This week will go a long way to determining whether a violent emerging market shake-out turns into a prolonged panic or is limited to a flight of hot money that quickly fizzles out.
Day one in Davos showed the masters of the universe fretting about Sino-Japanese military tensions, the treacherous investment territory in some emerging markets and the risk of a lurch to the right in Europe at May’s parliamentary elections which could make reform of the bloc even harder.
Corporate bonds normally yield more than sovereign debt since companies are seen as more likely than states to go bust. But during the euro zone debt crisis, when various governments had to be bailed out, that relationship broke down in Spain and Italy.
The finance ministers of Germany, France, Italy and possibly Spain are expected to meet in Berlin to discuss banking union. Two sources told us Dutch Finance Minister Jeroen Dijsselbloem – who chairs the Eurogroup of euro zone finance ministers — should attend as will EU commissioner Michel Barnier and key European Central Bank policymaker Joerg Asmussen.