EM to the Upside
Greece Cools: There are two stories out on Greece today that are influencing the markets. The first to come out on Sunday was a story indicating that Greece wanted help/subsidy from the rest of the EU on their auctions. Greece indicated that the interest rates they will be paying are too high and will cause problems. “What we are saying simply is we need the help so that we can borrow at the same rate as other countries, not at high rates which in fact undermine our possibility for making the changes and cutting down our deficit,” Greek PM George Papandreou told the BBC’s Andrew Marr show. A program for Greece could be developed along the lines of the Build America Bonds here in the US which help states/municipalities raise capital. Most importantly, Mr Papandreou said Greece’s borrowing needs were covered till mid-March.
The next story came from Der Spiegle which stated that the EU/Germany may be willing to supply up to E25 billion in aid. ” The amount each country would contribute would be calculated according to its relative position in the European Central Bank, Der Spiegel explains. Germany would therefore contribute nearly 20 percent of the potential aid package, the equivalent of up to five billion euros, which would be made up in part of loans and guarantees.” Both stories had a salutary effect and the Euro rallied. While the Greece situation has been a major concern for the European Union, it now appears that the early part of the crisis has passed.
India like Brazil?: Bloomberg reports today that India’s credit rating may be raised from junk if Finance Minister Pranab Mukherjee provides a comprehensive plan to roll back fiscal stimulus and cut the budget deficit this week, Moody’s Investors Service said. “If we think the exit path is well articulated and well executed, the local currency rating could be upgraded,” Aninda Mitra, a Singapore-based sovereign analyst at Moody’s, said in a telephone interview on Feb. 19. India’s long-term local currency debt is placed at Ba2 by Moody’s, two levels below the investment grade and at par with Armenia and Turkey. Mukherjee has an opportunity to narrow the budget shortfall as accelerating economic growth boosts tax revenue and a stronger political mandate after last year’s elections paves the way to resume asset sales. Rating changes have less impact on India than other countries like Greece, which borrow more from abroad. India’s foreign borrowings make up only about 4 percent of government debt compared with 83 percent for Greece, according to Citigroup Inc.” While the last point may be true, I believe you could potentially get a Brazil-like impact on FDI into India with the ratings change.
Tags: Emerging Markets, Greece, India, Moody's, S&P