The List: Sick Men of Europe

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LATVIA

2008 GDP gain/loss: -1.8 percent

Expected 2009 GDP gain/loss: -8 percent

How bad is it? Two weeks ago, the government of this once booming Baltic tiger became the second, after Iceland, to collapse as a result of the financial crisis. In the process of defending its currency, Latvia has been forced to spend about a fifth of its reserves. Whether this controversial policy will work remains unclear, but as creditors come calling and foreign investment dries up, Latvias extremely high account deficit as a percentage of GDP will pose significant risks. A governmental collapse is serious enough, but some now fear that Latvias young democracy could itself be in danger. New, 37-year-old Prime Minister Valdis Dombrovskis doesnt really seem like dictator material, but with 400 Latvian citizens signing a letter begging Russian oligarch Roman Abramovich to purchase their country and tens of thousands requesting to be occupied by Sweden, Dombrovskis might just have to consider some unorthodox options.

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ESTONIA

2008 GDP gain/loss: -2.8 percent

Expected 2009 GDP gain/loss: -5 percent

How bad is it? Estonias short-term debt as a percentage of foreign exchange reserves is about -250 percent. This means that if foreign investment dries up, the north Baltic country will be completely unable to repay its creditors. The fourth quarter of 2008 was disastrous for Estonia, with a 6.4 percent decline in manufacturing and a 9.4 percent GDP loss. Fortunately, the country still enjoys a high level of foreign direct investment (FDI), largely from neighboring Finland. In what looks like a desperation move, Estonias cash-strapped Parliament is now considering a measure to rescind taxes on alcohol to attract tourists and return to the good-old days when Tallinn was named Party Capital of the Year by the New York Times in 2006. Lately, Estonians have had very little to celebrate.

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UKRAINE

2008 GDP gain/loss: +2.1 percent

Expected 2009 GDP gain/loss: -6 percent

How bad is it? The global crisis has battered Ukraines economy, with industrial output down more than 30 percent and the currency losing 50 percent of its value. Finance Minister Viktor Pynzenyk, an ally of Prime Minister Yulia Tymoshenko, resigned in February, and the foreign minister, an ally of President Viktor Yushchenko, was sacked by parliament on March 2. The infighting within the government is preventing Ukraine from forming a coherent fiscal and monetary strategy. For instance, the International Monetary Fund (IMF) recently refused to dish out the second part of a $16.4 billion loan after Ukraine failed to hold up its part of the agreement by passing too large a budget deficit. As things stand, the fragile Ukrainian coalition government could be the next to follow Iceland and Latvia, but it will probably hold until the second half of the loan is granted.

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HUNGARY

2008 GDP gain/loss: +0.8 percent

Expected 2009 GDP gain/loss: -4.5 percent

How bad is it? Short-term debt as a percentage of the foreign exchange reserves of Hungary, whose economy is much larger those that of Estonia and Latvia, has ballooned to 79 percent. Hungary is now facing GDP losses that would constitute the worst recession since the end of communism and potentially exceed the projected contractions of some of its neighbors (Romania, Slovakia, Austria, and Croatia). Hungary has already secured a $12.5 billion loan from the IMF and a 6.5 billion credit line from the EU. So far there has been no unrest comparable to the antigovernment riots of 2006, but with Hungarys history of protests, the danger of political turmoil always lurks around the corner.

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BULGARIA

2008 GDP gain/loss: +5.4 percent

Expected 2009 GDP gain/loss: -0.6 percent

How bad is it? Perhaps no country has woken up from the party with a worse hangover than Bulgaria. In 2007 Bulgarias FDI inflows were 16.7 percent of GDP and despite a small fourth-quarter contraction, the country enjoyed decent economic growth in 2008. However, Bulgaria has always struggled with corruption, and in November 2008 the EU rescinded 220 million in promised payments because Bulgaria has failed to tackle problems in its government. Other countries have the mafia, a member of the Bulgarian parliament told the New York Times. In Bulgaria, the mafia has the country. Bulgaria is not mired in debt and thus has fiscal policy alternatives such as increasing public spending, but as long as FDI accounts for one third of the countrys GDP, Bulgarias economic future remains dicey.

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