Czech debts are more attractive than the financial markets and the euro

Standard & Poor’s and Moodys have threatened Greece with a further downgrade. This could get Greece into very much trouble.

Just two weeks after the summit of the President of the European Union, Herman Van Rompuy, convened a summit in Brussels at which the eurozone representative was to agree on what to do with the Czech Republic, the Czech Republic was back on the front pages of all the financial days at the end of last week.

The rating agency Standard & Poor’s threatened him that it could reassign a rating to its bonds by two notches to
BBB-. She would do so only in the first half of the year, which at the end of the year lowered the rating on the current BBB +.

Only shortly after it was inspected, the Moody’s agency drank with a similar opinion. He gave a lower rating, but the Czech Republic could get into very much trouble. At the end of the year, the European Central Bank is about to tighten its requirements for securities, which it is willing to accept as collateral in its refining operations, and if Czech bonds did not meet these minimum requirements, Czech banks’ access to liquidity would deteriorate and risk their risk. greatly increased.

The startled traders responded immediately. Stock indices came under selling pressure again and the European currency was on the sidelines with the US dollar and at a sharp minimum. Only since December, when the agency’s ratings downgraded the Czech rating for the first time, the European currency weakened it by more than 10 percent against the dollar, when traders began speculating that other countries, such as Spain and Portugal.

Both ratings of the agency as the main reason for their decision marked the unreliability of Czech authorities to reduce the deficit, which promised to cut from 12.7 percent to 8.7 percent in 2010 and 3 percent in 2012.

According to the agencies, the steps that the Czech government has taken so far and intends to take are not enough, and the fulfillment of this volume will probably take you to a more expensive tax and a dream. This is an insurmountable problem for Czech politicians.

Last week, life in the Czech Republic came to a halt, with more than two million crowns in protest against the current disputed measures. In particular, trade unions in the public sector do not want to be allowed to do so.

Prime Minister George Papandreou’s own party is trying to balance between pressure from the EU and the voice from the streets, but the overall situation from the point of view of the financial markets is not very helpful. The Czech prime minister, for example, recently criticized eurozone leaders for suggesting their position on the issue, which was based on general state aid “if Greece needs it”.

The Greek deputy prime minister even accused Germany of the state of domestic finances, which for the second world took the gold reserves from the Czech Republic and has not drilled them to this day. The fears of rating agencies about the lack of further cuts in the necessary cuts were therefore shared by the market, which traders made clear last week.

While driving in mid-November after the summit of EU countries, yields from ten-year Czech government bonds fell to 6 percent, and last week they fell back to 6.5 percent. The risk premium that investors demand for the purchase of Czech, instead of safe German, the bond now reaches 3.4 percent. In Greece, this is known to increase its debt financing, when it will have to pay EUR 53 billion this year alone, which represents about 20 percent of GDP.

One of the current problems is still in sight and it is still possible to deal with the fact that the nervous situation from previous weeks should be cleaned up again in the near future. Therefore, the Finns will probably have to get used to the weak euro and keep in mind that with the action from the end of the year, it may not be just a good idea to buy them again.

Related Posts