[deMolay]

Another shoe is dropping. http://online.wsj.com/article/SB1234899 ... b_page_one

[deMolay]

From article. "The volume of capital flowing into emerging European economies is expected to fall to just $30 billion in 2009, from $254 billion in 2008, according to Institute of International Finance, an association of the world's largest banks. The group called the swing "unprecedented in scale." It expects foreign bank lending to swing to the negative by $27.2 billion in 2009, meaning banks will collect more than they loan."

[eXpat]

Western Europe looks nervously to the time bomb in the east

Central and eastern Europe (CEE) is "in the eye of the global economic storm", says Peter Garnham in the FT, as it is highly dependent on exports. What's more, large current-account deficits and short-term foreign debt obligations mean it is dependent on external financing just as capital flows are dwindling rapidly. So the plunge in capital inflows expected this year "won't just be a major blow to growth", but could potentially trigger "a regional financial crisis", says Nicholas Watson of Business New Europe.

The next challenge is refinancing a whopping $400bn this year, which is around a third of the region's GDP. Ukraine, Hungary and Latvia have already turned to the IMF to bolster their banking systems. Meanwhile, Capital Economics sees "submerging Europe's" economy shrinking by 3% in 2009.

The dismal outlook in CEE has also created a "ticking time bomb" for western Europe, says Parmy Olson on Forbes.com. European banks are five times more exposed to emerging markets than their US and Japanese counterparts, and they have bet big on CEE over the past few years. More than 80% of emerging European bank assets are owned by western European banks, says Peter Attard Montalto of Monura. Eurozone banks' exposure to CEE is around €1.3trn; the countries with the largest exposure to the region by assets are Austria, Germany and Italy, with Austria's lending to the region comprising around 70% of GDP. By this measure, Sweden is also highly exposed, with lending worth 30% of GDP.

http://www.moneyweek.com/news-and-charts/economics/western-europe-looks-nervously-to-the-time-bomb-in-the-east-42307.aspx