Mafia exploits crisis situation in Eastern Europe

One of economists, who closely observe aftermath of first wave of crises told me that there will be more and more social unrest as a result of it. He described dramatic situation of de-globalization processes in his book published years before fall of Lehman Brothers . One of signs can be riots and appearance of mafia, which would exploit poor economic condition of laborers. And here is interesting article which talks about such developments in Eastern European state badly hit by crisis.

PRAGUE — Several groups across Eastern Europe have called for a crackdown on mafia-run job agencies amid reports that their members are raping and torturing migrant workers who have lost their jobs in the economic crisis.

Media in the Czech Republic have carried reports that thousands of foreign workers in the eastern European country who have become unemployed are becoming virtual slaves to semi-legal "job brokers".

NGOs in other Eastern European countries report a similar problem of migrant workers being abused.

Many migrants say job agencies are now forcing them to pay exorbitant fees for arranging documents, accommodation and work. They say they are often beaten and humiliated, and some have been raped. But many do not turn to the police for fear of being thrown out of the country.

"Even we didn't know the depths of this problem," Lucie Sladkova, head of the International Organization for Migration (IOM) branch in Prague told IPS. "The torture, rape and sheer dependency of these people on these so-called 'job brokers' has shocked not just us but the public as well.

"The authorities need to crack down on the people behind this."

And, she added: "This is not a problem that is exclusive to the Czech Republic. This is occurring in other countries across the East European region."

Immigrants from Asia and other relatively poor regions have come to Eastern European states such as the Czech Republic since the fall of communism in 1989. These countries' economies have enjoyed strong growth in the post- communist era, but are now among the hardest hit by the global economic crisis.

Unemployment levels are soaring, with jobless levels reaching or predicted to hit highs of as much as 15 percent in some Eastern European regions such as the Baltic states.

"Migrants become even more vulnerable during times of crisis," Jemini Pandya, spokeswoman at the IOM's Geneva headquarters told IPS. "They are usually the first to lose their jobs, are often subject to lower salaries and poorer working conditions anyway, so end up in desperate situations."

Migrant workers often fall into 'slavery' after coming into contact with job agencies run by mafia. They hand over their passports after being told they are needed to get work visas, and soon find themselves paying huge 'fees' and running into debt.

"A migrant loses their job, cannot find another one, and may also face an uncertain wait of many months for work and residency permits," says Sladkova. "Then someone comes along and offers to help them sort it all out in a few days for a fee if they just hand over their passport.

"Once they have done that they are then entirely dependent on that person who will come back and demand more and more money in 'fees' before they can get their passport back, or will find them accommodation and suddenly start charging them enormous rent.

"So they borrow money — from the mafia — to pay that rent and are suddenly in a vicious cycle. This has got much worse because of the economic crisis. These are among its very worst-treated victims."

Some victims in the Czech Republic have reported that they have been brutally beaten up for complaining. Women have said they were taken and delivered to mafia bosses to be raped, according to information made available to NGOs. If at all they are given work, it is in terrible conditions, and so much of their wages are taken by gang masters that they are left with barely enough to survive.

"They do not report them as they have thousands of reasons not to," Stana Buchowska, head of La Strada, an NGO helping migrant workers in Poland tells IPS.

The Interior Ministry in the Czech Republic says 12,000 foreigners were laid off in the first three months of 2009. The government introduced a scheme earlier this year to repatriate migrant workers who became unemployed. Ministers said they feared they would otherwise slip into the underground economy and fall prey to mafia gangs ready to exploit their illegal status.

Under the scheme migrants leaving the country would be paid their fare home and given 500 Euros. But since it was introduced, only 1,800 have taken up the offer, according to official figures.

NGOs say migrant workers are often compelled to stay on because they have run up enormous debts of tens of thousands of Euros, and need to carry on working.

"They are so desperate for money that they become willing to work in slave conditions, 24 hours a day for little wages, just to earn something," Buchowska tells IPS. "Migrant workers everywhere in Eastern Europe are being exploited in this way."

Irena Konecna, coordinator of La Strada in the Czech Republic, told IPS: "The migrant workers are in debt and have to stay to earn money to help people back home. They are willing to work in slavery. And these job agencies know that."

The Czech Interior Ministry has pledged to investigate reports of exploitation, and to monitor the situation with migrant workers.

Earlier this year it stopped renewing work permits for people at agencies suspected to be operating illegally and abusing migrants. But the mafia got round this by setting up "co-operatives" of foreign workers, which under Czech law could continue functioning.

"Police have to go right into the heart of the immigrant communities and ask them about the real situation and who is getting their documents for them and finding them work so that something can be done about this," says Sladkova. "These crooks 'loan out' workers for jobs. People are just commodities for them, bought, passed on and sold."

Stiglitz: there is a threat of even worst crash than year ago

Apparently in Eastern Europe also banking system is a threat - according to European Bank for Reconstruction and Development Chief Economist Erik Berglof.

