That euro economy

There's a definite whiff of something rather scary here.

"The euro's surge over the past two years has caught up. We've seen a hollowing out of the euro area's industrial sector, an oil shock, and tightening credit conditions, made worse by the European Central Bank's decision to raise rates in June," he said.

Nobel economist Robert Solow said the ECB had made a bad mistake and was now moving far too slowly to stop the downturn engulfing the region.

"I get the feeling that the mandate of the ECB is based on the notion that controlling inflation in a modern industrial economy is enough, with no further need for anything else. This not a view that is accepted any longer in economic circles. Central banks should not try to reverse oil supply shocks," he told The Daily Telegraph.

Prof Solow, an expert on growth theory, questioned whether the eurozone is capable of responding to a crisis given the lack of a single economic government to co-ordinate policy. "You could say that every political entity gets the central bank it deserves," he said, speaking at a Riksbank gathering of Nobel laureates.

So, we've had a shock or two to the system, just as they had in 1929. Then they (according to Uncle Milton at least) contracted the money supply which is what took us from Crash to Depression.

The Fed seems to have learnt the lesson and is willing to cut interest rates and print money to make sure that doesn't happen again.The ECB, not so much. They're still concentrating upon inflation rather than that money supply.

But if you really want scary, try this:
 

Sweden's economy ground to a halt in the second quarter. There are now concerns that Swedish banks could face a squeeze as the Stockholm property market deflates and the losses mount on heavy exposure to the Baltic states. House prices in Latvia have fallen 28pc this year.

The International Monetary Fund said that Swedbank dominates lending in Latvia and Estonia, where it has more clients than in its home base in Sweden, and it is the biggest lender in Lithuania.

It warned that the Baltic operations of the Swedish banks "could cause a credit crunch in Sweden itself" if the funding dries up in the wholesale capital markets.

Fitch Ratings warned yesterday that the Baltic trio of Latvia, Estonia and Lithuania face a high risk of a hard landing after years of blistering credit growth, mostly funded by foreign funds.

It warned of a "risk of a loss of confidence in the Baltic currencies and their banking systems, triggering widespread conversion and withdrawal of deposits".

Latvia's current account deficit is 18pc of GDP, and external financing needs have reached 158pc of reserves. Financing needs in Estonia are now 218pc of reserves.

No, that's not the scary bit, that's just the background. Read this for the scary stuff.

I used to think Swedbank would probably survive. I now think it probably goes to zero.

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