Polish goverment is still dancing on Titanic?

Although Polish government is extremely optimistic about future of economy (especially Minister of Finance Rostowski) however observers around the world do not share that view. The RGE monitor of Nouriel Roubini is trying to awake from that siesta.

Among emerging market regions, CEE economies are experiencing the steepest roller-coaster ride in terms of growth. After exceeding global growth averages for the last decade, regional growth is plummeting in 2009 and is expected to underperform both emerging Asia and Latin America. All EU newcomers in the region are either in or headed for recession. A dangerous combination of falling exports and slowing capital inflows is behind the bleak growth picture. The hardest-hit economies have tended to be very open, with wide current account deficits in recent years and high levels of foreign currency borrowing.

Not all CEE economies are in the same boat. The Czech Republic and Poland, for example, are considered relatively healthy and are expected to experience relatively mild contractions in 2009. Those in more dire straits- Estonia, Latvia, Lithuania--are facing double-digit contractions. Hungary, Latvia, Romania and Serbia have already turned to the IMF for financial assistance, and more are likely to follow in their wake.

RGE Monitor points to the following as possible downside risks to regional growth:

- risk of regional financial contagion,

- potential for a cross-border banking crisis

- rising political instability

- repeat of January gas crisis

Given the strong financial and trade linkages with Western Europe, a recovery in Eastern Europe will not come until its western neighbors’ economies improve. That means the region’s recovery will lag behind that of Western Europe. Meanwhile, the downside risks described above could further delay recovery. And even when recovery comes, RGE expects sluggish positive growth in the medium-term, rather than a return to the soaring growth rates seen earlier this decade.

Previously chief of EBRD warned that recovery in Eastern Europe is strongly linked to western banks (ability and willingness) lending to their foreign units.

Bloomberg quotes him:
“The key is continued support from banks in Western Europe to their subsidiaries in the east,” Berglof said in an interview yesterday in London. “As long as those flows continue, that’s a very large part of the solution to the problem. The situation is manageable but we must make sure that it is being managed.”

He reportedly was very pessimistic:

In May, the EBRD forecast that the Central and Eastern European economies would contract by about 5.0 percent this year.

But the bank was about to release an even lower forecast, EBRD president Thomas Mirow said after meeting Austrian Finance Minister Josef Proell.

Unlike other institutions, the EBRD did not believe the crisis was over, Mirow said.

That news appears in media after the same EBRD president warned against next wave of crisis looming ahead of Eastern Europe.

Many of the once fast-growing ex-communist economies lately have been hit by collapsing demand and vanishing foreign investment flows, leaving large foreign-currency debts and current-account deficits. Already, many have turned to the IMF in the crisis, which so far has toppled governments in Latvia, Hungary and Bulgaria.

To prevent a recurrence, Mr. Mirow said Eastern European countries need to restructure private debt, reduce foreign-exchange exposure and adequately capitalize banks.

He cautioned that, although the region's economies have stabilized in recent months, the impact of the "unprecedented market crisis" still poses major risks. "This is a severe challenge which we must not underestimate, neither economically nor politically, and we must not allow a sense of complacency to take hold," he said.

Crisis in Poland and Baltics more visible

Several events prompted me to concentrate more on economy. I think that there is information war going on or there were launched operations of financial information deception. I can't explain other way so many contradictory statements on current economic crisis. One very basic strategy is subversion - implanting of false information, which triggers a self destructive process in the opponents target system.

Thanks to great hep from Mr Michael J. Panzner who wrote great books "When Giants Fall" and "Financial Armageddon" I was able to understand the nature of present crisis. (He blogs here I start my day reading also his new post. )

So I will be trying to provide my perspective on this financial breakdown.

Only on Friday Polish government led by prime minister Tusk managed to widen deficit by almost half. There was not much discussion on that issue. Many Poles think that recession will somehow will omit their country. But what they should think if few days ago minister of finance Jacek Rostowski assured that economy will have "positive" growth of about 1 percent. He even said what seems to be unrealistic idea that Poland may enter ERM2 next year. I did not see in Polish media Nouriel Roubini prognosis.

Sadly to say only few print media were in Avant-garde of alarming about coming crisis.

Today only first successful but controversial former minister of finance Leszek Balcerowicz gives his recipe for dealing with financial crisis in Poland. Balcerowicz says:

1. To reform difficult branches of industry such as healthcare and heavy industry (mining, shipyards, etc) and to cut bureaucracy in government.

