CEE in the clear after QE but fears grow for EU weaklings Italy and Greece

Central and Eastern European economies appear well set to withstand any fall-out caused by the end of European Central Bank’s quantitative easing programme and US Fed rate rises, economists and a central bank governor have told GlobalMarkets.

  • By Elliot Wilson, Phil Thornton, Virginia Furness
  • 10 May 2017
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Fears CEE economies will be hit by rising US interest rates and the reduction in the European Central Bank’s quantitative easing programme have been played down by EBRD and private economists. They instead have pointed the finger at eurozone strugglers Greece and Italy.

Central and eastern Europe has benefitted enormously from low borrowing costs and highly liquid capital markets thanks to the US Federal Reserve’s low interest rates and the ECB’s accommodative monetary policies. But leading bankers in the EBRD region believe that weak EU states such as Greece and Italy will fall victim to a spike in yields sooner than more resilient economies in the CEE.

Speculation that yields will rise across the continent has built up since ECB president Mario Draghi said in December the bank would scale back the amount of bonds it buys every month under its QE programmes from €80bn to €60bn from March.

Sergei Guriev, the EBRD’s chief economist, told GlobalMarkets that the multilateral was working on calculations on the likely impact of ECB tapering on its countries of operation, but he said: “We think QE will continue for the time being. For us the bigger challenge is the [US] Fed.

“If you ask me about what will happen in EU, it is that if rates go up, rising interest rates will be a problem mainly for highly indebted countries in western Europe. We see Italy facing the biggest challenge. It’s a country with very high sovereign debt and huge banking system issues that will continue to be the main priority for the ECB.”

Even US rate rises hold little fear for some in the CEE region. “The Fed has already started [raising rates] and it has not impacted Croatia adversely so far,” Boris Vujcic, Croatia’s central bank governor told GlobalMarkets. “The key thing for Croatia looking forward to the next two years is that its bond spreads are high compared to its peer group. It has significant space for further compression of spread, in order to absorb increase in interest rates without the medium term cost of funds going up.”

Marinos Vathis, CEO of Vojvodanska Banka, a Serbian institution, said that as the ECB started to taper QE and interest rates started to rise then “lots of things” would change. But he added: “It will hurt certain countries more than others — Greece for example will be hurt, definitely.”

Research two years ago by ECB economists found “strong evidence” that bond purchases by the ECB under its Securities Market Programme (SMP) had had direct impacts on bond yields in EU countries in the CEE that did not use the euro.

While they only looked at the impact of bond purchases, it may imply the reverse effect as tapering takes effect.


Liam Carson, emerging Europe economist at analysts Capital Economics, said he expected the impact on CEE economies would be moderate as tapering would be gradual. “In any case, external vulnerabilities in the CEE economies are far smaller than they were during the global financial crisis and the eurozone debt crisis,” he said.

“Most notably, current account deficits are smaller in Poland and Romania, and in the case of Hungary and the Czech Republic, current accounts are now in surplus. As such, ECB tapering is unlikely to cause any financial instability in CEE.”

But in its regional economic outlook published later today the IMF is likely to warn that risks arising from higher interest rates in advanced economies could spark capital outflows from countries in central, eastern, and southeastern Europe.

  • By Elliot Wilson, Phil Thornton, Virginia Furness
  • 10 May 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 164,197.28 637 7.95%
2 JPMorgan 154,023.20 666 7.46%
3 Bank of America Merrill Lynch 148,673.66 492 7.20%
4 Barclays 126,568.82 444 6.13%
5 HSBC 110,180.81 519 5.34%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 25,941.92 30 9.52%
2 Citi 16,837.08 38 6.18%
3 SG Corporate & Investment Banking 15,661.30 47 5.75%
4 Deutsche Bank 14,193.64 44 5.21%
5 Bank of America Merrill Lynch 13,028.84 31 4.78%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 Goldman Sachs 6,961.44 31 9.19%
2 JPMorgan 6,815.38 29 8.99%
3 UBS 5,503.59 15 7.26%
4 Citi 5,145.98 30 6.79%
5 Deutsche Bank 4,303.27 25 5.68%