By Ambrose Evans-Pritchard

LONDON, England - February 17, 2009 - Currencies have crumbled across Eastern Europe on mounting fears of a debt crisis as foreign creditors withdraw from the region.

Hungary’s forint fell to an all-time low on Monday, and Poland’s zloty slumped to the lowest in five years on plunging industrial output. Half of all loans to the private sector in Poland are in foreign currencies so borrowers face a severe debt shock after the 40 percent fall of the zloty against the euro since August.

“We’re nearing the level where things could get out of hand,” said Hans Redeker, currency chief strategist at BNP Paribas.

The mushrooming crisis has already started to spill over into Germany's debt markets, lifting credit default swaps on German five-year bonds to a record 70 basis points. The gap between French and German CDS spreads has narrowed abruptly for the first time since the credit crisis began.

“Investors are beginning to ask whether Germany is going to have to pay for the rescue of Eastern and Central Europe,” he said.

A report by Moody’s released on Tuesday said the region’s banks were coming under severe stress as the property bust combines with a rising debt burden. “Local currency depreciation is a major risk to East Europe banks,” it said.

Ed. Note: Here is the problem. Too many nations are using the Federal Reserve type banking system, where all money in circulation is the result of a loan by the central bank to the government at interest. The fundamental flaw with that system is that the moment it goes into operation, more money is owed to the central bank than actually exists. The Federal Reserve is designed as a debt-trap from which the people can never escape, no matter how hard they work. It is intended as a tool of enslavement. Small wonder that Woodrow Wilson, who signed the Federal Reserve Act into law as the price for becoming President, wrote in his own journal that he had unwittingly destroyed his own country.