Showing posts with label Financial Crisis. Show all posts
Showing posts with label Financial Crisis. Show all posts

What is the politics of Slovakia and the Euro as well as the eurozone/EU


Sovereign euro Risk of Slovakia according to the rating agencies

September 2011 Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk

A BB A AA BBB A

Sovereign risk
Stable: The commitment to fiscal consolidation will remain strong, and debt levels should remain well below EU thresholds. 

Currency risk
Stable: Growing concerns regarding the solvency and competitiveness of some euro area members are potentially negative for the single currency. However, interest rate differentials should favour the euro in the short term.

Banking sector risk
Stable: Slovakia's banking sector is very conservative and very profitable but also very conservative in its asset allocation. The banking sector has been resilient to the aftermath of the global crisis of 2008-09. However, some foreign banks with branches in Slovakia could face distress because of the euro area crisis.

The Slovak capital Bratislava, the economic hub of the country


Political risk
The centre-right government looks less stable than its predecessor, but it is more investor-friendly. None of the parties likely to make it into parliament in a general election threatens Slovakia's international creditworthiness.

Economic structure risk
The economy's dependence on exports of automotives, machinery and electronics weighs heavily on the outlook for the economy, and could make medium-term growth more volatile.


Slovakia is led by a four-party, right-wing coalition, in which the largest party is the Slovak Democratic and Christian Union-Democratic Party (SDKU-DS the political party that brought about the 19% flat tax). The government has delivered pro-business changes that dilute workers' rights in the hope that will reduce the disincentives to hire people. This has dismayed many given widespread reform fatigue. Fiscal consolidation will be the main economic policy issue in the coming years.

The chances of the current coalition surviving until the election scheduled for 2014 are fair given that the overcast global environment does not favour major changes. But personal and programmatic clashes could bring it down before then. Real GDP growth is slowing in 2011 as the government is performing fiscal consolidation with a view to put aside funds in case there is a global crisis. Growth until 2015 will be slower than in the boom years but fairly fast in the chastened environment but at least this is not over levaraged unstable growth. Inflation is settling around 2.5% in 2012-15. The current account is expected to register deficits averaging around 3.4% in 2011-15.

Political outlook The centre-right ruling coalition turned one year old in July. Coalition parties have shown resilience despite frequent disputes. Disagreements between ruling parties could spill over in late 2011 when parliament debates the government's recent decision to sanction Slovakia's financial contribution to the European Stability Mechanism (ESM) from 2013.

Economic policy outlook
Slovakia's fiscal consolidation effort has been progressing in line with plans in 2011. At end-July the state budget posted a deficit of €1.67bn (US$2.3bn), 30.4% smaller year on year.

Economic forecast
In June seasonally adjusted industrial output fell by 2.2% month on month. The economic sentiment indicator (ESI; 2005=100), which had moved lower in the second quarter, after climbing in the first quarter, edged down further in July, dropping by 1.6 points month on month, to 93.9. This reflected weaker confidence in the industrial sector, owing to weakening demand of trade partners in the EU.


Slovakia Growth statistics Expenditure on GDP (% real change)

Slovakia Growth statistics
Expenditure on GDP (% real change)

light blue = 2011
darker blue = 2012
 
Private consumption
Government consumption
 
Gross fixed investment
 
Exports of goods & services
 
Imports of goods & services
Source: Economist Intelligence Unit

 

Origin of GDP (% real change)

light blue = 2011
darker blue = 2012
 
Agriculture
 
Industry
 
Services
Source: Economist Intelligence Unit
 
 

Slovakia and the crisis as compared with other Central european countries and balkan countries

The graphs speak for themselves

The Slovak economy was affected by the global crisis but has shown one of the best rates of recovery. Only Poland has fared better, but its huge size makes it both less prone to downturns and more sluggish in upticks. Slovakia is projected to regain a 4% GDP pace this year and next, which is fairly goldilocks.

greek sovereign trials and tribulations and their impact


Although we do not believe in a further deterioration of the situation in Greece in the long term because the political climate in the country has changed in a way that has not been seen in 30 years. The important news is that reckless finances will become a thing of the past.

Just to clarify we do think that some of the hystrionic press about Greece defaulting was an attempt by traders to cause a self-fufilling crisis based on rumours so they can profit from their short positions.

The graph here shows just how bad the situation is compared to other european countries. This graph captures by how much greek politicians have led the country down a blind alley and how irresponsible the last 30 years have been.

