European Business Review (EBR), issue 01/2014

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ISSUE 1 - 2014 / YEAR 18th • PRICE € 10,00 / $ 12,00

For a credible growth strategy for the Εurozone: Τhe obligation to produce results

Konstantinos C. Trikoukis

Chairman Athanase Papandropoulos

Publisher Christos K. Trikoukis

Editor in Chief N. Peter Kramer

Editorial Consultant Anthi Louka Trikouki

Issue Contributors Florian Pantazi, Kyriakos Mitsotakis, Daniel Gros, Anders Aslund, Martin Banks, John M. Nomikos, Ian Goldin, Mathilde Lemoine, Dmitry Travin, Athanasios Chymis, Nikolaos Georgikopoulos, Paolo D’Anselmi

Correspondents Brussels, London, New York, Paris, Berlin, Istanbul, Athens, Helsinki, Rome, Prague

Commercial Director Fanis Kasimatis

Advertising Consultant Nikos Delidakis

Public Relations Margarita Mertiri

Financial Consultant Theodoros Vlassopoulos

ISSUE 1 - 2014 / YEAR 18th Published bimonthly under the license of Christos K. Trikoukis. European Business Review trademark is a property of Christos K. Trikoukis. European Business Review is strictly copyrighted and all rights are reserved. Reproduction without official permission of the publisher is strictly forbidden. Every case is taken in compiling the contents of that magazine, but we assume no responsibility for the affects arising therefrom. The views expressed are not necessarily those of the publisher nor of the European Business Review magazine.



04 EDITORIAL Latvians forced to join the euro


6 14

Delivering a more resilient, professional and responsive public administration to the citizen The austerity debate is beside the point for Europe The BRICs party is over

14 EU AFFAIRS EU-China summit: Innovation dialogue to drive Sino-European ICT cooperation Western European e-commerce expected to reach 173.8 billion in 2013, 10% growth Revised EU state aid rules ‘could lead to closure of 100 small airports’ Reasons for an independent intelligence service in the European Union

20 GLOBAL GOVERNANCE Do we need new global institutions?

24 ECONOMIC OUTLOOK For a credible growth strategy for the euro zone: the obligation to produce results



The European Union is being urged to intervene in a case that some say is all too reminiscent of the “black forces” of Communism Whatever happened to Russia’s economic miracle?

36 SOCIAL RESPONSIBILITY In search for a new paradigm for Social Responsibility



Gas power vehicles “steal” the show. How the Italian colossus Fiat sets the example King George: A Luxury Collection Hotel

42 MANAGEMENT Today’s CFO: Which profile best suits your company?



Ukraine entrepreneur Igor Yankovski has launched a one-man drive to bridge the “gaping information deficit” between his country and the international community Store-based Retailing in Southern Europe: Key trends in 2013

For previous editions archive and up-to-date information on major topics and events you may visit our website


Steinmeier restores German-Russian ties; will EU follow? by N. Peter Kramer, Editor-in-Chief

Supposingly they were not very happy in the Berlaymont with Merkel’s decision to appoint a pro-Moscow veteran as Germany’s special coordinator for Russia policy. Gernot Erler is a longtime close ally of Frank-Walter Steinmeier, Foreign Minister and senior-member of Merkel’s current coalition partner, the Social Democrat Party. Erler was already coordinator for German-Russian relations at the time when Steinmeier was Chief of Staff of Chancellor Gerhard Schroeder, Merkel’s predecessor. In those days a direct gas pipeline from Russia to Germany (called Nordstream) which, through the Baltic Sea bypassed Poland and the Baltic states was secured. In Merkel’s first cabinet (2005-2009) Steinmeier became Foreign Minister and promoted Erler to State Secretary. Last month Steinmeier, a pro-Russian politician, was again sworn in as Foreign Minister in Chancellor Merkel’s third cabinet and insisted that Gernot Erler again became the position of special coordinator for Russia policy. Commission President Barroso and some of his Commissioners will not be really amused by Erler’s appointment. It sends a strong signal that the new German government wants a change of EURussia policy. Under the influence of some former communist EU member states a continuing ‘coldwar’ mentality prevails in the Berlaymont. Last December the Commission announced suddenly that bilateral agreements for the construction of the Southstream pipeline through the Black Sea, concluded between Russia and 7 European countries during the last 6 years (the oldest contract is with Bulgaria, januari 2008!) were in breach of EU law and needed to be renegotiated from scratch. The Russian Ambassador to the EU, Vladimir Chizhov stated, that if the European signatories to the Southstream bilaterals are not fulfilling their obligations towards Russia, Moscow is expected to take the issue to the international court. Russia considers the inter-governmental agreements valid under interna-



tional law, which, in its view, has supremacy over EU law. Analysts are expecting Russia will be likely to win. During the last days of January, an EU-Russia Summit has been planned. Barroso and Van Rompuy are going to meet Russia’s President Putin in the Berlaymont. They let know already that they have no time to take Putin to dinner but promised to confront Putin on his ‘interference’ in Ukraine, that in their eyes blocked an EU-Ukraine agreement. However Steinmeier let know in the meantime that for Germany the Ukraine case is stalled till the next presidential election in that country. His ‘assistant’ Erler added to this that it was absolutely wrong that Steinmeier’s predecessor as Foreign Minister, Guido Westerwelle, participated in the demonstrations in Kiev. The same critic by Erler for Catherine Ashton, EU’s Foreign Affairs Chief, who also joined the demonstrators: ‘How can you offer to mediate and, at the same time clearly take one side? That lacks credibility’ he said.

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Delivering a more resilient, professional and responsive public administration to the citizen by Kyriakos Mitsotakis, Minister of Administrative Reform and e-Government




Delivering a more resilient, professional and responsive public administration to the citizen is one of the key priorities of the Ministry of Administrative Reform and E-government of the Hellenic Republic, during the six-month presidency of the Council of the European Union.


ur Ministry participates in the European Public Administration Network (EUPAN) which has been in place for a number of decades with a mandate to encourage informal cooperation across EUPAN members in a consistent and structured way. The network is intended to support the exchange of best practice and excellence in HR and innovative responses to challenges and opportunities facing public administration across central government. Since 2001, the network has adopted a medium term approach to planning its activities which ensures coherence and continuity (over an 18 month period) in the work of the network. The medium term planning approach sets the strategic direction for the network and also offers an opportunity for a more in-depth consideration of key themes of interest across the EUPAN community. The existing 18 month Medium Term Plan was proposed by the respective member states to preside the Council of the EU from 1.1.2013 till 30.6.2014 (Ireland, Lithuania and Greece). Based on the overall priorities for the 18 months of the Medium Term Plan, the individual Presidencies are responsible for developing their own content (activities and topics) for their respective six month programmes. The architecture of the Medium Term Plan comprises a Horizontal Theme “Delivering a more re-

silient, professional and responsive public administration to the citizen”. Under the horizontal theme, our Presidency will primarily focus on the major public administration reforms taking place at the moment in Greece, underpinned by the severe economic crisis and the memorandum obligations. We will try to answer the following overarching questions: • Can the current crisis be the catalyst for the necessary drastic reforms? • How can the downsizing of organisational structures and reduction of personnel be compatible with a more effective public administration? • How can public administration be a valuable tool to exit the crisis? The horizontal theme in turn has been divided into three pillar themes that represent each of the key elements to be explored: resilient, professional and responsive public administration. Within the “resilient” public administration pillar, we will consider whether the reforms have the potential to make public administrations more “fit for purpose” over the medium term. The crisis conditions offer the opportunity to introduce more radical reforms across a range of areas including better service delivery channels, reduce cost base to deliver better value for money and structural change, to avoid structure duplication and enhance structural coherence. The

focus will be placed on the need to design compact organizations that revise their structure and adjust their missions to the needs and constraints of the society. The second pillar theme of the existing Medium Term Plan is the role of the HR function in shaping public administration (“professional”). It relates to core issues for HR practitioners across the network and will continue the theme of actions necessary to drive efficiency through professional HR. The context here is the need for a robust and effective HR function and policies to support a sustainable model of public administration – post crisis. The focus will be on improving planning of HR resources to provide a more flexible administrative tool and ensure the development of a skilled and dedicated administration. The final pillar theme “connecting to the citizen” relates to the responsiveness (openness and accessibility) and service delivery aspects of the horizontal theme with a particular focus on the use of technology as well as on the cutting of red tape/reduction of administrative burdens in support of a more open and transparent public administration. A key element of effective public administration is positioning the citizens and businesses at the core of government policies with all citizens and businesses benefiting e-government services, based on leaner and redesigned administrative procedures.




The austerity debate is beside the point for Europe by Daniel Gros*

Among the most visible symptoms of the ‘euro’ crisis are the high and variable risk premia that peripheral countries have to pay on their public debt. Moreover, an influential paper by Carmen Reinhard and Kenneth Rogoff suggested that a public debt level above 90% of GDP leads to a very high cost in terms of lower growth. The policy prescription for solving the crisis thus seemed simple: austerity. Fiscal deficits must be cut to reduce debt levels.





mong the most visible symptoms of the ‘euro’ crisis are the high and variable risk premia that peripheral countries have to pay on their public debt. Moreover, an influential paper by Carmen Reinhard and Kenneth Rogoff suggested that a public debt level above 90% of GDP leads to a very high cost in terms of lower growth. The policy prescription for solving the crisis thus seemed simple: austerity. Fiscal deficits must be cut to reduce debt levels. However, this debate about austerity and the cost of high public debt misses a key point: Public debt owed to foreigners is different from debt owed to residents. Foreigners cannot vote for the higher taxes or lower expenditure needed to service the debt. Moreover, a higher interest rate or risk premium just leads to more redistribution within the country (from taxpayers to bond holders) in the case of domestic debt. But in the case of debt owed to foreigners, higher interest rates lead to a welfare loss for the country as a whole because the government has to transfer resources abroad. A larger transfer to foreigners in turn usually requires a combination of a depreciation of the exchange rate and a reduction in domestic expenditure. This distinction between foreign and domestic debt is particularly important in the context of the euro crisis, because euro area countries cannot devalue to increase exports if this is required to service foreign debt. The evidence confirms that the ‘euro’ crisis is not really about sovereign debt, but about foreign debt. Only those countries that were running large current account deficits were affected by the crisis. The figure below shows the strong relationship between the risk spread and the foreign debt of euro area countries that had large current account deficits. The case of Belgium is particularly interesting because the risk premium on Belgian government debt has remained modest throughout most of the euro crisis period, although the debt ratio of the country is above the euro area average (around 100% of GDP) – and it managed to function without a government for over a year.

