Eastern Europe: Latvia Faces Debt crisis

The finance ministry expects GDP to contract 18pc this year. House prices have fallen 50pc , the world’s most spectacular crash.


Latvia has become the first EU country to face a sovereign debt crisis after failing to sell a single bill at a treasury auction worth $100m (£61m), prompting fears of a fresh storm in Eastern Europe as capital flight tests currency pegs.

The central bank has been burning reserves to defend the lat in Europe’s Exchange Rate Mechanism, but markets doubt whether Latvia has the political will to carry through draconian cuts in spending – or whether such a policy even makes sense at this stage.

Tremors hit bank shares in Stockholm and triggered a sharp fall in Sweden’s krona. Swedbank, SEB and other Swedish banks have $75bn of exposure to the Baltic states, and face cliff-edge losses if the pegs snap.

“Latvia may be a small country but it has vast repercussions for the region,” said Bartosz Pawlowski, of BNP Paribas. “If the currency breaks in Latvia, it is likely to break in Estonia and Lithuania as well, and perhaps Bulgaria, with effects on other countries like Romania.”

Fresh turbulence in the ex-Communist bloc would rattle West European banks, which have €1.3 trillion of exposure to the region. “We haven’t yet seen the full extent of the crisis in the East European banking system. Defaults are creeping higher,” he said.

Read moreEastern Europe: Latvia Faces Debt crisis

Swine flu prompts EU warning on travel to US and Mexico


A South Korean disinfection truck sprays disinfectant against a possible swine flu outbreak at a port farm in Chuncheon, South Korea, Monday, April 27, 2009. (AP Photo/Yonhap, Lee Sang-hack)

MADRID (AP) – The top EU health official urged Europeans on Monday to postpone nonessential travel to parts of the United States and Mexico because of the swine flu virus, and Spanish health officials confirmed the first case outside North America.

Russia, Hong Kong and Taiwan said they would quarantine visitors showing symptoms of the virus amid a surging global concern about a possible pandemic.


Europeans urged to avoid Mexico and US as swine flu death toll exceeds 100 (Guardian):

• Spain confirms first European case as pandemic fears grow
• 17 possible cases of swine flu are under watch in the UK


World stock markets fell as investors worried that the deadly outbreak could go global and derail any global economic recovery. Airlines took the brunt of the selling.

The virus was suspected in up to 103 deaths in Mexico, the epicenter of the outbreak with more than 1,600 cases suspected, while 40 cases – none fatal – were confirmed in the United States and six in Canada, the World Health Organization said.

“Today we’ve seen increased number of confirmed cases in several countries,” WHO spokesman Paul Garwood told The Associated Press. “WHO is very concerned about the number of cases that are appearing, and the fact that more and more cases are appearing in different countries.”

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Germany bans Monsanto’s GM maize


Greenpeace has long campaigned against the planting of GM maize

Germany is to ban the cultivation of genetically modified (GM) maize – the only GM crop widely grown in Europe.

The decision, announced on Tuesday by German Agriculture Minister Ilse Aigner, is a blow to the US biotech firm Monsanto, which markets the maize.

Monsanto’s variety, called MON 810, is resistant to the corn borer, a moth larva which eats the stem.

MON 810 is controversial in the EU. Several countries have banned it, defying the European Commission.

Ms Aigner, a member of the conservative Bavaria-based Christian Social Union (CSU), said she had concluded that “there is a justifiable reason to believe that… MON 810 presents a danger to the environment”.

The variety has been allowed in Germany since 2005. Ms Aigner said the decision to ban it now, based on new data, was purely scientific, not political. She also said it was a specific case, and not a fundamental decision against all GM crops.

In March EU governments resisted European Commission pressure to get bans on MON 810 lifted. The commission wanted Austria and Hungary to allow cultivation of MON 810. The variety is also banned in France and Greece.

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Economic Meltdown: The “Dollar Glut” is What Finances America’s Global Military Build-up

by Prof. Michael Hudson

I am traveling in Europe for three weeks to discuss the global financial crisis with government officials, politicians and labor leaders. What is most remarkable is how differently the financial problem is perceived over here. It’s like being in another economic universe, not just another continent.

