Paying Peanuts for Monkeys

Photos: Boris Bergant chairing the discussion / Erhard Busek opening the session / Zoe Schneeweiss debating. Credit: Matthias Wurz

“It is most frightening to realize that history has not taught us a lesson ,” Boris Bergant uttered the words softly. The Slovenian radio and television journalist, current Vice President of the European Broadcasting Union (EBU), addressed a distinguished audience of media professionals from Central and South-east Europe. His voice seems pressed and slightly nervous, but full of emotions. Before he could continue, however, his remarks were interrupted by enthusiastic applause.

It was Oct. 16, the evening event of the Standards of Evidence symposium, organized by the Commission on Radio and Television Policy for Central, East and South-east Europe alongside with the Forum Alpbach. The scheduled panel discussion on ‘The Media and the Financial Crisis’ with high-profile media professionals held at Vienna’s Haus der Musik, was preceded by a short but not less dignified award ceremony for Boris Bergant. The 61-year-old is recipient of the Dr. Erhard Busek SEEMO 2009 Award for Better Understanding. His short acceptance speech was a moving recollection of the Balkan’s troubled, repetitious and bloody 20^th century history.

The SEEMO Award 2009 Ceremony

Austria’s former Vice Chancellor and President of the Forum Alpbach as well as Coordinator of the Southeast European Cooperative Initiative (SECI), Erhard Busek, was not only but also the benefactor of one of Europe’s most prestigious media awards but also host of tonight’s award ceremony. Just a few introductory words were needed for one of the finest and eloquent journalists the Balkan region has. “You have to earn your award,” Busek amicably addressed the delightful award recipient when he referred to the following debate that Bergant would chair.

Paul Krugman: “Stating the Obvious”

“Absolutely absurd,“ stated Josef Pröll, Austria’s Finance Minister of the conservative ÖVP on Apr. 15 when confronted with the controversial remark by 2008 Nobel Prize Laureate and Princeton University economics professor Paul Krugman with regards to the possibility of Austria’s bankruptcy.

Krugman’s provocative statement with regards to the impact of the financial crisis on Central and Eastern European countries (CEE) at the Foreign Press Club in New York on Apr. 13 sparked high-profile responses and anger in Austria.

When responding to the question of high exposure of Eastern European debt by Austrian banks, and whether that might lead the country into bankruptcy, Krugman responded directly.

“Now it’s a tiny one, it’s Iceland, but that just shows that it can happen, even to advanced countries. Ireland looks pretty bad because of large financial exposure. And Austria would probably be my third candidate in those leads.”

And the New York Times columnist delights himself in his blog two days later of having created a stir by just stating the obvious.

Evidently, Krugman’s comment has revived a debate of the past month when media reports, such as by the Austrian daily Die Presse (‘When, exactly, will Austria go into bankruptcy?’), circulated, sparked by concerns of high account deficits in the CEE countries.

Austria’s banks (not including Bank Austria and Hypo Alpe Adria as foreign-owned), Pröll clarified, have lending exposures in the CEE area of about EUR 200bn – approx. 70% of Austria’s GDP – but they are apposed to savings deposited of 85% of that amount.

The Finance Minister also dismissed the scenario of a complete deficiency of lending, but rather estimates that 10% might have to be bailed-out. The latter seems inevitable, as the European Bank for Reconstruction and Development (EBRD) estimated already in February 2009, that bad debts are likely to exceed 10% of lending in the CEE countries.

Indeed, the severe financial troubles of Austria’s neighbours highlights the huge investment Austria’s banks did since the 1990s in the CEE countries. They are the exposed of all financial institutions invested in the area, led by Raiffeisen with 54% of its risk-weighted assets, and Erste Bank Group (38%).

Evidently Josef Pröll set off for a ‘face-list’ trip to Bulgaria, Romania, Croatia and the Ukraine in mid-February promoting the Austrian government’s proposal for a financial stability pact for the CEE countries.

However, Pröll’s good-will tour sparked fresh concerns for the Austrian financial sector. The Romanian online business magazine Wall-Street consequently titled on Feb. 17 ‘Romania can drive Austria to meltdown.‘ At the same time, Austria’s daily Der Standard estimated that 10% failure of CEE lending would lead to crash of the Austrian financial sector.

Not surprisingly, the rescue plan failed to convince the other EU members, as it seemed motivated by Austria’s self-interest only.

Krugman’s pointed comment therefore, might be exaggerated as Austria’s bankruptcy seems unlikely at this stage, but has a valuable point: The European governments should not dismiss nor underestimate the effect a widespread financial collapse of financial institutions inevitably has when the CEE countries are not stabilized.

If this part of the financial crisis is mishandled, Daily Telegraph columnist Ambrose Evans-Pritchard predicts a “debacle (that) is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.”

Austria would then certainly play the leading role.

Business Analysis: Rewarding Dishonesty

This article is co-written by Ing. Werner Krauss – see information below

Cartoon: © Dave Granlund, www.davegranlund.com

The Problem of ‘Toxic Assets’

“Our job is to fix the problem in the financial sector at the least risk to the taxpayer,” U.S. Treasury Secretary Timothy Geithner stated the objective on Mar. 23. Supported by President Barack Obama, Geithner unveiled yet another bailout plan for the struggling U.S. financial system.

Rumours had it, that the Obama Administration would revive a plan that the Bush Administration had drafted in September 2008 but put back into the draw: Spending billions of U.S. dollars taxpayers’ money to free the financial system of ‘legacy assets’ – real estate loans as well as securities backed by loan portfolios – colloquially known as ‘toxic assets.’

Those assets cause “uncertainty around the balance sheets of these financial institutions, compromising their ability to raise capital and their willingness to increase lending,” so the Fact Sheet of the Public-Private-Investment Program of the U.S. Treasury, which confirms what has been rumored in early March.

According to the new bailout strategy, the U.S. government will spend yet another staggering U.S. $ 75 – 100 billion in order to help raise $ 1 trillion as to stimulate the economy and ‘flush’ the U.S. financial system of the ‘toxic assets.’

Geithner admitted that this plan fuels public anger as Wall Street seems to benefit at times where average Americans suffer. The financial sector has indeed been a major recipient to previous support: As an example, the Troubled Assets Relief Program (TARP) worth more than U.S. $ 700 billion, included $ 25 billion packages each for Citigroup, J.P. Morgan Chase and Well Fargo, the largest amounts ever given to any bank, among others.

“The (public) anger and outrage is perfectly understandable,” and he firmly added that “we have to make sure our assistance is not going to award failures.”