From today’s FT:
Ukraine’s name, by some accounts, means “at the edge” – which is where its economy finds itself today. Austria’s finance minister warned last week of the risk of an economic “catastrophe” in the 46m-strong country triggering a “domino effect” of problems further west.
Indeed, Austria should be worried. The country’s exposure to Ukraine, and other Eastern European nations, is impressive.
To wit, this chart, which we reprise from Zero Hedge, showing Western European banks’ exposure to their Eastern European (and yes, you can debate whether the Czech Republic or Kazakhstan for that matter qualify in the ‘Eastern European’ category, but bear with us here).
Hence we see rumblings like the one below, from Austrian finance minister Josef Pröll:
“Ukraine is a very important keystone country and we must avoid a domino effect inside the EU, if there is economic and political catastrophe in such a huge neighbouring country,” he told the Financial Times. “We don’t see this scenario developing now. But we must prepare and keep an eye on Ukraine.”
Fitch has already downgraded Ukraine’’s national long-term rating one notch to ‘AA’ on Friday. Bloomberg reports this morning that S&P is considering cutting the country’s sovereign rating too. Meanwhile there’s no news on getting the second tranche of a $16.4bn IMF loan, which appears in jeopardy as ministers struggle to meet the required terms and conditions, and spreads on the nation’s credit default swaps have blown out to over 3,000bp.
Anyone care for a game of dominoes to take the edge off?
Related links:
Ukraine on the brink – FT
A glance at the upcoming Eastern European cataclysm – Zero Hedge
UniCredit’s Eastern exposure – FT Alphaville