Nov. 2014 The Prague Post Personal & Business FInance eSupplement

NOVEMBER 2014

Helping youmake sense ofEuros & Cents

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One factor thatEuropean and othermarkets are going tohave to prepare for isthe emerging strength

of the U.S. dollar, according to PeterOppenheimer, the chief global equitystrategist at Goldman Sachs.

At the recent Warsaw Capital MarketSummit 2014, he said that over thecourse of this year there has been quite alot of dollar strength against a number ofdifferent currencies, particularly of coursethe yen and the euro.

“Many people ask, ‘has it got farther togo?’ We think it has got farther to go,because this rise in the dollar is really justbeginning. If you look back to 1980 atthe U.S. dollar versus a basket of majorcurrencies, you can see really the dollar

has been in a downward trend for the last30 years. There have been some excep-tions. It did very well in the late 1990s,for example, but generally it has beentrending downward. The recent rises wehave seen are only really just beginning,”Oppenheimer said.

“We are expecting, for example, theeuro to fall against the dollar toward pari-ty by 2017,” he added.

There are some good fundamental rea-sons why these dollar shifts are takingplace against the euro, according toOppenheimer.

“You can see that if you look at thespreads of interest rates between the U.S.and, for example, Germany, these spreadshave widened again. Interest rate differ-entials are becoming a bigger driver of

currency moves and also the prospectivedifferences in economic growth, wherethese economies are in their cycle,” hesaid.

“So dollar strength is another theme tothink about over the course of the nextcouple of years or so,” he added.

The shift is also an important part ofthe post-crisis adjustment process. “Asthe U.S. economy strengthens, it needsless loose financial conditions. Europe[and] Japan need more loose financialconditions, and the weakness of theircurrencies will be one part, just one part,of the drivers for potential economicrecovery, albeit very modest over thenext few years,” he said. g

- Raymond Johnston can be reached at

[email protected]

EXPERT:Dollar to reach parity with euroThe downward trends of the past few years are set to change; recentrises are ‘only the beginning’...

PERSONAL & BUSINESS F INANCE 11/2014 www.praguepost .com 3

FINANCIALNEWSTEXT RAYMOND JOHNSTON

mailto:[email protected]

http://www.praguepost

Weakness in euro area is still affecting the rest ofEurope, while other areas are stronger

INSIDERINSIGHTSTEXT RAYMOND JOHNSTON

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PETER OPPENHEIMER, THE CHIEF GLOBAL EQUITY STRATEGIST AT GOLDMAN SACHS

While global growth is weaker this yearthan many had expected, the recoveryis on track, according to PeterOppenheimer, the chief global equitystrategist at Goldman Sachs. He made

his remarks in the keynote speech for the Warsaw CapitalMarket Summit 2014.

“The typical recovery for developed economies is aroundabout five years or so. But when you look at the economicrecoveries coming from more financial crisis–led recessions,they tend to be a lot longer, around about 100 months,”Oppenheimer said.

Still, most analysts had been more optimistic about 2014.“If you look at the global economy … at the end of last year,most consensus forecasts for this year were around 4 per-cent. And if you look now at the consensus and also our ownforecast for the world economy, it is 3 percent,” he said,emphasizing that global growth has been weaker this yearthan most people expected a year ago.

Even though the economic growth rate has been less thanexpected, it is stable, which is a positive indicator. “That 3percent growth rate we saw this year is the same as we sawin 2013 and also the same as we saw in 2012. So, in somesenses, not that much has changed. We have been in a rela-tively low-paced economic recovery for three years – wellbelow the pace of activity we were seeing before the finan-cial crisis,” he said.

But not every region and not every country has had thesame rate of recovery. The United States and parts of Europe,including Poland, are showing relatively strong recovery,while the euro area remains weak.

“The euro area continues to be one of those areas wheregrowth is well below the pace we were seeing before thefinancial crisis. So even though you are starting to see someareas of reasonable economic activity, particularly in theUnited States, it is important to emphasize this is not really avery typical economic cycle,” Oppenheimer said.

He added that the economy in the United States in nowfinally gathering momentum, but the level of GDP growth isbelow what we would have seen in previous recoveries. “Inthe case of the eurozone, the situation is even weaker still,”he said. “The weakness of the eurozone economy is particu-larly notable and of course has a big impact on this region.”

“There is some good news though, because we have been ina crisis world really since the credit crunch started almostseven years ago in the periods historically where there havebeen major banking crises or economic crises, such as the onewe have been in, you tend to find that the economic recover-ies – while they are slower, as we are seeing this time – alsotend to be quite a bit longer,” he said, adding that a recoveryof 100 months, or slightly more than eight years, is likely.

GOLDMANSACHS:RATE OFRECOVERYSHOULDN'TWORRY US



“So the fact that, for example, the U.S. is already five yearsor so into its economic recovery should not really worry us,particularly when inflation remains very low, and interestrates of course have yet to even rise. Again evidence that thisis a very different recovery than many of us have been usedto in the past,” he said.

Another key point concerning the current global economicsituation is the extent of disinflation. “Disinflation is comingthrough in lots of parts of the world, and there are lots of rea-sons for it,” he said, citing declines in commodity prices, theimpact of globalization over the past decade and the signifi-cant impact of technological innovation, among other factors.

“While economic growth is quite high, wage growth is actu-ally very low. And even in economies where you are seeingrapid falls in unemployment and strong rises in economicgrowth, wages are really not picking up, and that is keepinginflation down and helping to keep interest rated very low aswell,” Oppenheimer said.

There are positive aspects to this situation. “But there is afine line between low growth, low interest rates and low infla-tion on the one hand and concerns that you are getting stag-nation and deflation on the other. And you can see howfinancial markets have struggled with these two parallel out-comes in the way that they performed just in the last year,”he said. Over the past year there have been four phaseswhere bonds and equities have moved either together or indifferent directions depending on expectations of growth,Oppenheimer pointed out.

“The relative performance of cyclical companies has beenvery weak particularly since the end of the summer, espe-cially so in Europe where people have worried about arenewed recession, most notably with very weak data fromGermany that we saw last month,” he said, adding that thishas worried investors that the one economy at the heart ofthe eurozone that had the opportunity to grow is also losingits momentum.

But the picture isn’t completely gloomy. “There is anopportunity in all of this. It is true that the data has beenweak. But in our assessment the recent decline in stock mar-kets globally has overstated the risks to global growth, eventhose in Europe. And the valuations are starting to look veryattractive,” he said.

The proportion of companies in the European equity mar-kets that have a dividend yield above the corporate credityield is at a record high by some margin, according toOppenheimer. This situation is a reflection of both relative

risk and relative value. In all equity markets, risk premiumsare unusually high, he added.

“Despite the uncertainties at the moment and despite that,this is far from a normal economic recovery particularlyacross the eurozone and the broader European region, thereis value in assets. These uncertainties are well reflected inasset prices. Investors fully know and understand them, andthat should mean returns can be quite good, particularly incertain parts of these markets,” he said.