An even starker example of the crucial difference between foreign and domestic debt is provided by Japan, which has by far the highest debt-to-GDP ratio among OECD countries, but (at least so far) the country has not experienced a debt crisis and interest rates remain, at around 1%, exceptionally low. The reason is clearly that the country has run sizeable current account surpluses for decades; and has thus more than sufficient domestic savings to absorb all this debt at home. What does this imply for the austerity debate in Europe? If foreign debt matters more than public debt, the key adjustment variable is the external, current account deficit, not the fiscal deficit. A country that has a balanced current account does not need any additional foreign capital. The reason that risk premia are continuing to fall in the euro area despite very high political uncertainty in Italy and continuing large deficits elsewhere is the same: the current account deficits of the countries in the periphery are falling rapidly, thus diminishing the need for foreign capital. The debate about austerity and the high cost of public debt is thus misleading on two accounts. First, it has often been pointed out that austerity can be self-defeating in the sense that a reduction in the fiscal deficit can actually lead in the short run to an increase in the debt-to-GDP ratio if both the debt level and the multiplier are large. However, austerity can never be self-defeating for the external, the current account, adjustment. On the contrary, the larger the fall in domestic demand in response to a cut in government expenditure, the more imports will fall and the stronger will be the improvement in the current account (and thus ultimately the reduction in the risk premium). The experience of Italy is again instructive: the large tax increases implemented by the Monti government in 2012 had a stronger than expected impact on demand. GDP is falling so much that the debt-to-GDP ratio is actually increasing, and the actual deficit is improving only marginally because government revenues are falling along with GDP. But a side effect of the fall in GDP is a strong fall in imports and thus a strong improvement in the current account – which is the reason why the risk premium continues to fall despite the political turmoil created by the recent inconclusive election. Second, if foreign debt is the real problem, the debate about the Reinhard and Rogoff results is irrelevant for the euro crisis. Countries that have their own currency (like the UK) or even more the US, which have the privilege of




indebting themselves to foreigners in their own currency, do not face a direct financing constraint. For these countries it matters whether history suggests that there is a strong threshold effect once public debt exceeds 90% of GDP. But the peripheral countries in the euro area simply did not have a choice: They had to reduce their deficits because the foreign capital on which their economies were so dependent was no longer available. But the reverse is also true: as soon as the current account turns into a surplus, the pressure from financial markets abates. This is likely to happen soon. At this point peripheral countries will regain their fiscal sovereignty – and will be able to ignore Reinhard and Rogoff’s warning at their own risk.



* Daniel Gros is Director of the Centre for European Policy Studies. This Commentary was first published by Project Syndicate on 8 May 2013, and disseminated to newspapers and journals worldwide. It is republished here with the kind permission of Project Syndicate. CEPS Commentaries offer concise, policy-oriented insights into topical issues in European affairs. The views expressed are attributable only to the author in a personal capacity and not to any institution with which he is associated. Available for free downloading from the CEPS website ( • © CEPS 2013. Centre for European Policy Studies • Place du Congrès 1 • B-1000 Brussels • Tel: (32.2) 229.39.11 •


The BRICs party is over by Anders Aslund*

Emerging markets are under pressure. This column argues that this is not a mere headwind but that the BRICs’ party is over. Their ability to get going again rests on their ability to carry through reforms in grim times for which they lacked the courage in a boom.


fter a decade of infatuation, investors have suddenly turned their backs on emerging markets. In the BRIC countries – Brazil, Russia, India and China – growth rates have quickly fallen and current-account balances have deteriorated. The surprise is not that the romance is over but that it could have lasted for so long. From 2000 to 2008 the world went through one of the greatest commodity and credit booms of all times. Goldman Sachs preached that the BRICs were unstoppable (e.g. Wilson and Purushothaman 2003). However, Genesis warns that after seven years of plenty, “seven years of famine will come and the famine will ravage the land”. Genesis appears to have described the combined commodity and credit cycle, from which the Brazil, Russia, India and China have benefited more than their due. Claudio Borio (2012) has explained the nature of the financial cycle. Late Russian prime minister Yegor Gaidar (2007) showed how the commodity cycle impacted the Soviet leadership. During the oil boom in the 1970s, it was caught by hubris and neglected economic reforms. When the declining commodity prices hit in the 1980s, the Soviet leaders were incompetent, uninformed and unprepared, because they had faced too few problems for too long. The boom was prolonged for half a decade by quantitative easing in mature economies, flooding them with cheap financing. During their years of plenty, the BRICs did not have to make hard choices. Today, their entrenched elites seem neither inclined to nor able to do so. Their lives have been too good.



Now all these booms are over: • Brazil and Russia have been hit by the levelling out of commodity prices, which are widely expected to decline for several years. • Those two countries may also be caught in the ‘middle-income’ trap, that Barry Eichengreen, Donghyun Park, and Kwanho Shin (2011) warned of in a seminal paper. They found that countries tend to experience a sharp growth slowdown when gross domestic product per capita reaches about $17,000, which is the current level of Russia and Brazil. Large reserves Brazil, Russia, India and China have accumulated large foreign reserves, but they are not likely to help them. Russia is a case in point. In 1998, it ran out of reserves and had to cut enterprises subsidies sharply, which levelled the playing field and was a major factor behind the fast Russian economic recovery (Aslund 2007). In 2008-9, by contrast, the Central Bank of Russia spent $200 billion of its ample reserves. Essentially these funds went to inefficient state and oligarchic enterprises, which crowded out better smaller companies. Thus, the reserves contributed to the decline in Russia’s growth rate (Davydova and Sokolov 2012). The BRIC countries did not take advantage of the good years to improve the underlying state of their economic systems. China’s banks are overleveraged (Walter 2012), and India suffers from most economic ailments. Its inflation is too high, and its budget deficit, public debt and current-account deficit are too large. Because of their outstanding dynamism, the


BRIC countries felt little need for reforms. Their governance is mediocre at best, reflecting substantial corruption and poor business environments. Transparency International ranks 176 countries on its corruption perception index. Brazil ranks 69, China 80, India 94, and Russia 133. The World Bank compiles its ease of doing business index for 185 countries and the BRICs do even worse by this measure, with China ranking 91, Russia 112, Brazil 130 and India 132. Russia has set the long-term goal of rising 100 steps but so far has done little to accomplish it. Characteristically, China is lobbying the World Bank to abolish this index. The surprise is that countries with such poor governance were able to grow so fast for so long. Monuments to hubris instead of needed infrastructure One can see the hubris of the boom in the construction of white elephants. Hosting international mega sporting events tells it all. In 2008 Beijing beat all prior Olympic Games with an expenditure of $40 billion. Russia is expending $51 billion on the 2014 Sochi Winter Olympics, compared with $6 billion spent on Vancouver’s in 2010. India organised the Commonwealth Games catastrophically poorly in 2010, which aroused great popular derision. Brazil’s recent protests were, in part, about the cost of the 2014 football World Cup and 2016 Olympics. When it comes to vital infrastructure investment, however, Brazil, India and Russia invest too little, leading to multiple bottlenecks. Russia has not expanded its paved road network since 1994. Only in 2018 is a highway finally expected to connect Moscow to St Petersburg – and merely because it will be Russia’s turn hosting the World Cup. China, by contrast, overinvests in infrastructure (Lardy 2012).

Reinforced belief in state capitalism Worse, the current BRIC thinking goes in the wrong direction. All have large state sectors and are relatively protectionist. Because of their recent economic successes and the West’s financial crisis, their policymakers increasingly see state capitalism as the solution, and private enterprise and free markets as problems. • In Russia and Brazil especially, influential circles call for a greater role of the state, although the corrupt state is their key problem. Last month Igor Rudensky, the United Russia parliamentarian who chairs the State Duma’s committee on economic policy, even stated that “[t]he leading role and the commanding heights in the economy should belong to state corporations… We have to preserve all the positive from [the Soviet] historical experience”. Back to the future! • Even if the BRIC political leaders were to face up to reality, their giant state corporations rule the roost. They hold an iron grip over energy, transport and banking. Regardless of official government policies they can extract cheap financing from the government and monopoly rents from the weaker private actors in the economy. But Brazil, Russia, India and China do not rule the world. Because of them the West has played down the role of the WTO instead seeking regional trade agreements among like-minded countries such as the Transatlantic Trade and Investment Partnership between the US and Europe and the Trans-Pacific Partnership with most states (but China) around the Pacific Rim. The BRICs’ party is over. Their ability to get going again rests on their ability to carry through reforms in grim times for which they lacked the courage in a boom.

* Senior fellow, Peterson Institute for International Economics and Adjunct Professor, Georgetown University




EU-China summit: Innovation dialogue to drive Sino-European ICT cooperation by N. Peter Kramer

EU and Chinese leaders officially launched the new High Level Dialogue on Innovation Cooperation on the sidelines of the EU-China summit in Beijing. Huawei welcomes this initiative as a crucial step forward towards reaching common objectives.


the first meeting of the dialogue which took place on 21 November 2013, the two sides discussed ways to enhance cooperation on research and innovation and reconfirmed their commitment to innovation as a means of tackling social challenges and promoting sustainable growth. “[The Innovation Dialogue] allows us to make substantial progress on how to add value to our production and how to best support our society’s creative forces,” European Commission President José Manuel Barroso stressed at the summit, which also marked the 10th anniversary of the strategic relationship between the EU and China. Cooperation will namely cover



key ICT developments such as 5G and the Internet of Things. Europe and China will also collaborate to lay the groundwork for the smart cities of the future, driven by ultrafast broadband and ubiquitous connectivity. Both sides agreed that innovation has an important contribution to make to achieve sustainable development, and that effective protection of Intellectual Property Rights is crucial to support the effective deployment of innovative solutions. A Memorandum of Understanding (MoU) on IPR was signed during the summit. In addition to intergovernmental talks, a number of platforms and mechanisms are in place to promote ongoing dialogue between Chinese and European

stakeholders. An example of this is the Open China-ICT initiative, which organised events to foster debate on issues impacting the industry. At the final conference on 5 November, Huawei called for closer cooperation between the EU and China in the field of ICT. Huawei believes that initiatives like these need to be complemented by concrete and timely action to realise the full potential of EU-China cooperation in these areas. As a leader in the ICT industry, it aims to contribute to EU-China cooperation by participating in the policy-shaping debate on the ICT sector in both Europe and China. The second meeting of the Innovation Cooperation Dialogue will take place in Europe in 2014.


Western European e-commerce expected to reach 173.8 billion in 2013, 10% growth Western European B2C e-commerce is developing extremely well. This is apparent from the new Western Europe B2C E-commerce Report, published by Ecommerce Europe, the European umbrella organisation for online retailers.


he total Western European e-commerce economy of online sold goods and services amounted €158.1 billion in 2012 and is expected to grow to €173.8 billion in 2013. Figures in Ecommerce Europe reports are based on the European Measurement Standard for Ecommerce (EMSEC).