Nevertheless it is clear now that there is a defacto economic government imposed on the club-med members of the EU. It also means that the norms of german financial conservativism will become best practice and in the long term that bodes well for Greece and the rest.

Central Europe vs. Balkans

But what about eastern europe and central europe? (for those that think they know the difference between central vs. eastern europe look at the map for your education...)

For one thing the crisis showed that countries with bad fiscal management suffer whether they are in the eurozone or not. Slovakia, Czech republic and Poland come out of all of this with more credibility as financial actors.

The countries with bad management of their finances and high corruption Greece, Romania, Bulgaria, and the rest of the balkans now seem to be a category of their own. We need a new name for it, but i think for now the Balkans+Romania will do just fine

Legendary commentator and economics professor Nouriel Roubini and his team share their views on the prospects for this region. Our conclusion from this is that given that we see the EURO as safe despite the greek melodrama, for central europe the likely outcome is that Slovakia will carry on being the only euro member in the region, and is likely -after a short pause- sweep all the FOREIGN DIRECT INVESTMENT for itself. This is the way we interpret the last comment on this piece.

What Greece’s Fiscal Crisis Could Mean for Eastern Europe

Feb 22, 2010 11:42AM
Eastern Europe & Southeastern EU will likely feel reverberations from Greece’s fiscal woes. While the possibility of contagion via trade and FDI channels is limited, transmission via the financial channel is a real risk in Bulgaria, Romania and Serbia, given the strong presence of Greek banks in these markets. Any direct spillover effects will likely be limited to these South East European economies, but the potential for indirect effects must also be taken into account.
On the positive side, Greece’s fiscal crisis highlights the comparatively better fiscal positions of EU newcomers in Central Europe. Nevertheless, troubles in the eurozone periphery could further delay euro adoption, which could weigh on emerging European assets going forward.

Grεεk dεbt disastεr


Here’s a singularly-arresting chart from Deutsche Bank’s excellent fixed income team:

That is foreign banks’ holdings of European government debt, and there is an unexpected standout: Greece.
The chart highlights two concerns; firstly, the potential for banks to be burned by the situation in the Hellenic Republic, and secondly, the extent to which the country has relied on outsiders to finance its deficit in recent years.
Here are the DB analysts, headed by Gilles Moec, with a bit more detail:
Such inflows leave an economy vulnerable to a sharp withdrawal of funds at some point in the future should foreigners lose confidence or face liquidity constraints that prevent them from maintaining this exposure. A breakdown of net international investment positions for some of the more vulnerable EMU economies highlights this predicament.
Financing of C/A deficits generally takes two forms – debt creating and non-debt creating inflows. Non-debt related inflows refer to FDI and equity, debt-related inflows can be in the form of either portfolio flows into domestic public or private fixed income markets or loans (e.g. trade credit, syndicated loans). In Greece’s case the majority of its negative net international investment position relates to portfolio flows into the public sector which foreigners can choose to sell whenever they wish. At end-Q3 foreigners held EUR216bn of Greek government debt (72.3% of the total market, 90.2% of GDP), having doubled their position since end-04. Given recent downgrades and another round of revisions to budget data from previous years, a sharp slowdown or even reversal of inflows from foreigners into the local debt market has become an increasing risk.
Matters are made worse by the fact that the ECB has taken a hardline stance on the collateral criteria for its liquidity ops. That means if Greece is downgraded by Moody’s (the only agency still rating it at the A-level) its debt will no longer be eligible for the ECB facilities once the central bank raises its collateral-threshold back to its original level of A-.

Greece is probably hoping that foreigners will continue to finance the government for the rest of 2010, some investors have been piling in to Greek bonds in anticipation of a bailout, but there are signs that may get more difficult.

The country’s Public Debt Management Agency has already said it will not sell any bonds to the market this month, instead opting to focus on T-bills. Bid-to-cover ratios for last week’s auction of 52-week bills was fine at 3.05, but yields rose 119bps to 2.2 per cent. Which means, in short, that investors are demanding more and more of a premium for holding Greek debt.
If foreigners do retreat from Greek debt, the government will no doubt be hoping that its domestic banks could step in to replace them. That however, may also prove problematic, according to DB:
Full financing from the domestic banking sector is probably also not viable. December saw the government sell EUR2bn in bonds in the form of a private placement to 5 banks, 4 of which were Greek. Should the government rely entirely on its domestic banking sector for financing this year, it would result in a 163% increase in their holdings of Greek government debt relative to end- October (EUR32.5bn)1. In the absence of an increase in banking sector liabilities, Greek banks would move from holding 8% of their assets in Greek government debt at end October to 20.2% of their total assets by end-2010. This would only materialise if Greek government debt could not be posted at the ECB as collateral but would undoubtedly translate into a sharp fall in the stock of private sector credit and a more negative growth outcome than is projected by the government, endangering the government’s fiscal targets.

