Financial Markets… The euro rose to a six-week high against the dollar, appreciating to $1.3077, and Europe’s benchmark stock index (Stoxx Europe 600) gained for a second day, as growing optimism over a successful Greek buyback program boosted investor sentiment. Greece started the €10 billion ($13 billion) repurchase of government bonds maturing between 2023 and 2042 on Monday.
As Greece’s debt crisis escalated, analysts and the media have so far mostly focused on possible spillovers to countries in Southwestern Europe and on weakening of the euro.
It is striking that for weeks, financial markets have not been exceptionally worried about strong contagion to emerging economies, even though there are vulnerabilities in emerging Eastern Europe and European banks are heavily invested in emerging economies all around the world.
Two distinct phases have characterized the recent movement of emerging market currencies. The first phase was a sharp decline when the crisis first occurred, as capital flight into the safety of the dollar led to a significant depreciation of emerging market currencies vis-à-vis the dollar.