Online sales will reach €173.8 billion in 2013 The Western European region, including Belgium, France, Ireland, Luxembourg, The Netherlands and the United Kingdom, is now in first position for e-commerce size, with a 51% European market share. In 2012 the total B2C e-commerce economy of Western Europe amounted €158.1 billion, a 20%+ growth compared to 2011. Online sales of goods and services are forecast to reach €173.8 billion in 2013, a growth of nearly 10% in comparison with 2012.

United Kingdom leads the way, followed by France and The Netherlands The mature online markets of Western Europe are France, the Netherlands and the United Kingdom. The UK leads the way with total online sales of €96.2 billion. Projections for 2013 indicate that the United Kingdom will maintain its position with total sales of €103 billion. France and the Netherlands rank second and third with total sales of €53 billion and €10.5 billion in 2013 respectively. Ireland is in fourth place and will reach total sales of €4.6 billion in 2013 and is one of the fastest growing e-commerce markets in Europe. Irish consumers are buying online above the curve with 25% sales growth year on year. However, in 2012 25% of Irish online spendings went overseas due to lack of choice. Belgium is showing relatively the lowest online sales, respectively €3.0 billion in 2012. However, Belgium is expected to grow with 20% in 2013 and is therefore an upcoming e-commerce market.

Netherlands has an internet population of 94% In 2012, the Western European population was estimated to be 162.3 million (19.8% of Europe’s population). Internet penetration in Western Europe (83%) has been above the European (66%) and EU28 average (76%) in 2012. The top three tier having internet access is being led by the Netherlands with 94%, followed by Luxembourg and the United Kingdom with 93% and 83% respectively.

Western European e-household spend €2,625 online in 2012 Ecommerce Europe’s research reveals that 90 million consumers in Western Europe bought goods and services online in 2012. The average Western European e-household spends a total of €2,625 online in 2012. This is far above the European average of €1,400 and EU28 average of €1,696. The United Kingdom leads the way with €4,010 on ehousehold expenditure. The United Kingdom has the biggest online spenders in Europe. Within Western Europe Ireland and Luxembourg follow with €2,861 and €1,955 online expenditure respectively. Meanwhile Belgium (€836) and The Netherlands (€1,365) have a considerable gap when it comes to online expenditures per e-household. In Belgium e-commerce is still growing strongly and the country is expected to catch up quickly. The Netherlands is considered more mature and the high density of physical retail is limiting the need to buy online compared to other countries. Within the next few weeks, Ecommerce Europe will publish three other Regional Reports next to the Western European B2C Ecommerce Report, regarding Central Europe, Southern Europe and Eastern Europe, all with an outlook on 2013 projections.




Revised EU state aid rules ‘could lead to closure of 100 small airports’ by Euractiv*

Regional stakeholders from all over Europe are pressing the European Commission to show more flexibility over new guidelines on state aid for airports and airlines, warning these could have “damaging consequences” for local economies.


he proposed revision of state aid rules to airports and airlines, unveiled by the European Commission in July this year, will allow start-up aid for launching a new route during a limited period of time and allow operating aid to airports under certain conditions for a 10-year transitional period. The Commission launched a public consultation over the revised rules but EU regions, especially those that have seen their economic development boosted by local airports, find the new rules “worrying”.



10 year transition phase Speaking at a panel discussion organised by the Assembly of European Regions on 2 December, Annabelle Lepièce, a lawyer representing the French region of Languedoc-Roussillon, warned that “if the guidelines are applied as the Commission intends to, it could lead to the closure of around 100 airports” around Europe. Lepièce criticised the EU executive’s plan to decrease operating aid to airports until they become profitable.

“Some of them will never become profitable,” Lepièce claimed, although some of these small airports contribute “immensely” to the economic development of the regions. The lawyer cited the example of a French village, Saint André de Roquelongue, near Carcassonne in South-West France, which was entirely revived over the past ten years following the construction of a nearby regional airport. Thanks to the connection, the village was repopulated by younger people,


mainly Brits, even leading to the opening of a new school. Similar concerns were raised by Swedish MEP Marita Ulvskog, a social democrat. Sweden is a sparsely populated country where regional airports are “a necessity”, she claimed. With 21 people per square kilometer, the country suffers important geographic handicaps, which local airports help alleviate. Road and rail are no alternative for big trips, she explained, as driving from north to south can take 21 hours and high speed trains go only “as far north as Stockholm”. Hence, she said domestic flights are a “basic component” of the country’s economy given the lack of alternatives. “A 10-year transition phase for all airports with under 3 million passengers per year cannot work,” said Catiuscia Marini, who drafted a report on the matter for the Committee of Regions. “It is not possible to adopt a one-size-fitsall approach in this field, the diversity within this category of airports is huge and there are completely different situations that must be taken into account. The EU’s regions request, therefore, the European Commission allows the possibility to support, beyond the transition period, at least airports with a yearly traffic rate of below one million passengers,” she told EurActiv in an emailed statement. In a letter to the Commission, sent in September, Swedish Social Democrats MEPs expressed their concern that “the vast majority of [Swedish] regional airports

have no prospect of ever making a profit because of the small economies of scale outside of the major urban areas”. While the Commission foresees specific conditions for so-called Services of General Economic Interest (SGEI), experts fear that most of the airports will fail to be considered as such, as the EU Executive’s definition is seen as “too restrictive” and “not sufficiently harmonised”.

Public mission In its draft opinion, the Committee of Region calls on the European Commission to considers state aid to regional airports as a public mission. “What is the Commission trying to do? Interfere in the economic policy of the member states?” asked Olga Simeon, an Italian representative from the Venice region who helped draft the report. “In most cases, public investments in airports [...] help better connect the region with other transport modes. They grant advantage to the whole economy, not to one enterprise. Intermodality investments should be considered a public mission,” she said. For the Regions, it should also be made clear that micro-airports with less than 300,000 passengers per year should fall outside of the Commission’s scope as they “cannot affect competition between member states, as defined in the article 107 of the [EU treaty]”, Simeon concluded.

Charleroi airport However, not all regional airports are small.

In Belgium, the Brussels-South airport in Charleroi manages 6.5 million passengers per year, and has become a viable alternative to the Zaventem national airport, which complained to the European Commission over the generous state aid granted by the Wallonia region to welcome the Irish low-cost carrier Ryanair. The case is currently being investigated by the Commission. The impressive growth of small airports such as Charleroi has also been denounced, albeit for different reasons, by environmental NGOs, such as Transport and Environment: “It seems small airports are exploding rather than struggling. State aid is the primary reason that smaller airports have grown so much faster than larger airports. This serious and unfair distortion of competition must be addressed urgently”, the NGO said, adding that “state aid for Charleroi should be out of the question as long as it offers rates so far below market rates”. The investigation is still ongoing, and it will not be clear before the summer of 2014 whether the alleged aid the airport received was legal or not. But it does prove the Committee of Regions’ point that there should not be a “one-size-fits-all” approach for state aid rules when it comes to regional airports. “We want a tailored approach and ask for a review of the rules based on the specific needs of each region,” a spokesperson for the CoR said.

*Publihed at Euractiv - :




REASONS FOR AN INDEPENDENT INTELLIGENCE SERVICE IN THE EUROPEAN UNION Since 2005, RIEAS has extensively written on the need for the European Commission to consider the establishment of a new service focusing on European Intelligence matters.

by John M. Nomikos*





oreover, intelligence and security analysts in the European Union member states who promote the idea of a European common intelligence policy argue that the toughest challenge for the European Union has been the highly sensitive area of intelligence-sharing. Intelligence organizations generally believe that no other organization’s analysis is as reliable as their own, which leads them to place more faith and confidence in their own work. These organizations also tend to view international relations as a zero-sum game, and may not agree with a cooperative approach to security and defence integration. Improving intelligence cooperation is a top priority but, in the long-term, the root causes of conflicts must be understood and addressed. An emerging intelligence service in the European Union should have as its most important task the analysis of overtly gathered information and preparing it for use by policymakers. One of its goals is to bring together experts from both the intelligence and security services. How a European Union intelligence service might fit in the overall European Union mechanism and what its shape and role might be is a prospective challenge for the member states in the coming decade. Eventually, by establishing an intelligence service, Europe might be able to foresee a situation which could be threatening to the European Union states such as a crisis in the Balkans or prospective religious turmoil or biochemical attacks in Europe or Middle East/Gulf states to terrorist acts; Southern European Union member states such as Spain, Portugal, Italy and Greece are facing the effects of transnational crime and Muslim fundamentalism via illegal migration and human trafficking; the Council of Ministers should be involved as well by informing appropriately their national intelligence services. Since the Council of Ministers is the official decision-making body of the European Union, it should receive reports and analyses from the European Union intelligence service. However, the problem here is that a minister of foreign affairs might have difficulties and conflicts in dealing with the foreign affairs of his own country and that of the European Union at the same time. Of course, there are ways around this; for instance, the creation of a Committee on European Intelligence could refer

directly to the European Union Commission. On the other side, the European Parliament would be the one to approve the budget of the European Union intelligence service. The European Parliament could in the future also become the institution to provide oversight over the European Union’s intelligence service operations comparable to U.S. Congressional oversight over the intelligence community in the United States. Since the European Union member states address the possibilities of a future European army, even if it remains simply a peacekeeping facility, it can be reasoned that they should also address the creation of an intelligence policy. Reduced duplication and closed cooperation among the member states offers an opportunity for efficient intelligence cooperation. The next step in the process of creating an intelligence service in Europe would be to distribute tasks according to the operational and informational capacities of a given national service. For instance, French intelligence has been traditionally interested in Africa, and Spain in South America, while Balkan members of the European Union focus their intelligence operations on combating illegal migration/human trafficking, radical Islamic networks and organized crime-money laundering. It would also be possible to make of wider use by the European Union’s analytical and intelligence units of the following: information and non for profit research think tanks upon open source intelligence analyses which would allow the European Union intelligence service to advise the European Commission and the Council on foreign relations and security issues for prospective conflicts.