Foreign Companies in Slovakia - FDI trends

The situation of foreign companies that have made large investments in Slovakia seems to be bad in their home markets.

Nevertheless they see investing Slovakia as part of the way to solve their problems and spokespersons for many of them confirmed the parent companies have expansionary plans in terms of production in Slovakia.

Although car makers will report similar sales as last year after the end of the scrappage scheme, all three foreign parent firms in the car industry: Volkswagen, Kia Motors and Peugeot confirmed they trust in the local market, according to partner KPMG Quentin Crossley. “They see an opportunity for more job openings, sales growth and their overall expansion this year,” claims Mr. Crosley.

Energy concern MOL in control of crude refiner Slovnaft also continues in its investment plans in Slovakia. Telecommunications company Deutsche Telekom expects efficiencies from mergers of fixed and mobile telephony networks it owns in Slovakia.

Real estate in Slovakia Czech & Poland vs. The Balkans in the EU.

Certainly the UK's buy-to-let model doesn't seem to work well in Bratislava. There are many reasons for this.
  1. Real estate agents are villainous and TOTALLY unregulated
  2. Professional standards are a rarity
  3. There are a lot of apartments that are being refitted with government susbidies making all buildings not only livable but comfortable.
The real estate agents do not offer full service letting for people that do not speak slovak, and those that have tried to do buy to let in Bratislava have been badly burned.

The legal framework is also not supportive rather helpful to unnreasonable tenants, and the rental market is flooded by flats in freshly done up buildings where the reconstruction is subsidised by government money for slovak families.

Claerly when the dust settles Bratislava will resume its expansion and appreciation of commercial property especially in the centre. Offices, shops are going to be the winners in the medium to long term. Buy to let looks like a loser for the foreseeable future.

General real estate sentiment
The head of a real estate investment fund on pricing in Central europe and in Eastern Europe:

"You have to split Central Europe into two areas. The healthy bit is the Czech Republic, Poland and Slovakia, where the economies are on a good basis. There's strong domestic demand, they're not overextended as economies and there is no excess of development in general except in residential. Those markets were reasonably priced and there was limited political risk in them.

How about the CEE countries you didn't mention?

Investors are now significantly reassessing risk, and particularly in Russia and the emerging markets like Romania Russia and Ukraine and Bulgaria, people are realizing that the risks in these markets are much bigger. And it's quite difficult to quantify these risks because they're political rather than economic risks. With Russia it's the problems with what they did in Georgia, and also the problems of TNK BP making people very wary about the way the Russian government behaves. Clearly Ukraine has enormous political instability, while Romania and Bulgaria have enormous corruption problems.

Socialism in America

A chinese worker supplying WalMart the shop for all american types :)


Piece by Bill Moyers:

"So, for the record let's acknowledge that all this current rhetoric about socialism in Washington is partisan poppycock. The word being fought over so fiercely today lost its meaning long ago. The late social activist and preacher William Sloane Coffin said on my show some years ago that we have to keep pressing the socialist questions because they are questions of justice, but that we should be dubious about are the socialist answers, because while the Biblical prophets may call for justice to roll down as mighty waters, figuring out the irrigation system is damned hard.

Furthermore, Barack Obama is still standing at the crossroads. Some old hands around him yearn for a third Clinton term -- government as subsidiary of corporate America. Ardent progressive followers, on the other hand, hope his heart really leans to the left, toward the public provision of public goods.

But at bottom, the issue isn't one ideology or another - we're not that kind of country. The issue is inequality. Two British researchers have just made news with a study over three decades, showing that where income is more evenly distributed, people are healthier in mind, body and spirit. You can find out more about their report on our website at pbs.org.* They found that violence, mental illness, overcrowded prisons, drugs, and obesity are more likely in a society where the gap between the have's and have-not's is as great as it is in the United States.

Our gap grew over the past quarter century as capitalism went on a spree of speculating, swindling and cheating. The great collapse is a painful correction. Our long term rescue, however, depends not on any "ism," but on democracy's ability to create a more level playing field, where the health of a battered woman in San Antonio is every bit as valued as a majordomo's on Wall Street.




