Eastern Europe

British banks can take some comfort - they did not buy into the Central and Eastern European banking sector in any major way. The same cannot be said for the Belgian,Austrian,Italian,French and German banks who conflated EU membership with economic stability. We've written before about the hard currency exposure of the Italian banks to Hungarian and Slovak mortgages but now the contagion is spreading to corporate and credit card loan books. The more I look at what is going on the more I come to the view that the UK won't have the worst recession in the EU - Ireland is already contracting more rapidly ( but like the UK has a flexible labour market ) but Austria having advertised itself as the gateway to the East finds itself very exposed to the downturn as does Italy with its large sub-components sector in the north.Q2 and Q3 GDP numbers are likely to worsen from what are likely to be depressing Q1 numbers. Sterling and the Euro are likely set to carry on weakening against the greenback for the immediate future.