2. To cut expenses on social needs

3. To simplify taxing system

4. To privatize more

5. Simplify law and delete unnecessary regulations in trade

Polish banks do not seem to be in such a trouble as some in Scandinavia. But I am suspicious that some kind of earthquake is behind our door.

Juhan Tere of Baltic Course describes problem of major Swedish bank. It was a major source

of credit for Baltic states (Estonia, Latvia and Lithuania) :

Swedbank AB, the largest lender in the Baltic states, reported its second consecutive quarterly net loss after bad loans in Estonia, Latvia and Lithuania soared and said it will cut jobs. The Q2 net loss of 2.01 billion kronor (257 million U.S. dollars) compared with net income of 3.6 billion kronor a year earlier, the Stockholm-based bank said in a statement on Friday.

That missed the average estimate of a 1.27 billion-krona net loss of 10 analysts surveyed by Bloomberg. Loan losses soared to 6.67 billion kronor, from 423 million kronor a year earlier. The Baltic States are suffering the deepest recession in the European Union amid the fallout from a collapse in real estate prices and the global financial crisis, boosting loan losses at Nordic banks, writes ELTA/LETA.

Swedbank plans to lower its employee base by 3,600 people by the end of the second quarter next year, from the 21,000 employees it had at the end of 2008, it said. "The financial system has stabilized to some extent, but the recession is now making itself more visible, and all signs are that the downward trend will continue for some time," Chief Executive officer Michael Wolf said. In the first quarter, Swedbankhad a net loss of 3.36 billion kronor after loan losses and provisions rose in the Baltics and Ukraine. Swedbank said at that time that given the "low visibility" in the Baltics, it couldn't "rule out future impairment of goodwill related to the Baltic investment."

Swedbank said it plans to keep financing itself independently and that the maturity of its funding structure continues to improve by the sale of long-term loans backed by state guarantees. The bank said liquidity is "very good."

The lender is the first Swedish bank to report earnings for the second quarter. Nordea AB will probably say profit dropped 40% to 414 million euros when it reports earnings on July 21, according to the average estimate of nine analysts surveyed by Bloomberg. SEB AB's net income is likely to slump 55% to 1.27 billion kronor. The bank is to report its results on July 20. Svenska Handelsbanken AB, the only major Swedish bank without significant operations in the Baltic States, is likely to see its second-quarter profit drop 7% to 2.26 billion kronor, according to 10 analysts surveyed by Bloomberg. The Stockholm-based lender reports second-quarter earnings on July 21.

The revenue generated by the Estonian unit of Swedbank fell by 3.7% in the second quarter of 2009, writes theNational Broadcasting/LETA.

The bank’s operating costs fell by 2.1%. Due to the economic crisis, Swedbank Estonia earned a loss of 372 million kroons.

The volume of the bank’s loans portfolio fell by 1.9% and the savings volume by 0.3%.

Director General of Swedbank Estonia Priit Perens stated that the second-quarter results were to be expected. He added that the loss from the first half of this year forms less than a fourth of the profits earned during the entire last year.

In the first quarter of 2009, Swedbank Estonia earned a loss of 297 million kroons.

In comparison to the beginning of the year 2008, the number of employees in the bank’s Estonian unit has fallen by 18% and the number of bank offices by 21. At the end of June 2009, Swedbank had 73 bank offices in Estonia.

Swedbank Latvia closed the second quarter of the year with a loss of LVL 169 million, as the bank's press secretary Kristine Jakubovska informed LETA.

In the second quarter "Swedbank" had an operating profit of LVL 33 million, which represents a 25 percent increase over the result in the first quarter.

Collective provisions of LVL 78.5 million, which, in preparation of further economic recession, were formed in the first quarter at Swedbank"Group level, have been transferred to Latvia to buffer future loan losses.

In today's economic situation, provisioning for impaired loans is the key factor, which affects the profit. At Swedbank Latvia, provisions for impaired loans amounted to LVL 239 million in the second quarter. The development of impaired loans during the second quarter was in line with expectations in the Baltic countries, and Swedbank believes that the rate of increase in impaired loans will tail off during the second half of 2009.

Swedbank Latvia revenue increased by 8 percent to LVL 48 million, while operating expenses have been cut by 17 percent to LVL 15 million as a proof of successful cost management.