* John M. Nomikos, Director, Research Institute for European and American Studies based in Athens, Greece. ( Note: A European Union Intelligence Service for Confronting Terrorism abs/10.1080/08850600590911936?journalCode=uj ic20#.UndXI3BFA7o




Do We Need New Global Institutions? by Ian Goldin*

The crisis in global financial markets, rising concerns about climate change and a range of successive global challenges - such as global terrorism, cybercrime, pandemics and increased migration - regularly trigger calls for better global institutions. In his new book, "Divided Nations," Ian Goldin argues that the stakes for getting it right on global governance have never been so high.





he omens are not good. If past decades provide a guide, new problems will be thrown at old institutions that were created for other purposes. The UN, IMF, World Bank and others are overloaded and cannot deliver on their mushrooming mandates. The G7 - a small, informal directorate for managing the global economy that emerged in the 1970s - covers all of these issues. But its membership - a powerhouse 30 years ago - is now out of date. The G20 exercises far more legitimacy globally when compared to the G7. However, these and other inter-government networks, such as the G24 or G77 groups of developing countries, have neither the authority nor the capacity or legitimacy to deliver on the enormous expectations placed on them. Global action is important. Some core principles are required to guide as to when, where, and how global action is required. Ngaire Woods, the Dean of the Blavatnik School of Government at Oxford, and I have devised the following set of five principles:

1. Not all issues require global collective action. A principle of subsidiarity must apply. Many problems are resolvable at the national, regional or bilateral level. In addition, non-government actors such as the private sector or civil organizations can also bring about solutions to concrete problems. Those advocating a greater role for civil society or professional networks are right, up to a point. Governments have to step in when a failure on their part to act collectively and in a timely way would have dramatic and irreversible consequences. Climate change is an obvious example. Even assuming rapid global action, the IPPC projects a temperature rise of 2-3%, which would be catastrophic to many millions of people. Global collective action is clearly required to protect the common good. That said, as long as overall national targets are met, the principle of subsidiarity means that nation states and even communities should be able to determine how global rules are adapted to local priorities.

2. Selective inclusion is required. The rule of thumb is this: Key actors must be engaged and these must include not only countries with the most power to effect solutions, but also countries most affected by the problem. In other words, not all actors need to be involved in every global negotiation, but those that are most significant must be. In the case of climate change, this means it is essential that the twenty countries accounting for over 80% of the emissions are included. Equally, however, countries most affected (such as Bangladesh, in the case of climate change) need to be included in the planning and shaping of global action. Only this will ensure a definition of the problem and design of actions that will be effective and legitimate. Top-down decision making, as reflected in IMF conditionality, the invasion of Iraq or handouts by donors, is not sustainable.




It also means that some existing institutions fail this test. Crucial actors such as China are not members of what is now the G8 (changing from the G7 in 1997 when Russia was added), the International Energy Agency or the International Organization for Migration. As long as such countries are absent these institutions cannot resolve the global questions they face.

3. The principle of variable geometry must be applied. The process of global management must be an efficient one. Nostalgia for efficiency already hangs heavily over the G8. Eight leaders sitting around a lunch table is manageable, 192 members of the UN is not. What this means in practice is that the process of global management needs to accommodate the minimum number of countries required at each stage of managing a problem. In negotiations on climate change, Tuvalu and the Alliance of Small Island States need not be represented in discussions over how emissions should be reduced. But their input is crucial to discussions on what actions are necessary to deal with irreversible changes. Effective global management will thus require variable geometry, or different countries engaging on different issues, and at different stages of global action.

4. Global management requires legitimacy. This principle is regularly articulated, but seldom defined. Put simply, the rules of engagement in global action have to be understandable and acceptable by most countries. The test of the most basic form of legitimacy is a simple one: Does a government that finds itself disadvantaged by the application of a rule nevertheless continue to accept the rules as a whole? Presented with a ‘red card’, will they obey the rules or continue to participate regardless? And what authority can be exercised to force them to follow the rules of the game?

5. For global action to be effective, there must be enforceability. Governments must do what they promise. This is not easy in a world which no longer has any single power center. Inter-governmental reviews and



pressure among governments is one route towards enforcement. Equally vital is public pressure which emerges when inactions or failure are brought to light by the media, by the campaigning of NGOs or by other public institutions. This requires widespread information about what governments agree among themselves and about their compliance with the rules. The enforceability of global action therefore requires a high degree of transparency. These five principles suggest a clear route through the crowded terrain of global governance. The world’s top policy makers should confine global management to those actions that can meet the basic standards of necessity, legitimacy and enforceability. At the same time, all of us need to beware of calls for actions that fail to meet these principles. Whenever that happens, the likelihood is that leaders are simply passing along problems, not solving them collectively. We do not need a greater number of global institutions. We need radical reform of those that exist, including their streamlining. This may well involve the closure of some and the redefinition and transformation of others. If this does not happen, I see a growing frustration among citizens with the slow progress and erosion of legitimacy and effectiveness of global governance. That is especially worrisome for a simple reason. Given the retreat of many national governments from global commitments, we cannot afford for global institutions to be ineffective under any circumstances. Global politics is gridlocked. There can be no doubt that the system needs radical reform. The establishment of a shared system of rules to promote inclusive and sustainable globalization is urgently needed. The question is whether this will be in time to proactively address systemic global crises - or whether reform must emerge from the ashes of a devastating crisis, as has been the historical norm.


The urgency of global governance lies in the hope that the collective management of our global commons can prevent immense human tragedy and suffering. While we may not yet perceive it that way, that suffering may well be on a scale that exceeds the loss of human life associated with the First and Second World Wars, Spanish influenza and the

* Ian Goldin is the Director of the Oxford Martin School and Professor of Globalisation and Development at the University of Oxford.

Great Depression which scarred the last century. The only useful guidepost we have, although not exactly a comforting one at this stage, is that politicians, when faced by the prospect of falling over an abyss, do tend to make brave decisions.

Let us hope that this principle still applies.

** This article is adapted from Divided Nations: Why Global Governance Is Failing and What We Can Do about It (Oxford University Press) by Ian Goldin.




For a credible growth strategy for the euro zone: the obligation to produce results by Mathilde Lemoine*

Any growth strategy for the euro zone is doomed to failure if there is no improvement in the functioning of the Economic and Monetary Union (EMU). The incomplete nature of the euro's foundations became glaringly obvious during the most recent economic and financial crisis. However, thanks to the theory of optimal monetary zones developed by R. Mundell in 1961 we know how to make the euro zone function satisfactorily.





comprises the development of alternative adjustment mechanisms to the exchange rate, such as the increased mobility of production factors. Then governments and the European authorities will be able to concentrate on freeing the traditional engines of growth, i.e. investment, innovation and training to improve the growth trend. But the real challenge lies in the definition of an integrated cooperative economic policy which prevents the market share gains of some being systematically made at the expense of those made by others as is the case at present. The rebalancing of the Member countries’ current accounts, as it is being undertaken at present, cannot be considered a strategy for growth.

Reducing imbalances within the euro zone... Inadequate economic integration and a lack of European funds to face up to asymetric shocks, i.e. the crises that are affecting the euro zone Member States differently, have led governments to privilege the reduction of current account imbalances. This is a means of limiting mutual commitment and therefore of delaying the moment when the issue of co-sovereignty in terms of economic policy will have to be addressed. Hence the balance of current accounts has replaced the quest to improve the functioning of the EMU. But although the reduction in the current account deficit can be requested by the creditors when it becomes unsustainable, this cannot comprise an economic policy goal nor can it be considered a growth strategy. Current account balance reflects the difference between the value

of exports and imports of goods and services traded abroad. It also includes net revenues, i.e. interests and dividends, as well as transfers abroad. A current account deficit means that imports are higher than exports or that national investment is higher than national savings. A deficit might therefore be normal in the countries that are catching up, which only have low domestic savings rates, or in countries which import to export tomorrow. Moreover the possibility of current account imbalance enables a reduction in the cyclicality of consumption and investment. In the event of a hurricane for example production stops but some consumption continues. Hence the deficit evens out the negative effects of the economic shock. Finally balance between national savings and investment can vary according to changes in the median age of the population. As a result balancing euro zone Member States’ current accounts at all costs can counter growth and can only be explained by the fact that the governments of Europe want to avoid an over coercive coordination of economic policy. Indeed, in the euro zone since re-balancing via the exchange rate is no longer possible the accumulation of commitments vis-àvis European partners in the event of a current account deficit is only restricted by a country’s ability to pay back its creditors. And so the problem is not as much the current account deficit but the country’s real state of solvency. But it is not just determined by the development of public finances but also by that of private debt, which can also lead to a crisis in the balance of payments. Hence a coherent re-

duction of imbalances that targets growth calls for the coercive coordination of European economic policy and not the rebalancing of current accounts.

....will not lead to a correction of the faults in the design of Economic and Monetary Union Not only can the quest for the balance of the current account not comprise a goal of economic policy but the optimal monetary theory developed by R Mundell shows that the priority lies elsewhere. Indeed the establishment of a monetary zone demands the mobility of the production factors in order for it to function if it is not optimal. But this goal is not being pursued at the moment. It would require the “defragmentation” of the euro zone’s financial market, greater responsiveness of prices and wages to economic variations, and finally a harmonisation and simplification of the European regulatory framework. Moreover a compensation fund would have to be established to help the countries which bear crises unilaterally, with wage mobility remaining of marginal concern. A monetary zone like that of the euro is only possible if the mobility of production factors compensates the disappearance of national exchange rates. Indeed the economies are too different in order to react in the same way to crisis. For example if the unemployment rate in one country rose sharply, the exchange rate would not decline because it would be an isolated case. However, according to R Mundell’s theory, an adjustment to decreasing prices and wages would lead to a reduction




The reduction of financing requirements of certain Member States does not exempt Europeans from coordinating their economic policies.

in production costs, which would support exports. At the same time workers would be able to go and work in the countries which still had a dynamic labour market. Another possible solution would comprise the introduction of transfer mechanisms between countries in the zone such as compensation funds for example. Of course if the euro zone economies were integrated changes like this would not be necessary. But the deepening of integration cannot be seriously considered as an alternative to the mobility of production factors and the implementation of a European compensation fund. Firstly, the geographic particularity of one country may impede economic integration, as for example the size of a Member State. Small countries tend, for example to be importers of net capital, which means that they favour non-resident investments. They would be more attractive to capital intensive activities than the larger countries. Secondly, it is illusory to believe that wage



convergence would strengthen economic integration. Indeed the alignment of costs increases concentration and specialisation phenomena in areas with greater output as we saw during the German reunification. Thirdly and lastly, European regionalisation has generated the diversion of trade between euro zone countries. But its effects are contradictory since the single market has fostered specialisation and major savings at the same time. But specialisation increases the asymmetrical nature of the shocks i.e. for example the fact that oil price increases do not affect the German economy as they do that of Spain. Recent progress made in terms of coordination in Europe are not enough to correct the shortcomings in the design of the single currency, i.e. the introduction of economic policies to compensate for the disappearance of trade flexibility between the countries in the euro zone, nor to avoid an intra-zone market share war.

