Euro crisis: Serbia tries to protect its currency

Since the election of populist leader Tomislav Nikolic as president on Sunday, investors have abandoned the dinar en masse.

With the crisis of European debts in the Union, blows a westerly wind threatening the Serbian dinar. The currency of the most populous country of the Balkans fell to an unprecedented level of weakness this week, slipping to 116 dinars for one euro and forcing the central bank to fly to its rescue by spending 80 million euros of its reserves.

A year earlier, it only needed a hundred dinars for one euro. Since the beginning of the year, the institution has spent nearly 1 billion euros to support its national currency. A measure that has not been proven: during the same period, the dinar lost about 7.3% against the euro.

Investors have abandoned the currency, the RSD for currency traders, en masse, since the failure of Tadic’s government coalition, which embodied the desire to join the European Union (EU), and the leader’s victory right-wing Tomislav Nikolic … who himself is having trouble forming a government.

“This adds to the burdens of those who have taken out loans in euros or are paying their rents in this currency. They have to release even more dinars in order to repay their loans, while their revenues do not increase,” says Yves Tomic, Vice-President of the French Association for Studies on the Balkans. “70% of business loans are in euros,” he adds, a bad point for the expected recovery.

GLORY AND DEATH OF DINAR

The diner, however, had its heyday on the Forex ( Foreign Exchange) market, thanks to a high-interest rate set by the Central Bank of Serbia. A high rent of money guarantees a good return for traders wanting to play the differential with currencies at low-interest rates. In the first half of 2011, reports Bloomberg, the dinar was the world’s best-performing currency against the euro and the dollar.

Problem: inflation, which is changing very violently (it was around 15% in 2011, around 3% at the beginning of this year), contributes to this depreciation of the currency. However, the central bank announced in its latest report that it expects prices to rise by around 6% by the end of 2012. And the only way to fight it is to raise interest rates. , which would slow growth already tapped by the crisis …

“The drop in the gross domestic product in the first quarter is due to an extremely cold climate [which forces us to import more oil], but also to the contraction of the economic activity of our key economic partners, ” says the Bank. in this report. If we believe her projections, she would have even resigned to a recession until the third quarter.

A LITTLE HABITUAL WARNING

Surprisingly for this kind of institution, which usually wisely distances itself from the political power, the central bank mentions its concern about the formation of a government: “From the point of view of the economic stability required by the markets and the premium risk [that the country could pay to borrow], it would be good if the future government is formed quickly, “she insists.

While the country may welcome the fact that the weak dinar makes its exports more competitive, it can do nothing against the fact that its main markets, in the west, are drying up because of restrictions due to the crisis. And especially in the automobile, where the country has invested in recent years. The largest foreign industrial investor, US Steel, has abandoned its stake in the steel mill this year.

In the face of the recession, the new government will need to renegotiate a loan agreement of 1 billion euros with the International Monetary Fund, frozen in January due to a worsening of the budget deficit and public debt.

PRESENCE OF GREEK BANKS

The westerly wind is still likely to blow on the savers Serb, but this time starting directly from Athens. Most foreign banks come from EU countries, with a relatively large share of Greek and Italian banks. An additional strain on their parent companies could lead to further tightening of credit in the region.

Alpha Bank Serbia, Eurobank EFG, Bank of Piraeus and Vojvodanska Banka are four major backers of the Serbs. Greek banks account for 15 to 20% of the Serbian banking sector, in terms of assets, loans, and deposits, a high risk in a country that experienced a banking panic just five years ago when the global financial crisis began to crack down- Mdtracker online payday loans in ca.

A Hellenic bankruptcy would provoke an important explosion in the country, forcing the government to nationalize the Serbian branches of the Greek houses, which would deepen the deficit of the country, increase its cost of borrowing on the markets … and complete the dinar.