Debt Train – The first shipments arrive

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by David Malone

Remember what I was saying in Dominoes falling from the East about the debt train coming from Eastern Europe and the Balkans? Well I thought these two reports form Bloomberg this week were interesting hints that I might not be all that far from the mark.

In Italy

Italian borrowing costs increased to 3.67 percent at a sale of five-year securities today, from 3.24 percent the last time they were sold on Nov. 12. Demand was unchanged,

Those costs aren’t high but why should the costs move up at all if Italy is just fine? It’s not as if she is in Germany’s position  of being fingered as the country who is going to have to pay for everyone else’s bail out.  Which means any bond worries are about Italy and her banks. And UniCredit IS Italy’s bank.

Meanwhile in Austria

The extra yield investors demand for holding Austrian instead of German bonds is still the highest among the five top- rated non-German issuers in the euro zone. That spread started to widen two years ago amid lingering concern that Austrian banks’ investments in eastern Europe may go bad and require massive state bank bailouts.

Lingering concerns?  Not lingering, growing would be more truthful.

And who were the banks most likely to be in trouble according the same article?

Erste Group Bank AG, UniCredit Bank Austria AG or Raiffeisen Bank International AG expanded for two decades in the Austro-Hungarian empire’s former hinterland, buying local banks in nations including Ukraine, Romania and Croatia. They have the most outstanding loans in eastern Europe as a percentage of national output among all of Europe.

In Dominoes, and since, I suggested that UniCredit was the “Too Big to Mention” bank that would soon be creeping ingloriously into the headlines and sure enough here she comes.

 

 

David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php