Sweden Forced To Take Emergency Loan Amid Latvia Crisis

[interestrateripoff]

http://www.guardian.co.uk/business/2009/ju...loan-ecb-latvia

Sweden has taken out an emergency loan of €3bn (£2.6bn) from the European Central Bank as the shockwaves from the economic crisis in the Baltics reverberate through the banking sector.

The ECB, which has been monitoring the troubled Latvian economy for weeks, said the Swedish central bank, the Riksbank, had chosen to trigger a credit line originally agreed in December 2007.

Several Swedish banks have major operations in Latvia, where plunging trade revenues and a shortage of foreign capital have led to widespread defaults, leaving the government in Riga under intense pressure to devalue its currency, the lat.

The Riksbank had already announced its intention to build up its foreign currency reserves, and it is thought to be readying itself to make emergency loans to its struggling banking sector if the situation worsens.

However, the Swedish banking regulator today announced it believed the country's financial institutions would be able to withstand even "extreme" pressures in the coming months.

The lat is pegged against the euro, as Latvia hopes to join the single currency. By resisting a devaluation, the Latvian government has been told by the International Monetary Fund that it must implement savage budget cuts before it will be given the second tranche of an emergency loan.

Barbara Nestor, of Commerzbank, said Riga remained committed to keeping the currency stable. "Political considerations are at the forefront. Keeping the peg is considered a sign of financial sector credibility and an unequivocal sign that Latvia is working toward euro entry," she said. "Nevertheless, we think that implementation risks are high and devaluation remains an option at a later stage."

With the Swedish banks heavily exposed to the Baltic crisis, the London-based European Bank for Reconstruction and Development is known to be in talks with several of them about offering financial support to prevent the flow of loans to the Baltics drying up.

The recovery is here. Nothing to worry about....

[Deckard]

The fools... just create a "bad bank" like Angela M and sweep bad debts under the carpet

[whiterabbit]

I am starting to wonder if the shine isn't about to come off the Euro...........

[yellerkat]

The fools... just create a "bad bank" like Angela M and sweep bad debts under the carpet

The Swedes pioneered the "Bad Bank" principle in the early 90s.

It worked.

[kagiso]

Latvia's currency misteriously appreciates,

Sweden gets emergency bank loan,

Meanwhile Lithuania starts denying currency peg problems............

Do the Germans have enough fingers to plug all the holes in this particular dyke?

Are they going to bail out Romania? Ukraine? Austria?.............

And if they do, what is that going to do to the Euro credit rating?

What is going to happen to long term Bund rates?

What is going to happen to the deflation that is already hitting Europe if Bund rates are forced up?

What happens to the burden of all that debt if deflation increases?

Something has to give somewhere at some point,

I am trying to coin the phrase 'deleveraging 2.0' just about to get underway.

[Bloo Loo]

Indeed, Latvian porn starlets are getting more expensive every day.

[Oliver Sutton]

I am starting to wonder if the shine isn't about to come off the Euro...........

Sweden joined the Euro lately. Must have missed that.

[okaycuckoo]

Do the Germans have enough fingers to plug all the holes in this particular dyke?

Are they going to bail out Romania? Ukraine? Austria?.............

The impression she gave a few months ago was that only eurozone members get the safety net - so Hungary, Romania, Ukraine etc are on their own.

[kagiso]

Sweden joined the Euro lately. Must have missed that.

It's the Euro countries bailing out Sweden, to ensure that East European currencey pegs don't rupture, at the end of the day it leaves Germany backstopping every dodgy loan made by every Euro member country.

The German economy is big, but it is not that big.

In the silly foreign loans business, Sweden are amateurs; Austria, Italy, Spain and others have lent far more.

Sovereign defaults are the traditional second stage of all the great financial collapses.

European leaders are currently working feverishly to prevent any sovereign defaults happening, because one default will cause a spread that could realistically end with countries like Ireland, Spain and Italy forceably removed from the Euro.

But preventing all soveriegn defaults is as quixotic as the Bernanke attempts to prevent all major US banks from going bust.

Bernanke has effectively moved the risk of bank defaults onto the US taxpayer, and has increased the risk of US soveriegn default, reflected in rising US bond yields.

By effectively backstopping Latvia and Sweden, the EU (read Germany) has moved Latvia and Sweden's credit risk onto the German taxpayer.

The Germans can not possibly afford to bail out all the East European countries, and also all the EU countries that lent to them.

So watch Bund rates start going up soon.

[Guest redwine]

Sweden joined the Euro lately. Must have missed that.

me as well i can't remember sweden joining the euro money club

i thought that they still used the swedish kroner

when did this happen?

[Bloo Loo]

It's the Euro countries bailing out Sweden, to ensure that East European currencey pegs don't rupture, at the end of the day it leaves Germany backstopping every dodgy loan made by every Euro member country.

The German economy is big, but it is not that big.

In the silly foreign loans business, Sweden are amateurs; Austria, Italy, Spain and others have lent far more.

Sovereign defaults are the traditional second stage of all the great financial collapses.

European leaders are currently working feverishly to prevent any sovereign defaults happening, because one default will cause a spread that could realistically end with countries like Ireland, Spain and Italy forceably removed from the Euro.

But preventing all soveriegn defaults is as quixotic as the Bernanke attempts to prevent all major US banks from going bust.

Bernanke has effectively moved the risk of bank defaults onto the US taxpayer, and has increased the risk of US soveriegn default, reflected in rising US bond yields.

By effectively backstopping Latvia and Sweden, the EU (read Germany) has moved Latvia and Sweden's credit risk onto the German taxpayer.

