The EU Has Already Gone Through Its Most Severe Phase

In this interview, we are speaking to Ms. Dalia Grybauskaitė, an economist and a former EU finance and budget commissioner, not just because she is the President of Lithuania, which is currently presiding over the European Union, and not just because she was awarded the prestigious Charlemagne Prize by Germany in 2013, also dubbed the "Oscar in Politics", for Lithuania’s contribution to the unity of the European Union and to the economic stability of all Europe. We are speaking to the President because her vigour and consistency represent faith and belief in a strong Europe, in the flourishing Baltic Sea Region and in the pro-European future of Eastern neighbours.

VALSTYBĖ / THE STATE: Which global and European economic trends in the light of the year 2014 do you find disconcerting and which ones optimistic?

Primarily I would like to begin with what’s good and optimistic. The main centres of the global economy are forecasting growth in 2014, though not to such an extent as we would like, especially in Europe. The growth in Europe is forecasted to be small – approximately 1.5 percent, in the USA – 2.5–2.6 percent, and in China – over 7 percent. But it’s not good. It’s disconcerting that that the growth in the USA and in Europe is rather slow and recovery – rather painful, but positive things can also be discerned there. I would really like to take an optimistic view of the future.

I think that the biggest challenges to be faced by the world economy are going to be never-ending wars in those regions that are suppliers of energy resources, i.e. in Central Asia, the East and Syria. That may affect both the prices of energy resources and the economic recovery in the whole world, but so far the main centres are demonstrating a positive growth. I hope very much that it’s going to be big strides, which will facilitate overcoming the complicated economic situation.

VALSTYBĖ / THE STATE: The European Union (EU) has often been depicted as a crumbling giant. What do you think? Is it possible to assert with a view to the forthcoming year that the fundamental issues in Europe have managed to be more or less handled and now a phase of somewhat more stable growth has commenced?

I think that we could have been apprehensive ourselves or demoralized by others in view of the crumbling a couple of years ago, when a much more complicated situation ensued in Southern Europe. But even Greece, for which it certainly has not been easy, it has already been facing six years of economic crisis and a complicated situation, might be starting to grow by next year. During the last two years, the EU has managed to adopt important decisions oriented towards the medium or even long-term perspective. I’m bearing in mind certain processes pertaining to the creation of the Banking Union and economic-policy coordination processes as well as common criteria about how the budget should be maintained and its adoption process should be coordinated in the national states. Hence, there are a number of things that will help us, especially in the future, to manage and cope with the situation more easily so that it could be prevented from deteriorating or impacting certain countries. Of course, it’s not a huge integration yet, it’s just very small steps towards a larger integration into the EU – towards economic, and not political, integration.

Nevertheless, though these hard times are very severe and in some countries very protracted, they are already headed towards the end. Their consequences will still be felt for a while, but I see no reasons why, for instance, that the Euro should flounder or why a more complicated situation would evolve in the Eurozone.

VALSTYBĖ / THE STATE: What EU decisions intended to be adopted or already adopted do you think could strengthen the bloc’s positions in the nearest future, especially when one has to compete with the USA and China?

That’s, among other things, the new seven-year European budget, which is mostly oriented towards innovations and pan-European connections in the fields of energy and services as well as in electronics and cyberspace. Many good initiatives exist that are indispensable and will help Europe become more competitive. These are huge steps in the pursuit of a common energy policy, especially in the fight against monopolistic domination in Europe in the supply of gas or other energy resources. The European Commission, for practically the first time, has overtly taken actions against monopolistic supply. I’m bearing in mind "Gazprom". It shows that Europe is able and has the political will to fight and defend its interests through the use of existing legal measures in the pursuit of a more competitive base for the whole economy.

Decisions that have been adopted are abundant, though not all of them are going to produce quick results. Another decision that is very important to the entire international community is giving a mandate to the European Commission to launch negotiations with the USA over a free trade agreement. I would guess that this particular decision is vexing and irritating to some, since some attempts have been made to influence the public opinion as well as the EU parliamentarians’ opinion so that these negotiations would be put on hold for one or another reason. We have received a response from third parties – hence, we are on the right track. This agreement will provide benefits and enhance the competitiveness of both the USA and Europe.

VALSTYBĖ / THE STATE: The Baltic Region is often talked about. You are a person who constantly stresses that such a region does exist, and that it has certain common values and goals. What are those interests and goals? What general-welfare vision is uniting us and why is it valuable?

