Until this week the catastrophic decline in Asia's export trade appeared to make it the more likely candidate. Taiwan's exports fell 42 percent year on year in December, and its economy shrank by almost 7 percent in the fourth quarter last year. South Korea's exports fell by 23 percent. Singapore's non-oil domestic exports contracted 35 percent in January from a year earlier, the government reported.

Japan is in grim shape. Its exports fell 35 percent in December, year on year. Industrial output fell 9.6 percent. The economy is contracting at an annual rate of 12 percent.

"Falling exports are triggering a downward spiral of production, incomes and spending. It is important to prepare for swift policy steps, including those usually regarded as unusual," notes the Bank of Japan's Atsushi Mizuno.

China's Ministry of Agriculture estimated this month that 20 million migrant workers from rural areas have lost their jobs, as another 7 million school leavers and new graduates join the workforce. Morgan Stanley and Standard Chartered, whose assessments of the Chinese economy have been highly reliable, estimate that China is currently running at close to zero growth.

Europe itself is in trouble. German export orders fells 25 percent year on year in December. French house prices fell 9.9 percent in the fourth quarter of last year, the steepest since data collection began in 1936. Ireland lost 36,500 jobs in January -- equivalent to a monthly loss of 2.3 million jobs in the United States.

Spain's unemployment has risen to 3.3 million -- or 14.4 percent -- and is still rising. The bursting of the property bubble has been devastating for an economy in which construction provided almost 20 percent of GDP. The labor minister said over the weekend that Spain's economy could not "tolerate" any further immigration after this "hurricane devastation."

"We're dealing with truly appalling data, the likes of which have never been seen before in postwar Europe," said Julian Callow, Europe economist at Barclays Capital.

World trade itself is shrinking. The CPB Netherlands Bureau for Economic Analysis estimates world trade volume fell 8 percent in November. The International Air Transport Association says air cargo fell 22 percent, year on year, in December. The U.S. National Retail Federation says container shipments into the United States fell 8 percent in 2008 and expects a further fall of 12 percent this year.

The latest news from Eastern Europe is even worse. Industrial output in Russia collapsed by 20 percent in January (car production alone declined by 80 percent), and by 27 percent in Ukraine. The markets are now pricing in a 90 percent likelihood that Ukraine will default on its sovereign debt. The European Bank for Reconstruction and Development is estimating that 20 percent of its loans in the region are either in or about to default.

The woes of Eastern Europe and Russia are in a class by themselves, not only because of their severity but because of their implications for the already faltering global banking system. When the region was booming and credit was easy, a large number of loans, for residential mortgages and for businesses, were taken out in foreign currencies, mainly euros and Swiss francs.

But now the Russian ruble and the Polish zloty and the Hungarian forint have all collapsed by up to half, and repaying those loans becomes twice as costly.

Morgan Stanley's head of currency Stephen Jen reports that Eastern Europe has borrowed a total of $1.7 trillion abroad, much of it in short-term debts that mature quickly. It must repay -- or roll over -- $400 billion this year, equal to a third of the region's boom-era GDP. Its chances of raising these sums in current market conditions are very low. The alternative is to turn to the International Monetary Fund, but its war chest is down to around $200 billion, and it faces other demands from Turkey, Pakistan and elsewhere.

European banks, particularly those of Austria, Sweden and Germany, but also including Italy's UniCredit and the Netherlands' ING, are heavily exposed to defaulting debtors in Eastern Europe. Efforts by Austrian Finance Minister Josef Proell to persuade his EU partners to put together a rescue package for the region have fallen on deaf ears. The EU countries need the money at home.

The European banks are already teetering on the brink of collapse, according to a report by Daniel Gros, director of the prestigious Center for European Policy Studies in Brussels, who calculates that they are claiming as assets on their balance sheets more than $300 billion in "intangibles."

The usual term for such intangibles is "goodwill," but few customers these days would rate the value of goodwill toward bankers as worth more than a few coppers. Subtract the intangibles, and the true and "tangible" capital base of Europe's banks becomes perilously thin.

"In many cases, each euro of tangible capital supports more than 50 euros of assets, a much higher ratio than in the U.S.," Gros writes. "The need to recapitalize European banks is thus even greater than regulators and the bankers themselves have admitted so far."

If Asia's plunge into depression threatens to sink the U.S. dollar by closing the wallets of the usual purchasers of U.S. debt, then Eastern Europe's collapse threatens to bring the European banking system down with it. It is not easy to judge which is the more dangerous for a global economy that could slide into a new Great Depression.

earlier related report
Chinese leaders: Spend, spend, spend!
Beijing (AFP) Across China, communist party officials are handing out millions of food, shopping, and cinema coupons in an effort to get people to go out, have a good time and spend, spend spend.

Chinese people are among the world's most determined savers, with economists estimating they put away 30 to 40 percent of their disposable income, but a virtue can be an obstacle when trying to jump-start the economy.

So while multi-billion-dollar spending programmes on infrastructure projects and interest rate cuts have stolen the headlines in China in recent months, the humble coupon has quietly emerged as another popular stimulus weapon.

Chengdu, the capital of quake-hit Sichuan province, was one of the early coupon pioneers, giving more than 379,000 low-income residents nearly 39 million yuan worth of vouchers in December.

The eastern city of Hangzhou also last month gave 670,000 low-income residents 100 million yuan (14.6 million dollars) in vouchers to spend in shops and entertainment centres.

"The principle of putting money in people's pockets has been applied literally," Jing Ulrich, JP Morgan's head of China equities mused in a research note.

"Consumption coupons could become more common as an alternative to income tax cuts -- which might only encourage greater savings," she wrote.

Poor families and retired people in Hangzhou were given ten 20-yuan coupons to spend in shopping centres while students received five 20-yuan coupons. They were encouraged to use them within three months, after which point they can be used, but at fewer stores.

Some businesses offered extra discounts to draw in coupon users. Cinemas, for instance, were offering half price tickets for coupon users.

Hangzhou -- famous for the scenic views of its West Lake -- is also giving residents in neighbouring provinces and cities, including Shanghai, 40 million yuan worth of coupons to spend at its hotels, resorts and restaurants.

The Hangzhou government is even considering paying its employees up to a tenth of their salaries in coupons, according to the government's website.

The efforts to boost consumption come as the global financial crisis has hammered consumer confidence in China down to its lowest level in six years.

A confidence index compiled by China-based research group Horizon stood at 59.9 at the end of 2008, a decline of 4.5 points from September, state media reported.

The last time it sank that low was after the outbreak of Severe Acute Respiratory Syndrome, or SARS, in 2003.

It is too soon to gauge the coupons' impact. The latest retail sales figures show 290 billion yuan (42.4 billion dollars) was spent nationwide during the week-long Lunar New Year holiday.

That was up 13.8 percent from the same period last year, but growth had slowed down from 16 percent in 2008.

Coupons can only be effective for a short time, cautioned Shi Jianxun, an economist with Shanghai's Tongji University.

"After cash coupons are given out, you have a one-off stimulus. As people use up coupons, you have to give out more each month to sustain the boosting effect," he said.

For a lasting solution, China has to resolve imbalances that have led to urban incomes growing on average at a third of the rate of government revenues, with rural incomes lagging even further behind, Shi said.

A woefully inadequate social safety net, meaning people especially in rural areas have to save as much as they can to pay for life in their old age and health care, is one of the big problems.

"China should revamp its national income structure and change the situation of 'rich nation poor citizens' by collecting less taxes and improving social security," Shi said. "Then people would not have save so much."

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