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The 1931 collapse of the Austrian bank Creditanstalt provoked financial panic across Europe and almost single-handedly turned a bad downturn into the Great Depression. Last week, when I read about the brewing European banking crisis, I suddenly began to dread that history might be repeating itself.
You might think that my worries are a bit late. After all, losses on subprime mortgages in the United States have already caused a Depression-like banking collapse. Well, believe it or not, Europe's current crisis is scarier. For while losses on Eastern European debts may be only a small fraction of those on subprime mortgages, the continent's problems are politically harder to solve, and their consequences may prove to be much worse.