The governments of Europe should initiate three types of action to reduce macroeconomic costs caused by the setting of exchange rates and the improvement of the running of the EMU, prior to releasing the traditional engines of growth. The first comprises a strengthening of the link between GDP development and inflation across the entire euro zone. Greater wage coordination within the euro zone and greater wage response to economic slowing would enable the European Central Bank to implement a more expansionist monetary policy and would limit unemployment increases, all things being equal. But in France for example the rigidity of consumer prices leads to strong resistance to wage stabilisation when GDP growth is slow or in times of recession. Indeed whatever the GDP development, regulated service prices, i.e. on electricity, gas, postal services, estate agents, administrative documents for marriages and funerals continue to rise sharply. And they represent a greater share in the French household budget than they do in Germany or Italy for example. Hence it is not enough to “reassess wage setting measures and if required, the degree of centralisation of the negotiation process� as put forward in the Euro Plus Pact. An integrated economic policy framework is required that leads to a harmonisation in price formation processes and not just wage adjustment. This


means that coordination will also have to focus on the development of regulated prices and service competition. Then a reform of the wage formation process will have to be started. It might take several shapes. The first would comprise centralised, collective negotiation on a European scale. The second might comprise intra-European sectoral negotiations. At the same time a European work contract might be drawn up including workers’ rights. Finally tax issues would no longer require unanimity, which would ultimately help to take fiscal harmonisation forwards. The latter would do away with all types of market distortion between businesses in the various countries but also between their markets without challenging the redistributive principles in each country. As a result mobility would be facilitated but it would remain limited due to linguistic and cultural obstacles and would never been as strong as in the USA.

The unblocking of the traditional engines of growth Simultaneous to the improvement in the functioning of the EMU the traditional engines of growth will have to be unblocked. The 2020 Strategy is too similar to the Lisbon programme in order to comprise a credible growth strategy. On the one hand the quest for an improved functioning of the EMU must also be part of the quest for growth. On the other there are too many goals to be implemented rapidly. Finally there is no consensus on the means to achieve them. Of course all of the goals included in the 2020 Strategy are important but we have to take the

risk of ranking them according to their capacity to correct the main weaknesses in Europe’s principal economies and their expected impact on growth. In view of these criteria four goals might be focused on: the improvement of employment rates, the rise in business investment in innovation, the increase in total factor productivity and the transition over to a carbon free economy. – The improvement of employment rates would lead to the support of growth; it would also facilitate the relay of innovation and therefore help speed up potential growth. Indeed the employment rate is particularly low in the euro zone even though national disparities are significant. This results in a lack of adapted vocational training, particularly in the countries of the South and in France. General training is rarely given in the latter, whilst it comprises a prior condition for worker mobility and an increase in employment rates. To achieve these European businesses should offer vocational training that leads to certificates or diplomas according to a percentage of the workers which has to be defined. – The increase in private investments in innovation would also lead to a strengthening in the euro zone’s growth potential. Although business investments in innovation total 1.9% of the GDP in Germany in 2010, it only totalled 1.4% of the GDP in France, 0.7% in Italy, Spain and in Portugal. According to the OECD, business investment in innovation represented 2.5% of the GDP in Japan and 2% in the USA. Accelerated

depreciation for this type of investment could be put forward to all businesses in the euro zone by the European Commission and financed by project bonds. – Total factor productivity grew less between 2000 and 2010 in the euro zone countries than in the USA, Japan, South Korea and even in the UK. But according to our report for the Economic Analysis Council1, greater flexibility on the goods and labour markets as well as more high school graduates would help to support growth. The means to achieve this would be the same as those implemented to improve the functioning of the Economic and Monetary Union. As for high school graduates a specific figure has to be estimated. – Finally as far as the transition over to a carbon free economy is concerned the implementation of a carbon tax would increase the necessary investments for the renewal of equipment. If oil prices continue to rise, investments would become profitable with the reduction in energy intensity.

The euro zone’s trend growth rate must be higher The crisis has led to institutional progress which will improve the functioning of the Economic and Monetary Union. Banking Union will facilitate the transmission of the monetary policy undertaken by the European Central Bank, thereby reducing the differences in private players’ borrowing rates between the euro zone countries. Budgetary integration and macro-economic supervision will enable a reduction in




the financing requirements of States experiencing a balance of payments crisis. But budgetary recovery and the quest for current account balance cannot comprise a growth strategy. A strategy like this must comprise two parts. The first being the correction of design faults in the single currency which limit its positive effects on growth. The second suggests an unblocking of the four most exhausted growth engines in the euro zone and would set out the steps to follow to achieve this. This is how the euro zone would define a future for itself.



* Director of Economic Studies at HSBC France, Member of the Economic Analysis Council and the Nation's Economic Commission. Bibliography: Aghion P., G. Cette, E. Cohen et M. Lemoine, Crise et croissance: une stratégie pour la France, Rapport pour le Conseil d'Analyse Économique, la Documentation française, 2011. Boyer R., "Le gouvernement économique de la zone euro", Report by the Commissariat général au plan, 1999. Lemoine M., "Une sortie de crise en zone euro passe par l'intégration et le partage de souveraineté", L'Hebdo "Economie et Stratégie, HSBC Global Research 11-15 June 2012. Lemoine M, "Zone euro, la souveraineté en question", in L'Agefi Hebdo - 31st May to 6th June 2012.











The European Union is being urged to intervene in a case that some say is all too reminiscent of the “black forces” of Communism by Martin Banks

It is a story that revives the dark days of Poland before it shed its communist past and embraced democracy and a market economy.


-ahead East European puts his dream of becoming an entrepreneur into practice only to be targeted by members of old-style community network who all want their cut. This, in essence, is the story of Marek Kmetko, a Polish-born, self-made businessman who has effectively become stateless as a result of a long-running campaign against him by the Polish authorities. His case has now started to set alarm bells ringing at the heart of the EU and is also gaining mainstream media attention. No less a figure than Denis MacShane, a former Minister of Europe in the UK, has thrown his weight behind efforts to clear Kmetko’s name and get full compensation for the way legal systems have allegedly been used to “destroy” his business to “benefit competitors loyal to ruling political elites.” MacShane says, “Mr Kmetko remains proudly Polish, a patriot who speaks no other language than that of Mickiewicz, Milosz and Pope John Paul II. “But someone, somewhere in the deep Polish state has decided he is an enemy of the ruling political elites. They tried to elimi-



nate him using police raids and judicial measures. Now they are trying to destroy him with slander and innuendo.” The case dates back to the 1990s when Kmetko set up a haulage business only to see his 300 topof-the-range lorries taken from him a short time later by police without a warrant. A member of the Sejm (Poland’s Parliament) who championed his cause was found murdered shortly after he protested on Kmetko’s behalf. A television journalist shot dramatic footage of the “brutal” raid on Marek’s business.A few months after shooting the film, the Italian owner of the independent TV channel was forced to leave Poland. Two decades later, by now operating from Germany where he felt the legal system in place was a better guarantee of business security than the more volatile Poland, Kmetko employed 7,000 Polish workers and provided workers for more than 140 Polish firms. His employment agency helped Polish start-up businesses with a tailored supply of labour and 7,000 Poles who otherwise might have been without work were in paid employment.

But history repeated itself when armed police, disguised and unidentifiable, once again raided his business premises and effectively shut down operations early in November 2013. Elderly people were allegedly dragged from their beds to be interrogated about their sons and daughters. A woman who worked for Kmetko in Switzerland and was visiting her family in Wroclaw was arrested and is still in detention, without charge, together with a few other managers, mostly women. The European Court has in the past criticised Poland’s practice of pre-trial detention. The raids, arrests and shut-down of his business happened just as Kmetko was launching a major law-suit in Polish courts against the state as he tries to get back the money he lost when he fell victim to political machinations in the earlier period of postcommunist rule. The Polish authorities originally accused him of money-laundering but a lengthy investigation by the Berlin police and relevant authorities cleared Kmetko. He remains involved in a longrunning legal dispute with the Polish state which he believes took advantage of «chaotic and


corrupt” relations between former communist officials, criminal elements and politicians anxious to get money to run party political campaigns after 1990. With his business and reputation facing possible ruin, he has now turned to the EU to intervene and the European Parliament is considering a petition about his case. His case is backed by the Foundation for Better Governance whose director James Wilson said, “He has suffered at the hands of politicians and other ‘black forces’ in Poland including threats of imprisonment and actual imprisonment. “He re-located to Berlin and now to Switzerland out of fear for his personal security and that of his wife and daughter. “This is not idle paranoia. He has seen those he worked with disappear and has been confronted with break-ins and interference with this communications even in Germany.” Edward Lucas,international editor of The Economist, told a Brusselsbased weekly newspaper that the worst mistake journalists like him who covered the end of communism made was not to investigate and expose the continuing role of communist era money and officials after 1990. “The worst mistake was that we journalists were so busy celebrating the fall of communism in 1989 we did not ask hard questions about what was happening to the money and the people from the old regime. Where did the billions of dollars in the Communist Party money and secretpolice slush funds disappear to in all the confusion. Who kept control of them? And to what purpose were they put?

Mr. Marek Kmetko, a Polish-born, self-made businessman.




Whatever happened to Russia’s economic miracle? by Dmitry Travin*

The first eight years of the last decade were incredibly successful for Russia’s economy, but the crisis of 2008 hit hard and growth remains decidedly sluggish. Dmitry Travin wonders whether the country’s economy will ever be able to regain the Midas touch.


oes Russia have a strong or a weak economy? It’s very difficult to judge by just looking at its Gross Domestic Product (GDP). In the 1990s the GDP fell steadily, creating an impression that the Russian economy was in meltdown. But after reaching its lowest point in 1998, it began to grow again, showing an annual rise of up to 7-8%, considerably higher than the equivalent figures in developed countries. People began to talk about Russia, under its new leader Vladimir Putin, undergoing radical change and gradually emerging as a front runner in economic development. In the first years of the new century it was talked about in the same breath as other large rapidly developing states such as China, India and Brazil. Some optimists even expected an ‘economic miracle’ that would put Russia in the forefront of global economic development.



Then suddenly it all changed. The economic crisis of 2008 hit Russia especially hard. By autumn the GDP was starting to fall, and the overall figure for the year reached barely 5%. The following year was catastrophic: instead of rising by 8% GDP fell by the same amount, confounding many of the experts who analysed the situation. The Russian government, however, tried to gloss over this apparently disastrous state of affairs, blaming the West for the crisis and claiming that everything was fine: the economy was healthy and it was just a question of overcoming the negative effect of problems originating in the USA. ‘2009 was catastrophic: instead of rising by 8% GDP fell by the same amount. The Russian government, however, tried to gloss over this apparently disastrous state of affairs, blaming the West for the crisis and claiming that everything was fine’

Three years have passed since the 2009 crisis – long enough to allow an accurate assessment of the real state of the Russian economy. We can say that it has recovered from the catastrophe of 2009, but that it has failed to return to the astounding rate of growth that marked the mid 2000s. At present the increase in GDP is about 4% per annum, half the rate of its best performance, and there is a growing pessimism among Russians about possibilities for further growth, let alone a return to the figures of several years ago.