"Improving efficiency, optimizing expenses and finding opportunities to increase revenue at a time of recession presents a challenge to each and every player of the economy, and that is our primary task", said Swedbank LatviaCEO Maris Mancinskis.

Swedbank Latvia increased the subordinated capital and the process of increasing equity capital is now in the final stage, reaching the capital adequacy ratio of 12.55 percent, which considerably exceeds the 8 percent required by law.

This way Swedbank Latvia has made extremely cautious preparations for even the most bleak economic outlook. The bank's goal during these times is to work efficiently and, being at the forefront of the financial market, to set an example of improving productivity of work, as well as supporting and finding most suitable solutions for the bank's clients to help them weather the recession, said Mancinskis.

In the second quarter, the bank's credit portfolio shrank by 8 percent, while deposits dipped by 2 percent. Trends in deposits are in line with overall market development, considering the rapid fall in incomes experienced by households.

However, at the same time people are becoming increasingly aware of the importance of savings, and a growing desire to save is being observed - according to Swedbank's data, 60 percent of customers extend their deposits after they mature, keeping the money in savings and ensuring a greater financial stability in future for themselves.

The demand for new lending continued to sink in the second quarter, and Swedbank expects low demand to continue in coming quarters. New financing continues for viable projects, subject to more conservative lending conditions due to the increased risks related to the current economic situation, while demand in retail lending is subdued in connection with greater uncertainty surrounding the labor market.

During the second quarter Swedbank Latvia was able to better organize human resources costs with a 13 percent reduction on the first quarter. During the first half of the year the number of employees has decreased by 8.3 percent.

In the second quarter the number of Swedbank's customers in Latvia has rapidly come close to one million.

The share of electronic settlements in Swedbank has reached 97.42 percent. Also payments with Swedbank cards have increased - in the first six months of the year as much as 70 percent of all card transactions were purchases, not cash withdrawal.

As expected, the economy continued to shrink during the second quarter in all the Baltic countries. Although an extremely fast contraction at the start of the year was followed by a period of relative stabilization in the Latvian economy in the second quarter, unfortunately there is no doubt that a further slowdown in economic activity can be expected in the second half of the year.

Economic growth cannot be expected to resume any time sooner than mid-2010. Nevertheless, some positive signs of economic balancing have been seen in past months. It is largely related to the fact that the private sector in Latvia has been surprisingly fast in adjusting itself to a changed economic landscape, balancing costs and restructuring operations.

Sorman: Europe rejects leftists

Thanks to my friend here is translation of my interview with French conservative thinker Guy Sorman. He comments results of Sunday's euro-elections. The article was published in POLSKA The Times.

Sorman: Europe turns right

First results show that the Europeans have voted for right wing parties. Europe is getting conservative?

If the poll results are confirmed, we will witness first mass rejection of left-wing ideas since 20 years. People no longer believe in social democratic agenda.

How would you explain that sudden change of voter’s moods?

There is a strong conviction that the left has nothing to offer in time of crisis. All socialist parties have criticized the Union, the competition and the free market. But they could not have offered anything instead. The left has shown symptoms of intellectual crisis since a long time. I would even say that these political parties have intellectually bankrupted. That is why, the left wing parties have won so little voter’s support all around Europe.

Are you saying that this was the ultimate defeat of the socialists?

In France for example, the socialist party has failed completely. Remember that during the crisis, people feel more secure when they are governed by politicians who respect conservative values, also in economy. It is an anti-Marxist conclusion, as the Marxists claim that it is the left wing that benefits from the crisis. But this is not true. The crisis damages the left, because what gives hope in that time is a transition towards conservative values such as the truth, the property rights, the family or the free market.

So yesterday, by voting for the right wing, almost all Europeans rejected the policy of government intervention in economy. They do not agree for the left wing policy of bailouts, government help for the banks, increase of taxes and increase of budget deficit?

Exactly, that is how I interpret the election results. They show support for the Polish conservative government, which refrained from interventions. Similarly, the Germans have manifested their encouragement for the conservatives in power. The same was true for France. Yesterday the voters declared loud and clear that they want the free market rules to be respected. They said no to increase of the budget deficit. Therefore, the British socialists have lost.

The Europeans want to the free market to remain the only solution to the economic crisis. They do not want to follow in footsteps of the President of the United States, who applies widely the interventional policy.