The impact of the situation in Russia on the Europeaneconomy should be already at its peak. “Clearly the politicalevents we have seen over the last year came as a surprise,and that has had an impact on Russia and of course thebroader region in terms of growth expectations, and we, likemany people, of course, have revised down our forecastsquite sharply. Things are stabilizing ... at a very low level, andwe are seeing some stability also in the ruble. And much willdepend on ongoing political developments, sanctions and soon,” he said.

“But I think the big sort of shock from the downturn in theRussian economy has now largely come through. Of course ithas had an impact here in Poland and the broader region.And this region of course has strong connections to Russia,”he added. There are counterbalancing factors related toother parts of Europe, however. “If you look at how theexports Poland has made to Russia have come down verysharply given the weakness of the Russian economy and alsothe sanctions, they have fallen about 15 percent or so overthe last year, so now direct exports from [Poland] to Russiaare about 4.5 percent of the total, but that is much less thanexports to the eurozone or German in particular, which makeup nearly a third of exports,” he added.

“Clearly if we get a further downturn in Russia, it is goingto have a negative impact. But relative to developments inthe rest of Europe, in the West, I think that is going to bemuch smaller. The market has now priced in a lot of thedevelopments we have seen. So from here it is really difficultto predict where things go because much will depend on thepolitical developments that we see,” he said.

“But the economy is likely to remain very weak, the cur-rency is stabilizing, and most of the impact we have seenfrom that has already come through in terms of hits toexports from countries like Poland and Germany and alsoothers to Russia. And therefore, what is really going to beimportant from here is the global backdrop and what hap-pens in the eurozone, where the connectivity is much high-er,” he concluded. g

INSIDERINSIGHTSTEXT RAYMOND JOHNSTON

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The European Central Bank (ECB) published theresults of a thorough year-long examination of theresilience and positions of the 130 largest banks inthe euro area as of Dec. 31, 2013. “This unique andrigorous exercise is a major milestone in the prepara-

tion for the Single Supervisory Mechanism, which will becomefully operational in November,” said Vítor Constâncio, vice presi-dent of the ECB.

“This unprecedented in-depth review of the largest banks’ posi-tions will boost public confidence in the banking sector. By identi-fying problems and risks, it will help repair balance sheets andmake the banks more resilient and robust. This should facilitatemore lending in Europe, which will help economic growth.”

The comprehensive assessment — which consisted of theasset quality review (AQR) and a forward-looking stress test of thebanks — found a capital shortfall of 25 billion euros at 25 banks.Twelve of the 25 banks have already covered their capital short-

fall by increasing their capital by 15 billion euros in 2014. Bankswith shortfalls must prepare capital plans within two weeks of theannouncement of the results. The banks will have up to ninemonths to cover the capital shortfall.

The AQR showed that as of the end of 2013, the carrying val-ues — or book values — of banks’ assets need to be adjusted by48 billion euros, which will be reflected in the banks’ accounts orprudential requirements. Furthermore, using a standard definitionfor nonperforming exposures (any obligations that are 90 daysoverdue, or that are impaired or in default), the review found thatbanks’ nonperforming exposures increased by 136 billion euros toa total of 879 billion euros.

The comprehensive assessment also showed that a severe sce-nario would deplete the banks’ top-quality, loss-absorbingCommon Equity Tier 1 (CET 1) capital — the measure of a bank’sfinancial strength — about 263 billion euros. This would result inthe banks’ median CET1 ratio decreasing 4 percentage points

ECB finds shortfallsat 25 banks

REGULATORYNEWSTEXT NEWS DESK


Rigorous exercise is milestone for the Single Supervisory Mechanismstarting in November

GERMANY, OCT. 26, 2014. NEARLYONE IN FIVE BANKS SUBJECTED TO ACRUNCH FINANCIAL HEALTH CHECKBY THE EUROPEAN CENTRAL BANK

FAILED THE TEST, BUT NO MAJORBANKS WERE AMONG THEM,

ACCORDING TO OFFICIAL DATA. PHOTO: AFP/DANIEL ROLAND


8

from 12.4 percent to 8.3 percent. This reduction is higherthan in previous similar exercises and is a measure of the rig-orous nature of the exercise.

“This exercise is an excellent start in the right direction. Itrequired extraordinary efforts and substantial resources by allparties involved, including the euro area countries’ nationalauthorities and the ECB. It bolstered transparency in the bank-ing sector and exposed the areas in the banks and the systemthat need improvement,” said Danièle Nouy, chair of theSupervisory Board. “The comprehensive assessment allowedus to compare banks across borders and business models,and the findings will enable us to draw insights and conclu-sions for supervision going forward.”

Since the announcement of the exercise in July 2013, thelargest 30 participating banks have undertaken various meas-ures, including raising capital to an amount of 60 billion euros,in order to strengthen their balance sheets by a total of morethan 200 billion euros. These frontloaded measures are partof the overall successful outcome of the exercise. Some ofthe measures taken in 2013 reduced the insufficienciesdetected by the comprehensive assessment; some measuresadopted in 2014 may count toward the coverage of the capi-tal shortfall.

COMPREHENSIVE ASSESSMENT

The comprehensive assessment — which joined up theAQR and the stress test components — was aimed atstrengthening banks’ balance sheets, enhancing transparencyand building confidence. The 130 banks that were examinedaccounted for assets of 22 trillion euros, which represents 82percent of total banking assets in the euro area. It was per-formed under the current EU Capital RequirementsRegulation and Directive (CRR/CRDIV), which include certainnational discretions.

These national discretions can lead to differences in, forexample, the definition of capital. These differences will grad-ually diminish over the coming years as transitional arrange-ments in the relevant regulation are phased out. The ECBrecognizes the need to improve the consistency of the defini-tion of capital and the related quality of capital. ECB BankingSupervision will address this as a matter of priority.

AQR

The AQR conducted by the ECB and national competentauthorities (NCAs) examined whether assets were properlyvalued on banks’ balance sheets as on Dec. 31, 2013. It madebanks comparable across national borders by applying com-mon definitions for previously diverging concepts and a uni-

form methodology when assessing balance sheets. More than6,000 experts across the Single Supervisory Mechanismexamined more than 800 individual portfolios in detail,among other things thoroughly analyzing the quality of thecredits of 119,000 debtors of banks. The review provides theECB with substantial information on the banks that will fallunder its direct supervision and will help its efforts to create alevel playing field for supervision in the future.

STRESS TEST

The stress test was performed by the participating banks,the ECB and NCAs in cooperation with the European BankingAuthority (EBA). The EBA also designed the stress testmethodology, while the adverse scenario was developed bythe European Systemic Risk Board (ESRB) in cooperation withthe NCAs, the EBA and the ECB. Banks were required to main-tain a minimum CET1 ratio of 8 percent under the baselinescenario (as for the AQR) and a minimum CET1 ratio of 5.5percent under the adverse scenario. The stress test is not aforecast of future events but a prudential exercise to testbanks’ ability to withstand weakening economic conditions;participating banks were encouraged to make conservativeprojections, which were challenged according to strict qualityassurance requirements. A novel element was that informa-tion acquired from the AQR was incorporated into banks’ bal-ance sheet starting points and related stress test projections.

