Eastern European nations on the brink of a financial disaster have many worrying about the possibility of dragging other economies, and subsequent exchange traded funds, down with them.

In the good years, Eastern European nations were among the best markets for developed nations, but a credit crisis caused by a restricted flow of credit from Western European banks may cause a ripple effect, reports Nelson D. Schwartz for The New York Times.

Average growth among Eastern European countries dropped to 3.2% last year from 5.4% in 2007. It is estimated that it may further contract 0.4% or more this year. Since its peak last year, the Czech Republic’s currency has fallen 48% against the euro, Hungary by 30% and Poland by 48%.

The declining currencies have made it more expensive to pay off foreign debts and to purchase imports. The government has responded by cutting spending and reducing public services, which the masses have not found too favorable.

Tens of thousands of workers that enjoyed prosperity in the boom years are now watching the financial system, along with their jobs, crumble away.

Some potential solutions in the works include:

  • The International Monetary Fund is being forced to step in and has provided billions in aid
  • Germany might step in and bail out its smaller neighbors, despite a recession of their own
  • The G20 summit, to be held on April 2, could plan a coordinated response
  • SPDR S&P Emerging Europe (GUR): down 7.6% in the last month; down 23.9% in the last three months; Hungary 5.4%; Czech Republic 7.4%; Poland 13.4%

ETF GUR performance

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.