The U.S. media are silent about the most important topic policy makers are discussing here (and I suspect in Asia too): how to protect their countries from three inter-related dynamics: (1) the surplus dollars pouring into the rest of the world for yet further financial speculation and corporate takeovers; (2) the fact that central banks are obliged to recycle these dollar inflows to buy U.S. Treasury bonds to finance the federal U.S. budget deficit; and most important (but most suppressed in the U.S. media, (3) the military character of the U.S. payments deficit and the domestic federal budget deficit.

Strange as it may seem ­ and irrational as it would be in a more logical system of world diplomacy ­ the “dollar glut” is what finances America’s global military build-up. It forces foreign central banks to bear the costs of America’s expanding military empire ­ effective “taxation without representation.” Keeping international reserves in “dollars” means recycling their dollar inflows to buy U.S. Treasury bills ­ U.S. government debt issued largely to finance the military.

Read moreEconomic Meltdown: The “Dollar Glut” is What Finances America’s Global Military Build-up

EU presidency: US and UK economic recovery plans are a way to hell

Barack Obama and Gordon Brown’s plans to increase spending on economic recovery have been described as “a road to hell” by the European Union presidency.


Mirek Topolanek: Mr Topolanek warned the European Parliament that the Obama administration’s stimulus package and financial bail-out ‘will undermine the stability of the global financial market’ Photo: GETTY

Internal European divisions are growing over the Prime Minister and US President’s strategies to fight the economic crisis just one week before a critical G20 summit in London.

Mirek Topolanek, the Czech prime minister who is running a caretaker EU presidency after the collapse of his government on Tuesday, highlighted European splits over fiscal stimulus plans promoted by Mr Obama, with Mr Brown’s support.

Mr Topolanek warned the European Parliament that the Obama administration’s stimulus package and financial bail-out “will undermine the stability of the global financial market”.

“All of these steps, these combinations and permanency is the way to hell,” he told Euro-MPs in Strasbourg

“We need to read the history books and the lessons of history and the biggest success of the EU is the refusal to go this way.”

His comments reveal European disunity just eight days ahead of the G20 summit of the world’s industrialised countries in London next Thursday.

Read moreEU presidency: US and UK economic recovery plans are a way to hell

Ukraine and Lativia warn of financial disaster in the West if they are not helped

Western European banks are exposed to over £1 trillion of eastern European debt, leading to comparisons with the subprime crisis in the United States. Austria is particularly affected, with an outstanding loan portfolio to eastern Europe of £213 billion, 71 per cent of GDP.

Even worse: ‘Toxic’ EU bank assets total £16.3 trillion (Telegraph)


Ukraine and Latvia have warned that Western Europe faces financial disaster unless it unites to help stricken countries in the former Soviet bloc.

Government officials from the two countries, which are at risk of bankruptcy as a result of the global financial crisis, told the Daily Telegraph that the European Union’s biggest powers were in danger of repeating the worst mistakes of the 1930s depression by retreating into isolationism and protectionism.

Grigory Nemyria, Ukraine’s deputy prime minister, said that the EU had to overcome bitter internal differences over how to deal with the economic crisis in eastern Europe when world leaders met next month at the G20 summit in England.

“The EU should not just be helping Ukraine because Ukraine is helpless,” Mr Nemyria said. “It should be doing so because it is in the EU’s self-interest.

“There is a high exposure in the [Western European] banking sector to Ukraine, Latvia etc that can only be addressed by acting in concert. The cost of inaction will be far greater than the cost of action.”

Read moreUkraine and Lativia warn of financial disaster in the West if they are not helped

Israel annexing East Jerusalem, says EU

  • Confidential report attacks ‘illegal’ house demolitions
  • Government accused of damaging peace prospects

House Demolitions in East Jerusalem
40-year-old Palestinian Mahmoud al-Abbasi stands amid the rubble of his home after it was demolished by the Jerusalem municipality in the East Jerusalem neighborhood of Silwan. Photograph: Gali Tibbon

March 7 (The Guardian) – A confidential EU report accuses the Israeli government of using settlement expansion, house demolitions, discriminatory housing policies and the West Bank barrier as a way of “actively pursuing the illegal annexation” of East Jerusalem.

