The euro has lost its allure for nations in central and Eastern Europe with floating currencies as their borrowing costs fell below those in some euro region states because of the Greek crisis, said ING Groep NV.
“Greek troubles have ruined the euro free-ride for central European countries with floating currencies,” Charles Robertson, chief emerging-Europe economist at ING in London, wrote in a report today.
Nations including the Czech Republic can borrow at lower rates than Ireland and Spain while Hungary has lower borrowing costs than Greece, Robertson wrote. The lower yields may reduce the desire to push through the fiscal austerity needed to adopt the euro while the European Union may make it more difficult for entry into the common currency, Robertson wrote.
Without a euro goal, “governments may be tempted to run cheap currency policies to secure growth and jobs, especially if Europe stagnates,” he said. “The risk of non-orthodox policies by governments has risen from very low to low.”
ING remains a “long-term bull” on the zloty and “perhaps” the Czech koruna, though it’s less certain about the leu and forint, Robertson wrote in the report.
“From 1995-2010, progress towards the euro guaranteed low interest rates,” he wrote. “This resulted in a debt-fueled boom for consumption and investment, and much cheaper borrowing for governments, so everyone made money, money, money.”