The right wing parties focus also on the problem of Europe’s islamization.
I do not see that as a major problem. We should spate rhetoric from the facts. The belief that Europe will be overrun by Islam might be effective in the countries of Benelux or Scandinavia, where live many Muslims. This is a question of immigrant’s integration. It seems to me that in a short time, France will be able to show how to integrate the immigrants in the society. Today, only 2 in 10 marriages are between Muslims. The rest are mixed couples. So from a sociological point of view, it seems that there is no point to worry. Europe will work out a model of integration that will be attractive for the immigrants.

The victory of Geert Wilders seems to contradict such a conclusion. His party sees islamisation as a fundamental issue.

It is a Jean Marie Le Pen syndrome. Perhaps, we need such a charismatic politician. But I would certainly not treat his win as a victory of chauvinism or fascism, despite that this is how some media want to comment this result. The voters has shown their support just because the politician was popular. And this was partly due to the efforts of the media that made him famous. He had his five minutes. Whe should not assume that there is a redical shift in the Dutch politics. Wilders will disappear just as Le Pen did.

One of the british commentators said that this are again failed elections. You seem to be more optimistic.

For me the elections are neither depressing nor uplifting. I think that the results and even the turonouts are nowhere near as important as the fact that there have been elections. And there was a festive mood. It is crucially important that people all around Europe can cast their vote. We tend to forget too easily about the historical context of the elections to the European Parliament. For the fifteen memeber states that joined the Union after 1989 it is still a novel experience.

But in Poland, the turnout was just over 20 percent. To me this could mean that the other 80 percent refuses to be governed by representatives from the distant Brussels.
I do not think this is a reason to be concerned. What is most important is that these people can vote. In my opinion those who did not cast their vote were also aware that this was an important day in their lives. They knew this was an opportunity to make a significant decision. And I do not doubt that they too feel Europeans.

But they did not think voting was important.
Maybe many have already forgotten what the Europe is. But this is not a reason to despair. That is how democracy works: when you finally win it, you forget it has to be used and defended. That is also true for Europe: you treat it as a feeling, as something very natural in the daily life.

In Poland, we have a practical attitude towards the Union: how much money will flow towards the agriculture, infrastructure, education.

Right, but if the Union will be treated as a cow to be milked, it will not develop. We need to remind the young that the European community was created in the fifties. The goal was to secure peace in Europe – this is the main purpose of the Union towards which all efforts should be directed. In other words: common economic policy, common currency and even the Parliament – all these are elements necessary to ensure stable peace. This was what Jean Monnet had on mind, when he was saying that we need to strive towards building solidarity. This is what the European elections are all about.

Perhaps, the Europeans want also that the Christian heritage was treated with more respect in the documents and the law of the Union?

You are most probably right. And also that many Europeans, just as here in Poland, want Christian values to be included in the Lisbon Treaty. The Europeans share center-right ideas. But I doubt a change in the Lisbon Treaty would be enacted soon. But in two, three years - maybe.

The debate on christian identity of Europe is thriving

Yesterday evening I was looking for information on European People's Party - so far the major political union of conservative and right parties in European Parliament. It happened that theses days EPP gathered themselves on the conference in Warsaw. Since they claim they are christian democrats I wanted to find out how they communicate message on their christian identity to the people and whether any debate they have among them.

Europe seems to be in zenith of postchristian era speedily coming to antichristian age. Maybe that conclusion is pessimistic but among other decisions a willingness to redefine marriage in legal terms and sanctioned it makes me so.

But yesterday evening I was stunned to find an official publication on EPP think tank pages.

It discussed human dignity and freedoms from christian perspective. I am still reading that document but its four chapters convinced me that debate is really going on. And not everything is being lost until now. And former Italian senator and now deputy of christian party in parliament prof. Rocco Buttiglione says that christians and those who cherish judeo-christian worldview should take opportunity to change present leftists into serious people in coming elections to European Parliament. After all there is a place for debate on God beliefs consequences for public life, where most important legal acts for Europe are being designed.

I encourage everybody to read that document.

Read the document: Man Where Are You?

Polish economy as well as Eastern European is in bad shape

Yesterday I talked to analyst from Economist Intelligence Unit Leila Butt on Polish economic situation in broader context of Eastern Europe. It does look terribly. But the biggest problem is that most of politicians and also reporters have no clue where is problem. I have been doing my best for couple of years to understand what may happen. Here is brilliant description of what takes place now.