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Against the tide: Europe’s dominoes are ready to topple

There are limited IMF funds for ailing emerging economies, available only on stiff terms, and that means serious consequences for those that have lent to them.

The news that Poland has decided to take up the IMF’s offer to provide more than $20 billion to tide the country over the economic crisis tells us two things.

First, that many emerging economies, particularly in eastern Europe, are in deep trouble. Their economies are contracting at 5% to 10% this year, their trade accounts are in deficit and their banks and corporations are finding it difficult to meet repayments on the foreign-currency loans they have built up over the boom years since 2001.

Second, it tells us that the IMF and the G8 governments are determined to try to avoid a series of currency and debt default crises among emerging markets during the global economic slump. The dominoes are ready to fall over. At the very least, the process must be in slow motion.

But given the state of the G8 economies themselves, are they able and willing to stump up the cash? It seems that they have decided to provide more funds for the IMF to do the job. But they have also insisted that only the most deserving should get help. So there will be winners and losers among emerging economies.

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