First of all, it is valuable to have a region that can be trusted, where one feels safe and where trade and economic relations are transparent and reliable – a region where there are no surprises, where our people can travel and live safely and where cooperation rests on civilised rules based on international law. Such is the Nordic Region.

We are really no rivals in ambitions or in the size of population. On the contrary – our economic systems are very similar – they’re regulated market economies. Our democratic values are likewise similar, for instance, in terms of the protection of human rights. Hence, the Baltics is truly a region that unites a great number of countries not only economically, but also politically, and even in terms of security, since we are cooperating with the Nordic countries in integrating our economic needs and energy market as well as in solving security issues.

The main investors in Lithuania mainly come from the Nordic countries. Scandinavians are in the top ten. For instance, Sweden has already invested over 9.5 billion Litas here. This country is one of the biggest investors. Poland is second, and third, Germany. We are maintaining relations with Finland, which is also investing in our country. I’m bearing in mind the modern combined heat and power plant that was launched in Klaipėda not quite long ago, which not only uses bio-fuel, but also waste, and not only produces electricity, but also heat.

Indeed, the support received from the very beginning of the restoration of our independence was both moral and economic, and now we see that we are almost equal participants in this region. We are very successful. Even others, having taken a detached view of us, are willing to be friends and cooperate with us. For instance, the United Kingdom is trying to join our format and we are gladly inviting them as observers. It’s clear and evident in the European Council that our interests are shared: before every meeting, we still come to discuss and coordinate our opinions on all matters in the NB6 format (Nordic and Baltic countries). This takes place at the levels of Presidents, Prime Ministers and the European Council. We are cooperating very closely, which is very understandable since regional grouping in the expanding Europe is a natural process. Sooner or later it had to occur, it was just necessary to identify in which region our interests coincided most, where our voice is equal and where our opinion matters. I think that the Nordic Region is such a region, where we can feel the most secure, most reliable and, probably, the most dignified.

VALSTYBĖ / THE STATE: Let’s talk about the East. What do you think? Will the EU manage to find an antidote to the actions of such states as Russia that are targeted against the interests of one of the EU countries, irrespective of whether we are talking about the energy sector or trade? 

Unfortunately, so far we can only see that our Eastern neighbours do not always act logically and reliably, so we can surely see actions that are neither careful nor measured in trade and other sectors. Such actions are very difficult to explain, and no explanations have been offered yet. I’m bearing in mind the inspection of vehicles and the boycott of milk products. I’m very pleased that our situation was evaluated in the EU swiftly and objectively. It was judged to be the same as sanctions or actions against the EU itself, especially since we are all members of the World Trade Organisation. Consequently, we have received support, which is very pleasing – we have not been left on our own. I think that the publicity has done much more damage to the international prestige of Russia itself than to us, and has also shown that in the 21^st century, non-civilised measures may not be employed in respect to neighbours.

VALSTYBĖ / THE STATE: Today, Lithuania is presiding over the EU. What does it mean to our country? Does this fact tell the world anything about the EU’s future, its values and the opportunities that arise when the EU is united?

It says a lot. First of all, we are the first Baltic country to take over the presidency after almost a decade’s membership. It shows that a state, which has only been independent for 23 years, has managed to make very big progress in a short amount of time and has even been appointed for running the main activities of the EU. So far we are doing quite well. This shows that even a small state is important in the EU, and can only be important if it knows how to use all its leverage of power as a small state professionally and honestly.

Critics say that Lithuania’s foreign policy is dim and that we have no friends. I would like to say that we have 187 friends all across the world. Many of them voted that we should preside over the Security Council of the United Nations Organisation. So many votes were never cast for anything before. I would like to express joy that our visibility and rational diplomatic power as a small state have produced these results. From now on, even a small state is going to have a great number of de facto powers to exert influence over the EU’s expansion and to participate in the decision-making and expansion processes, for instance, in the Eastern Partnership Programme. I think that it has been an excellent trial and opportunity for Lithuania, and so far we are making use of it really quite well.

VALSTYBĖ / THE STATE: Thank you for the conversation.

Interviewed by Eduardas EIGIRDAS

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Are Scandinavian Banks Sucking the Blood of the Baltic States' Pensioners?