BANK-BY-BANK DISCLOSURES

In the 130 individual bank templates, the ECB distinguishesbetween capital shortfalls identified in the AQR and those iden-tified under the baseline and adverse scenarios of the stresstest. In the comprehensive assessment, the two items arejoined up. The templates also provide important additionalinformation on each bank, such as the issuance of capitalinstruments already undertaken in 2014. The full results of thestress test are also published by the EBA. The aggregate reporton the full outcome of the exercise for all banks can be foundat Ecb.europa.eu/ssm/assessment/html/index.en.html. g

- Press release provided by the European Union

REGULATORYNEWSTEXT NEWS DESK


SINCE THE ANNOUNCEMENT OF THE EXERCISE IN JULY2013, THE LARGEST 30 PARTICIPATING BANKS HAVE

UNDERTAKEN VARIOUS MEASURES, INCLUDING RAIS-ING CAPITAL TO AN AMOUNT OF 60 BILLION EUROS, IN

ORDER TO STRENGTHEN THEIR BALANCE SHEETS BY ATOTAL OF MORE THAN 200 BILLION EUROS.


REGULATORYANALYSISTEXT CZECH NEWS AGENCY

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SCULPTURE ON TOP OF THE CZECH NATIONAL BANK. PHOTO: CNB

EXPERTS: Results of EU banks’ stresstests good for marketsFavorable findings will calm the markets, according to economistsin the Czech Republic

The results of the stress tests of European banksare a piece of good news for markets, and banksnow might pour more money into the economy,Czech economists have said, according to theCzech News Agency. The results of the stress tests

were published by the European Central Bank (ECB) Oct. 26.

“The global economy has impatiently awaited it [the results]because a negative surprise would again mean a slowdown,”Pavel Kysilka, CEO and board chairman at Česká spořitelna,said in the discussion program Questions of Václav Moravec onthe public broadcaster Czech Television. That is the story ofthe year, according to Kysilka.

Luděk Niedermayer, a member of the European Parliamentand former vice-governor of the Czech National Bank (ČNB),said the results would calm the markets.

“Let’s hope the banks will be willing to lend more money,which we lack here a little bit,” Niedermayer said.

The Czech Banking Association (ČBA) appreciated that theEuropean banking sector is healthy and resistant based on thetests.

“Measures regarding capital hikes and raising of the qualityof assets taken by the banks in Europe ... after the financial cri-sis clearly testify to their positive impacts,” said ČBA DeputyManaging Director Jan Matoušek. Michal Mejstřík, an econo-mist at the Institute of Economic Studies of the Faculty ofSocial Sciences of Charles University in Prague, said the stresstests have not eliminated all worries, however.

“At a time when the situation gets worse, on the south wingin particular, the banks and their position can deteriorate aswell,” Mejstřík said referring to Italy, which would certainly have

big problems in this case.

“The Czech banking sector’s results were very good,” Kysilkasaid. He complained that the ECB applied stricter criteria onthe Czech Republic as a part of the region of Central andEastern Europe.

“This has downgraded a bit the assessment of the Czecheconomy, which is a significant factor for investors,” Kysilkasaid. Along with some colleagues, Kysilka said he wanted toshow some assumptions in the tests are unfair in the case ofthe Czech economy. “The Czech economy is much healthierthan what was indicated [in the tests],” Kysilka said.

He criticized, for instance, the idea of a possible price bubbleon the Czech property market. He said he found five to sixsimilar shortcomings in the tests. Mejstřík stressed the impor-tance of Czech banks for foreign parent companies. Hedescribed Česká spořitelna as a “pearl in the crown of theErste Group.”

“[Česká spořitelna] is generating fundamental contributionsto business indicators [of Erste] and at the same time holdsmore deposits than loans,” Mejstřík said.

According to him, the position of the Czech banking sectorwill remain unchanged for a long time.

The ECB and the European Banking Authority launched anin-depth probe into the health of leading European banks.Twenty-four banks in the eurozone failed the tests. Thesebanks are too weak to cope with a possible economic reces-sion over a period of three years. Some of the banks, howev-er, managed to raise their capital and so currently only 13banks have problems. They need a capital injection of €9.5billion in total. g



WSE head:No merger with ViennaThe Warsaw Stock Exchange will concentrate on organic growth

EXCHANGENEWSTEXT RAYMOND JOHNSTON

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WSE CEO AND PRESIDENTPAWEŁ TAMBORSKI.

PHOTO: RAYMOND JOHNSTON

The Warsaw Stock Exchange (WSE) has given up onthe idea of a merger with Vienna-based CEE StockExchange Group (CEESEG) and instead will focus onorganic growth.

CEESEG is the parent company of not only the Wiener Börsebut also the exchanges in Budapest, Ljubljana and Prague. Themerger would have made a regional giant.

“We have decided to drop for a while a project calledVienna,” WSE CEO and President Paweł Tamborski said at therecent Warsaw Capital Market Summit 2014. “We are stillfriends with our colleagues from CEESEG, from Vienna, but ourfocus today is organic growth. We realize that there are somany places with huge potential here when we are talkingabout Polish capital markets that we decided first to focus onorganic growth.”

“But we don’t exclude coming back to the idea of develop-ment via mergers or maybe acquisitions in the future. [Butnow] organic growth, this is our main focus,” he added.

Tamborski, a former undersecretary of state at the PolishFinance Ministry, has been head of the Polish bourse since July2014. In the Finance Ministry, he was responsible for the priva-tization processes, including those conducted on the publiccapital market.

He is hoping to bring stability back to the WSE now thatquestions about how Polish pensions will operate in the futurehave been settled. “This question mark that was over our stockexchange for the last few months is over. We understand howthe system will work and how pension funds will behave. … Weknow this system will be cash-positive for the foreseeablefuture,” he said.

“So there is nothing like a fire sale coming from this part ofPolish capital markets. … We are back in the game when weare talking about attracting new companies, new issuers butalso new investors to come and be active on Warsaw StockExchange as an international platform for the whole region,”he said.

While government privatizations had been a big driver ofgrowth on the WSE in the past, that era is mostly over, as veryfew companies remain that can still be sold off. Instead, theWSE is looking to broaden its base in the region.

“If we want to grow, we have to grow internationally as well.… So we are back in the game for attracting new issuers fromcountries not only from our region to come to Warsaw to belisted here to raise capital using our Warsaw platform,” he said.

The WSE is also seeking to be competitive technologically. InApril 2013, it launched a new trading system developed byNYSE Technologies. It can process 20,000 orders a second andhas a capacity of 15 million orders per session. Similar tech-nology is used in New York City, Paris, Brussels, Amsterdam,Lisbon and Doha.

