By Jeremy Gaunt, European Investment Correspondent
LONDON, Feb 25 (Reuters) - Financial markets -- and oil in particular -- will doubtless be in thrall in the coming week to Libya and whatever the wave of Middle East and North Africa popular uprisings throws up next.
But the radical change in the Arab world is not the only question mark hanging over investors. Does anyone remember the euro zone debt crisis?
In the current, rather fragile market environment -- and with euro zone leaders still unable to find a permanent aid mechanism -- it might not take much to retrigger the kind of frenzied peripheral bond sell-off seen last year.
Indeed, although nowhere near their peaks of last year, euro zone peripheral yield spreads over German debt have widened in February. Italy has swelled by about 50 basis points and Spain 40 basis points. Significantly, Portuguese five- and 10-year yields remain above 7 percent, levels which previously forced bailouts in Greece and Ireland.
This suggests that a series of debt auctions in the week ahead will be closely watched for what they say about confidence in Europe's finances.
Belgium, which has come under some pressure, auctions 2014, 2018 and 2021 bonds on Monday. Spain, one of the potential hotspots, will auction five-year bonds on Thursday, and investors will be particularly watching a Portuguese buy-back on Wednesday for signs of a fire sale.
The core is not excluded either. The Netherlands goes to market on Tuesday, Germany on Wednesday and France on Thursday. What may make these auctions more noteworthy than usual is that they come in the run-up to a March 11 special euro zone summit that is supposed to come to some agreement over what a permanent debt management mechanism might look like.
A meeting on Friday in Helsinki of centre-right euro zone leaders -- expected to include Germany's Angela Merkel -- may give some kind of flavour.
The results of Ireland's general election and likely coalition formation talks will also be scrutinised for what they say about the bailed-out country's commitment to fiscal austerity.
The widening spreads, meanwhile, suggest investors are getting a little impatient with euro zone leaders over how long they are taking to come up with solid solutions to the problem. Investors are looking for something concrete.
"The market response will be driven around whether it is pain relief or cure," said David Shairp, global strategist for JPMorgan Asset Management".
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Euro zone debt crisis graphic http://r.reuters.com/hyb65p
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ALL BETS
At the same time, all previous assumptions about the performance of financial assets have taken a big hit from the sharp rises in the price of oil brought on by the Libyan revolt and uncertainty about how far it might spread.
The events in the Middle East and North Africa are moving at such a fast pace and with often surprising turns that investors are pretty much forced not to take strong positions.
That is one of the reasons that world stocks took a hit in the past week following a remarkable run-up in January and early February.
Charts show some equity markets still have a way to fall before they move out of the trend line they have developed since it was clear last summer that the U.S. Federal Reserve was going to pump liquidity into the market with quantative easing.
The price of oil, meanwhile, has been reaching levels that analysts say can start hurting the global economy by crimping growth. There are also fears that it will simply add to inflation and push earlier tightening by central banks.
"In 2008, oil prices approached $150 per barrel. Shortly afterwards, the global economy collapsed," HSBC Chief Economist Stephen King wrote to clients.
"There were, of course, other problems at the time -- an imploding U.S. housing market, the beginnings of a securitisation crisis, the collapse of Lehman Brothers -- but events three years ago nevertheless offer plenty of evidence that substantial changes in oil prices are big news for the global economy."
Around $120 a barrel appears to be the level at which economists start to get twitchy. Some technical analysis is suggesting that $160 is possible.
This will be at least at the back of investors' minds when they scan the other events of the coming week.
They include interest rate meetings at the European Central Bank and in Australia, Canada, Mexico and Brazil, and Fed Chairman Ben Bernanke's semi-annual congressional testimony.
On the data front, meanwhile, there are global manufacturing and services reports due, euro zone inflation data, and the monthly U.S. employment numbers.
So it is not all Libya. (Editing by Stephen Nisbet)