Feelin’ groovy? Brazil's central bankers are, according to the title of their presentation to investors in London last week. But when even the lender of last resort gets frisky, who is left to be reserved? The Bank was selling Brazil's first euro-denominated debt since 2002. Excellent economic performance helped it. Second quarter gross domestic product rose 5.7 per cent year on year. The current account is in positive territory, and the government is delivering a solid primary surplus. The debt was priced with an 8.7 per cent yield, tight by Brazilian standards.

But has Brazil really escaped its financial paradox? At 55 per cent of GDP, public sector net debt is manageable. But high real interest rates, even by emerging market standards, make its service onerous. Lowering these rates requires market belief that Brazil can grow its way to repayment without another fiscal, currency or political crisis.Success, therefore, requires confidence.