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Swedish government hit by Baltic crisis

As we covered in one of our posts yesterday, the almost inevitable collapse of the Latvian economy is set to send shockwaves across Europe. Swedish banks have a particularly high exposure to this economy and as such the Swedish government is rumoured to be preparing to part nationalise a whole host of banks in the country. This will then see pressure on the Swedish currency, the Swedish economy and the Swedish credit rating which could have a knock-on effect to other countries.

This has always been a nightmare scenario, the collapse of a relatively small economy in the EU thereby forcing more and more EU members to inject more and more rescue funds into the EU. When you consider the likes of Germany, the UK and France are struggling to re-energise their own economies and have seen a significant increase in national debt, the top three, never mind the rest of the EU, are not in a position to bail out other countries.

If the Swedish situation was to have a knock-on effect to neighbouring economies and the European banking sector, we could end up in a worse situation than when the credit crunch first hit home in the US. Those who believe we are out of the woods may well be in for a big surprise!

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