Another week, another dose of unpalatable market volatility, but this time with the added bitterness of fears that the core economies of France and the Netherlands are being sucked into the mire.
Markets have responded in typical fashion, selling off in credit and equities in a bout of fright at this new threat to the growth-sapping austerity plans that have for so long been touted as one answer to the crisis in which the eurozone finds itself. Traders have either run for cover or sat in impotence before screens of red. Politicians promise to listen to voters. More wooly summits will doubtless be convened.
Those responsible for determining investment bank strategy at the highest levels do not have this luxury. They cannot throw their hands in the air and put their businesses on hold. Their response — and their advice to clients — must be more productive. What, then, should they do?
They should be calming their clients down. More panic is not what is needed. As one capital markets head points out, hardly any core economy fundamentals have changed in the last few months — and certainly not in the last couple of days.
Others talk of Monday's moves as a mere correction, reflecting perhaps a slightly too bullish take on the periphery in recent weeks following soothing noises from the ECB. They say that their primary role now is to convince clients to stay focused on long term strategies to cope with a low growth reality.
This approach should not be confused with head-in-the-sand denial, however. In the short term, clients need to step up their protection against volatility, in currency markets first, but also in mitigating sovereign risk and broader exposure to eurozone economies.
Bankers must also understand that even if fundamentals have not changed, perceptions have. And they matter. Talk to Dutch financial institutions and issuers, and it is clear that this week marks new territory for them. Not only has the country been seen as a solid member of core Europe, but it has — until now — also been counted among the advocates of austerity. Dutch names are not enjoying their time in the spotlight now.
Investor relations work for these credits will be tougher now. No longer is the investment case simply a matter of "Germany with a bit of spread". Absent a quick political patch-up, investors in Asia or the US will be tempted to lump them in with the peripheral eurozone mess — even though the IMF itself balanced its assessment of the economy with advice that the country should not overreact in order to compensate for missing targets.
France has attracted more attention than the Netherlands throughout the eurozone crisis, but the sabre-rattling of socialist presidential front-runner François Hollande — who today stepped up his charge against "financial globalisation" — will unsettle many investors' nerves.
Tuesday’s improved markets following government auctions by the Dutch, French and Italians have helped to calm the mood. But the improvement also serves to accentuate the chaotic nature of markets at the moment, which are flitting between despair and relief with little middle ground.
In such an environment, cool heads are needed. Banks have spent much of the last two years bleating about their renewed "client focus". Now is the time for this to come to the fore — in the most constructive way.