This is a book with a big idea, big enough to change political thinking, and bigger than its authors at first intended. The problem they originally set out to solve was why health within a population gets progressively worse further down the social scale; they estimate that together they have clocked up more than 50 person-years gathering information from research teams across the globe. Their eureka moment came when they thought of putting the medical data alongside figures showing the extent of economic inequality within each country. They say modestly that since dependable statistics both on health and on income distribution are internationally available, it was only a matter of time before someone put the two together. All the same, they are the first to have done so.

Their book charts the level of health and social problems — as many as they could find reliable figures for — against the level of income inequality in 20 of the world’s richest nations, and in each of the 50 United States. They allocate a brief chapter to each problem, supplying graphs that display the evidence starkly and unarguably. What they find is that, in states and countries where there is a big gap between the incomes of rich and poor, mental illness, drug and alcohol abuse, obesity and teenage pregnancy are more common, the homicide rate is higher, life expectancy is shorter, and children’s educational performance and literacy scores are worse. The Scandinavian countries and Japan consistently come at the positive end of this spectrum. They have the smallest differences between higher and lower incomes, and the best record of psycho-social health. The countries with the widest gulf between rich and poor, and the highest incidence of most health and social problems, are Britain, America and Portugal.

Richard Wilkinson, a professor of medical epidemiology at Nottingham University, and Kate Pickett, a lecturer in epidemiology at York University, emphasise that it is not only the poor who suffer from the effects of inequality, but the majority of the population. For example, rates of mental illness are five times higher across the whole population in the most unequal than in the least unequal societies in their survey. One explanation, they suggest, is that inequality increases stress right across society, not just among the least advantaged. Much research has been done on the stress hormone cortisol, which can be measured in saliva or blood, and it emerges that chronic stress affects the neural system and in turn the immune system. When stressed, we are more prone to depression and anxiety, and more likely to develop a host of bodily ills including heart disease, obesity, drug addiction, liability to infection and rapid ageing.

Societies where incomes are relatively equal have low levels of stress and high levels of trust, so that people feel secure and see others as co-operative. In unequal societies, by contrast, the rich suffer from fear of the poor, while those lower down the social order experience status anxiety, looking upon those who are more successful with bitterness and upon themselves with shame. In the 1980s and 1990s, when inequality was rapidly rising in Britain and America, the rich bought homesecurity systems, and started to drive 4x4s with names such as Defender and Crossfire, reflecting a need to intimidate attackers. Meanwhile the poor grew obese on comfort foods and took more legal and illegal drugs. In 2005, doctors in England alone wrote 29m prescriptions for antidepressants, costing the NHS £400m.

Sramko Central banker of Slovakia

I am a major fan of Ivan Sramko (photo on the right -Robert Fico Slovak PM is on the left-). He is the central bank governor of Slovakia and exactly the right kind of mature and serious banker with a distinctly old-fashioned banking pedigree that oozes a sustainability and soberness largely missing in the western and particularly Angloamerican institutions and boardrooms.

Sramko is the architect of the euro adoption plan and took very effective measures to filter out speculation in the Slovak banking market. So much so that when neighbouring countries became overly vulnerable on currency volatility and speculation, Bratislava was and is an island of tranquility during the crisis.

I believe it is people like this that form the mass of the best prime ministers Slovakia will never have, or maybe the political class in Slovakia will come to recognise his contributions... who knows... For now he should be a shoo-in for another term at the ECB (where he is widely liked) and at the Slovak National Bank.

5 year term expired (Reuters)

Slovakia's current central bank governor Ivan Sramko, who is also a European Central Bank governing board member, is among the government's top candidates to be the bank's chief in the upcoming period, daily Sme reported on Saturday.

The governor of the National Bank of Slovakia (NBS) is formally appointed by the President for a five-year term on behalf of the government, whose proposal also needs to be approved by the parliament. The new term will start at the beginning of January.

A parliamentary committee proposed a legal change on Thursday that would allow current central bank chief Sramko serve another term. Under current legislation, Sramko would have to stand down by the end of December when his term runs out .

A report on Sme's website cited sources close to the Prime Minister Robert Fico as saying Sramko, central bank Vice-Governor Viliam Ostrozlik and bank board member Jozef Makuch were the top candidates: http://ekonomika.sme.sk/c/5066311/zacala-sa-hra-o-guvernera-nbs.html


Ivan Sramko's background

Mr Ivan Sramko was born on 3 September 1957 in Bratislava.

In 1980 he graduated from the University of Economics in Bratislava, Faculty of Management. Between 1981 and 1990 he worked as Head of financial units in several corporations.

From 1990 to 1991 Mr Sramko was Deputy Director of VUB - ING, a.s. (advisory banking company).

