We now have two supranational European crises on our hands. Both are the ugly offspring of the global credit crisis.
The eurozone crisis springs from the fact that the sheer cost of financial sector bailouts for some smaller eurozone governments will make it impossible for them to finance and service their public sector deficits and debt. That will lead to such countries as Ireland and Greece defaulting.
The eastern European crisis results from the excesses of the credit explosion in the household and corporate sectors of many countries in central and eastern Europe, including many that are EU members. Much of the huge increase in private sector debt in the region since 2002 has been in foreign currencies (euro, Swiss franc, dollar and even yen). With the collapse of this credit (and housing) bubble, many eastern European currencies have gone south, increasing the level of defaults by households and corporations....
