the now world-recognised economist at New York University who was one of a handful of experts who predicted the credit collapse.
     
    “We have gone from the Celtic Tiger to Bob the Builder – this place is vaporising,” Kelly said as he sipped coffee in a Dublin cafe. An economist at University College in Dublin who specialises in medieval demographics, Kelly began sounding the alarm of a coming housing market crash in late 2006, the peak of the property boom.
     
    Now he expects the economy to contract by 20%. And his latest prediction – to which he attaches a 25% probability – is that Ireland will default, and that Anglo Irish Bank, the recently nationalised bank that has become a reviled symbol of rampant lending and corruption, has not only underestimated its loan losses but has a swelling book of derivatives contracts gone bad.
      
    The result, he warns, could be bank losses at Anglo Irish and other banks that supersede the Irish government’s promise to guarantee all liabilities in the banking sector. What would follow would be a run on the banks, inability of the government to finance its 12% budget deficit, and ultimately a bailout by the European union.
     
    “That is the optimistic scenario,” Kelly said, arguing that his worst fear is a collective economic failure of several countries in eastern Europe, along with Ireland and those on the southern periphery of the eurozone – Greece, Italy, Spain and Portugal – that would be beyond the capacity of any government or group of governments to stem.
     
    “It’s not about the property developers and the banks any more – it is about the survival of Ireland,” he said.
     
  • Germany the strongest economy in Europe is not doing well. Storm over Germany :
      
    The global financial crisis threatens to strike Germany – and the rest of the European Union – with hurricane-like force in the next three to six months.
     
    As the world’s leading exporter and Europe’s primary economic engine, Germany is already enduring its worst recession since 1990. And as world trade shrinks and layoffs mount, Germany’s downward spiral could further fragment the 27-nation EU.

     
  • World is teetering on collapse! Wholesale bad news across the globe. The current economic problems are several orders of magnitude beyond what governments can handle.

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March 2, 2009 Posted by | Economics | , , , , | 1 Comment

Jim Rogers – Things are Going to Get Much Worse. Social Unrest in a Few Years!

  • Vocal critic of American economic policies, Jim Rogers gives his views on the world economy and where stocks are heading.
     
  • Rogers is bullish on commodities because of the poor supply situation. “Farming is going to be the great industry of our time!

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March 2, 2009 Posted by | Economics | , , , , , , , | 1 Comment

William Engdahl – Financial Crisis & Wall Street Banksters!

  • Author William Engdahl comments on the economic situation in America. What were the causes of this collapse? Will the Obama administration address all these causes. Look at the people he has put in place to ‘solve’ this crisis.

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March 2, 2009 Posted by | Economics | , , , , | Comments Off on William Engdahl – Financial Crisis & Wall Street Banksters!

End of the American Dream !

  • Last Friday saw the revision of 4Q GDP to 6.2% far higher than the earlier estimate of 3.8%. Larry Elliot writes in Fresh evidence points to paralysis of global economy:
      
    The sharpest contraction in US growth for more than a quarter of a century, a collapse in Japanese factory output and an emergency package of help for the struggling countries in Eastern Europe provided fresh grim evidence today of the paralysis in the global economy.
     
    Amid fears that the downturn triggered by the credit crunch has turned into the worst slump in output since the 1930s, data from Washington showed that the havoc wreaked by the problems on Wall Street last Autumn was far worse than originally believed.
     
    American gross domestic product in the final three months of 2008 declined at an annual rate of 6.2%, much weaker than the earlier estimate of a 3.8% fall and the worst performance by the world’s biggest economy since early 1982.
     
    A breakdown of the data revealed that consumer spending, exports and investment in commercial property were all even lower than originally believed, although the main reason for the downward revision to growth was that the build up of inventories by companies was far less pronounced than originally believed.
     
    Analysts said there had been no let-up in the bad news since the turn of the year and the markets are now braced for payroll figures next Friday to show that around 750,000 jobs were lost in the US during February, with worse to come in future months.
     
    Rob Carnell, economist at ING Financial Markets, said: “Data released so far in the first quarter of 2009 suggest that we are in for another horror story, with new record lows being set in consumer confidence, accelerating declines in the labour market [we may be nearing a million payrolls losses per month before long] and further severe contractions for business investment.” Paul Ashworth of Capital Economics said he did not expect the
    US economy to begin expanding again until 2010 and even then the recovery was likely to be “muted”.
       
  • America is approaching sovereign debt default! How are Americans going to pay for all these rising debts? The interest alone is approaching US$500B. Tax receipts are just about US$2.4T . The only way is to debase the currency and hyper-inflate away the debts! Hyper-inflation will collapse the American society. The social fabric will be torned apart. People will take to the streets in violent protests!
     
  • Jack Cafferty comments on the American Dream :
     
    The American dream was a job, a house, a car. A modest, affordable house and a car that was most likely a Chevrolet, Ford or Plymouth.
     
    People weren’t in debt buying things they couldn’t afford, and neither was the government. There were
    recessions along the way — relatively mild downturns of short duration — but nothing like this feels like it’s going to be.
     
    The interest on the national debt will approach $500 billion a year this year or next. Our country is sinking into the quicksand of insolvency as surely as the victims of subprime mortgages who have lost their jobs and their houses and watched their savings evaporate in the stock market decline.
     
    The current national debt is soaring past $12 trillion. The costs of the stimulus packages and bailouts (and stimulus package is just another word for bailout) are being tacked on and passed on because they are being paid for with money we don’t have.
     
    We are staring at unfunded liabilities for
    Medicare and Social Security in the tens of trillions of dollars. Where’s that money going to come from? We have to either raise taxes or cut benefits. There are no other options.
     
    The baby boomers are starting to retire and will consume an ever larger share of these entitlement programs. They will also age in sufficient numbers to drive the political agenda for the foreseeable future. Think they’re going to want less Social Security and less Medicare? Think again.
      
    The generation coming along behind them that will be asked to pay for all this can’t. There are not enough good jobs left in this country to pay those kinds of bills.
     
    At the end of the day, we are going to have to settle for less. Less money, smaller houses, smaller cars and smaller dreams. This is not your father’s country anymore. And we had better all start getting used to it.
     

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March 2, 2009 Posted by | Economics, Social Trends | , , , , , , | 1 Comment