Pain in the East

The Wall Street Journal Europe

As this latest monetary bubble bursts … , one region that's especially feeling the pain is Eastern Europe. The emerging markets that thought they had come of age by joining the EU or the World Trade Organization in recent years are now gasping for the credit that once flowed freely.

Many of the headlines so far have focused on Hungary, which moved last week to defend the rapidly declining forint with a three-point interest rate hike, to 11.5%. … But the government's reliance on foreign capital inflows, which tend to be dollar liabilities, now has markets guessing it won't be able to finance those liabilities.

Ukraine is also struggling, though mostly because the dollar's rise and falling steel prices have left its businesses short of the foreign currency they have used to fuel the country's strong growth the past few years. Substitute "oil" for "steel" and you could say the same thing about Russia and its businesses.

Moscow has much larger foreign-currency reserves than Kiev, and it is using that money to keep the Russian economy from falling even further than it already has. But Russia is paying for its inability to adopt the rule of law and diversify its economy beyond oil. ... Vladimir Putin thought he could make Russia a great power again on petrodollars alone. Instead he's built a Saudi Arabia with more time zones and nuclear weapons. …