EU mulls action as Ukraine crumble triggers contagion fears for Europe

[FarCenter]

Source: Daily Telegraph

Europe's institutions are scrambling for ways to prevent financial contagion from Ukraine and the rest of Eastern Europe from setting off a full-blown banking crisis in Austria, with risks of systemic contagion across the eurozone.

By Ambrose Evans-Pritchard - Last Updated: 7:42PM GMT 18 Feb 2009

Joaquin Almunia, EU's economic commissioner, said Brussels is ready to co-ordinate a pan-EU response to contain the crisis before matters get out of hand. "I share with the Austrian authorities their concern about the situation of these economies. Everybody shares their concern about the risks involved. We are extremely concerned about the difficulties with the Ukrainian government," he said.

West European banks have lent roughly $1.6 trillion (£1.13 trillion) to the region, led by Austrian, Swedish, Italian, Greek, Belgian, and Swiss banks. Almost $400bn must be rolled over this year in hostile markets.

Lithuania's president Andrius Kubilius echoed the warnings on Wednesday. "We are worried about what can happen in Ukraine and Russia. The collapse of one of these markets would have a very negative impact. It would be good to see a more co-ordinated approach," he told the Financial Times.

Ukraine's travails appear to be snowballing out of control after the central bank said the economy contracted 20pc in January year-on-year, with a dramatic 34pc slide in industrial production. Valery Lytvytsky, the bank's top adviser, said the collapse is the worst in recorded Ukrainian history, exceeding the darkest days after the Bolshevik revolution.

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Read more: http://www.telegraph.co.uk/finance/4691108/EU-mulls-action-as-Ukraine-crumble-triggers-contagion-fears-for-Europe.html

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So much for the Orange Revolution democracy and free market cargo cult...

[patrick t. cakes]

1. the snowball is growing. n/t

[Journeyman]

2. It seems Bismarck's prophecy is still with us. . .

"Some damn fool thing in the Balkans."

Then, it was the assassination of an obscure, dying anachronism. Today, it may be the demise of an outdated, deteriorating fiscal model.

Either way, this damn fool thing may prove as disastrous as the earlier one.

[izquierdista]

3. Oh boo-hoo Valery

This "collapse" affects only Ukrainians with money, which would be maybe 2% of the population. The other 98% are going to do what they do every day: collect some firewood from the forest (and maybe some mushrooms if they are lucky), tend to the vegetable garden, see if they can barter some eggs from their chickens for a sack of potatoes, and try to keep their clothes patched and the water running.

There is only a small market economy in the former Soviet Union, and the money lent to Eastern Europe has been used to set up low-wage manufacturing plants for the west. Occasionally, when Ukrainians do get some spending money, they can go to an outpost of the western market economy and buy name brand butter in a plastic tub or spices in a bottle with shrink wrap around the top. Most of the time, they just go to the open air market and get a slab of butter wrapped in plastic wrap or some spices in a baggie.

That 1.6 trillion never circulated through the eastern countries, building up resources each time it turned over. It went straight back to the west, to buy furniture from IKEA for luxury apartments, to Mercedes and Lexus so that the 2% would not have to use the mashrutniys that the common folk ride, and to bank accounts in Lichtenstein and Monaco. That 20% contraction is in the western colonial economy that was set up, and its only effect on the common citizen will be to make getting a job in that sector more difficult. For hairdressers and market stall vendors and public servants, not much will change at all.

[Ghost Dog]

4. Thought you were going to say: "name brand Vodka"

Good analysis.