Tamborski pointed out the long history of the Polish bourse.“Since the fall of communism … we have built a free marketeconomy with the Warsaw Stock Exchange as its symbol.Twenty-five years ago, we started to build space for freedom,

and I am very glad and proud that Warsaw Stock Exchangewas very active in this particular field of building freedom andoffering freedom for Polish entrepreneurs and also for entre-preneurs coming from other countries, from countries fromour region,” he said.

In Q3 2014, the WSE was the largest national stockexchange in Central and Eastern Europe with domestic marketcapitalization of €154.4 billion. The bourse ranked fifth inEurope with a stock index futures traded volume of more than4.9 million. The top four are EUREX, Euronext, OMX and Spain.

The main market of the WSE has 409 domestic companiesand 49 foreign companies listed, while the NewConnectexchange has 425 domestic and 10 foreign issues.

According to analysts, the position of the WSE as the region-al leader is secure, but that doesn’t mean there isn’t a place forother exchanges. “It is a wrong question to think of one stockexchange doing [well to] the detriment of others. This is not azero sum game,” said Christian Keller, managing director andhead of economics research at Barclays.

Even in Germany, there are many other exchanges asidefrom the Frankfurt Stock Exchange. Smaller markets can oftenfind a niche, he said. g


EXCHANGE CENTRE, HOMEOF THE WSE SINCE 2000.

PHOTO: WIKIPEDIA


Awards & Accoladeshighlight CEE region

Norway’s Government Pension Fund Global, the European Bank forReconstruction and Development and PKP Cargo (Poland’s largest railwaycargo carrier) have won the Warsaw Capital Market Summit 2014 Awards.

AWARDNEWSTEXT RAYMOND JOHNSTON

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WARSAW CAPITAL MARKET SUMMIT 2014 AWARDS GO TO THOSE WHOSTRENGTHENED INVESTMENTS IN CENTRAL EUROPE

The awardsrecognize theexcellence ofinstitutionsand their

efforts in building a strongand attractive market inPoland and the whole ofCentral and EasternEurope.

The Warsaw CapitalMarket Summit 2014Awards are granted as partof the Conference organ-ized by Poland’s TreasuryMinistry, the Warsaw StockExchange and the CentralSecurities Depository ofPoland, together with theirpartners. For the fourthtime, the conferencefocused on the majordevelopments and chal-lenges facing capital mar-kets in the coming years inCEE countries. It also pro-vided an opportunity todiscuss the long-termdevelopment of globalmarkets as well as achance to network andshare experiences.

The awards committee,presided over by Wojciech Kowalczyk, undersecretary of stateat the Treasury Ministry, granted awards in three categories:Best International Emerging Europe Long Fund 2013/2014,Best IPO on the Warsaw Stock Exchange 2014, and The BridgeAward 2014.

The winner of The Bridge Award 2014 was the EuropeanBank for Reconstruction and Development. For many years,EBRD has been one of the pillars of the successful economictransformation of the CEE region.

This award is also a symbol of the role the Warsaw StockExchange plays in Central and Eastern Europe. “Over the pastfew years, Poland, as well as Central and Eastern Europe, hasbecome an integral part of the global investment map. Beingat the crossroads of the West and East, Poland has always

had a special role in the region. As this year we are celebrat-ing the 25th anniversary of regaining our independence andbecoming a market economy, The Bridge Award 2014, whichhonors fostering growth and development in our region, hasa special meaning,’’ said Włodzimierz Karpiński, Poland’streasury minister.

The Best International Emerging Europe Long Fund2013/2014 was Norway’s Government Pension Fund Global.

It is the largest sovereign wealth fund in the world, holdingstocks, bonds and real estate in attractive regions with futurepotential. Overall assets under its management amount tosome 650 billion euros, of which 180 billion euros is dedicatedto European equities. For several years, this global investor hasalso been present on the Polish capital market and holdsshares of more than 80 companies across different sectorsand sizes. “Investment funds play a key role in building a sta-ble, liquid and attractive capital market. We are dedicated toencouraging long-term engagement of investment funds andmanaging assets of companies from Central and EasternEurope,’’ said Iwona Sroka, president and CEO of the CentralSecurities Depository of Poland.

The award for the Best IPO on the Warsaw Stock Exchange2013/2014 went to PKP Cargo S.A., the leader in rail trans-port of goods in Poland and the second-largest such opera-tor in the European Union. The company debuted on thepublic market in 2013 as the first railway business listed onthe WSE. This IPO was significant in Europe: the second-largest IPO in Poland and the fifth-largest in the CEE regionin 2013. Worth 340 million euros, this was also the most sig-nificant debut from the transportation sector in Central andEastern Europe since 2012.

One month after the IPO, the share value had risen 28 per-cent. “The Warsaw Stock Exchange remains Europe’s leaderin terms of IPOs. We recognize the best issuers whose suc-cess is measured by capital raised and the highest rate ofreturn,’’ said Paweł Tamborski, president and CEO of theWarsaw Stock Exchange.

Every year, Warsaw Capital Market Summit 2014 attractsasset managers from leading global and regional financialinstitutions, representatives of public administration and eco-nomic journalists from around the world.

During the conference, panelists discuss efficient investmentand capital raising methods in countries within the region.Topics focus on the world’s economic development, Europe’smarket potential and challenges in asset management. g


GALA CLOSING CEREMONYOF THE WARSAW CAPITAL

MARKET SUMMIT 2014.PHOTO: WCMS


The Finance Ministry in its new macroeconomicforecast lowered its GDP growth estimate for thisyear to 2.4 percent due to the revisions of eco-nomic growth for the previous quarters down-ward, the ministry announced in a press release.

The revisions were made in connection with the transfer tothe new European standard ESA 2010. This year in July, theministry put this year’s economic growth at 2.7 percent.

The government still expects to keep this year’s expectedstate budget deficit with a sufficient reserve, Prime MinisterBohuslav Sobotka told journalists at an EU summit in Brussels.

He admitted the Cabinet feels “a certain cooling in thegrowth pace by tax revenues.” External factors like weakerdemand in the eurozone and problems with contracts inEastern Europe, namely Ukraine and Russia, can influence thefigures, he said.

In 2016 and 2017, the Czech economy should grow 2.5 per-

cent as well, according to the ministry’s estimates.

“The growth in both years is to be pulled exclusively bydomestic demand, the contribution of net exports shouldmove around zero,” the ministry said.

“There are negative external factors. I firmly believe oureconomy can cope with them,” Sobotka remarked.

Growth next year will be backed by drawing new resourcesfrom EU funds and pro-growth investments, including moneyfor boosting domestic consumption, that is higher wages andpension indexation, he added.

“The Finance Ministry’s estimates are not much differentfrom most other forecasts. This time it is quite difficult to esti-mate the development for next year,” David Marek, chief econ-omist of company Deloitte, told the Czech News Agency.

