Next source of financial turmoil - Eastern Europe

On Wednesday, January 21, the Financial Times-Deutschland reported on a press conference organised by nine major banks from Austria, Italy and Germany, that are heavily involved in Eastern Europe and who set up "an initiative to represent the interests of Eastern Europe". But this is not a case of any altruistic preference for these countries; this lobby group is driven much more by their own profit interests than any real desire to help the people in Eastern Europe.

So who is behind this initiative? The spokesperson of the group is Herbert Stepic, chief executive of Raiffeisen International, one of those Austrian banks that expanded enormously in the Eastern European markets. Other banks involved are Unicredit from Italy with its subsidiary Bank Austria, the Austrian Erste Bank, Societé Generale, Intesa Sanpaolo from Italy, the Greek EFG Eurobank, the Belgian KBC, Swedbank and the Bayern LB. All of them have huge investments in Eastern Europe.

Fear of bankruptcy

The aim of this lobby group which was formed already back in autumn 2008 is to convince the EU and the European Central Bank to take big measures in actively trying to stem the credit crunch in the member states of Eastern Europe but also in Serbia and the Ukraine. Their thinking is that the EU should finance bank bailouts like those we have seen it in most western EU countries.

In the last few months these banks were lobbying as usual behind the scenes, but now they have seen the need to go public and increase their pressure. Obviously they have become nervous in the light of the latest figures on the economic crisis in their major markets.

The Eastern European subsidiaries of these banking giants were engaged in a big way in the credit boom of the last few years. Now with the devaluation of most of the currencies in these countries (the latest example is he Polish Zloty with a fall of 17%) people can no longer pay back their debts. This is becoming a serious threat for banks in Austria, Germany, Italy and other west European countries.

They fear that it is becoming impossible to keep the capital flows going. After years of boom the economies in the former Stalinist countries are now in a free fall. Hungary and the Ukraine have only been able to avoid default thanks to "aid" from the IMF. Now also Latvia is to receive money from the IMF and Estonia could be next. It is like a game of dominoes. If one country defaults then others could easily follow. And according to the Financial Times-Deutschland this would also have a major impact on countries like Austria and others which have played an important role in the region.

Wave of protests

The crisis is already starting to have an effect on the consciousness of the masses. We have reported in several articles on the strike movement in Hungary over the last months. This process is still going on.

Clashes with police in Latvia during a demonstration against the policy of cuts by the right wing government

At the beginning of January Latvia and Lithuania were shaken by big demonstrations against the repercussions of the crisis. In Latvia the trade unions together with opposition parties called for a demonstration against the policy of cuts by the right wing government. 10,000 came out on the streets. In the course of the evening some 1000 protesters tried to storm the parliament and clashed with the police.

In Lithuania the same thing happened. Some 20,000 people participated in the demonstrations called by the trade unions. As in Riga, also in Vilnius the capital, people threw bottles, snowballs, eggs, against the parliament building. Again the police reacted in a very brutal way and arrested dozens of protesters. This protest was directed against the severe cuts in the public sector and the social security system (cuts of 12-15%) and cuts in the subsidies for medicines and heating brought forward by the conservative government.

In Estonia we can expect similar developments soon, and the same goes for Romania. Some months ago commentators were still saying that Romania would not be hit by the crisis. Now the music has changed. At the forefront of the struggle are the workers of the Dacia car factory in Pitesti in the south of the country. Last year these workers fought a very militant strike over higher wages and won a 30% increase.

Dacia is part of Renault and it provides an excellent example of how multinationals use cheap labour in these countries to raise their profits. In 2007 they made some €150million. But wages were only at around €280 per month. Apart from these low wages the management also wants to speed up production. After weeks of hard struggle the workers won, but now they are faced with temporary factory closure and the sacking of 4000 of the 13,000-strong workforce. In other industries, such as at the newly opened Nokia plant, sackings are on the agenda. In the meantime the government has opened a debate over cuts in social spending to reduce the budget deficit. This is an open recipe for class struggle and mass protest in Romania. Twenty years after the fall of the Ceaucescu regime soon the masses could be back on the streets again.

The above mentioned bankers from Austria and other western countries have a lot to lose in Hungary, Romania and other East European countries. As Herbert Stepic from Raiffeisen International said, "Many of us fought 50 years against communism; now where we have a free market economy in the region, we cannot abandon them." They openly fear that 20 years after the fall of the "iron curtain" and the victory of the "free market" conditions could develop very fast for a new popular uprising. This time such a movement would be directed against those who profited from the events of 1989 and who sit on the boards as chief executives of the banks and multinationals, as well against their stooges in the governments of these countries. In the last few years we have seen a process of a certain reawakening of the working class in these countries. The unions have gained a new militancy. This will emerge in the next period in one country after another in the region. The ideas of genuine socialism will then again get a big echo in the labour movement in Eastern Europe.

• Austria and Eastern Europe: Go East, where the skies are blue by Matthias Schnetzer (June 20, 2008)
• Hungary’s growing strike wave by Julianna Grant (December 16, 2008)
• Hungary: Today they are demonstrating, but in January there could be a major strike by Julianna Grant (December 4, 2008)