Monika POŠKAITYTĖ

This autumn, the name of Poland was resounding in economic publications all across the world – the country has nationalised half of the assets present in private pension funds, transferred these assets to its balance sheet and announced having reduced the public finance debt that amounted to 52 percent of the gross domestic product (GDP). The only thing that has been left for Polish fund managers is to search for justice at courts of law, but discussions with regard to the stopping of contributions to the second-pillar funds are not only rising in this country.

Since 1999, the Polish pension system has been based on dual pension accumulation: one portion of employees' salaries and wages was measured out and went to the Social Insurance Institution (Zakład Ubezpieczeń Społecznych, ZUS), and another portion mandatorily went to a private fund which could be selected by the taxpayer himself (a third pillar for retirement accumulation also exists, but it's not popular in the country). Given such a system, pension funds soon became a rather powerful player: according to the data of the Polish Financial Supervisory Authority (Komisja Nadzoru Finansowego, KNF), before the moment of the latter reform they had a bit more than 16 million participants, and the total value of the funds had reached approximately 86 billion U.S. dollars, or almost one fifth of the country's GDP.

Investments of the Polish pension funds were strictly controlled: up to 40 percent of the contributions could be invested in regulated-exchange equity securities, up to 10 percent – in regulated over-the-counter equity securities, up to 40 percent – in debt securities, up to 10 percent – in closed-end mutual funds' certificates, bank deposits and bank securities, and up to 15 percent – in open-end mutual funds' securities. The most important thing is that 95 percent of all investments had to be made inside the country. This system had considerably contributed to the development of the Warsaw Stock Exchange, since domestic companies were given an opportunity to increase their capital by selling equity and debt securities as well as by enhancing the capital market's liquidity. However, the Court of Justice of the European Union declared in 2012 that Poland's requirement to invest within the country violates the European Union's (EU) principles of free movement of capital. To put it more simply, a state that releases in accordance with the mandatory procedure a portion of the pension contributions to private funds cannot control where this money is invested so strictly.

If no control is permitted, then take it away

When control became impossible and the public finance deficit was menacingly approaching the limit of 55 percent of GDP, the Poles were not too modest and in September, 2013, announced that as of the February of 2014 approximately half of the funds' value, or approximately 37 billion U.S. dollars, were going back to ZUS's accounts. Requirements to invest in the country will soften – it is planned that 10 percent of the funds' value will be allowed to be invested abroad as of July, 2014, and by 2016 this limit should gradually reach 30 percent – however, the funds will no longer be mandatory and advertising thereof is intended to be prohibited. Who would like to become a participant of a fund whose money can be nationalised at any time if you can choose and aren't assailed by any advertisements? Although the latter measures are just in the stage of active discussions, it is obvious that they pose a threat to private funds. Hence, it's not strange whatsoever that fund managers called the government's decision anti-constitutional and intend to search for justice at courts of law.

The benefit of such drastic decisions of the Polish government is also raising discussions. According to critics, a populist argument that the money appropriated from the funds will be purportedly used to fill in the ZUS's hole also means that Poland, having suspended the growth of its debt, will be able to borrow in the international market, and one or another injection into the economy before the elections, which are to be held in 2015, might seem quite attractive to the politicians. On the other hand, committing the funds to invest inside the country was beneficial to the Warsaw Stock Exchange, which has not responded to the new policy course very well – by a drop of 5 percent and by a reduction of the growth forecast for 2013 from 2.2 down to 1.5 percent. However, even if the politicians have just populistically made use of the situation, the main problem in this story does not change: if a private player is willing to take a share in the tax funds with the state, but is not willing to represent national interests, there exists an extremely high probability that the state will be adversely predisposed towards such a player. It is obvious that the problems faced by Poland's ZUS require a long-term structural solution, and debts could be reduced by, for example, tightening the possibilities of earlier retirement. But it seems that it's easier to tell the electorate that it is the funds that are to be blamed for the ZUS's debt.

How to plug those leaky pockets?

Structural state-pension problems also happen to be encountered by the Baltic States. The state pension system that is currently operating there was already created in the world at the beginning of the XX century and is simply not adapted to today's current issues of the demographic situation. Therefore, the countries that follow it must over time either extend the retirement age or raise taxes, or apply both measures.

