Please read the following excerpt from an article:

"Eastern Europe has borrowed an estimated $1.7 trillion, primarily from Western European banks.And much of Eastern Europe is already in a deep recession bordering on depression.A great deal of that $1.7 trillion is at risk, especially the portion that is in Swiss francs. It is a story that could easily be as big as the US subprime problem.

In Poland, as an example, 60% of mortgages are in Swiss francs.When times are good and currencies are stable, it is nice to have a low-interest Swiss mortgage.And as a requirement for joining the euro currency union, Poland has been required to keep its currency stable against the euro. This gave borrowers comfort that they could borrow at low interest in francs or euros, rather than at much higher local rates.

But in an echo of teaser-rate subprimes here in the US, there is a problem. Along came the synchronized global recession and large Polish current-account trade deficits, which were three times those of the US in terms of GDP, just to give us some perspective. Of course, if you are not a reserve currency this is going to bring some pressure to bear. And it did.The Polish zloty has basically dropped in half compared to the Swiss franc. That means if you are a mortgage holder, your house payment just doubled. That same story is repeated all over the Baltics and Eastern Europe.

Austrian banks have lent $289 billion (230 billion euros) to Eastern Europe. That is 70% of Austrian GDP.Much of it is in Swiss francs they borrowed from Swiss banks. Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial system, says the Austrian finance minister, Joseph Proll.In the US we speak of banks that are too big to be allowed to fail. But the reality is that we could nationalize them if we needed to do so. (And for the record, I favor nationalization and swift privatization.We cannot afford a repeat of Japan's zombie banks.)

The problem is that in Europe there are many banks that are simply too big to save.The size of the banks in terms of the GDP of the country in which they are domiciled is all out of proportion.For my American readers, it would be as if the bank bailout package were in excess of $14 trillion (give or take a few trillion).In essence, there are small countries which have very large banks (relatively speaking) that have gone outside their own borders to make loans andhave done so at levels of leverage which are far in excess of the most leveraged US banks. The ability of the "host" countries to nationalize their banks is simply not there.They are going to have to have help from larger countries. But as we will see below, that help is problematical."

Why was the Polish Zloty pegged to the Euro? Why did Poland eventually have to devalue its currency? This response does not have to be long.