I was chatting to a waiter from Latvia in a coffee shop last week. Business was slow so I asked him: "any plans to go back?" He laughed: "go back to what?" Latvia, as it happens, is the one EU country that does make our own dismal situation seem, well, less dismal by comparison. But it isn't just Latvia: practically all the EU accession states (EU15 to 27 in the jargon) are now facing truly horrendous economic prospects as the financial crisis washes up on their shores. The Daily Telegraph's Ambrose Evans-Pritchard (admittedly not the most optimistic of commentators as a rule), noted recently that:- Austrian banks have loaned the equivalent of 70% of Austria's GDP to Eastern Europe - and the growing likelihood of a defaults could threaten that country's stability even more rapidly than our own banking shenanigans (it was the collapse of Austria's Creditanstaldt bank in 1931 that globalised America's Great Depression by the way - just thought I'd share that).
- The Governor of Latvia's Central Bank has declared the economy to be 'clinically dead' after a 11% fall in GDP in Q4 2008.
- 60% of all Polish mortgages are denominated in Swiss Francs - but the Zloty has just depreciated 50% against the Franc raising the prospect of massive defaults (which is bad for Poland but potentially catastrophic for Switzerland - darn, there goes yet another bolthole when the Revolution comes!).
So what to do? The answers range from calls on the ECB and European Commission to put together a rescue package to save the accession states - to something far more radical, namely: let them all join the eurozone right away before the EU is torn assunder by the crisis.
Ireland is the focus of a lot of negative commentary right now about the eurozone and about the risk of sovereign defaults. Something tells me the focus is about to shift east very, very quickly. Nor do I expect many of the 205,000 others like my Latvian waiter who are living and working here in Ireland to be moving back home any time soon.
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