What are the Swiss doing selling dollars? I don’t have an answer to this question. But, I thought I would posit it because a reader tipped me off to a development via the Blog Alea:

The need to bailout banks for their aggressive lending in central and eastern Europe is becoming ever more apparent. An Austrian bank has taken the lead in getting a consortium of banks together to lobby the European Union for bailout funds.

This should be seen for an undeserved handout for individual banks. I like the argument used to support this request (bolded in the snippet below) — it is self servingly cynical, but could be effective. However, it remains to be seen whether entire banking systems or individual banks will be successful in getting any funds outside of those provided by their national governments.

Stay tuned.

A friend living in Latvia wrote that he was “stunned by the chaos that broke out in Riga this evening.” I had heard absolutely nothing about it until he told me. Apparently, a peaceful protest outside Parliament turned bloody when the police started to crack down on protesters. 126 people were arrested. (Hat tip: Ken)

The row between Russia and Ukraine over payments for natural gas looks to be de-escalating. Gazprom has committed to letting the gas flow freely again after the EU requested this action be taken. The question now is whether the core issue of payments for natural gas can be solved. The Financial Times takes a stab at this in their latest Lex column, part of which is excerpted below.

The Ukraine-Russia row over natural gas has escalated to a new high. Now, state-owned Gazprom has completely cut off supplies to Europe through the Ukrainian transit route. It still remains unclear what the ultimate aim of the Russians are in bringing the issue to this critical state. Nevertheless, it is generally believed that Russia is making as much a political statement about NATO expansion, the disregard of Russia’s sphere of influence, and the dependency of the European Union on Russia for its energy needs. One should expect a political response from the EU shortly.

The question on everyone’s mind in the emerging markets is who will blow up next. Arnab Das of Dresdner Kleinwort Benson takes a stab at answering that question. He targets the Baltics as the problem children and sees current account surplus nations in Asia as lest vulnerable. He also discusses his views on Russia.

Below is the video with him on CNBC giving forth his view.

You probably know that I am gearing up for some serious writedowns in Eastern Europe because I see these countries as having external imbalances which will have to be corrected as the economy softens. In previous posts, I had mentioned that there was considerable exposure to Eastern Europe in Austria, Sweden, Denmark ad Germany in particular. Austria is the worst of the lot. Today, I happened upon an article and a quote which puts the Austrian exposure into context.

As an article in my links yesterday suggested, for many in the west, Russia’s behavior of late has lurched toward the unpredictable, volatile and aggressive. After Russia’s moves against Georgia in South Ossetia, wariness in the west has increased, sometimes bordering on hostility.

I have generally taken a more pro-Russian view of events, seeing the reactions by Russia as predictable responses to a Super Power provoked by repeated slights. That is neither here nor there as the latest controversy heats up, this time over natural gas.

Trolling the web today as is my wont, I happened across an interesting article about the Austrian finance company Immofinanz. It seems that Immofinanz got caught up in the Eastern European property market. Unfortunately, its investments have not worked out and it was forced to report a half-year loss of 1.85 billion euros. Is Immofinanz a canary in the coalmine for Eurozone financial services exposure to Eastern Europe? I certainly believe so as I indicated in my ten predictions for 2009.

Has Paul Krugman been reading my stuff? He is certainly thinking like me regarding emerging market risk. He has a post today talking about Latvia as the new Argentina.