The worsening violence in Ukraine is raising fears that economic problems will spread to other fragile and troubled countries in Europe and beyond. As the Financial Times reports, investors worry that the turmoil in Kiev could hurt neighboring countries like Poland in a variety of ways.
Donald Tusk, Poland’s prime minister, urged the country’s parliament “to prepare Poland and Europe for the most dramatic possibilities”, in a speech that showed the degree of concern felt in the country most directly exposed to Ukraine’s turmoil.Any big exodus of refugees would affect Poland, whose hospitals are already treating wounded protesters, even though economists say the country’s economy is robust enough to ride out a bout of instability.
Perhaps more significantly, emerging markets around the world have been under pressure due to hints that the United States might be tightening Fed policy as its economy slowly improves. Some of Ukraine’s biggest problems are economic. Here’s more from the FT:
“A default could have a destabilising impact,” said Koon Chow, head of emerging markets strategy at Barclays Capital. Ukraine could only be a trigger for a return of gloom to emerging markets – but with emerging markets still fragile after the last month’s sell-off, and political crises deepening from Venezuela to Thailand, “we didn’t need much”.
Given the herd psychology and trigger-happy nature of financial markets, a meltdown in Ukraine could lead investors to flee other worrisome emerging markets where there are worries. Thailand, Brazil, and Turkey, for example, are especially at risk. It has happened before in financial history that trouble in one country marks a tipping point in market psychology. Just one more thing to worry about as Ukraine drifts closer to the edge.