The plague heads east

The IMF has bailed out Hungary and Ukraine – but it could have plenty more work to do in 'subprime' Eastern Europe. So which other countries in the region are in danger?

The IMF has bailed out Hungary and Ukraine but it could have plenty more work to do in 'subprime' Eastern Europe. Which other countries in the region are in danger?

The credit crunch is comparable to a "plague" being passed from sector to sector of the global financial system, says Roger Bootle in The Daily Telegraph. It has now begun to affect whole countries, with the main flashpoint in Eastern Europe, which is a continent-sized equivalent of subprime mortgage lending. The main problem is huge current-account deficits: countries are living beyond their means. The estimated shortfalls in Hungary, Turkey, Lithuania and Romania are 5.5%, 6%, 10% and 16% of GDP respectively for 2008. Latvia's deficit peaked at a colossal 26% of GDP last year. High current-account deficits mean that these countries depend, to a large extent, on external borrowing to fund increases in their standard of living. But now, access to those funds has dried up as global liquidity has disappeared and aversion to risky assets risen.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.