Economic Crisis in Eastern Europe Deepens

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The International Monetary Fund has also issued a number of blunt warnings about developments in eastern Europe. The Austrian Standard quotes IMF economist Christoph Rosenberg, who declares that the recent recovery of financial markets in the region is almost exclusively due to the increased appetite for risk on the part of investors and has little to do with any improvements in the real economy. Rosenberg warns of a new stock market bubble, which will have dire consequences when it collapses.
Rosenberg was not prepared to commit himself when asked if conditions would improve for eastern European markets. “We can only do what we did prior to the economic crisis—warn of the dangers,” he said.
However, when one examines the state of economic conditions, one can only conclude that it is already too late for warnings. The situation is most dire in the Baltic states. In Latvia, bankers are speaking of a “dramatic development.” Despite draconian austerity measures by the government, the country is moving ever closer to bankruptcy.
The rates for credit default swaps, which reflect the perceived risk of state bankruptcy, currently lie between 500 and 600 points for the Baltic states. In comparison, the rate for credit default swaps for Austria is around 60 points.
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