Monday, 22 December 2008
Baltics Exposure, A Recap ...
"The euro zone’s exposure to the deterioration in economic conditions in Eastern Europe is not restricted to the real economy.
Euro zone’s banks total an exposure of USD 1,300 billion to Eastern Europe according to BIS data, while that of Swedish banks amounts to USD 104 bn, i.e. far higher figures than for American banks (less than USD 63 bn).
European banks hold USD 3,600 billion in debts on emerging countries, i.e. 14% of their total foreign debts, including 35% on emerging Europe, Turkey and Russia. Notwithstanding, there are significant differences between countries.
Austrian banks are the most noticeably exposed, as Eastern Europe accounts for 48% of their foreign debts (70% of GDP), followed by Italian banks (16.5%) and their Swedish counterparts (13.4%) because of their significant exposure to Baltic countries.
The respective commitments of French and German banks are far smaller, i.e. 4.1% and 4.5%, respectively, of their external assets. The substantial exposure of Spanish banks to emerging countries is accounted for by their commitments in Latin America (24.6% of their foreign debts).
All in all, the euro zone is exposed to the deterioration in Eastern European economies via two channels: on the one hand, the reversal of the cycle and, on the other hand, the huge size of debts held by some banking systems on this region."
So 2009 will see the first test of the Nordic banking sector since 1993. We certainly see if the foundations are sound and risks well managed.
2009 will be an interesting year. It will tell us , sometime in the second quarter, if the measures taken globally (interest rates cut, income tax cuts, bail out, etc..) are working.
All in all we will either see a stabilization then anemic growth , if interventions were successful.
If such stabilization doesn't occur and further unknown shock appear, then the deterioration risks will increase substantially and the impact will throw economies and countries into uncharted territories.
Let's hope that the stabilizer will work, which is highly probable due the extent of government intervention. Although, I will recommend a "wait and see" approach if you are planning to do big investment as the timing is risky unless you follow the "Warren Buffet" approach ...