Austrian banks have emerging-market financial exposure that is 70% of GDP

You probably know that I am gearing up for some serious writedowns in Eastern Europe because I see these countries as having external imbalances which will have to be corrected as the economy softens. In previous posts, I had mentioned that there was considerable exposure to Eastern Europe in Austria, Sweden, Denmark and Germany in particular. Austria is the worst of the lot. Today, I happened upon an article and a quote which puts the Austrian exposure into context.

Internationally, Smick said export-dependent developing countries, and the western banks that financed their growth, are particularly vulnerable.

“If too many of these emerging markets go down, the IMF (International Monetary Fund) lacks the necessary resources to mount rescue operations,” writes Smick, author of the 2008 book The World Is Curved: Hidden Dangers to the Global Economy.

“To put things in perspective, Austrian banks have emerging-market financial exposure exceeding $290 billion. Austria’s GDP is only $370 billion.”

Yves Smith tells me the word on the street is that Germany may be holding back on fiscal stimulus in anticipation of a need to bail the Austrians out when their banking system comes under fire. I have not heard these rumours, but, it does stand to reckon that some larger government entity is going to be left holding the bag here. The Austrians will not be able to get out of this alone.


Economic ‘bubbles have only begun to burst’ – Vancouver Sun

  1. jmf says

    Moin again,

    after the giant banking bailout ( some often forget that we had massive bailouts from several Landesbanken like Weslt LB and Berliner Bank long before the credit crises hit the world ) and the almost non reaction to the absurd Quimonda ( DRAM ) bailout in Sachsen i´m in the unfortunately in the camp that the German version of "Joe Sixpack" will be in favour of the biggest package. They are already somewhat dulled when it comes to the newest multibillion € number……

    On the other hand i think that CDU/CSU and SPD will tank in the coming election. We will definitely see some kind of "protest" with big big gains for the "communist" party " Die Linke". De facto the ruling coalition is doing lots of things they were promoting for years……. At least the protest voters don´t go the right parties……. I´m trying to see the positive…. :-)

  2. jmf says

    Part 2…..

    FDP will also be a big big winner……

    I´m pretty sure that we will see constant shoutings for a secound bigger stimulus plan as the year marches on, the economy worsens, the election is coming closer and the population is realizing that all the former bailouts & stimulus plans havn´t worked…..

    One thing is for sure…… There will be enough blogging matrerial on a daily basis……. :-)

    1. Edward Harrison says

      That was my next question. Guido Westerwelle has been living life in the wilderness for some time. Will the FDP clear 5% though and finally be a factor in the next coalition talks? The gran coalition is toast and the SPD and Union know it, hence the posturing already. It is sounding to me a lot like a junior partner choice of Lafontaine's party and the FDP is what people will be using their second vote to clarify.

      If I were the SPD, I would think this puts us in a favorable position, and I would do everything to distance myself from the Union and wink-wink nudge-nudge that we actually like Lafontaine now. Merkel's dragging her feet on stimulus can't be good for the CDU can it?

  3. Hubert says

    Agree with Jan-Martin. Germans are not planning ahead for the Austrians. Enough upcoming on our plate. Any bailout of the Austrians will have to come from ECB/Brussels and hard to say what they will demand in return? Ownership of the banks? Country guaranteed loans? Even if the GErmans were willing to do it, it would smell like 1938 and would be a hard sell to all parties involved.

    The Austrians are often kidding somewhat, so there might be some room for misunderstanding.
    Never forget the 1918-joke of German generals signalling to the Austrians that they consider the situation to be sincere but not hopeless. The Austrians cabled back: "situation here hopeless but not sincere."

    1. Edward Harrison says

      I would agree as well that Germany would never bail out the Austrians except as an advocate through the EU. That is something I could see — although Germans are already complaining about undue reward from the EU already. Also, you should note that I see the Irish banking sector as equally devastated and expect the EU to need to aid the Irish perhaps before the Austrians.

      As for Austrian humour and 1938, a Canadian friend mentioned to his Austrian mates that Germans coming to the Austrians with aid would be like "Anchluss Economics." His Austrian friend did not find the joke too amusing.

  4. Edward Harrison says

    I don't know if you heard about Adolf Merckle. He jumped in front of a train after he lost 400 million euros on a VW short squeeze a few months back. Here is the video explaining what happened on CNBC:

    Ziemlich tragisch denke ich.

  5. jmf says

    I expect the FDP & Linke will go to double digit figures……

    Merkel was way overrated from the get-go……..

    This became obvious after she and her party throw almost every principle over board to get the power…..

  6. jmf says

    Moin Edward,

    this is probably the first time i think Yves is wrong.

    The only reason that our "stimulus plan" isn´t already on track is because the polticians are already campaining for an election that will shake up the previous party landscape…..

    There is also no way Germany will come to the rescue of another country. To be honest i´m very surprised that this kind of rumor is even being consired as a "credible" one. Especially when i think of the daily brilliant stuff i gobble up on her her blog….

    1. Edward Harrison says

      I hear you Jan-Martin. She is not necessarily saying its true but that many Austrians believe the Germans will bail them out. And she is not the only one saying this. I have now heard it from one other source. Wishful thinking? Perhaps. As to the Germans holding back on fiscal stimulus, I'd have to agree, iit is a purely domestic concern there. What is your view of how stimulus i being perceived by ordinary Germans and its effect on upcoming elections?

  7. JKA on economics says

    Good News today on the UK banking system. According to the Chancellor Darling interviewed in todays Financial Times, one of the UK's CEO's had declared a change in policy. " Now we are only investing in markets we understand" !

    1. Edward Harrison says

      Isn't Darling the same man who just yesterday admitted he didn't realize this was going to be a deep recession? He looks to be losing all credibility

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