Eastern Europe

If the Latvia is the start, how far will the rot spread? For Europeans banks?

The exposure of Western Europeans banks on East European countries was charted a while ago by Zero Hedge.


Sphere: Related Content

Latvia

The End.
So far for the city of Riga.
Crisis is brewing.
The Baltic will burn anytime soon now.

RIGA, June 3 (Reuters) - The Latvian treasury failed on Wednesday to sell any of the 50 million Latvian lats ($100.7 million) of various treasury bills offered for sale on Wednesday, the stock exchange said.The failure to attract offers for the paper came as the Latvian market remained frozen due to worries about the currency, which some fear faces a devaluation, and amid central bank buying of the lat to keep it within its peg to the euro.

The euro peg will be abandoned in the next days. The FX markets smell the smoke and are selling the Swedish Krona, the Zloty and so many others versus the euro.

From RBS Research:

Net-net though, and whatever your view of fixed exchange rate versus floating regimes, the current status quo is clearly unsustainable, with local rates up thru 100%, and the Bank of Latvia bleeding FX reserves. Time is clearly running out. While devaluation is not without costs, it would clear the air, and in a trade off with the current huge pace of real GDP contraction/mounting fiscal problems surely cannot be much worse than the slow death being wreaked on the Latvian economy by fixed exchange rate orthodoxy.

The original reason for the introduction of the currency pegs was to provide the fiscal foundations and stability to help satisfy the Maastricht criteria essential for euro membership. But the current parlous state of the Baltic nations’ finances and the reality that their economies are in a collective stupor make it hard to see the rationale in retaining fixed exchange rates; euro accession is now categorically not imminent. Who will be first to realize they have little to lose by dropping the peg?


Hardest hit once this mechanism gets under way will be the foreign lenders. Swedish banks but also others because the value of their loaned assets will decimate. The credit, supplied across the Baltic region will dry up and cause another crisis with the banks involved.
Now what if the Balkan follows later?
For starters: think about Belgian bank KBC, Italian Unicredito and others – AIB? -

Sphere: Related Content

Eastern Europe is not out of the woods, yet...

Yesterday our friends at Danske Bank issued a warning:

The event risk has risen sharply in the Baltic markets and we advise outmost caution. Yesterday, the Swedish central bank Riksbanken said it will increase its currency reserve by SEK 100 bn through a loan from the Swedish debt agency. Investors seem to believe that this is a buffer to deal with potential problems arising from the Baltic crisis.

Strange, we thought things were getting better in the Baltic.
Share prices of Swedish banks dived, however, yesterday and some are speaking of a devaluation of the Swedish Krone.
Whatever is gonna happen, the debt situation for the Baltic countries remains horrible.

Sphere: Related Content