The European mess is still smoldering. The greatest fear among traders is that eurozone governments will be unable to enact or follow through on the austerity measures needed to bring deficits under control.

Last week Hungary joined the club of distressed nations. Yet, over the weekend, Hungary's government sought to reassure investors saying that the country is not facing a sovereign credit default.

The day started with rumors about problems with Hungary's sovereign debt. Whether the rumors about a potential default had any truth behind them hardly mattered. Stock prices in Europe crumbled and the euro fell to a four year low -- below $1.20. At 8.30am the Labor Department announced May employment numbers. The market consensus was that 540,000 new jobs were created in May. About 400,000 of those were expected to be temporary positions created by the Census Bureau. The total number was only 431,000 and the private sector created barely 20,000 new positions. Futures were down by 2% before the market opened.

The unofficial closing numbers:

Dow 9,931.22 -324.06 (-3.16%)
S&P 500 1,064.88 -37.95 (-3.44%)
Nasdaq 2,219.17 -83.86 (-3.64%)

Fears surrounding the ever-expanding European debt crisis are starting to flare up again as news is rolling out of Eastern Europe that the crisis is spreading to Hungary.

The Hungarian government announced that it is at risk of defaulting on its sovereign debt thanks to accounting shenanigans perpetrated by a previous administration. It seems the Greek government wasn't the only one cooking the books to make its economy look better.

Following the instructions of President John F. Kennedy, "I appreciate candor almost as much as I appreciate good news," we're moving forward with candor, however unpleasant.

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.

When we say Europe, the countries of Germany France and Britain immediately come to mind. When we say emerging markets we often think of India and China. Yet in the heart of Europe we have a group of European emerging markets. Included here are the countries of Hungary, the Czech Republic and Poland.

Like the rest of Europe, these countries are suffering from the worldwide economic downturn. However the extent of the damage to their economies has been much worse than the rest of Europe. Much of the growth in these economies has come from foreign investment, thereby creating large foreign exchange debts.

A former chief economist for the International Monetary Fund is dispelling any notion that the global financial crisis will not have significant ripples for the developing world.

Simon Johnson, former IMF chief economist, said emerging market countries may need as much as $1 trillion, given difficulty accessing money in international credit markets, Bloomberg News reported.

"If we are really facing the problem I think we are, you need about $1 trillion," Johnson said.

IMF starts new liquidity facility

This week the IMF announced it's establishing an emergency loan program, an IMF Short-Term Liquidity Facility (SLF), that almost doubles borrowing maximums for emerging market countries. The goal is to prevent contagion, or the collapse of developing nation economies -- including overcome short-term liquidity problems -- due to the financial crisis.

The violent up and down swings in global markets have not subsided. This morning stocks around the world are tumbling. Asian stocks declined as the Nikkei 225 fell 6.8% and the Hang Seng tumbled 6.2%. European markets opened lower with the DJ Euro Stoxx 50 index losing 2.7% and the FTSE 100 index in London down 3%. Dow futures look to open lower by 1%.

There are all sorts of unpleasant surprises popping up around the world. A Japanese electronics company forecast 90% lower profits; Hungary raised interest rates to curb a decline in its currency; Argentina nationalized its pensions to prevent a default. What we are witnessing is the intersection of a highly globalized and interconnected financial architecture blowing up and exposing a global regulatory structure that lags woefully in its ability to measure or repair the problems.

Global leaders are trying to cope with the problem as best they can. Unfortunately, none of them seem to understand fully what is going on. I am taking my view of this to the Wharton Club of Boston tonight -- addressing questions such as: Where are we now? How did we get here? What should people do about it? What should the new financial architecture look like?

One piece of good news in all this is that the dollar has gained 25% since July 15 against the Euro -- that was around the time that oil peaked at $147 a barrel -- it now stands at $69.61.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

I was just invited to a conference at the University of California at Los Angeles by Natalia Johnson of the economics division of the Consulate General of Poland and I thought I would share this tidbit with those that might be interested and live in the vicinity.

Poland has been a member of the European Union since 2004 and its economy has been expanding rapidly even long before they became a member. Natalia informs me that last year Dell (NASDAQ: DELL) opened a large factory in Lodz, Google (NASDAQ: GOOG) opened shop in Krakov, General Motors (NYSE: GM) has been operating at several locations and the list is growing.

In addition to the presentations from representatives from Poland there will be presentations and a panel discussion by members of the Czech, Hungarian, and Slovakian missions. The UCLA Kane Anderson School of Management has scheduled the lecture for April 18, 2007 - next Wednesday, in the Korn Convocation Hall.

I have written about opportunities in China and India and others have included Russia and Brazil as offering large opportunities for significant growth as well. Central and Eastern Europe receives less press than the other regions but should be included in discussions about economic prosperity and integration into the global community.

I chase opportunity wherever I find it and if I can get out of some meetings will be there at this conference. If you are interested in long-term value investing you should read Chasing Value and put it on your toolbar.

Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out my other posts for BloggingStocks here.