“On the one hand, the economic situation in the eurozonehas begun to worsen again, and there is also still the danger of

GDP growth:Estimate for this year falls to 2.4 percent

Following revisions of previous quarters, Finance Ministry lowers outlook for the year

ECONOMICTRENDSTEXT CZECH NEWS AGENCY

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IN ITS FORECAST, THE FINANCE MINISTRY, HEADED BY ANDREJ BABIŠ, LEFT, HAS LOWERED ITS GDP GROWTH ESTIMATE FOR 2014. PRIME MINISTER BOHUSLAV SOBOTKA, CENTER, HAS SAID THE COUNTRY’S ECONOMY SHOULD BE ABLE TO DEAL WITH NEGATIVE EXTER-NAL FACTORS. CREDIT: AFP/MICHAL CÍZEK

negative impacts of the mutual sanctions between the EU andRussia,” Marek said. “On the other hand, the positive effect ofthe weaker crown has not yet been fully reflected.”

“The external environment is to a certain extent burdenedby downward risks, and domestic consumption is not inex-haustible, so let us all hope these stable figures will last,” saidopposition party TOP 09 Vice-Chairman and former FinanceMinister Miroslav Kalousek.

“The downward risks are quite important, and I fear the gov-ernment is not prepared for them at all,” he noted.

The government should expect that recession will spreadfrom the eurozone to the Czech Republic. It should be pre-pared to react sufficiently flexibly on the side of expendituresso that the scissors between revenues and expenditures wouldnot start opening, Kalousek said.

Despite the Czech National Bank’s (ČNB) forex interventionsand the weakening of the crown, inflation should be very lowthis year, according to the ministry’s forecast.

Average inflation could thus stand at only 0.5 percent thisyear. Consumer price growth should accelerate to 1.5 per-cent in 2015, which is still below the ČNB’s 2 percent infla-tion target.

The ministry expects public finance deficit to be at 1.5 per-cent of GDP this year. The deficit reached 1.3 percent of GDPlast year, according to the current data based on the revisionof national accounts.

The EU demands a deficit below 3 percent of GDP. Publicfinance deficit is to increase to 2.4 percent of GDP next year.

“This reflects the government’s efforts to support the econo-my. Not only government consumption, but investments inparticular should grow,” the ministry said.

The estimate for next year includes the lease of Jas-39Gripen fighter aircraft to the value of 0.2 percent of GDP.

The government debt should drop to 43.9 percent of GDPthis year from last year’s 45.7 percent. It is to fall further to42.2 percent of GDP in 2015. The EU demands debt below a60 percent level.

The Finance Ministry’s forecast confirms that the economydoes not suffer from any dangerous imbalance at the moment,Marek said.

Inflation is low, and the current account deficit is negligible.The government debt to GDP ratio is a half lower than theeurozone’s average.

Nevertheless, the raising of the public finance deficit in 2015is a bit unnecessary; the government could have kept the pos-itive budgetary impulse for worse times, Marek added.

The ČNB expects 2.9 percent GDP growth this year and 3percent growth next year, according to its forecast fromAugust. The central bank releases its new forecast Nov. 6.

The Czech Statistical Office (ČSÚ) presented its revised GDPdata Oct. 1. The revision took place in the whole of Europe andwas coordinated by Eurostat. g


Finance Ministry’s estimates (in percent;estimates from July’s forecast in brackets):

2013 ESTIMATE 2014 ESTIMATE 2015GDP -0.7 2.4 (2.7) 2.5 (2.5)AVE. INFLATION 1.4 0.5 (0.6) 1.5 (1.7)UNEMPLOYMENT 7 6.3 (6.4) 6.1 (6.1)

SOURCE: FINANCE MINISTRY

http://www.amazon.com/The-Prague-Post/dp/B002R5BF50


QUANTITATIVETEASING...

In spring 2014, quantitative easing became the new magic word of theEuropean Central Bank (ECB).

ECONOMICTRENDSTEXT HANS-WERNER SINN

18

MARIO DRAGHI, PRESIDENT OF THE EUROPEAN CENTRAL

BANK, HAS INDICATED HE WOULD LIKE TO EXPAND

THE BANK’S BALANCE SHEETBY 1 TRILLION EUROS.

CREDIT: WIKIPEDIA

‘THE LOOMING LOSSES RESULTING FROM SUCH POLICY MEASURES WILL BE SHIFTED ONTO THE TAXPAYERS’

It alluded to the program the ECB had prepared behindclosed doors to buy private and public securities toprop up uncompetitive economies and their banks.However, in view of the significant opposition itencountered, the ECB Council put the program tem-

porarily on hold and came up with a program of purchasingABS paper and covered bonds instead. The purchases are tobegin in October 2014. A number of central banks resistedthis plan, among them the Bundesbank.

Nevertheless, a comfortable majority in the ECB Council wasin favor, where all countries, regardless of size, have the samevote. ECB President Mario Draghi has indicated he would liketo expand the ECB’s balance sheet by about 1 trillion euros.Given that the TLTRO program has not found much demandamong the banks, it is likely most of the balance sheet expan-sion will come through asset purchases.

When the ECB announces large programs, the taxpayers hadbetter beware. Behind such programs often lurks a bail-outactivity to rescue teetering banks or countries and their inter-national creditors. So it was with the Securities MarketsProgramme (SMP), under which 223 billion euros in govern-ment bonds of the crisis-stricken countries were bought, orwith the Outright Monetary Transactions (OMT), with which theECB announced that, if necessary, it would buy such bonds inthe future without limit.

The special credit given to commercial banks in southernEurope through the money-printing press by way of reducingthe collateral standards for ECB credits, which is measured bythe so-called Target balances, also turned out to be a giganticfiscal rescue program rather than ordinary monetary policy.

The looming losses resulting from such policy measures willbe shifted onto the taxpayers, who will bear them in the form ofreduced distribution of central bank profits to the respectivetreasuries, of new contributions to rescue packages that the par-liaments will have to eventually put together in order to relievethe load on the ECB, or of losses from outright fiscal transfersthat will eventually be necessary to endow the debtor countrieswith sufficient funds to repay their debts. The ECB’s oversteppingof its mandate prompted the German Constitutional Court inFebruary to charge it with abuse of power.

The court should now submit the new asset purchasing pro-gram of the ECB to critical scrutiny, since, contrary to all assur-ances being proffered, it again amounts to a fiscal rescueoperation that bears little resemblance to monetary policy. It isin fact economic policy, which the Maastricht Treaty explicitlyexcludes from the ECB’s mandate. Its mandate, given that theeurozone is not a state, is much more limited than that ofAnglo-Saxon central banks.

When the inflationary bubble created by the euro burst, ittore huge holes in the balance sheets of European banks. Thepublic has been kept in the dark about this by dint of somecreative accounting, but the truth cannot be kept under wrapsmuch longer.

The stress tests slated for this year for the new bankingunion could lead to disaster if no measures are undertaken tosafeguard the bank assets. The purchase of risky securitieswith freshly printed money appears to many as the only possi-ble solution.