The Germans can not possibly afford to bail out all the East European countries, and also all the EU countries that lent to them.

So watch Bund rates start going up soon.

is the holiday euro going to go up to 1.30 or down to 0.9 to the pound in your opinion,,,,im off to france soon.

[copydude]

is the holiday euro going to go up to 1.30 or down to 0.9 to the pound in your opinion,,,,im off to france soon.

There are two ways out. Devaluing the Euro would help the currency peg countries no end as well as the banks that lent to them.

Co-opting the currency peg countries into the Euro earlier would also stabilise the balance sheet on both sides, as the IMF recommended.

But the ECB doesn't wish to do either.

I don't see a solution to this. Latvia can't close every school and hospital in the country to re-route the IMF loan back to the banks. (Neither can Estonia, Hungary, Lithuania et al.) The loan can only prop up the local currency for so long.

Meanwhile, Germany's economy continues to shrink - the latest export and production figures are horrific.

Something has to give here . . and I think it's the Euro.

[Bloo Loo]

There are two ways out. Devaluing the Euro would help the currency peg countries no end as well as the banks that lent to them.

Co-opting the currency peg countries into the Euro earlier would also stabilise the balance sheet on both sides, as the IMF recommended.

But the ECB doesn't wish to do either.

I don't see a solution to this. Latvia can't close every school and hospital in the country to re-route the IMF loan back to the banks. (Neither can Estonia, Hungary, Lithuania et al.) The loan can only prop up the local currency for so long.

Meanwhile, Germany's economy continues to shrink - the latest export and production figures are horrific.

Something has to give here . . and I think it's the Euro.

thank you, nice analysis....will we know by next Thursday though? we should see the pound rise as our economy is booming again.

[SarahBell]

Clearly Europe needs to take a leaf out of gordon's book as he's solved the recession here apparently.

[interestrateripoff]

Clearly Europe needs to take a leaf out of gordon's book as he's solved the recession here apparently.

Clearly you need to report to the nearest re-education centre.

Ponzi Brown saved the world.

[The Masked Tulip]

I am willing to do my bit to help Sweden by taking in a couple of blonde, female twins in the 19 to 28 year range. I only have one bed so snuggling will have to do.

[Pindar]

Sweden joined the Euro lately. Must have missed that.

No, they haven't joined the Euro. They just borrowed money from the ECB.

[US Citizen]

Many of my friends are German and they are a million miles apart from our impression of Nazi Nutters, the BNP want to be. In fact they are very kind hearted, sensible with there money and many are on fixed rate mortgages, which is fairly common place in Germany.

It would be political suicide, for Angela Merkel to subject the German Taxpayer to risks of other Euro Wanna Be Countries.

I think the Euro will devalue rather than the risk further economic damage to the once proud German Economy.

Something also tells me, Britain may indeed receive a golden hello, if we joined the Euro now too, because our economic strength combined with Germanys is the only way the Euro can be saved IMHO.

Although last weeks election mood, isnt looking like that is going to happen, lets get that straight.

Which inevitably means the Euro will plunge against Sterling and US Dollar, one way or the other. Although it may not happen before the end of summer for us to benefit to any large extent. Xmas is looking good though.

Edited June 10, 2009 by debt-free

[Pindar]

Many of my friends are German and they are a million miles apart from our impression of Nazi Nutters, the BNP want to be. In fact they are very kind hearted, sensible with there money and many are on fixed rate mortgages, which is fairly common place in Germany.

It would be political suicide, for Angela Merkel to subject the German Taxpayer to risks of other Euro Wanna Be Countries.

I think the Euro will devalue rather than the risk further economic damage to the once proud German Economy.

Something also tells me, Britain may indeed receive a golden hello, if we joined the Euro now too, because our economic strength combined with Germanys is the only way the Euro can be saved IMHO.

Although last weeks election mood, isnt looking like that is going to happen, lets get that straight.

Which inevitably means the Euro will plunge against Sterling and US Dollar, one way or the other. Although it may not happen before the end of summer for us to benefit to any large extent. Xmas is looking good though.

You are joking aren't you?

[FortuneFTB]

is the holiday euro going to go up to 1.30 or down to 0.9 to the pound in your opinion,,,,im off to france soon.

I don't think it will be long before you can get 1.50 euro to the pound.

[Guest redwine]

I don't think it will be long before you can get 1.50 euro to the pound.

well if thats going too happen it might stop "the expats" from leaving spain and france or rather "going home"

[InternationalRockSuperstar]

No, they haven't joined the Euro. They just borrowed money from the ECB.

yes, this is the part where the ECB bankrupts Sweden to force them into the Eurozone.

[Deckard]

Something has to give here . . and I think it's the Euro.

+1

[US Citizen]

You are joking aren't you?

Yes.

[copydude]

thank you, nice analysis....will we know by next Thursday though? we should see the pound rise as our economy is booming again.

Um . . . by next Thursday, probably not, Bloo Loo. Put your holiday off a couple of months and it could be half-price.

Meanwhile, the pound will certainly be a few pennies stronger because the Eurobank doesn't get it.

The theme of this thread is Swedish banks, who are the most exposed to the Baltics. It has just hit them first . . . yet the Austrian and German banks are even more exposed than the Swedes to the over extended, Eastern EU. (Austria exposed to 290% of GDP or some daft figure I read. Chilling.)

So there is something to say for the Pound, in that it has already devalued and British banks lent more to the Far East than to Eastern Europe.

Oh, and if you think Latvia is bad, Estonia is next with Germany in no position to bail anyone. If anything, problems in Germany drag down central Europe . . . look at mirror graphic below.