The heart of the problem for emerging countries is that the world's financial safety net is being wound up. Investor expectations that the Federal Reserve will raise rates four more times over the next year are hardening. Alongside this, policy makers are solidly on track to engage in quantitative tightening. Liquidity is clearly coming out of the system.
Though both the European Central Bank and Bank of Japan are still adding liquidity to the system, the pace at which they're doing this is winding down. The ECB is going to stop this year — which puts President Mario Draghi in a difficult position.
Italy's new populist government is running hot and cold on whether it will present a budget that can reasonably be described as fiscally responsible. Investors are refusing to give officials the benefit of the doubt, and the pickup in government bond yields reflects their concerns.
But Italian 2-year yields jumped 16 basis points on Thursday, even though earlier in the day the Treasury attracted the highest amount of demand for a new issue of 5-year debt since 2012. That surge in borrowing costs looks a lot like contagion from emerging markets.
The ECB aren't likely to rush to Italy's aid. Officials set monetary policy for the whole bloc, and are committed to their June pledge to wind up bond purchases by December. Europe's biggest debtor will, increasingly, have to fend for itself.
And the bigger emerging nations can forget about calling on the International Monetary Fund to step in and reverse the rot. Its planned $50 billion bailout for Argentina has proved utterly insufficient to stem the slide in the peso, though one shudders to think how weak it would have gotten without IMF support.
It's August, liquidity is thin, and in a risk-off market sharp moves are to be expected. But the trouble this time is that it's hard to see trading returning to normal once everyone is back from their summer holidays. Each of these countries has serious problems, with no obvious solution — or saviour.