It would have been possible also to choose to recapitalizethe banks with money from the ESM rescue fund. But in viewof the hefty opposition this proposal encountered in theEuropean Parliament, the ECB Council decided to take mattersinto its hands. Monetary policy reasons can always be dug up,and afterward it would simply be a matter of convincing theparliaments to step in with fiscal rescue measures.

The ECB wants to act now, because it is itself in peril as aresult of having accepted collateral of ever-poorer quality forthe refinancing credit it granted. It accepted bonds rated asnon-investment by the rating agencies and untraded ABSinstruments that the banks concocted themselves using theirjunk paper. Half of the Eurosystem’s stock of central bankmoney turned in this way into Target credit for the banks ofthe distressed countries.

It is likely the new asset purchasing program will cometogether with an expansion not only of the ECB's balancesheet but also of the eurozone’s monetary base, as demandedby French Prime Minister Manuel Valls. Valls hopes this willlead to a fall in the value of the euro and thus provide a boostto his country’s anemic exports.

Actually, Valls is right. The promise of investor protection inthe form of the OMT program made the bonds of the southernEuropean countries attractive again to non-EU investors, lead-ing to a noticeable appreciation of the euro.

However, the new promise of actual purchases has theopposite effect, since such purchases will crowd out the non-EU investors, who will repatriate their money and thus exertdownward pressure on the euro, a development that investorsare already anticipating today. g

— Hans-Werner Sinn is a professor of economics and public

finance and the president of the Ifo Institute. This article was

published in similar form in German under the title “Neues

Schutzversprechen,” in Wirtschaftswoche. Ifo is one of

Europe's leading research institutes and is also the economic

research institute most frequently cited in the German media.



EBA and ECBto increase cooperationEuropean Banking Authority and the European Central Bank are to increase theircooperation in order to ensure the safety and security of retail payments across Europe.

ECONOMICTRENDSTEXT PETER TABERNER

20

ONE OF CENTRAL GOALS OF PARTNERSHIP IS TOENSURE SAFETY OF RETAIL PAYMENTS IN EUROPE

Both parties have agreed to use the technicalwork developed by the European Forum for theSecurity of Retail Payments (SecuRe Pay).TheSecuRe Pay Forum was established in 2011 as avoluntary cooperation initiative that would act

as a supervisor of payment service providers and oversee allpayment systems and payment schemes.

The duties that the forum will carry out include acting as aconduit to work as a common basis for the euro system andthe national banks of European Economic Area countries, aswell as the oversight of payment systems and retail paymentinstruments.

The forum will also oversee the EBA’s regulatory and super-visory requirements for payment services across all EuropeanUnion member states.

Cooperation between the EBA and the ECB will increasefurther, as the European System of Central Banks, whichincorporates the ECB and all EU member state banks, hasbeen tasked with facilitating the operation of payment sys-tems, where the regulation of payments services also fallsinto the EBA’s remit.

The safety of Internet payments is another area in whichthe EBA and the ECB are in close collaboration, as part of aconsultation process that will run to Nov. 14, and tougherrequirements have been proposed.

If all goes according to plan, the new guidelines will beimplemented at the beginning of August next year.

The EBA says that besides working on new guidelines forInternet payments, it is also preparing a separate documenton requirements for mobile payments, which will follow earlynext year. It also revealed that technical standards or guide-lines are examined through a public consultation with allstakeholders, which includes retail sector as well as any oth-ers that may be concerned.

The responses received during consultations are all takeninto consideration for the preparation of the final require-ments, and the EBA held a public consultation on the safetyof Internet payments Oct. 20 to which it invited all the con-cerned parties to submit their comments.

“The commerce sector strongly believes that safety of thepayments process and security of consumer data is para-mount,” said Ruth Milligan, a senior adviser on payment sys-tems for e-commerce.

“The fight against fraud, especially in the growing Internetpayments market, is very important. That said, we need secu-rity procedures that are easy to use for consumers and suit-able to the risk of any particular transaction: For example, weare not convinced that strong authentication is necessary formicro-payments.”

“It is also important that any rules on payment securi-ty be sufficiently flexible and forward-looking to takeinto account the fast-developing technologies and inno-vations in the e-payments and mobile payments worldand that technical rules be developed as open stan-dards,” she added.

All of the security-related mandates will be tailored to thecontext of the update of the Payment Services Directive, aspart of a legislative package that was adopted by theEuropean Commission last year, where there will be a revi-sion of the payments market across the EU. g


MARIO DRAGHI, PRESIDENT OF THEEUROPEAN CENTRAL BANK, GIVES A

PRESS CONFERENCE AFTER HIS MEETINGWITH MEMBERS OF THE GOVERNING

COUNCIL OF THE EUROPEAN CENTRALBANK OCT. 2 IN NAPLES.

CREDIT: AFP PHOTO / CARLO HERMANN.


INTEREST ON MORTGAGESDROPS TO NEW LOW

The average interest rate on mortgage loans in the Czech Republic con-tinued to fall in September, dropping to 2.54 percent, the lowest levelsince 2003 when the indicator started to be monitored, according toFincentrum Hypoindex data calculated by company Fincentrum.

HOUSINGTRENDSTEXT CZECH NEWS AGENCY

22

THE AVERAGE INTEREST RATE ON MORTGAGE LOANS IN THE CZECHREPUBLIC HAS FALLEN TO ITS LOWEST LEVELS SINCE 2003.

CREDIT: WIKIPEDIA

FALL FROM 2.65 PERCENT TO 2.54 PERCENT MARKS LOWEST LEVELS SINCE 2003

The previous all-time low was set inAugust when the average rate had been2.65 percent. The index monitors theaverage interest rate on mortgage loansregardless of the length of the fixationterm.

A total of 8,302 people applied for a mortgage loan inSeptember, 1,787 more than in August.

When comparing August with September in the previousyears, September was always a better month in terms of thenumber and volume of mortgages, except for 2012.

The number of mortgage loan applicants increased inSeptember despite banks not offering many discounts.

"The new record low of the average mortgage interest rateon the domestic market is the result of the ongoing and cul-minating competition struggle of Czech banks over clientsand partly also of the loosened monetary policy of theCzech National Bank," financial group Roklen’s chief econo-mist Lukáš Kovanda said.

The decrease in average mortgage rates between Augustand September is nevertheless normal. It has become regu-lar since 2009, Kovanda said.

Although most banks officially made no significantchanges to rates in September, virtually all banks con-tributed to the drop in the average Hypoindex rates,Fincentrum's analyst Josef Rajdl said.

"Special offers transform into individual discounts, and theinterest rate negotiated after the end of the discount seasonmay be the same or lower than the rate within a specialoffer that has just ended," Rajdl said.

Rajdl expects the average interest rate on mortgages todecrease further in October, because several large banks areplanning to launch special offers as part of which they willoffer a mortgage at a very favorable interest rate for a peri-od of, for example, two weeks.

