Monetary mismanagement has not been limited to the United States and the Federal Reserve System. The European Central Bank (ECB) has also been an engine of monetary expansion and artificially low rates of interest.
One of the effects of ECB policy is the emerging financial crisis in Eastern Europe, which I discuss in a new piece of mine on, “Growing Fallout from Eastern Europe’s Busted Bubbles.”
Governments, private investors, and consumers in many of these Eastern European countries took out easy credit loans denominated and owed in Euros from Western European banks, with a total debt in the region coming to between $1.5 trillion and $2 trillion. About $400 billion of this total needs to be repaid or rolled over in 2009.
But, now with falling export revenues and declining exchange rates against the Euro, governments and private citizens are getting into a serious financial “squeeze.”
Much of the government spending was used to prop-up and expand welfare statist programs. Some was used to support misdirected “industrial planning.”
And private individuals found it cheaper to borrow for home mortagages (this is especially the situation in Hungary) from Austrian and Italian banks at those artificially low interest rates than borrow money in the domestic financial markets. Now, many of these individuals find themselves facing a rising cost to making mortgage payments in Euros, when the Euro is gaining value against their own currency.
Of course, this “crisis” will again be blamed on “capitalism” and “unregulated markets.” And various governments will come forth with additional “stimulus” and bailout” plans to save various special interest groups close to the halls of political power.