Austria’s bank exposure to emerging markets is equal to 85pc of GDP

– with a heavy concentration in Hungary, Ukraine, and Serbia – all now

queuing up (with Belarus) for rescue packages from the International

Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for

the UK, and 23pc for Spain. The US figure is just 4pc. America is the

staid old lady in this drama.

Amazingly, Spanish banks alone have lent $316bn to Latin America,

almost twice the lending by all US banks combined ($172bn) to what was

once the US backyard. Hence the growing doubts about the health of

Spain’s financial system – already under stress from its own property

crash – as Argentina spirals towards another default, and Brazil’s

currency, bonds and stocks all go into freefall.

Broadly speaking, the US and Japan sat out the emerging market

credit boom. The lending spree has been a European play – often using

dollar balance sheets, adding another ugly twist as global

“deleveraging” causes the dollar to rocket. Nowhere has this been more

extreme than in the ex-Soviet bloc.

The region has borrowed $1.6 trillion in dollars, euros, and Swiss

francs. A few dare-devil homeowners in Hungary and Latvia took out

mortgages in Japanese yen. They have just suffered a 40pc rise in their

debt since July. Nobody warned them what happens when the Japanese

carry trade goes into brutal reverse, as it does when the cycle turns.

. . .