#12 Wildcard/Europe: Potential defaults on debt arise in a host of smaller countries - especially of the Eastern European variety. I don't know which ones, but they have been mini U.S.'s, borrowing over and above their head, but unlike the U.S. do not enjoy the fact the entire world rushes into their debt market when a crisis emerges. The opposite will happen - Iceland & Ecuador are just the precursor.
This one is "in the bag". Now the second part of that prediction was as follows which I am hoping I am dead wrong on.
Russia, if low oil prices persist, invades another former satellite country both as a nationalistic reason (diversion to the populace from worsening domestic conditions) and to try to light a fire under European natural gas, and/or oil prices.
Those were our outlier predictions but in our more traditional view of things we are quite sure will happen in the year ahead... we wrote in November 2008 [Nov 14: November 2008 Thoughts/Roadmap]
#5 Europe - Eastern Europe might cause some major issues in 2009 - Hungary already has had some major issues but many smaller eastern European countries followed the US model - borrow borrow borrow, spend spend spend. But unlike the US which somehow people still find the "safest country in the world" (the only country in the world who originates a global crisis and people flock to their currency) the Eastern European countries do not have this advantage. We could see multiple shock waves in smaller Eastern European countries in the year ahead especially if credit remains this impaired.
Things are really getting bad out in Eastern Europe - the New York Times has a piece on Ukraine out today. I could see Putin making a power grab in this environment.
Remember social acrimony within countries and among countries has been a long held theme of ours - it's coming to fruition big time.
- Steel and chemical factories, once the muscle of Ukraine’s economy, are dismissing thousands of workers. Cities have had days without heat or water because they cannot pay their bills, and Kiev’s subway service is being threatened. Lines are sprouting at banks, the currency is wilting and even a government default seems possible.
- Ukraine, once considered a worldwide symbol of an emerging, free-market democracy that had cast off authoritarianism, is teetering. And its predicament poses a real threat for other European economies and former Soviet republics.
- The sudden, violent protests that have erupted elsewhere in Eastern Europe seem imminent here now, too. Across Kiev last week, people spoke of rising anger about the crisis and resentment toward a government that they said was more preoccupied with squabbling than with rallying the country. (sound familiar? still not a single major protest here - amazing really) The sign held by Vasily Kirilyuk, an unemployed plumber camped out with other antigovernment demonstrators here in the past week, summed up the pervasive frustration: “Get rid of them all,” it said. “There will be a revolt,” he said. “And people will come because they are just fed up.”
- It is not hard to understand why world leaders are increasingly worried about the discontent and the financial crisis in Ukraine, which has 46 million people and a highly strategic location. A small country like Latvia or Iceland is one thing, but a collapse in Ukraine could wreck what little investor confidence is left in Eastern Europe, whose formerly robust economies are being badly strained.
- It could also cause neighboring Russia, which has close ethnic and linguistic ties to eastern and southern Ukraine, to try to inject itself into the country’s affairs. What is more, the Kremlin would be able to hold up Ukraine as an example of what happens when former Soviet republics follow a Western model of free-market democracy.
- “Ukraine is a linchpin for stability in Europe,” said Olexiy Haran, a professor of comparative politics at Kiev Mohyla University. “It is a key player between the expanding European Union and Russia. To use an alarmist scenario, you could imagine a situation in Ukraine that Russia tried to exploit in order to dominate Ukraine. That would make for a very explosive situation on the border of the European Union.” (I don't really find it alarmist at all)
- That Ukraine can cause problems for Europe was highlighted in January when Ukraine engaged in a dispute with Russia over how much it would pay Russia for natural gas, as well as over gas transport to the rest of Europe. The Kremlin shut off the gas for several days, and some European countries went without heat. The Kremlin also shut off gas to Ukraine in 2006 in a pricing dispute.
- In February, the International Monetary Fund refused to release the next installment of a $16.4 billion rescue loan to Ukraine because the government would not adhere to an earlier agreement to pare its budget. (why should they when all Western governments are touting EXPANSION of government to save the system? Completely two faced IMF)
- All over Kiev have been signs that tensions are building. On the city’s outskirts, more than 200 tractor-trailer rigs were parked Thursday, their drivers threatening to block roads if the government did not help them with their debts, which they said were caused in part by the drop in the value of Ukraine’s currency, the hryvnia. “We want the government and the national bank to agree that the money allocated by the International Monetary Fund, at least part of it, should go to regular people.”
- At a branch of the Rodovid Bank across town, a tense crowd gathered Friday morning. The bank, close to failing, was allowing withdrawals of only $35 a day. And so people, some of them pensioners fearful for their life savings, have been trooping each day, ever more aggravated, to try to get what they can. “Every day we come here — it’s insulting — in the cold and line up,” said Alevtina A. Antonyuk, 58, an engineer. “They are nothing at this bank but a bunch of thieves.”
[Feb 16: NYT - Job Losses Pose a Threat to Stability Worldwide]
[Jan 29: CNN - French Take to Streets to Protest Against Economic Solutions]
[Jan 18: Global Unrest Continues to Grow]
[Dec 22: WSJ - Oil Crash Stirs Unrest in Russia & Protectionism on the Rise]
