Here comes Austria:

Austria has nationalised the Carinthian lender Hypo Group after it ran into trouble on hidden losses in Eastern Europe, offering a stark reminder that Europe's banks are not yet out of the woods.

Finance minister Josef Pr�ll said the government had been forced by fast-moving events to take a 100pc stake in the bank, Austria's sixth biggest lender with assets of �42bn (�38bn).

"The risk situation of this bank has created an enormous threat to Austria, to its future as a financial centre, and to the whole economic region in recent days and weeks," he said, speaking after a 14-hour emergency session overnight on Sunday.

Chancellor Werner Faymann sought to calm the fury of Austrian citizens and opposition leaders, saying there would have been "catastrophic consequences" if the bank had been allowed to fail.

Austria's press said that Mr Faymann was under intense pressure from Jean-Claude Trichet, the head of the European Central Bank, who feared a "domino-effect" that would undermine other banks and damage Austria's sovereign rating.

This is a big deal. Hypo was owned by a Bavarian state bank, which now has to tighten its credit, harming Germany. And it shows that the ECB is much more heavily involved in regulation of individual banks at a time when it is reassessing how involved in supervision it wants to be.

Probably the biggest concern of this, however, is that the problems of eastern Europe are not just coming from Greece. The Baltics are in dire straits, and tail risk is rising elsewhere. The ECB's actions perhaps support this Bloomberg report from last week that ECB fears the Baltics getting pulled in by another wave of credit tightening. Don't know -- that connection is a little vague even to me, but taken with Greece and Dubai suggests something bigger might be happening.

UPDATE: Ruh-roh. Mexico downgraded.

Labels: economics