Bulgaria, Romania, Hungary Most Exposed to Greece

People pass by a branch of the National Bank of Greece in central Athens, Greece, on 10 February 2010. Greece has vowed to tackle the debt crisis that has shaken the entire European Union and put the euro currency under pressure. Photo by EPA/BGNES

By Agnes Lovasz

Bloomberg Agency

Bulgaria, Romania and Hungary are the eastern European nations whose financial markets are most exposed to contagion from the Greek debt crisis, Capital Economics said.

“Concerns over Greece’s dire fiscal position have reached fever pitch over the past day or so and a retreat to safe havens has rocked financial markets in eastern Europe,” said London- based Capital’s senior emerging markets economist Neil Shearing. “No country is immune from the troubles in Greece and financial markets across the region are likely to suffer further unless or until the situation is brought under control.”

Emerging European bonds and currencies were unscathed by the Greek crisis until this week as investors commended efforts by bailout recipients Hungary, Latvia and Romania to cut state spending and wages. Declines in Greek assets dragged down emerging markets after Standard & Poor’s cut the nation’s credit rating three levels to below investment grade and Portugal by two steps yesterday.

The extra yield investors demand to own Bulgarian debt over U.S. Treasuries rose 32 basis points, the most in JPMorgan Chase & Co.’s EMBI+ Indexes, to 2.16 percentage points. Bulgarian assets are among the most at risk of a spillover from Greece, Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen, wrote in a report today. Hungary’s risk premium over U.S. Treasuries widened 2 basis points to 1.96 percentage points.

‘Stay Away’

“Given the seriousness of the situation, we recommend investors stay away from the central and eastern European markets for now,” Christensen wrote. He also highlighted Romanian and Hungarian assets that investors may shed given Europe’s sovereign debt crisis.

The Czech Republic will be the least hurt thanks to its “reasonably solid macro fundamentals,” Shearing said.

Greece’s troubles have weakened the case for rapid euro adoption, said Shearing. Estonia, which seeks to start using the single currency next January, may “scrape into” the euro region next year, while others face a long wait before they can become members, according to Shearing.

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