Meanwhile Joseph Stiglitz is saying that he is worried about even "worse" crisis because financial institutions (including "too big to fail") remain in bad shape.

Here is eye-opening article from Bloomberg:

Eastern Europe’s recovery remains at risk from a banking crisis as a lack of transparency in the industry undermines confidence and impedes interbank lending, said European Bank for Reconstruction and Development Chief Economist Erik Berglof.

Emerging Europe’s banking system is “not out of the woods” and “there’s still a chance” the region may suffer a financial crisis, Berglof said in a Sept. 10 interview in London.

The development bank, created to support projects in former Soviet and communist states after the end of the cold war, has helped international efforts to limit the impact of the financial crisis on eastern Europe, persuading western banks to stay invested in the region and help fill a funding hole it estimates at $200 billion. Preventing a second banking crisis is “the absolute key” to a recovery in the region, Berglof said.

“There are some signs that demand will go up in western Europe and that will help these countries, but the biggest threat to that is a deterioration of the financial system again,” he said.

Concern that global efforts to repair financial systems may be flagging is mounting.Joseph Stiglitz, the Nobel Prize- winning economist, said in a Sept. 14 interview that in the U.S. and many other countries’ banking systems “the problems are worse than they were in 2007 before the crisis.”

The EBRD has been focusing on 12 Western parent banks that it pinpointed as “systemically important” for the region, including units of Italy’s UniCredit SpAand Societe Generale SA, as well as some large local banks, such as Latvia’s Parex Banka AS and Hungary’s OTP Bank Nyrt.

No Trust

“There are big questions about western European banks’ portfolios and a lot of those uncertainties are tied to investments in eastern Europe,” Berglof said. “When banks don’t trust each other, the interbank market doesn’t work and they are cautious about on-lending to clients. When there are pressures at the center of these banks, it’s typically in the periphery that they withdraw. That’s the same fear that we had in the spring.”

The European Commission warned in June that Latvia’s Swedish lenders, Swedbank AB and SEB AB, may be redeeming debt to their Baltic units, threatening to undermine the effectiveness of the country’s international bailout. The banks denied the claims at the time and the Commission and the International Monetary Fund said yesterday that the lenders had “reaffirmed” their commitment to Latvia in a Sept. 11 meeting.

Stress Tests

Europe’s banks would benefit from more rigorous stress testing with results being made public, Berglof said. That would underpin confidence and encourage interbank lending in the region, he said.

The stress tests should involve “suitable disclosure, recapitalization measures to address the problem of impaired assets and resolution of unviable financial institutions,” the International Monetary Fund said in July.

“The stress testing exercises that are going on inside the European Union - it’s absolutely critical that that information comes out and if there are problems it has to be combined with measures to address those problems,” Berglof said. “That needs to happen in the next couple of months. Any effort made to get greater clarity over western European banks and the parts of these banks that are in eastern Europe, that’s the No.1 priority.”

EU Disagreement

French Finance Minister Christine Lagarde has spoken in favor of publishing stress tests, while emphasizing they need to be standardized across borders to be effective. Her German counterpart Peer Steinbrueck has resisted a push for a harmonized method and is against publishing results. EU bank regulators must conduct confidential stress tests by this month.

The EBRD will probably raise its 2010 growth forecasts for the 30 economies it engages in, when it publishes its regional outlook in October, Berglof said. The EBRD predicted in May the region’s economies will grow at a rate of 1.4 percent next year, after contracting more than 5 percent in 2009.

“We do see some more potential for next year,” said Berglof. “We are more optimistic now than we were. The region is very dependent on what’s happening in western Europe, and the situation seems to have stabilized” there.

Even so, the risk of a protracted crisis in the region’s financial sector is holding back the pace of the potential recovery, he said.

“We are not confident that there will be a very strong, V- type recovery,” said Berglof. “We are thinking in terms of a fragile, drawn out recovery reflecting the problems in the financial system both in western Europe and in eastern Europe. That is putting a lid on our expectation.”

World must avoid protectionism

I talked to preeminent economist Norman Bailey. He made me aware of coming crisis in an area of real estate market in 2004. Here is what he said about present stage of crisis:

(1) the Federal Reserve and the Treasury addressed successfully the liquidity problem resulting from the solvency situation of the financial sector which had resulted in a freezing of credit. However that time is past and now the countries affected are going to have to address the solvency problem itself and that would require actually reducing the levels of debt, such as mortgage debt and credit card debt, so that people can start consuming again.

(2) The world must avoid protectionism. The dispute between China and the U.S. is very disturbing and dangerous

(3) As soon as possible the gigantic debt overhang in the U.S. and elsewhere has to be addressed by reducing expenditures to the extent possible rather than increasing them, which is the tendency at present. Otherwise there will soon by no choice but to inflate away the debt slowly by controlled inflation or rapidly through hyper-inflation.