Investors take heed: the U.S. recession most likely just got longer.
The European Union, led by Germany, has rejected Eastern Europe's pleas for an aid package of about $228 billion, citing budget concerns in their own Western European countries, Bloomberg News reported Sunday.
The E.U.'s failure to provide aid and fiscal stimulus to Hungary, the Czech republic, Slovakia, Romania, Bulgaria, Latvia and Poland will hurt both the U.S. and global economies.
How so? Growth engines. The world is in a synchronized recession and it needs growth engines -- any and every growth engine -- to create demand. The E.U.'s obstructionist stance -- led by the wealthiest nations in the E.U., Germany and France -- removes another potential growth engine from the international stage: commerce in Eastern Europe. As a result, Europe's economy will now recover later, hurting the European operations of U.S. corporations, which will likely lengthen the U.S. recession.
The E.U. has not been totally unreceptive to aid pleas from the east: Hungary has received about $8 billion in E.U. aid, Bloomberg News reported.
Still, the stance of German Chancellor Angela Merkel is particularly discomforting. A former East German resident and an educator, Merkel should be especially receptive to the credit plight of Eastern Europe's leaders, who've said their young, vulnerable economies will undergo major contractions if more credit and aid does not materialize soon.
Both German and France have cited budget concerns in Western European countries as a reason for the aid rejection, but this stance will ultimately prove to be self-defeating. If banks and other institutions in Eastern Europe come under pressure, Western European companies and counterparties with exposure to these banks will be hurt as well, creating another ripple in the financial crisis.
Market / Economic Analysis: A horrible decision by the EU! EU leaders need to revisit this decision and reverse it, soon. As noted, the stance of Chancellor Merkel, along with the 'no' by France President Nicolas Sarkozy, essentially leaves Eastern Europe to fend for itself, out in the cold. That stance will lengthen both Europe's and the U.S.'s recession, and the French people should be all over Sarkozy for his anti-unity, anti-economic recovery stance.
It's also ironic that while the EU has preached unity and cautioned Russia against expansionism and meddling in Eastern Europe (former Eastern Bloc nations were once allied with the Soviet Union), now, at the very moment when Eastern European nations are seeking closer ties with the EU -- to be one with Europe -- Germany and France give the east a 'sorry, can't help you.'
But the EU's stance will not blot-out the reality: Eastern Europe needs help, and if it can't get it from the EU, it'll seek it somewhere else. And who might be willing to help Eastern Europe, to the extent they'll be able to do so, given their own economic concerns? That's correct: Russia. Oh, Putin must love this! How ironic it would be that at the very time Eastern Europe looks to the west, the E.U. drives it back into Russia's sphere of influence -- the very thing the U.S and Western Europe fought against and prevented during the Cold War!
E.U.: Come to your senses, for the good of the European, U.S., and global economies -- pass a significant aid package for Eastern Europe.