However, we don’t have to go too far back to recall various corrupt South American regimes racking up huge debts which were totally unsustainable. The fad for “sovereign lending” in the late seventies and early eighties was a banking fashion of huge proportions. Much of the blame for this was laid at the feet of greedy and corrupt Latin American dictators, and with some justification, however others were also culpable. The plane loads of American and British bankers flying south to proffer cheap Dollars for ludicrous “strategic” developments (a steel mill in the middle of nowhere and warships for the middle of the Amazon are just two that come to mind) all helped to fuel the anticipated debacle. As the Dollar strengthened and their local currencies dissolved, so the repayments became impossible and the inevitable happened – the counties one by one, defaulted. The disaster was masked by a whole new industry subset of sovereign debt renegotiation, refinancing, recovery – and eventually write downs and finally write offs. They employed a lot of people (especially some extremely questionable American lawyers), wasted a huge amount of money and achieved very little. The pain and cost was borne by the banks with some being mortally wounded. Even our gloriously dull but previously well managed Midland Bank was mortally affected as it had dived into the dangerous world of international banking by buying Crocker Bank in California, only to find that it was holed below the waterline by that bank’s buccaneer Latin American lendings. The wounded beast was some time later finally put out of its misery by HSBC. 

Now we are back in familiar territory. 2009 will mark the next round of national defaults. The usual names of Ecuador and Argentina are bound to be mentioned but now also others closer to home may come as more of a surprise.  

Ukraine has been regarded with concern for some time, and not because of its uncertain relationship with a nearby Bear, but also because of it precarious financial situation. This year it will have to roll over both private and public sector debts of over $40bn, but with only some $28.8bn of foreign exchange reserves. Further west, Hungary has some $35bn to address with only $31bn reserves and so a similar pattern is playing out across the region with Turkey in an equally parlous position. Of course there are similar figures coming out elsewhere in the emerging market world with a far larger debt level in Asia – but the difference is that they have much stronger national balance sheets – and reserves. 

Over the past few months the concerns of the PIGS (the unfortunate acronym for Portugal, Ireland, Italy, Greece and Spain) have been rising with fears of default and even expulsion (or polite withdrawal) from the Euro being openly discussed. Such financial weakness must infuriate the Germans who have always prided themselves on having a strong and virtuous currency, and now finding themselves shackled to a bunch of misfits will only increase their desire to return to the good old days of a currency named after the Fatherland. The chances of either this happening or one of the weaker ones leaving is still as yet unlikely, but German patience is not limitless. 

Director