News You Really Need To See: “Homeowners in Poland Borrowed in Swiss Francs, and Now Pay Dearly”

“Homeowners in Poland Borrowed in Swiss Francs, and Now Pay Dearly”

The New York Times, January 29, 2015, p.B1

“Many of the worst hit are average Europeans who took out loans in Swiss francs, often from foreign-owned banks, to take advantage of the far lower interest rates being offered. Poland has nearly $40 billion in loans denominated in francs, according to European Central Bank data.  The borrowing, which accounts for nearly 8 percent of the country’s gross domestic product, has left Poland weighing its options.  On Wednesday, the Polish government urged banks to convert franc loans to zloty at market rates.  Poland is hardly the only country in this predicament.  Austria has about $41 billion worth of such loans, close to 10 percent of its economic output. … ‘With hindsight, it’s easy to say the foreign banks are guilty of pushing these mortgages and not informing customers of the risks,’ said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, who also blamed ‘insufficient regulation.’  Poland’s troubles, which come during an election year, are ‘political dynamite,’ he added.  Before the financial crisis gripped Europe, banks heavily marketed loans in Swiss francs, which were available at interest rates a third as high as for loans in Polish zlotys, or even lower.  In Poland, there were 562,487 home loans in francs in 2013, representing almost a third of the total number of mortgages, according to the Polish Financial Supervision Authority.”

Quickie Analysis:  Not just homeowners but also national and municipal governments throughout Central and Eastern Europe woke up two weeks ago with 20-25% more debt than they thought they had the day before.  It is hard to imagine that will not have political and economic reverberations.

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