Eastern Europe tops the list of emerging market regions susceptible to a full-blown financial crisis. Unlike emerging markets elsewhere, Eastern European economies are heavily dependent on external financing and current account deficits have been the norm. So, the sharp drop-off in capital inflows - expected in 2009 - will not only be a major blow to growth, but it could also potentially trigger a regional financial crisis. The Baltics, Bulgaria, Romania and Hungary stand out as particularly vulnerable but a crisis in one country could trigger a regional domino effect.
It should be said that Roubini has been doom-and-alarm-filled on this subject before, so caveat lector.
While I was sceptical of Roubini's view on the scale of the problem, the issue is not untimely --here is the Euro/Hungarian Forint exchange rate from the October crisis to now:
(A less hectic but persistent devaluation since early January.) *Lunatic*, n. One whose delusions are out of fashion.
