Tuesday, June 21, 2011

FT: Romania: feeling the heat

June 20, 2011
by Stefan Wagstyl

The latest delay in reaching a deal on the crisis in Greece is beginning to hit confidence in nearby countries in south east Europe.

Even though the region’s markets have generally held up well in recent months, Romania’s leu has come under pressure in the last few days and fell by as much as 1 per cent against the euro on Monday. It later traded at 4.258, down 0.61 per cent, as traders across Europe watched anxiously for news from Athens.

The leu is now at its lowest since Janaury and the cost of insuring Romania’s bonds against default is at its highest for three months at 258 basis points. This is a long way short of crisis levels but is nonetheless a reflection of the nervous mood in the markets.

Eurozone ministers on Monday postponed a decision on a €12bn loan for Greece putting pressure on the Greek parliament to pass a key austerity package. The move hit the euro, which fell nearly 1 per cent against the US dollar, before recovering to trade barely changed at $1.432.

Stocks fell in Europe, including in central and eastern Europe, where shares as measured by the MSCI CEE index fell 1.2 per cent. Romanian equities dropped 0.3 per cent.

There are particular conerns in banking where Greek lenders control about 17 percent of assets. BNP Paribas SA said in a note on Monday that the leu was suffering “from contagion fears” because of the sizeablel presence of Greek capital in banking.

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