Q: What is happening with the banks in Eastern Europe, I mean we have heard some alarms even from prettyhigh ranked, the German Finance Minister with worries about debt, will germany and France sort of be forced to comtemplate the unthinkable, a financial rescue if you like?
>MARC FABER: Well, basically yes. It is not just the banks, what happened is, in Eastern Europe, not in every country, but in most countries, they have very large current account deficits, and growing, they have financed these debts with foreign borrowing, in Euros, Dollars and Swiss Francs. And individuals who bought homes rather than pay high interest rates in local currency, they borrowed in foreign currencies, in Euros and specially in Swiss Francs.
There are lots of mortgages that have been written in Swiss Francs in these Eastern European countries. So these economies that depend on a large extent on capital flows and exports, were obviously hit hard and the currencies tumbled.
As the currencies tumbled there was an huge mismatch of assets which are in local currency and liabilities in foreign currencies that have appreciated against local currencies.
So now, all this countries face payments difficulties.