The document says Israel has accelerated its plans for East Jerusalem, and is undermining the Palestinian Authority’s credibility and weakening support for peace talks. “Israel’s actions in and around Jerusalem constitute one of the most acute challenges to Israeli-Palestinian peace-making,” says the document, EU Heads of Mission Report on East Jerusalem.

The report, obtained by the Guardian, is dated 15 December 2008. It acknowledges Israel’s legitimate security concerns in Jerusalem, but adds: “Many of its current illegal actions in and around the city have limited security justifications.”

“Israeli ‘facts on the ground’ – including new settlements, construction of the barrier, discriminatory housing policies, house demolitions, restrictive permit regime and continued closure of Palestinian institutions – increase Jewish Israeli presence in East Jerusalem, weaken the Palestinian community in the city, impede Palestinian urban development and separate East Jerusalem from the rest of the West Bank,” the report says.

The document has emerged at a time of mounting concern over Israeli policies in East Jerusalem. Two houses were demolished on Monday just before the arrival of the US secretary of state, Hillary Clinton, and a further 88 are scheduled for demolition, all for lack of permits. Clinton described the demolitions as “unhelpful”, noting that they violated Israel’s obligations under the US “road map” for peace.

The EU report goes further, saying that the demolitions are “illegal under international law, serve no obvious purpose, have severe humanitarian effects, and fuel bitterness and extremism.” The EU raised its concern in a formal diplomatic representation on December 1, it says.

Read moreIsrael annexing East Jerusalem, says EU

Breaking point for the eurozone?

Ireland’s ‘miracle’ economy has turned terrifyingly sour – and as it strains against the inflexibility of the euro, its next crisis may shake the entire EU.

Thousands of public sector workers protest on the streets of Dublin
Thousands of public sector workers protest on the streets of Dublin Photo: NIALL CARSON/PA

They can barely let the words pass their lips, but some of the EU’s most important policymakers were forced this week to discuss what was once unthinkable: that at least one of the 16 eurozone countries might be on the brink of ditching the single currency.

Jean-Claude Trichet, president of the European Central Bank, admitted that the 10-year-old eurozone was under “extreme strain”, with weaker countries struggling to keep their economies afloat in the face of the devaluation of other currencies, such as sterling and the dollar.

Joschka Fischer, Germany’s former foreign minister, darkly suggested that we would soon find out whether the eurozone would turn out to be “a disaster”, while the German finance ministry is vacillating on whether it would be prepared to bail out insolvent states.

The current thinking is that Germany and France, as the strongest economies in the zone and “lenders of last resort”, would have to bail out failing states: the prospect of the eurozone breaking up would bring the future of the EU into question.

But the most startling fact to emerge this week is that the country which is seen as the most vulnerable, and therefore the most likely to ditch the euro, is not Slovenia, or Cyprus, or Greece, but Ireland.

Read moreBreaking point for the eurozone?

Banks face new wave of losses on CDS contracts, analysts warn

Banks in Europe and the US face a new wave of losses linked to contracts issued to insure against companies going bust and defaulting on their loans, City analysts have warned.

After the billions lost over the US subprime market and leveraged loans, investment banks such as Morgan Stanley, Deutsche Bank, Barclays, UBS and RBS face losses on credit default swaps (CDS) – contracts that allow an investor to be repaid if a company loan or a bond defaults.

CDS contracts became a favourite tool of speculators, mostly hedge funds, which bought the contracts without having any link to the original lending. They bought the contract to trade or in the expectation the company would in fact default, meaning they could claim back the full value of a loan they never made.

The CDS market exploded to be worth as much as $50 TRILLION, many times the size of the underlying assets. Each loan could have thousands of protection contracts, even if there were only a few lenders. Hedge funds accounted for about 60% of CDS trading, according to ratings agency Fitch.

Read moreBanks face new wave of losses on CDS contracts, analysts warn

Latvian government falls


The Latvian parliament: The president will seek a fresh governing coalition (Photo: Latvian parliament)

The Latvian prime minister and his government have resigned amid growing political and economic strife in the Baltic country.

Prime Minister Ivars Godmanis submitted his resignation to the president, Valdis Zatlers, on Friday (20 February) afternoon after the two largest parties in the ruling four-party coalition demanded he step down.

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