Car repossessions are up 25% in Romania, as the members of a newly-minted class of consumers are unable to meet their obligations. Austrian, Greek, Swedish, and German banks are exposed to default risks throughout Central and Eastern Europe. Consumers and businesses in Serbia, Ukraine, Hungary, and other teetering economies owe Austrian financial institutions $290 billion - almost the entire GDP of this country!

As local currencies depreciate, debts, denominated in foreign exchange, grow more expensive to service. As the real economy contracts, in the first phase of what appears to be a prolonged recession, bad loans mushroom and reserves are exhausted. This requires cash-strapped governments to recapitalize major banks. Faced with current account and budget deficits, some of these sovereigns are scrambling for outside infusions from the likes of the IMF.

In August 2002, I conducted an interview with an Austrian banker. It is fascinating to read it in 2008. It is evidence of the hubris that engulfed even the best and the brightest in the heyday of the Drang nach Ost of Austria.

Especially revealing is this part of the interview (to remind you, conducted in August 2002):

Vaknin: Many Austrian banks have aggressively spread to Central Europe - notably the Czech Republic, Slovakia, Poland, Croatia, and Slovenia. Do you think it is a wise long term strategy? The region is in transition and its fortunes change daily. Poland has switched from prosperity to depression in less than 7 years. Aren't you concerned that Austrian banks are actually importing instability into their balance sheets?

Christl: The move by the Austrian banks into central and eastern Europe is a very good niche market growth strategy. Austrian banks lost a lot of money in the UK, the USA, and in other parts of the world - but were very risk-conscious in central and eastern Europe, where, today, they generate high margins. In the years to come, this will be a strongly growing region. Entering these markets was a very positive decision.

Vaknin: Austria's banks are small by international standards. Do you foresee additional consolidation or purchases by foreign banks, possibly German?

Christl: I am convinced that there will be additional domestic consolidation coupled with some foreign purchases. The three big German banks - HVB, Bayerische Landesbank, and Deutsche Bank - are already present in Austria.

Vaknin: In 1931, the collapse of Creditanstalt in Vienna triggered a global depression. The markets are again in turmoil, the global economy is stagnant, and trade protectionism is increasing. Can you compare the two periods?

Christl: Thank you or the honor of triggering a global recession, but Creditanstalt was too small to do so. In my view, you cannot compare the markets today and in 1931. Financial skills and organizations are much more developed today. Social systems are much more secure than in the 1930's.