Financial markets across Emerging Europe have recovered following last month’s sell-off. Currencies are up by 2% and equities have soared. But the recovery owes more to a general pick-up in global risk appetite rather than an improvement in macroeconomic fundamentals or a concerted policy response. Meanwhile, the crisis in the region has entered a new and potentially decisive phase – governments are now falling. The Hungarian, Latvian and Czech governments have been toppled in the past six weeks and more are likely to follow. The region is, of course, no stranger to political crises. What’s more, shifts in global risk appetite are currently far more important in determining market moves. But if the nascent recovery in global markets runs out of steam, political risk will only add to the renewed downward pressure on the region’s currencies.