Emerging Europe is in turmoil. While financial markets have stabilised somewhat following a sharp sell-off earlier this year, this owes more to a general recovery in global risk appetite than it does to an improvement in macroeconomic fundamentals or a concerted policy response. Currencies across the region are likely to remain under pressure for some time to come, particularly in the ‘Super Deficit’ countries (Ukraine, Hungary, Turkey, the Baltics and the Balkans). In the end, further IMF deals are likely. The impact on the real economy remains uncertain, but previous emerging market crises suggest that contractions in GDP of around 5% are normal. Latvia and Ukraine will fare worse, while Poland might do relatively better. But nowhere will escape recession. Overall, the region is likely to experience its deepest recession since 1994 and, in the absence of a quick recovery in the world economy, the pain will extend well into 2010.