Central and eastern Europe faces a classic emerging markets crisis and, like all such crises, its troubles spread afar. The pattern is familiar. It starts with a credit boom and large private borrowing in foreign currencies. Then comes a shock – in this case, the credit crunch. Confidence evaporates and local currencies fall. Local depositors, worried about the rising cost of their debts, rush into other currencies, like dollars or euros. This weakens local banks. The panic accelerates into a vicious cycle. Government finances collapse. A crisis is born.

This is what happened in Asia in 1997 and in Argentina in 2000. But then the global economy was booming, limiting the fallout. The world is far more vulnerable to a full-blown crisis in central and eastern Europe today. Top of the list is Europe, tied to the region through its banks. Defaults on euro or Swiss franc loans taken on by Hungarian or Polish borrowers are certain to rise as the forint and zloty plummet. The crucial question is how fast.