Yesterday, Latvia was downgraded to junk. Despite its diminutive size, this is a big deal. Fist, it is a harbinger of what is to come for the rest of Eastern Europe. But, more importantly, it is a signal that Western European banks lending in the former Soviet Bloc are overexposed and threatened by large loan losses. In a global economy in which European banks lend at home, but also have significant U.S. mortgage debt and Eastern European loan exposure, events in Latvia will have a snowball effect.
While the EU, IMF and World Bank are all busily drafting up crisis solutions, the videos below should give a little colour on what this means for the economy, credit and investing.
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Latvian debt is given junk status – BBC News