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Date Posted: 10:17:48 10/12/09 Mon
Author: Paul Davis
Subject: The reckoning for Europe may be at hand


As you all know, the EU nation states have been very nose in the air about this "mess" those blasted "yanks" wished on them. Ah, yeah. Fact is, the banks over there have lent out WAY more than they've written down, and that fact is about to come right back up their snooty butts.

Here's the facts in a nutshell, Latvia (yep, home of Dr. Doom) has to all intents and purposes collapsed economically. The problem is this, the banks across Europe lent a TON of money into Latvia and they want it back. With interest. Latvia's government wants to get into the Euro, but the rules say they have to hold a fixed value of Latts to Euros for a certain period, which won't be up till 2013. The banks, especially Swedish banks, took that to be no problem, thus the Latt was as solid as a Euro, so lend them whatever they want!

Ahh, bad choice. The price of land/housing has dropped by 50% in just a couple of years, there is rampant unemployment, they have to meet targets just for bailout funds, and they can't meet the targets without devaluing the Latt. They've tried, they have already cut salaries of public workers by 40% this year (yeah, the new PM isn't really happy about his own salary cut either), they've closed schools, hospitals, libraries - the country is a mess and they still can't meet the requirements, they'd have to cut a third more than they have to do it. They simply don't have that much to cut without doing something like sending all the police home. They have a proposed law to forbid going after anyone defaulting on a mortgage for more than the CURRENT valuation of the property - and given their current depression, I've got my doubts the valuations will be all that high, if you know what I mean here. (wink wink, nudge nudge, you betcha - do the Palin!)

The banks are demanding they meet these goals, and they can't. Something has to give.

And here's the thing - they have an absolute requirement that their next budget be up by the 23rd of the month. No waffling.

So, if they do force this through, and get the support, they'll probably fall apart anyhow, and default on their debt. If they don't get the support, they'll devalue the Latt or default or just print the damn things and say "HERE, PAID IN FULL".

Either way, they'll pull down their neighbors economies with them, because they've got interlocking loans and so forth.

And they'll take down the Swedish banks, because the mess will force the banks bad loans to be written down to value, and down go the banks.

Got an interesting two weeks coming up, stay tuned! And google "latvia" on the news every day for a few weeks. It should be really something.

Just in, an announcement that Latvia is going to make the cuts anyhow. Which means the govt will probably collapse shortly. Or they've got a plan to hide spending - they've already tried that a couple of times, so the bankers are watching for it. Off budget doesn't impress a banker.

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