Published on the truth seeker, by Mike Whitney, Posted 16/02/2009 (and not 2000!).
Eastern Europe is about to blow. If it does, it could take much of the EU with it. It’s an emergency situation but there are no easy solutions. The IMF doesn’t have the resources for a bailout of this size and the recession is spreading faster than relief efforts can be organized. Finance ministers and central bankers are running in circles trying to put out one fire after another. Its only a matter of time before they are overtaken by events. If one country is allowed to default, the dominoes could begin to tumble through the whole region. This could trigger dramatic changes in the political landscape. The rise of fascism is no longer out of the question …
… It’s the same wherever banks merged their commercial and investment branches. Debt has skyrocketed to unsustainable levels destabilizing the entire economy. The banks have been operating like hedge funds, concealing their activities on off-balance sheets operations and maximizing their leverage through opaque debt-instruments. Now the global economy is caught in the downdraft of a collapsing speculative bubble.
East Europe has been hit hard, but it’s just the first of many bowling pins that will fall. All of Europe has been infected by the same virus which originated on Wall Street. Monday’s New York Times summarizes developments in the EU:
“Europe sank even deeper into recession than the United States in the closing months of last year, according to figures published Friday…The economy of the 16 countries sharing the euro currency declined by 1.5 percent in the fourth quarter, (an annualized drop of roughly 6 percent) according to the European Union’s statistics office. That is even worse than the 1 percent decline in the United States economy during that period, compared with the previous quarter.
“Today’s data wipes out any illusion that the euro zone is getting off lightly in this global downturn,” said Jörg Radeke, an economist at the Center for Economics and Business Research in London. (”Europe Slump Deeper than Expected” New york Times)
The “liquidationists” would like to see governments cut off the flow of funds to ailing financial institutions and let them fail by themselves. It’s Darwinian madness, like waiting out a heart attack on the kitchen floor instead of rushing to the hospital for emergency care. The global economy is decelerating at the fastest pace on record. 40 percent of global wealth has been wiped out. The banking system is insolvent, unemployment is soaring, tax revenues are falling, the markets are in shock, housing is crashing, deficits are soaring, and consumer confidence is at its lowest point in history. This is no time to cling to half-baked ideology. The global economy is undergoing a massive system-wide contraction which could spin out of control and plunge us into another world war. Political leaders need to grasp the urgency of the moment and keep the vehicle from careening into the ditch. (full text).