The problems in Europe keep getting worse. In eastern europe the problem has reached the Czech Republic.

The economic crisis sweeping Central and Eastern Europe has claimed a third victim in a month after the Czech government lost a vote of no confidence on Tuesday night in a drama that risks setting off a fresh round of investor flight from the region.

Latvia's government fell last month following violent street protests. Hungary's premier Ferenc Gyurcsany resigned last week after struggling to impose austerity measures required under the terms of a $25bn (£17bn) bail-out from the International Monetary Fund.

But the Czech crisis has unnerved investors even more because the country has been seen as a rock of stability. It kept a tight rein on credit and avoided the stampede into euro and Swiss franc mortgages that occurred in other parts of Eastern Europe.

The fate of premier Mirek Topolanek – toppled in the middle of the Czech Republic's EU presidency – shows how fast the crisis is moving from finance into the core economy. Czech industrial output fell 23pc in January as car plants moth-balled production lines.

"This is the next leg of the crisis," said Neil Shearing from Capital Economics. "We're seeing the political backlash as this spreads into the labour market. The risk is that we will see a move to populist nationalism in some countries. That could prove dangerous."

Meanwhile, in western Europe, Britain's banking crisis has reached a new level.

(Bloomberg) -- The U.K. failed to find enough buyers for 1.75 billion pounds ($2.55 billion) of bonds for the first time in almost seven years as debt investors repudiated Prime Minister Gordon Brown’s plan to stem the worst economic crisis in three decades.
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Brown’s government aims to sell a record 146.4 billion pounds of debt this fiscal year and as much as 147.9 billion pounds in 2010 as he tries to pull Europe’s second-largest economy out of its worst recession since 1980. The prime minister’s plan drew criticism yesterday when Bank of England Governor Mervyn King told lawmakers in Parliament in London the government should be “cautious” about spending and deficits.

“This is a warning signal investors are sending to the government,” said Neil Mackinnon, chief economist at hedge fund ECU Group Plc in London, who helps manage about $1 billion in assets and is a former U.K. Treasury official. “Investors are giving the thumbs down to the gilt market.”