Why all the boom and bust? So what caused these extreme swings in GDP, from collapse in the 90s to rapid growth, then the crisis of 2008-9 and the slow increase of the last three years? To answer that question, it is essential to understand the enormous changes that have taken place


in the Russian economy over the last two decades. The collapse of the 1990s was a result of a radical change in the structure of Russia’s economy: many areas of production developed in the Soviet period could not remain unchanged in the switch to a market economy. The defence industry, for example, shrank heavily, since Russia’s reformers wanted to leave behind the Cold War and the arms race, and the government was no longer interested in financing the production of tanks, warships and artillery. So those factories that couldn’t rapidly convert their production from military to civilian and consumer hardware basically had to close down, and this was of course reflected in the GDP. The events of the 90s were a hard test for Russia, but not in any sense a catastrophe: the widespread closure of industrial

plants was a necessary step towards a complete break with the Stalinist model of a strongly militarised economy. The rapid growth of GDP between 1999 and 2007 was a sign of serious renewal in the Russian economy. This had, however, very little to do with Vladimir Putin, who came to power in 2000. Putin influenced growth only through a reform of the tax system (initiated by his Finance Minister Aleksey Kudrin), which lowered the rates of almost all principal taxes. This reform was a very sensible measure, but the main reasons for rapid growth lay elsewhere. ‘The events of the 90s were a hard test for Russia, but not in any sense a catastrophe: the widespread closure of industrial plants was a necessary step towards a complete break with the Stalinist model of a strongly militarised economy.’ In the first place, at the end of the 90s a decline in the rouble

exchange rate brought about a steep fall in foreign imports. The empty shop shelves began to be filled with locally-produced goods. In the second, a steep rise in oil prices brought soaring profits for Russian energy companies: oil and gas are Russian industry’s key products and a favourable situation on world markets had brought benefits for the development of the country as a whole. Given Russia’s strong dependence on oil and gas exports, it was no surprise that the 2008 crisis affected GDP. Global prices fell: so much for the Russian ‘economic miracle’.

What’s the situation now? Since then, oil prices have risen again, but not to the level they reached in the summer of 2008. So the state of the Russian economy today can’t be compared to that of the years before the crisis; the




improvement in prices has been enough to compensate for the drop experienced in 2008, but not sufficient to create a stimulus for further dynamic growth. Russia’s economy lacks any alternative to oil as a driving force to carry other branches of industry along with it. For that reason, if oil prices remain at their current level, the rate of rise in GDP will probably drop or even stagnate. Can we talk about another factor that could replace oil prices as an economic stimulus in Russia? If global demand for oil and gas remains steady, Russia has enough reserves to avoid economic crisis for another couple of decades. Putin is well aware of this, and has encouraged the construction of oil and gas pipe lines capable of supplying enough of these fuels to meet higher future demand from international customers. These include the ‘Northern Stream’ (which can probably be considered a real success) and ‘Southern Stream’ gas pipelines to Europe, and the ESPO (Eastern Siberia-Pacific Ocean) oil pipeline. ‘Russia’s economy lacks any alternative to oil as a driving force to carry other branches of industry along with it. For that reason, if oil prices remain at their current level, the rate of rise in GDP will probably drop or even stagnate.’ The Russian government has, however, failed to take into consideration the rapid development of shale gas production in the USA, which is creating a global market situation that is less favourable to Russia. 2012 saw, for example, a shutdown in production at the Shtokman gas condensate field in the Barents Sea, a project that Russia had



great hopes for until very recently. And although Putin says that he will find investors for the Shtokman field in the near future, there can be no guarantee that this will happen. It may turn out that in the light of the changed situation in the gas market, its development is already unviable. The future of oil sales to China may also be shaky. The problem is that the ESPO pipe line takes oil to the northern regions of China, which are among the least developed parts of the country. Other areas, with a greater demand for oil, are just as easily supplied from further afield using tankers, so Russia will encounter stiff competition from other producers there.

Can Russia go on living off its oil and gas? Russian economists have long since been talking about the need for Russia to abandon its dependence on oil and gas and develop other economic sectors. The current depressed investment climate, however, makes this difficult. For Russia to begin to live off a highly efficient industrial sector, rather than oil and gas revenues, it requires serious foreign investment. But as the last few years have shown, no one is investing in Russia. The country, moreover, has only itself to blame for this, since it has failed to provide any guarantee of ownership rights. This issue is covered in more detail in Pavel Usanov’s article about the investment climate and Andrey Zaostrovtsev’s about the so-called ‘Oprichnik Economy’, named after Ivan the Terrible’s bodyguards who, answerable only to him, felt free to lay whole regions of Russia to waste. ‘The ESPO pipe line takes oil to the northern regions of China, among

the least developed parts of the country. Areas with a greater demand for oil are as easily supplied from further afield using tankers, so Russia will encounter stiff competition there.’ To keep up the growth in GDP, Putin will probably resort to more state regulation in the near future. This will, for instance, include an increase in the defence budget, in the hope of stimulating production in the military industrial sector. This approach will also strengthen his political position, since this sector’s employees have been his core support group during the wave of protests that has shaken Russia over the last year. People in the defence industry realise that any development of democracy in Russia will mean cuts in military expenditure, and they are determined to keep Putin in power if they can. The Russian government, however, simply doesn’t have the money to increase defence spending to any extent. Conflict over this issue already led, a year ago, to the resignation of Finance Minister Aleksey Kudrin, who argued that today’s Russia couldn’t afford a more military-based economy. Putin accepted Kudrin’s resignation, but still listens to him and won’t let his government allocate more than a reasonable amount to defence spending. One has to conclude that unless oil prices go up, Russia can probably expect a lower rate of growth in GDP. A new economic miracle is just not on the cards. * Dmitry Travin is Research Director at the European University in St. Petersburg’s Centre of Modernization Studies


In search for a new paradigm for Social Responsibility by Paolo D’Anselmi, Athanasios Chymis and Nikolaos Georgikopoulos*

Given that the origins of the economic crisis, which still evolves in many developed countries lie not so much in the private but in the public sector it is time for Corporate Social Responsibility scholars to reconsider the CSR paradigm.


ccording to the Austrian economic school of thought the origin of the credit-financial crisis of 2008 which sparked economic and debt crises in many other developed countries is not an inherent malfunction of the free market. Rather, the crisis is a result of the centrally planned, artificially low interest rates of central banks initiated by the Federal Reserve Bank of the USA. In the modern economy where almost 50% (in some cases more) of the GDP is government at large, CSR literature needs to address the social responsibility of all organizations funded by tax-payers money. The recent credit-financial crisis as well as the following economic and debt crises in many European countries are but one more instance of the inherent irresponsibility of governments and public administrations. Consequently, they raise the question



of responsibility and accountability of government regulated/ supervised organizations. Central Banks, Governments and Public Administrations are organizations that are not subject to competition. They are inherently monopolistic. Economics has established that competition is a necessary condition for the existence of efficient markets. Competition is the driving force behind responsible behavior. This is why M. Friedman urged for free and open competition. If competition is free and open then, indeed, the “business of business is business� as Friedman said in 1970. It is not that Friedman dismissed social responsibility. He just assumed it in the operation of free and open competition. It is interesting that competition is sometimes seen as a negative element and as a source of anxiety for workers as well as

for corporations. Consequently, businesses spend valuable resources to lobby governments in order to restrict competition through government regulation whereas what businesses should really ask from governments is more accountability and transparency on government spending of tax-payers money (a great part of which is corporate taxation money)! In fact what is needed is that the business associations and the trade unions of industry workers ask the government workers to be as efficient as and as accountable for their work as they (the industry workers) are! We need more competition in the economy particularly in the inherently monopolistic government providers of goods and services. In order to infuse competition government should relinquish many of its direct production functions in favor of


multiple public and private institutions, to work under the supervision of government itself and subject to the free market forces (i.e.: competition). Data shows that nearly 75% of the employed population work in organizations (for profit and non-profit) which are subject to competition. They are tamed in their egoism by competition, but they make a decent living and serve their customers with great care, a behavior which is seldom observed in government and other monopolistic organizations. Workers subject to competition are not aware of their value to society, they bear all the difficulties of working in a competitive environment, but they do not leverage their social value of being subject to competition when they vote nor when they negotiate with government. They are like “unknown stakeholders”. Among the public administration organizations, a central role is taken by the effectiveness of the judiciary system, which is crucial for businesses and foreign investors and it has been proven to be the most important element in the economic and social development of countries throughout history. A crucial factor here is the availability of data on the length of lawsuits and on the effectiveness of the rulings. Ineffective rulings are de facto in favor of the debtor and create an anti-business environment. Availability of data however is a necessary, but not a sufficient condition for the improvement of the system. “Name and shame” only works in advanced contexts, where we have the data and the reports that certify the level

of ability of government and the judiciary system. If citizens, workers, businesses –i.e.: organizations subject to competition– understand the importance of the flow of information and the data needed in order to infuse competition among inherently monopolistic organizations they should ask their governments and public administrations to perform and use those data that are available to apply meritocracy and responsibility within government organizations. There is need for those who are subject to competition to come forth and ask those who are not to be accountable anyway. In the current turbulent times private businesses can have a significant role in the so much needed public administration reform and in overcoming the crisis by asking governments and public administrations for higher responsibility and transparency. It is useless for the private sector to produce wealth –and pay taxes accordingly– only to be wasted by inherently monopolistic, government regulated, opaque, unaccountable and ultimately irresponsible organizations, which funnel over half the GDP in our modern economies. Likewise the spending review that is taking place in the most distressed European economies needs to have a strategy behind it and a theory of governmental action. The vision is one of a broader and deeper exercise of individuals’ responsibilities in society. Like Irish poet William Yates said: “In dreams begin responsibilities”, an invitation for everyone’s responsibility in any accomplished democracy.

* Paolo D’Anselmi is a policy analyst from Rome, Italy and the author of a) Values and Stakeholders in an Era of Social Responsibility and b) SME’s as the Unknown Stakeholder.

thanasios Chymis, Ph.D., is an A economist at the Centre of Planning and Economic Research, Athens (KEPE), Greece and the author of Reconciling Friedman with Corporate Social Responsibility.

ikolaos Georgikopoulos, N Ph.D., is a financial economist at the Centre of Planning and Economic Research (KEPE), Athens, Greece and visiting research Professor at New York University - Stern School of Business, NY, USA.




