Financial markets across Emerging Europe are in turmoil. The immediate trigger for this latest sell-off appears to be fresh concerns over the health of the region’s banking sector. But the bigger picture is that the region’s huge current account deficits have always made it susceptible to a ‘sudden stop’ in financing. While the sell-off has so far been indiscriminate and Emerging Europe assets are likely to remain under pressure for some time, past episodes show that market moves should eventually reflect country-specific conditions. This is bad news for the Russian ruble and Romanian leu, as well as currency pegs in the Baltics and Bulgaria. Meanwhile, data from the real economy has gone from bad to worse. We continue to expect a recession in every country in the region this year.