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Sorry times at club med: why the next emerging market crisis won't involve an emerging market.

Article Excerpt
Once when asked a woman's age, Oscar Wilde replied that she was approaching thirty. He added, however, that she was approaching thirty from the wrong side. On considering whether emerging market economies are converging towards those of the developed economies, one might arrive at a similar conclusion. Yes, emerging market economies have over the past few years made some improvement to their economic fundamentals. However, the main reason for their convergence towards the developed economies is that there are a number of developed countries whose economic fundamentals are deteriorating at an even more rapid pace than those in the emerging markets are improving.

The point is perhaps best illustrated by a reply I received from a seasoned Wall Street trader when I recently asked him where he thought that the next emerging market debt crisis would take place. Without missing a beat, he replied that it would occur in Greece, Italy, or Portugal. For on examining each of those three countries, he found that their public debt levels and their public debt dynamics were appreciably worse than those in the major emerging market economies such as Brazil, Russia, India, or China.

In assessing whether an emerging market economy might be "converging," one usually looks at a number of standard yardsticks. Is the country exercising increased discipline over...