Latvia pulls down Sweden

[Joanne98]

Bank shares plunge on fears the Latvian currency is about to fall again.

LONDON - The failure of a bond auction in Latvia is making bankers in Sweden quake in their boots.

Shares in Swedbank, the biggest lender to Latvia, dived 15.9%, to 38 Swedish Kronor ($4.92) after the Latvian government failed to sell any of its government debt securities on Wednesday. Skandinaviska Enskilda Banken--better known as SEB--fell 11.0%, to 30 Swedish kronor ($3.88). The Swedish kronor meanwhile fell to 10.91 against the euro, from 10.71.

The failed auction has raised fears that Latvia may have to devalue its currency. That could have a major impact on Scandinavian lenders who had flooded the Latvian market with euro-dominated loans that let borrowers take advantage of better interest rates. A devaluation of the kroon essentially makes it harder for them to repay their debts, sending the number of bad loans higher.

http://www.forbes.com/2009/06/03/latvia-sweden-economy-markets-economy-scandinavia.html?partner=contextstory

[ixion]

1. This is a very poignant point:

The idea that governments selling their debt to one another is a sustainable model...it's not.

It's a feedback loop that will ultimately not end well.