Why Europe Is Doomed

I guess that it shouldn't really come as too much of a surprise to discover that whoever came up with the bright idea of mixing fundamentally weak Eastern European economies with those of countries like Germany was an inherently flawed idea.

If we look at Poland as an example, 60% of Polish mortgages are in Swiss francs. The risk there if you are a Pole is pretty obvious. To join the EU Poland had to keep it's currency stable, this it did by fair means of foul. Your average Pole was all too keen to jump on the bandwagon and take out a low interest mortgage in Swiss francs, and who could blame him?

The problem came when the recession hit and the zloty halved in value. You don't need to be Einstein to figure out that that meant if you were a Pole with a Swiss franc mortgage then your repayments doubled, and you fell into arrears and/or defaulted.

And this is happening all over Eastern Europe and the Balkan states. And it's not just individuals with mortgages who aren't coughing up. Entire countries are at risk of doing the same.

And that has a knock-on effect elsewhere. Some "small" countries like Austria have lent an estimated $1.7 trillion to Eastern European countries who are now in danger of defaulting. In the case of Austria alone EUR230 billion, or 70% of it's GDP.

This is where the inherent problem lies. Austria can't nationalise the banks because it hasn't got the money to do so, it is too small relative to the size of the banks it houses. So it needs help from elsewhere.

Step forward Germany, who's finance minister Peer Steinbruck has indicated recently that they may have to help bail-out non-German banks. But Germany isn't having such a wonderful time itself. It's own GDP fell 8% in the last quarter and unemployment there is rising. If you were a German would you want your government to use your money to bail-out banks in another country? I bloody well wouldn't.

And it's not just the euro and ECB that are in trouble. The UK is one of the countries at greatest risk of widespread bank nationalization outside of Iceland according to bcaresearch.com.