As the ECB return to the sovereign bond market, reportedly buying significant amounts of Portuguese bonds yielding more than 7 percent, every official in Europe continues to insist that there can be no sovereign default by a Eurozone member. This indisputable tenet is also sustained while proposals fly about allowing the EFSF to finance bond buy backs either directly in the secondary market or by lending for that purpose to the sovereigns in distress.
The current financial crisis is putting substantial pressure on emerging markets. Many if not all face a serious risk of a sudden and severe slowdown in credit as a consequence of the withdrawal of international liquidity pools until recently available to these countries. The consequences of a credit crunch could be dire for both their public and corporate sector. This would ultimately stall the last engine of growth on which the world economy relies. The International Monetary Fund should quickly put together a preventive facility to restore the capacity of countries with healthy macroeconomic accounts to borrow from private capital markets.