Since 1996 I've visited Vienna about 25-30 times or roughly three times per year. Vienna is home to my largest private banking relationship for asset management and remains a flagship domicile for my clients worldwide. About 40% of the assets I manage for investors is based in Austria all through a Swiss-owned private bank operating in Vienna.

Austria, however, is under pressure this year following a decade of intensive cross-border investments in the region where it acts as the biggest lender and largest foreign investor. For Austria's purposes, it is a major lender in nearby Hungary, Poland, the Czech Republic, Bulgaria, Romania and other Balkan nations.

Today, the weather is gorgeous in Vienna, the cafe's are bustling and by first glance you wouldn't think for a second this nation of 8.3 million people is in the midst of its worst financial crisis in 75 years.

Since the emergence of the credit crisis in August 2007, regional economies in Eastern and Central Europe have been hit hard by the unwinding of leverage, cross-border finance and the impact of speculating in domestic mortgages vis-a-vis foreign currencies like the Swiss franc.

Though Austrian government credit spreads have started to decline versus benchmark German bunds, they remain historically elevated at 0.58% compared 0.56% for Spain. This still compares favorably to weaker euro-zone countries like Ireland and Greece where credit spreads are still high at 1.67% and 1.59%, respectively.

The markets have placed a risk premium on Austrian paper because of heavy debt issuance largely to recapitalize its banks - many sputtering because of significant loan exposure across the region.

The Austrian banks have loaned about €278 billion ($386 billion) to Eastern Europe – the largest exposure among euro-zone members. Western banks are saddled with $1.6 trillion dollars’ worth of Eastern European loans, mostly tied to banks in Austria, Germany, Italy, France, Belgium and Sweden, according to the Bank of International Settlements. Whereas the Austrians went overboard lending to Central and Eastern Europe, the Swedes have aggressively expanded credit to the Baltic nations where GDP has literally crashed more than 10% since last fall.

Local banks rank as the largest investors in the Czech Republic, Hungary and Romania ($142 billion dollars) with several Austrian banks now attempting to secure government guarantees – including Raiffeisen Zentralbank, one of the largest lenders in the region along with Erste Bank. The IMF or the International Monetary Fund has already loaned billions to Hungary and will probably extend new loan guarantees to other weaker credits soon, including Romania and Bulgaria.

Poland and the Czech Republic, though suffering from a collapse of exports -- harbor much stronger banking systems than peripheral neighbors. Poland, similarly to Hungary and Bulgaria, is trying to clean-up a mortgage-backed disaster whereby local borrowers financed their purchases of homes in low-yielding Swiss francs earlier this decade; that carry-trade has crashed since last year as the zloty and other regional currencies tank versus the franc thereby rendering those loans extremely difficult to service.

The European Central Bank (ECB) and the IMF will probably end up rescuing several regional countries before this crisis is over. Already, Hungary is a bailout recipient and others will follow. Still, I'm not losing sleep over Austria. This remains a strong country governed by sound money principles and for the most part, its banks have sufficient capital to avoid a German or ECB-led bailout. A further compression in bond spreads recently is good news for domestic investors as risk continues to decline.

Austria will remain a beacon for cross-border regional finance and trade. The country is ideally situated right in the heart of Eastern Europe and once this credit crisis finally draws to a conclusion, the trend in securing highly-skilled low-cost labor will re-emerge for Western European manufacturers; admittedly, it will be a long time until the pre-2007 economic landscape resumes. The region, like the rest of non-Asia OECD markets will remain tied to long-term de-leveraging as banks continue to raise capital and reduce their bad loans.

Have a good weekend. See you on Monday.