'We ain't seen nothin' yet..' is the tenor of an article in the Financial Times today: Eastern Europe won't pay what it can't pay by Michael Hudson . Prof Hudson warns that the sounds of 'European debt bombs' going off - from Greece, Iceland, Latvia & other post-communist countries - will be soon be ricocheting around. He spells out why he thinks these countries' support of their currencies is unsustainable, and foresees drastic currency realignments and debt write-downs - with the effects being painfully felt by Swedish, Austrian, German and British banks.
In Latvia, with taxes of 50% on labour it is uncompetitive and with property tax at 1% there are incentives towards speculation. Hudson's hope is in a re-design of the post-communist economies leading to systems producing more productive credit and the promotion of employment rather than asset price inflation. He favours: 'a major shift of taxes from labour to land. There is no just alternative.' He warns of a creditor/debtor threat to split Europe unless the looming crisis is sorted. Otherwise the Iceland case will be a dress rehearsal to that. Chilling.