Gas power vehicles “steal” the show How the Italian colossus Fiat sets the example


ver the last 15 years, the Italian automobile industry Fiat has been the largest natural gas vehicle manufacturer in Europe. Specifically, from 1997 until 2012 more than 560.000 commercial and passenger vehicles Fiat Natural Power, fuelled with natural gas, have been sold. The Italian colossus’s top priority is manufacturing cars which will combine the least possible environmental impact with the largest possible fuel consumption saving. Fiat, within this strategy, goes further into manufacturing a wide range of natural gas models- to be more accurate “bi-fuel”. These are cars that offer the possibility of being powered both by natural gas and petrol, ensuring unimpeded functionality, saving and practicality.

A significant advantage of natural gas vehicles, like the ones of Natural Power of Fiat, is the large saving, including the increased independency as a “collateral” benefit. But let’s check, more thoroughly, the saving that natural gas offers: In fact, due to its psychical and chemical properties, natural gas, which is methane, remains in gas form and doesn’t liquefy, under any pressure. As a result, kg is the unit of measure for natural gas, which is a unit of mass. On the contrary, the rest conventional fuels, that are liquid, use lt as a unit of measure, which is a unit of volume. DEPA sells natural gas (Fisikon) at approximately 1 euro/kg. So, 1 kg of natural gas is equivalent regarding energy to 2 lt of liquid gas (LPG), approximately 1.6 lt of

petrol and 1.4 lt Diesel. Given the sale price of every fuel, the saving that consumers can achieve by using natural gas is large.

Gas power penetration has also increased in Greece The hard economic conditions but also the gradually increase in consumers awareness on the environmental impacts by using cars, are the main reasons that gas power penetrates more and more in the European automobile market. Already, there are

Due to impressive levels of energy saving, more and more consumers turn to FISIKON: In Greece, besides FIAT, natural gas models are available by MERCEDES & VW manufacturers




available more than 1.5 million vehicles using compressed natural gas (CNG) in the European roads, including the Greek ones. It should be noted that CNG differs from liquefied petroleum gas (LPG), known in our country as liquid gas, which is a refining oil product. As far as it concerns the environmental footprint of the natural gas, the NG engines produce 25% less carbon dioxide than diesel engines. At the same time, it’s worth mentioning that the carbon dioxide consists one of the greenhouse gases which is the main cause of global warming. Nitrogen oxides and hydrocarbons emissions are also low and natural gas does not contain sulfur, particulate matter, leader and hard trance metal. For this reason the European Union has set the objective of natural gas use in percentage of 10% cars of member states until the end of 2020. Another reason is that vehicles operating in natural gas are favored because there is more and more conversion kit from conventional motor in dual fuel cars in the international market. In this way, any petrol car can be converted in a NG vehicle in an easy and affordable way and the investment depreciation would be realized in less than a year- taking into account the average kilometers of a car annually.

Natural Gas as motor fuel makes our road transport “greener”

The under development NG refueling stations network, makes the use of natural gas to reach higher and higher levels

Widened refueling network Public Gas Corporation (DEPA) builds the main structures to open the natural gas market in Greece giving the opportunity to consumers to refuel their vehicles in natural gas mode and take profit by the “green” fuel. In this context, DEPA -in cooperation with HELPE- puts in force a strategic plan about the development of NG fuelling stations. For the time being there are already four FISIKON NG fuelling stations in Athens, Anthousa (station eas-

ily accessible to passengers cars and public cars) all day long, Ano Liosia (for buses and garbage trucks), Kifisia -driving on Kifisias Avenue- as well as in Thessaloniki -Pylaia Municipality- driving on the Avenue of Farm School. Furthermore, the establishment of FISIKON service stations in other Greek areas, until the end of 2014, makes the beginning in places such as Filadelfia, Aspropyrgos, Volos, Larissa and Thessaloniki (second service station into another Municipality).




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Located on the 7th floor, the Tudor Hall Restaurant features a unique neo-classical dÊcor, unrivaled views of the Acropolis, Modern Greek cuisine as well as signature cocktails. The inviting environment of the King George finds its best expression in the outstanding and always personalized service. With exceptional attention to detail and thorough expertise on the Destination Treasures of Athens, the contemporary classic property promises to meet our global explorers’ expectations as well as convey the highest level of quality service. Unique personalized services and travel authority discoveries are just a few of the memories when visiting the King George. LIFE IS A COLLECTION OF EXPERIENCES. LET US BE YOUR GUIDE.


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Which profile best suits your company? Source: Corporate Finance Practice


ost readers are well aware that the role of the CFO generally has broadened over the past decade. Beyond the core responsibilities of financial reporting, audit and compliance, planning, treasury, and capital structure, many CFOs are playing a stronger role in corporate portfolio management and capital allocation. Others have become prominent as the voice of the company in investor relations and in communications to the board, as leaders in performance management, and as exporters of finance-experienced personnel to the rest of the organization. Where does it end? It’s unproductive to stretch the role too far and unreasonable to expect a CFO to be good at everything. How can the CEO and the board through the audit committee shape a manageable profile for the position? It’s an important question, both for companies hiring a new CFO and for existing CFOs who see their roles expanding without a broad perspective.

Profiles of today’s CFO show how the role is evolving and raise important questions for boards about talent and leadership development. To get a more detailed picture of how the role continues to evolve, we analyzed the experience, credentials, and backgrounds of CFOs of the top 100 global companies by market capitalization.1 Our review, while not definitive, suggests that companies are shaping the role to meet their current needs. Indeed, we identified four distinct profiles of the role defined by the breadth of the current CFO’s experience in finance or in non finance functions; his or her professional focus, whether it’s an internal focus on operations or an external focus on strategy; and the sources of the CFO’s expertise, whether from years of experience at the current company or another one, for example, or whether it includes a traditional accounting degree or some other. The four profiles include what we would characterize as the finance expert (or numbers guru), the generalist, the performance leader, and the growth champion. And while there is no single CFO profile that will fit the needs of every company each must target candidates with competencies that best fit their strategy, the composition of the rest of the company’s top team, and current financefunction capabilities these profiles do offer a glimpse into how the role is evolving and where peers are looking for talented and innovative CFOs. They also raise important questions for board audit committees thinking about CFO development or the profile of the person they would like to hire, as well as for executives seeking to shape their current role or considering new ones.




Four profiles of today’s CFO Management roles vary by organization, depending on a company’s history, the characteristics of its industry, and the demands of investors. And although fitting CFOs into a clear-cut typology may seem artificial, we found it useful to understand how companies are filling the role to get a clearer picture of how it’s changing. Based on our research, we categorize CFOs into four general profiles. The finance expert. Typically internal hires, these CFOs have years of experience rotating through multiple roles within the finance function controlling, treasury, audit, financial planning and analysis, or business unit finance. They tend to have intricate working knowledge of the company and are often experts in relevant finance and accounting issues, such as financial regulation, international accounting, or capital structure. Many have advanced accounting degrees or experience at an auditing firm. This type of CFO is particularly well suited to highly decentralized companies with stand-alone businesses or early-stage ones scaling up and professionalizing the finance function. Their strong finance-function knowledge across a broad spectrum of activities is critical to effective compliance and standardization of processes. The finance-expert profile may also be best for any company whose top team otherwise lacks strong finance leadership or whose finance department is inefficient or in disarray. The generalist. Companies in highly capital-intensive industries, such as basic materials, oil and gas, and telecommunications, put a high premium on operational capabilities. So they naturally look for executives with broad experience including CFOs who have spent time outside the finance organization in operations, strategy, marketing, or general management. Indeed, among the 51 CFOs in our sample who were hired since 2009, 31 of them have such experience, up from 17 of those hired prior to 2009. Among all the CFOs in our sample, 62 have MBAs or other advanced degrees, compared with only 28 with advanced accounting degrees reflecting a premium for management and communication skills over deep technical expertise. CFOs that fit this description tend to engage heavily in business operations and strategy and often bring strong industry and competitive insights. They are often found in companies in mature sectors, such as

financial institutions, where operational similarities across business units provide a good platform to rotate managers among businesses and eventually into functional leadership roles; most are internally hired and already fill an executive function, often being groomed for a CEO role. These rotations give managers insights about different businesses that they need to support tightly run operations, allocate resources, and influence peers which, regardless of industry or strategy, make them ideal for companies where personal influence is needed to get things done. The performance leader. CFOs with strong track records in transformations both within the finance function and throughout the organization are what we have dubbed performance leaders. They tend to focus on cost management, to promote the use of metrics and scorecards, and to work to standardize data and systems. They are often hired externally, and many have previous experience as CFOs. Most have worked internationally explaining in part why, among the 51 CFOs in our sample hired in the past three years, 30 have significant experience in multiple geographies, up from 21 of those with longer tenures. Companies employing these types of CFOs are often highly diversified companies requiring rigorous analytics to compare performance across businesses, companies with aggressive growth or cost targets that must be met in the near term, or companies with scarce resources that must be carefully allocated. The growth champion. Externally hired professionals are the least common type of CFOs, but they have risen to account for nearly 25 percent of new CFO hires. They are most common in industries with frequent disruptions that require dramatic changes in resource allocation and in companies that plan to grow considerably or reshape their portfolio of businesses through aggressive M&A or divestiture programs. Such moves make external hires especially valued for their significant experience in M&A, as well as for their external networks, independent thinking, and strategic insight, often gleaned through working as a CFO or serving for years in professional-services firms. Many growth champions are among the nearly one-third of new CFOs who have spent a sizable portion of their career in investment banking, consulting, or private equity, up from one-fifth with a similar background prior to 2009.