In 1991 - 1992 he was appointed Head of the Task Force of the VUB Bank establishing the joint venture of VUB - Credit Lyonnais.

Between 1992 and 1998 he held the position of General Manager of Istrobanka, a.s. (subsidiary of Bank für Arbeit und Wirtschaft AG, Vienna, the then-subsidiary of Slovenska poistovna, a.s., Bratislava), and was Deputy Chairman and later Chairman of its Board of Directors.

From 1998 Mr Sramko was a member of the management of Tatra banka, a.s. (subsidiary of Raiffeisen International Bank-Holding AG, Vienna, the then-subsidiary of Raiffeisen Bank, Vienna), and from 2000 to 2002 a member of its Board of Directors.

From 11 January 2002 to 31 December 2004 Mr Sramko served as a Deputy Governor of the National Bank of Slovakia. He was appointed Governor of the NBS effective from 1 January 2005.

Mr Sramko is a Member of the Governing Council of the European Central Bank, a Governor in the International Monetary Fund and an Alternate Governor in the European Bank for Reconstruction and Development.

Since 1998 he has been a member of the Board of the Slovak-Austrian Chamber of Commerce and since 2003 a Chairman of the Managing Board of the University of Economics in Bratislava.

He is fluent in English and German.

He is married and has three children.

what the USA wants to become


What most countries want their future to be like...

This new American economy, Larry Summers hopes, will be “more export-oriented” and “less consumption-oriented”; “more environmentally oriented” and “less energy-production-oriented”; “more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented”; and, finally, “more middle-class-oriented” and “less oriented to income growth that is disproportionate towards a very small share of the population”. Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.

the problem ofcourse is that everyone wants the same things and in the end nobody wants to import, the end game of which will probably be protectionism of various forms.






note: Lawrence Henry Summers (born November 30, 1954) is an American economist and the Director of the White House's National Economic Council for President Barack Obama.[1] Summers is the Charles W. Eliot University Professor at Harvard University's Kennedy School of Government. He is the 1993 recipient of the John Bates Clark Medal for his work in several fields of economics and was Secretary of the Treasury for the last year and a half of the Clinton Administration.

Meanwhile in Obama's USA...

Poverty as a mass phenomenon is back. The statistics are starkly different to europe.

About 50 million Americans have no health insurance, and more people are added to their ranks every day.

More than 32 million people receive food stamps

13 million are unemployed

The homeless population is growing in tandem with a rapid rise in the rate of foreclosures, which were 45 percent higher in March 2009 than they were in the same month of the previous year.

Bratislava holding up in a stormy world economy. Slovakia doing better than most in the Credit crisis, Does not need bank bailouts

I feel rather priviledged to live in a country which in its finances it resembles the country of my birth back in the 80es.

In Slovakia people still live within their means, it not only the extreme proximity in distance between Vienna and Bratislava, its also a healthy scepticism about getting in debt. Like our viennese neighbours, Slovakia as a whole has very conservative banks (many of them austrian) that lend frugally and expect big deposits before agreeing to finance a mortgage. Here the banker is somebody you meet in an office, rather than a trainee call centre person in Wales assessing your tele-loan because you saw an aspirational ad on TV (like it is the case in the UK).

It seems that there is going to be an impact worldwide from this mess (including China and India), but i still believe this little corner of the world is more stable than most. The factors that make it so are briefly:
  1. Slovaks did not get in the habit of spending more than they earn
  2. There isn't a big rental or buy to let sector, people live in their homes.
  3. People have a 1950es style frugality, and aversion to waste and excesses.
  4. consumer indebtendness is circa 16% of GDP as opposed to 90%+ in western europe.
  5. real wages are growing every year, when in the rest of the developed economies they have been stagant or near stagnant.
  6. All our banks are well capitalised, and have zero exposure to american debts/CDOs/CDS/derivatives/asset backed securities and toxic loans.
  7. The central banker Ivan Sramko is a seasoned austrian-trained banker with a steady hand.
  8. We are getting the euro unlike any other central european country.
  9. EU money will continue to flow from the structural funds and CAP to Slovakia giving the country another useful boost.
  10. Government debt in Slovakia is a tiny less than 30% of GDP.
Now I have to say that things are so bad in the rest of the world that our economy is going to be impacted, the latest projections predict something about 5% GDP growth, maybe 6.6% which is very comfortable.

Hope you re alright wherever you are.
remember that all this means that Thatcherism/Reaganism is now dead. Shareholder capitalism ditto.