Greece jitters put CEE in perspective

Anyone who’s been living under a rock for the past 10 days will be blissfully unaware that Greece’s nonsense of a fiscal policy has been driving the entire Euro project into dangerous waters. There’s no shortage of doom sayers out there who warn that by declaring its willingness to support the country’s lunacy, rather than letting it fail, the EU could be risking the viability of monetary unity. Tough love, they argue, might not just be good for the country, but necessary for the whole club. Of course, those making the argument may stand to profit (via short selling) handsomely from the demise of the Euro, so their objectivity could be questioned.

Be that as it may,  for all the battering the country’s gotten over the past few years, CEE should probably doff its collective cap to Hungary and acknowledge that the whole region could have been in far worse shape if it hadn’t made a real attempt to get its house in order. Has anyone else noticed that the world’s attention has been focused on Europe’s PIGS (Portugal, Ireland, Greece and Spain) rather than Hungary and the rest of CEE? This too may come, but the fact is, it’s older, generally southern Europe that’s the problem. CEE, it turns out, wasn’t the next subprime event, the way people were saying last year. It’s too early to know how this will all play out, of course, but it sure could have been worse.

This is all just a longish reaction to what seems an important article on Reuters, to be found here, which indicates that despite all the nervousness, CEE as an investment target isn’t suffering just yet. It’s a sober, but positive way to end your week.

With base interest rates of 8.5 percent, Hungary’s 10-year bond yields are still a touch higher than Greece’s but Poland, and the Czech Republic all borrow at much cheaper rates, reflecting the relative credibility of their public finances.

While Greece’s spreads against German government bonds have jumping almost 140 basis points to nearly 350 since January 11, Polish spreads are up just 23 points to 275. Portugal’s have more than doubled to 155 points, compared to the Czechs’ 133.


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