The rules for joining the euro

Central and Eastern Europe is a fascinating collection of emerging markets benefiting from the reforms they pushed through in order to secure European membership. For the purposes of our report the region encompasses: Albania; Austria; Bosnia and Herzegovina; Bulgaria; Croatia; Czech Republic; Estonia; Hungary; Latvia; Lithuania; Former Yugoslav Republic of Macedonia; Montenegro; Poland; Romania; Slovakia; Slovenia; and Serbia. Of these, only Austria and Slovenia have already joined the more exclusive club of 15 states using the euro as their...

Those Eastern European countries outside the euro but looking in are expected to join at different times. Slovakia is the first likely new entrant, and is expected to join in 2009. The Czech Republic, Poland and Hungary are on course to be the next entrants, with Czech possibly be ready to join around 2011–12 and the other two countries in 2014–15. The Baltic states, which had hoped for a rapid passage into the club, were held back by runaway inflation, but could also see their journey to membership completed in 2015 (assuming they are...

Zeina Bignier, head of DCM origination for sovereign, supra and agencies at SG, has observed a significant widening in the spreads on the secondary CDS market in early 2008 throughout Eastern Europe. Things reached a peak on 17 March, she noted, and although things have come back slightly since then, funding costs remain very high. In Poland spreads on 10 year paper were 15bps before the credit crisis. On 17 March they were 115bps. Poland is neither unique nor unrepresentative: Lithuanian 10 year has gone from 50bps in early 2007 to 215bps....

As the appetite for sovereign risk has shifted since the turbulence in the credit markets in general last summer, the new issue markets have proven more challenging for the new EU member states. With relatively small borrowing requirements, much of the impetus to borrow in the international markets is driven by the desire of the new sovereigns to diversify the investor base they are able to access in preparation for full euro membership. "Although having made the transition from emerging market credits, via crossover, to European sovereign rate...

The European Bank for Reconstruction and Development is actively promoting local currency lending and capital markets development in its countries of operations, in Europe and central Asia. “Particular focus has been placed on larger countries, whose currencies will not or not imminently be joining the euro and where the swaps market is limited or non-existent” said Axel van Nederveen, treasurer at EBRD. “A cross-currency swaps market allows investors and borrowers to mitigate the currency risk in their balance sheet without needing a...

Many of the capitals of Central and Eastern Europe retain a certain imperial grandeur - with wide boulevards, beautiful art nouveau coffee shops and monumental Habsburg palaces. The huge scale of their architecture is not, however, always matched by the extent of their international borrowing. In the first quarter of 2008, just two sizeable corporate loans came out of central and Eastern Europe: CEZ, a Czech power utility, signed a €600m club through CSOB, ING and Intesa Sanpaolo as MLAs with KBC signing up as a lender; PKN Orlen, the largest...

The accession of 10 eastern European countries into the EU in May 2004 was expected to lead to an increase in ECM activity as investors gained further confidence in the fast-growing economies from the Baltic to the Balkans. The ten countries which joined were Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Romania and Bulgaria joined in January 2007. But issuance in these countries has actually been slower than many predicted, and considerably slower than was seen in Russia and the CIS,...

There has already been tremendous consolidation in Central and Eastern Europe but experts are predicting there is a lot more to come. Yet at the same time M&A activity is evolving. Future deals will be heavily influenced by the emergence of regional champions, interest from private equity groups and Western corporates seeking growth. The fact that Western Europe is experiencing slower economic growth only serves to make the east look that much more attractive. Even the credit crunch has not inhibited M&A activity much, although it is making...

Emerging markets have been a boon for bankers across asset classes since 2000. International investors have ever more desire for exposure to these markets, while their domestic investor bases also grow. In EMEA, Russia and the Middle East have seen the most attention in the past three years – boosting the derivatives markets there, as investors look to hedge or gain exposure, especially for equity as part of M&A transactions. But Central and Eastern Europe has not provided a similar level of activity. "The gulf region has seen both asset growth...

A growing pipeline of deals from the CEE region suggests that 2008 should, in theory, be a good year for securitisation issuance. It also enjoys the prospect of improving legal frameworks for securitisation in several countries such as Romania and Poland, a rapid increase in mortgage lending, and the origination of good quality assets. But 2008's lack of issuance would suggest that this market has not taken off to the extent that many hoped it would, and given the global credit crunch and the effective closure of the securitisation market in...

Central and Eastern Europe has seen a rapid improvement in its equity markets in recent months and years, according to Thomas Farthofer, portfolio manager of Griffin Capital Management’s €700m Eastern European Fund. Poland has seen particularly good progress, and offers the best opportunities in the region (discounting Russia and the CIS). Yet the view of the region is not universally positive. “Most of the returns available in this region have been extracted,” said Anton Khmelnitski, director at Polar Capital. “There is not much mispricing...