According Kovanda, the end of the forex interventionregime and toughening of the monetary policy cannot beexpected before 2016. This toughening would mean a sig-nificant impulse for a rise of mortgage rates, he said.

For this reason, the average mortgage rate in October willmost likely be even lower than it was in September,Kovanda added. g


http://jamagroup.cz/


Apartment BuildingsDuring the first phase of the building activities, the apartments

in buildings B1 and B2 will be sold. Along with each apartment,you will be offered the opportunity to buy a garage place for theprice of 250.000,- CZK (exclusive VAT). The first 10 buyers willrecieve a price reduction: Their garage places will cost only150.000,- CZK (exclusive VAT). The prices of the building lots forthe houses include the infrastructural networks (drinking water,sewerage, electricity and access via a public street), as well as abuilding or land use permit for the house itself.

Technical Aspects of the Building ConstructionIn the construction of the houses traditional building materi-

als will be used, such as brick, wood and local sandstone. Thehouses will be built on a foundation of concrete strips with aconcrete foundation floor. The walls will be completely con-structed with the use of the “Porotherm” brick building systemfrom the Wienerberger company. A concrete rim will be placedon top of the walls. The wooden parts will be constructed ofpine beams with a diameter of 250/250 mm. These beams willbe worked up at the location, using well-tried 150 year oldtechnical processes. The chinks in between will be filled withisolation materials (mineral wool) and finished with limy mortarcontaining a dispersion agent. The ceilings will be supported bywooden beams. The roof construction consists of pine beamswith a light roofing of beternit (a cement roofing without the

asbestos found in the earlier product eternit), imitation woodenshingles or imitation slate tiles (produced with recycled plastics)or plastificated tinplate in the shape of ceramic roof tiles. Theattic will also be adapted for living, with the use of plasterboardfitted on certified construction elements. For the insulation ofthis floor, mineral wool will be applied. Staircases will be con-structed of wood. Windows will consist of one wing with insula-tion (double) glazing, optically divided into several panes, to beopened both around a horizontal and a vertical axis. The hous-es will have central underfloor heating, combined with radia-tors. The heating source can be chosen by the customer; thepossibilities include electrical energy, natural gas and possiblyalso a heat pump. As a additional source of heating, a furnacewill be installed in the living room. The sewerage will generallybe connected to the municipal sewerage. If impossible, thesewage will be treated in an individual sewage disposal systemon the building lot, and, only in unavoidable cases, a cesspit,which has to emptied regularly, will be used. All houses will berealised according to building permits and/or after the regularnotification of the construction to the proper authorities, incompliance with Czech Act No. 183/2006 Sb. (the BuildingAct). The prices are determined for each house individually,according to the actual wishes of the customer and the sizeand position of the house. g

- Learn more here: http://en.arealcernydul.cz/about-us

24

http://www.arealcernydul.cz/

http://en.arealcernydul.cz/about-us

European Union TaxCommissioner AlgirdasŠemeta welcomed a raft ofnew measures to combatinternational tax avoidance,

in agreement between the finance minis-ters of the G20 at a meeting in Cairns,Australia, in September.

The ministers have agreed on severalrecommendations that were made toaddress key areas identified in the OECD’saction plan on Base Erosion and ProfitShifting (BEPS), which aims to achieve fair-er taxation and global competition whenfully implemented.

The EU has actively been involved inthe BEPS program, alongside its ownefforts to clean up tax evasion in Europe.

Within the EU, it is estimated the lossesfrom unpaid taxes reach up to 1 trillioneuros per year.

Šemeta has said the initiatives agreedto are crucial to create a fair tax environ-ment on a world-wide scale, and that hebelieves it is necessary to fight against theaggressive tax practices many companiesengage in.

"However, today's commitments arejust a first step, albeit an important one.There are many other important issues tobe addressed before we have deliveredupon the BEPS Action Plan. I would urgeour international partners, together withthe OECD, to keep their eye on the goalso that we meet the 2015 deadline,”Šemeta said.

“For our part, the EU will continue to bean active and constructive partner in theBEPS project and will push for its swift andsuccessful completion. The EU has alwaysbeen the flag bearer in the fight againsttax avoidance, and we will continue tolead by example, in Europe and world-wide," he added.

The areas that were debated at themeeting included precluding particularforms of aggressive tax planning, forexample hybrid mismatch arrangements,as well as steps to prevent tax treatyabuses and revisions to internationaltransfer pricing rules.

Intellectual property regimes were alsotargeted, by tackling harmful tax policiessuch as the “Patent Box,” which are tax

EU seeks to battle tax avoidanceNew initiatives are crucial for creating a fair tax environment that is global


REGULATORYNEWSTEXT PETER TABERNER


breaks for patented research.

The “Patent Box” regulation has drawn criticism from someparties such as Germany Finance Minister Wolfgang Schäuble,who wants an international solution as currently he says it pro-motes unfair competition.

For example, the Patent Box tax relief is higher in the UnitedKingdom than in Germany, where UK companies pay 10 per-cent at corporation tax level on patented innovations, com-pared with 30 percent tax in Germany, where patentedresearch is viewed as corporate profit.

The BEPS plan contains 15 elements that are to beaddressed by 2015, of which the first seven have beenreleased.

The areas they will focus on include the coherence of cor-porate income taxation at the international level, to beachieved through a new tax model and treaty provisions.

Taxes will be realigned to strengthen the intended benefitsof international taxation standards, firmer assurances will bemade available so that transfer pricing outcomes are in linewith value creation.

Predictability and transparency for tax administrations are tobe improved, and the effects of the digital economy on tax willbe addressed, alongside countering negative tax processes,and it will be a priority that all BEPS measures be establishedas quickly as possible.

Raffaele Russo, head of BEPS Project for the OECD Centrefor Tax Policy and Administration, said: “We have gained a lot ofsatisfaction from the acceptance of BEPS from the G20 meet-ing, and there is movement on the implementation of theaction plan.”

He added that there has been substantial support for thesemeasures since the G20 meeting in Los Cabos, Mexico, in2012. “A year later, we had an agreement in place between 44countries, and this was structured in a way that was compati-ble with national regulations and made it difficult for anynation state to change the rules from what was agreed,” hesaid.

The remaining eight elements, which have not beenreleased as yet, will focus on areas such as allocation overrisks of the multi national groups, rules related to taxation offoreign controlled companies, and capital and assets that havebeen stashed in offshore accounts.

“The BEPS program, I am pleased to say, has been very wellsupported by governments, multinational companies andNGOs. The reaction is positive because there is a recognitionthat change is needed. They realize what is being done is con-structive,” he said.

Over the past year, the EU has put forward a strong messageon tax avoidance, which has included revising EU corporate taxrules, such as the Parent-Subsidiary Directive, to prevent com-panies using mismatches in national tax regimes to eschewpaying taxes.

A high-level expert group was also established to createsolutions to the barriers in taxing the digital economy. Theyreleased a final report after their discussions in May.