Aligning the role with the company These profiles are obviously not prescriptive; it would be simplistic to suggest definitive rules prescribing a specific CFO profile for general categories of company. That said, with the profile characteristics in hand, companies can more explicitly weigh them against the skills and capabilities they expect to require from the CFO as they shape, refine, and implement their strategy for the future. Whether this means selecting a new CFO or rebalancing the role of an existing one, they will need a candid assessment of their current corporate strategy, the skills and temperament of the CEO, the composition of the senior-management team, the current capabilities of the finance function, and organizational and reporting structures. We propose four questions (by order of importance) that CFOs should answer when planning their own careerdevelopment plansor that CEOs and boards should answer when beginning the search for a new CFO. 1. What are your corporate strategy and aspirations especially considering the nature of your industry? While there are certain trends in the hiring of new CFOs generally, CFO profiles often reflect the structure, conduct, and performance of a company’s industry. Stable sectors with large global footprints and extensive supply chains such as oil and gas and consumer packaged goods are more insular in their CFO selections. Only 4 of 28 CFOs in our sample in these industries were hired externally, and only 2 had significant experience outside the sector. However, international experience is very important, with 9 of 13 CFOs in oil and gas and 10 of 15 in consumer packaged goods having worked in multiple geographies. At the other end of the spectrum are industries with rapidly changing technology and significant R&D, such as pharmaceuticals and medical products (PMP) and technology. Companies in these industries tend to have CFOs with more experience in strategy and transactions, and they are much more likely to select CFOs from outside the company or the sector. For example, of the 14 PMP CFOs, 8 were hired externally, 6 had consulting or investment-banking backgrounds, and 9 had general-management backgrounds. Over half of CFOs in both the PMP and technology industries have experience outside their sector. In addition to industry context, companies must consider how certain CFO characteristics might best



support their own strategic plans. Leadership teams of companies following inorganic (M&A) growth strategies require a higher degree of market insight and strategic orientation. Senior executives of companies following organic growth strategies, meanwhile, exhibit a high competency in people and organizational leadership. So regardless of industry characteristics and as long as candidates meet the threshold of finance expertise and performance-management skills a company embarking on an ambitious M&A program, for example, would want to give a strong preference to those with significant transaction experience and industry insight, more akin to a growth champion. A company lagging in profitability or undergoing significant industry consolidation may require a CFO more similar to the performance leader strong in performance management and cost containment. 2. What is the composition of your top-management team? The selection of a CFO cannot be made in isolation; companies must consider the strengths of the rest of the top team, paying specific attention to its blind spots and missing capabilities. Recent research has found that the top teams of high-performing companies score higher on all measures of leadership competencies including thought leadership, people and organizational leadership, and business leadership than those of low-performing companies.2 Finding the right set of leaders is clearly an important determinant of corporate performance.3 This means that the specific profile of your CFO may need to be different from that of other companies even those in the same industry or those that have similar strategic goals in order to create a robust top team. Companies with a disproportionate share of leaders with a few areas of deep expertise so-called spiky leaders tend to outperform those whose leaders have a broad range of more general skills. This requires members of the top-management team to build on one another’s strengths and compensate for one another’s shortfalls. A company with a visionary CEO may require a CFO with a firm grasp of the economics of the business and enough influence capital inside the organization to provide a counterbalance against potentially risky moves. Or a company that recently hired a CEO from outside the organization may require a CFO with deep company expertise and a firm grasp of the numbers, such as a person


who fits the finance-expert or generalist profile. The downside of mistakes in selecting the top team, and the CFO in particular, is significant. Myopic top teams can undertake risky or costly acquisitions, fall behind on innovations in the market, or fail to retain key talent. High-performing CFOs must have the integrity and conviction to challenge the CEO and other members of the top team on key strategic and financial decisions and hence steer the company to a higher performance trajectory. 3. What is the current level of capability in your finance function? As long as a CFO’s profile fits with a company’s strategy and complements the top team, further considerations are more tactical. The current level of capability of the finance function is the most important of these, since the CFO’s primary responsibility is to ensure the execution of core functions of the finance group, especially strong compliance and controls, accurate data, and systems integration. If a company struggles with efficiently performing the basic finance functions (relative to peers), then it may be necessary to promote candidates for CFO with considerable experience in a variety of finance roles and a track record of performance improvement.

However, if strong capabilities are already present in the finance organization, a company may consider candidates with other competencies, such as broader management experience or strategic insight. Companies that do so typically pair such a CFO with a senior finance executive who manages accounting and other traditional finance roles. 4. What is the organizational and reporting structure of your company? Which areas report to the CFO? It is also important to consider the company’s reporting structure that is, does it have solid or dotted-line reporting to the CFO and the breadth of formal CFO responsibilities. For example, a CFO in a global company with a complex matrix structure and only dotted-line reporting must be able to exert a considerable amount of personal influence to be successful. In this situation, it may help to hire a CFO internallyregardless of which general profile he or she fits who has the networks and institutional knowledge necessary to drive change. It is also important to define the areas of responsibility that may lie beyond traditional finance areas, such as IT, procurement, and transformation, which demand day-to-day hands-on management and people skills typically seen in the generalist CFO profile.




Ukraine entrepreneur Igor Yankovski has launched a one-man drive to bridge the “gaping information deficit” between his country and the international community. by Martin Banks

Europe’s second largest country, Ukraine forms an important part of the pipeline transit route for Russian gas exports to Europe. But recent (stalled) moves to reach an Association Agreement with the EU - seen as a key step towards eventual EU membership - have again fuelled tensions with Russia.




kraine gained independence after the collapse of the Soviet Union in 1991 and is probably best known for the ‘Orange Revolution’ in 2004 and the jailing of its former prime miniser Yulia Tymoshenko. But can most of us in the West say we know the real Ukraine, its people and culture? According to Yankovski, the answer is a resounding No and that is some-


thing he hopes to address with the launch of a Foundation which aims to support young talent and promote cultural dialogue between Europe and Ukraine. He’s putting his money where his mouth is, committing to plough an estimated €2.25m of his wealth into various projects aimed at developing ‘mutual understanding.’ After studying financial affairs in New York, the youthful-looking Yankovski joined the family’s fertilizer business - one of the biggest of its kind in Ukraine. This was recently sold and he says he is now “at the right age” to channel his fortune and energy into his new venture. A recent speech at the British School in Budapest, where his son is a pupil, provided the inspiration. The philanthropist said, “The speech was about Ukraine and even the teacher in my son’s class seemed to have very little knowledge about Ukraine. He didn’t know, for instance, that Ukraine is geographically the centre of Europe and that we have the best soil in the world. “This is an international school with a multi-national student base so what does that tell you about what people know about my homeland? “It tells me that there is a gaping information deficit, a void, that needs to be filled if we are to cultivate a better understanding of each other’s cultures.” As part of the Foundation’s launch, Yankovski was in Brussels last month (jan) to host an exhibition of paintings by Ukrainian children at the Brussels Press Club. The impressive exhibition, “Ukraine through children’s eyes,” was the subject of much

attention from MEPs and others. Yankovski says that it is only through such cultural exchanges that Europeans can hope to cultivate mutual understanding of this country of 45m inhabitants. This, of course, is a two-way street and westernizing the electorate in Ukraine has also proven to be difficult. A recent survey conducted by Deutsche Welle found that only half of Ukrainians support closer integration with the EU. Many voters in the eastern half of Ukraine are still nostalgic for their Soviet brotherhood with Russia, whose language, culture and politics they still tend to emulate. But Yankovski sees his country’s future as being firmly in the European ‘family’, saying, “The aim of the Foundation is to help showcase the amazing pool of talent we have in Ukraine. Internationally, I have to admit that very little is known about this which is a great shame. “This young talent needs the chance to cultivate its skills, including coming to countries like Belgium to show their work in art galleries. “That is why I plan to fund scholarships to help young Ukrainians do this. It is the only way Euro-

peans can get a better idea of who Ukrainians are and what we’re about.” He added, “I travel a lot and am always struck at how little is known in Europe about Ukraine and vice versa.” The stated goal of his Foundation is to dislodge that mentality and address what he says feels is a shortage of positive news about Ukraine. “The Foundation may be based in Ukraine but that does not mean it is there to help only Ukrainian people. I want to reach out to as many people as possible.” “At present I would characterize Europe’s relationship with Ukraine by a complete lack of understanding on both sides. “I am not a politician and do not even belong to a political party. But that recent experience at the British School told me that, even before there is any closer political and economic integration, we need to know more about each other’s culture.” He adds, “The exhibition in Brussels was well attended and all that united visitors was an interest in Ukraine. We must only hope now that this interest will result in a positive attitude of Europeans to us.”




Store-based Retailing in Southern Europe: Key trends in 2013 by Dimitrios Dimakakos*

Overall, 2013 was not a good year for Southern Europe in terms of Retailing. Total value sales dropped yet again to reach EUR 670 bn, due to the ongoing financial crisis, which has brought most of the Southern European countries to their knees.





ather than focussing again on the roots of this crisis better to focus on the latest trends and developments in 2013. In Greece, the whole retailing environment is experiencing the aftermath of a near collapse in 2012, with a number of changes being directed from the EU/IMF committee in order to assure the future of the country. This brought up amendments in the legislation in order to liberate markets, shaking long established privileges and protective actions. Comparing to the above graph and store-based retailing which lost ground, Internet retailing continued to grow, witnessing a 26% value growth in 2013, but still represents a very low base. The expansion of businesses for Marinopoulos Group with an online supermarket in 2013 has been a major step for the channel, being the only large and leading grocery retailer to move into that direction so far. Apart from that, the scenery looked more or less the same. Among the biggest categories, Home and Garden Specialist retailers have suffered the most experiencing a 17% value CAGR (Compound Annual Growth Rate) from 2008 till 2013 while in the same timeframe, Apparel and Footwear specialist retailers have seen a decline of 14% CAGR. In Italy, after all the changes in the political environment and the introduction of the new VAT, Grocery retailing outperformed non-grocery retailing in 2013, as grocery retailers benefited from the simple fact that consumers continued buying all the necessary grocery items, while the purchase of non-grocery items such as clothing or electronics had been postponed. Other reasons are that grocery retailers benefited from increasing raw material costs pushing up unit prices and many consumers avoided restaurants and decided to stay and eat at home instead. It is not surprising that Italians also became very price-sensitive, both in grocery and nongrocery retailing. Therefore, private label products are becoming more popular. In the review period private label managed to achieve considerable growth compared to their branded counterparts. Consumers try to respond to the crisis by buying more low cost products, looking always for the best promotions and conditions, switching to private labels and postponing any unnecessary purchase. Moving to Iberia, in Spain things look a bit better in 2013 as the country is recovering but still experiencing negative figures as sales dropped by 2%.

One of the reasons for the aforesaid recovery is the contribution of tourism after an amazing year for Spain with a remarkable 59 mn arrivals that helped the domestic economy and especially the luxury segment. Barcelona, Madrid, Marbella and Palma de Mallorca hosted most of the foreign visitors and experienced the highest purchases of luxury goods. On the other hand, the domestic population continued to buy private label products since Spanish consumers traded down towards cheaper options. Private label continued growing in Spain during 2013, accounting for one third of total packaged food value sales, ranking second after the United Kingdom with the highest penetration rate in Europe. In Portugal, Storebased retailing continued to plummet for one more year. In 2013, total Store-based retailing declined by 5% with Apparel to decline by 17%. On the other hand, Grocery retailers performed much better, registering a 1% decline for the same reasons that was mentioned before. Finally, Turkey, which remained in a positive orbit for one more year. Turkey is a young country with a mean age of 31 years old and with low unemployment rates. Compared to other problematic Southern European countries, Turkey continues to perform well. The country has attracted interest from many foreign investors who want to expand their businesses. This led to an increased number of outlets across all sectors. For instance, Grocery and Apparel stores are springing up in every corner of the country. Another new concept that demonstrates the higher level of urbanisation is the rising number of shopping centres which combine retail outlets, restaurants and cinemas. Nevertheless, even though Turkey is a developing country, private label is expanding through both local and international retailers.

* Dimitrios Dimakakos, Senior Research Analyst, Euromonitor International



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