The commission has also looked at many avenues to count-er harmful tax regimes that might be in member states, whereagain Patent Boxes came under scrutiny under the Code ofConduct on Harmful Business Taxation, alongside other investi-gations under various tax rulings.

This is part of an EU effort to combat tax avoidance, where anumber of specific working groups have been created, includ-ing the Tax Policy Group, where representatives from EUfinance ministers debate tax evasion.

At the European Council level, the Code of Conduct onBusiness Taxation group is also in place, where EU memberstates assess each other’s tax regimes in order to identify anyharmful tax processes that exist. g

REGULATORYNEWSTEXT PETER TABERNER

2626

EUROPEAN UNION TAX COMMISSIONERALGIRDAS ŠEMETA


In the period of 2016–20, the Czech National Bank(ČNB) will issue gold coins of the nominal value of5,000 Kč each with the motives of castles and 500 Kčsilver coins depicting events connected with theestablishment of Czechoslovakia in 1918, the ČNB

told reporters today.

"The cycle of gold coins is dedicated to the most famousBohemian and Moravian cas-

tles,” ČNB council mem-ber Lubomír Lízal

said. “It followsup the previ-

ous the-matic

cyclesthatpre-sent-edarchi-tec-

turaland

techni-cal sights

on Czechsoil. We expect

the new series tomeet with a similarly

positive public response."

The Czech Republic will commemorate significant anniver-saries in the period of 2016–20, connected with the founda-tion of the independent Czechoslovak Republic, and this iswhy the ČNB decided to issue one or two coins reflectingthem, Lízal added.

Moreover, the ČNB will issue special 10,000 Kč gold coinson the occasion of the 100th anniversary of the foundationof Czechoslovakia (2018) and the Czechoslovak currency.

The plan traditionally includes 200 Kč silver coins, three tofour of which will be issued annually. They will commemo-rate the anniversaries of significant personalities or eventsfrom Czech history, such as the 300th birth anniversary ofHabsburg Empress and Czech Queen Maria Theresa in 2017,100 years since the construction of the first Czech-madeplane in 2019, and in 2020, the 200-year anniversary of thebirth of Czech writer Božena Němcová (1820–62).

Since 1993, the ČNB has issued 320,100 gold coins with38 motifs, using 4.3 tons of gold. Their total nominal valueamounts to 1.26 billion Kč. It also issued 2,145,800 silvercoins with 96 motifs from more than 26 tons of silver. Theirnominal value is more than 450 million Kč.

The ČNB has the exclusive right to issue banknotes and cir-culation coins, as well as commemorative coins, all of whichcan also be used as means of payment, but only the ČNBand commercial banks are obliged to accept them. g

Czechcentral bank to issue goldcoins with castlesMany anniversaries from 2016 to 2020 will be commemoratedwith special motifs

NUMISMATOLOGYNEWSTEXT CZECH NEWS AGENCY

Of the major anniversaries the next few years, the CNB will also commemorate the establishment of the Czechoslovak currency in 1919.


FINANCINGTRENDSTEXT PETER TABERNER

28

BIG PAYOFFFor micro-financinginitiative in EuropeEuropean Progress Microfinance Facility has given out loanstotaling tens of millions of euros to entrepreneurs

SMALL LOANS HANDED OUT TO ENTREPRENEURS IN THE EUROPEAN UNION THANKS TO THE EURO -PEAN PROGRESS MICROFINANCE FACILITY HAVEAMOUNTED TO SOME €182 MILLION.

Areportreleased by theEuropean Commissionhas revealed that more than 20,000 entrepre-neurs have benefited from micro-financing

facility funding to launch companies and expand existingenterprises.

Under the European Progress Microfinance Facility, loanstotaling €182 million have been distributed, which the com-mission says has contributed significantly to job creation. Theprogress facility finances loans of less than €25,000 to theunemployed, or those who are from disadvantaged groups, as

well as employees who feel their jobs are at risk.

Aspiring entrepreneurs have often complained that the bar-riers to access for finance have severely hampered their ambi-tions. The commission’s report states 60 percent of final userswere unemployed or inactive when they initially applied forcapital injections. The commission also says micro-financing iscontributing to the reduction in youth unemployment, which

remains a huge problem across theEuropean Union, as 5.9 percent of appli-cants were under the age of 25.

“The micro finance scheme is areally interesting and important

tool, assince

2008

financ-ing for new

business has beendifficult unless itsin the IT sector,where there is

lots of funding available,”said Patrick Kovács, the president of theYoung Entrepreneurs’ Organization of theEuropean Union. “Micro-finance could bea huge source of support for young and

unemployed people;other exam-

ples of helpare also available. Here in Hungary, thereis an initiative that has received €23.5 mil-lion in funding from partners such as theEuropean Social Fund. Some 3.5 million

people under the age of 35 are receivingtraining and mentoring for entering intoentrepreneurship, which may need micro-finance.”

“I think people should be made moreaware of micro-financing schemes, and itshould become less bureaucratized andhave the capacity to make a strong con-tribution to the SME sector,” he said

Minority groups such as the Roma havealso received loans due to the prolifera-tion of micro-finance, especially for Romacommunities who live in France andBulgaria. Agriculture and trade were thetwo sectors in the economy that receivedthe most help, as they accounted formore than half the enterprises that wereaccepted for funding.

After lending the money, the aim ofthe commission is that a leverage effecttake place, with a total investment ofaround €500 million being targeted,through partners such as the European

Investment Bank.

The goalis to accomplish

this through therevolving nature of

the funds and theattraction of the product that

is on offer.

For example, intermediaries in micro-finance can have a portfolio guaranteefrom the micro-finance facility to ensurethat it is easier to raise capital from mar-

ket investors and use it for micro-loanprovision.

The facility is operated by the EuropeanInvestment Fund, which works throughmicro-credit providers at national, regionalor local level. In 2013, there were 40 micro-credit providers in 18 member states.

"By helping people to become entre-preneurs, the European ProgressMicrofinance Facility is an effective instru-ment to support people from disadvan-taged groups in their efforts to get backto work and integrate into society,” saidEuropean Commissioner for Employment,Social Affairs and Inclusion László Andor.

“Raising the money needed to startnew businesses can be difficult for theunemployed, young people and minori-ties, but small loans such as the onesProgress Microfinance is providing canmake a big difference for would-be entre-preneurs who might otherwise never beable to put their creativity at work,” Andoradded

An external study that complementedthe report also suggested that EU mem-

ber states should encourage moreparticipation in micro-finance

schemes, asthere

wasevidence

that there is still slackin the European micro-

finance market (currently wortharound €2.7 billion) that needs to betaken up by more budding entrepreneurs.

After an agreement in June last yearbetween the European Parliament andthe European Council, a total of €815 mil-lion will be allocated as part of the 2014–20 budget, to extend the EuropeanProgress Microfinance Facility, via supportfrom the Employment and SocialInnovation program. g



Documents

Nov. 2014 The Prague Post Personal & Business FInance eSupplement