In the meantime, when Latvia and Estonia are extending the retirement age and are increasing contributions to private funds, Lithuanians had to decide by the end of November, 2013, as to whether they would like to accumulate for their pension in the second-pillar pension funds as previously, to return to SODRA (State Social Insurance Institution), or to voluntarily add 1 percent (from 2016 – 2 percent) to the second-pillar pension fund's contribution and to additionally receive 1 percent off the average wage (from 2016 –2 percent respectively) from the state to the second-pillar fund's account. It's all very simple if not for the fact that at the beginning of October, the Prime Minister's adviser on financial matters, Mr. Stasys Jakeliūnas, also proposed to halt contributions to the second-pillar pension funds from January, 2014, whatsoever, then to undertake SODRA's reform and only then to consider where and what accumulation proportions should go. "My argument is that if the second pillar is to be funded from SODRA, which has a huge debt and a continuous deficit, the funding itself and the second pillar are financially unsustainable", said Mr. S. Jakeliūnas.

If Lithuanians opt for the larger accumulation, it is likely that the sum of 1.3 billion EUR that is currently present in the second-pillar pension funds will substantially increase. In Estonia, already today, employees born after 1983 must become participants of the second-pillar pension fund, so the size and power of Estonian funds will be increasing in the future as well. Besides, according to the data of the Organisation for Economic Cooperation and Development (OECD), Estonians are inclined more than Lithuanians or Latvians to opt for a risky investment strategy – 75 percent of the participants of the second-pillar pension funds in Estonia go for an investment strategy that is more oriented towards stocks and not towards bonds. Fuel is also added to the fire by the fact that borrowing under Basel III requirements will become more expensive and more complicated, so it will be increasingly more important for companies to attract funds within the market. Companies can do that by way of initial or secondary public offerings, but that requires a developed capital market, and the Baltic States cannot boast of such. Their stock market capitalisation is very small: according to the World Bank's data of 2012, in Lithuania it reached 9.4 percent of GDP, in Latvia – 3.9 percent of GDP, and in Estonia – 10.7 percent of GDP. For comparison: the OECD average – 71.8 percent of GDP and the EU average – 43.1 percent of GDP.

The second-pillar pension funds of all the three Baltic States presently possess 3.6 billion EUR, part of which could enliven the Baltic States' stock exchanges and help attract more foreign investors. In this context, it is obvious that where and how the money present in pension funds will be invested should be of concern not only to the state or fund participants, but also to the business that seeks domestic investments as well as to the fund managers themselves.

Today, less than one third of the funds present in the Baltic States' pension funds stays inside the country where those funds were collected. It should also be kept in mind that the data presented includes both stocks and bonds, so in reality, at each country's stock exchange there settles a much smaller amount of the pension funds' money. For instance, according to the data of the Bank of Lithuania, barely 0.5 percent of the total pension portfolio value is invested in the stocks of Lithuanian companies.

Own money is closer to the pocket

Such a situation is to be explained in this way: firstly, the small markets of the Baltic States are characterised by a rather low liquidity, so when a somewhat bigger amount of stocks needs to be sold there arises a risk of facing a fluctuation in stock prices. However, this argument is questionable, since one of the reasons why the market is shallow is that pension funds do not invest in it. Secondly, the stocks of domestic companies are not very attractive to the funds because such investment is risky; it requires a lot of supervision and it still does not guarantee better investment results. Hence, investments in the stocks of domestic companies would increase costs for fund managers, but, as fund managers themselves maintain, there is no evidence that this would allow the generation of higher returns. Thirdly, it has been talked for quite a long time that the amount of funds present in the Baltic States' pension funds is just too small that it would be worth it for their head offices in charge of main decisions to reconsider any investment directions of the Baltic States' funds. Though today these funds already amount to over 3 billion EUR, and the amount is only going to grow.

The most interesting thing is that Scandinavian banks, which barely leave 30 percent of the pension funds' money in the Baltic States, are more inclined to leave their citizens' money in their own country. For instance, according to the data of OECD, Norway's second-pillar pension funds only invest abroad 26.8 percent of the funds' value, whereas Sweden's biggest pension fund "Alecta" likewise invests 54 percent of the funds in Sweden. More than 73 percent of the fund money is left by the Danes in their own country as well – their pension funds are considered one of the most successful in Europe. However, unlike in Poland, the state here is not planning to regulate funds' investments. According to Mr. Søren Dijon, Chief Economist of one of the biggest Danish pension funds, funds and strong trade unions that have existed in Scandinavia for decades are operating on the principle of collective insurance agreements, and if one collective entity brings a considerable amount of money into a fund, it can most legitimately raise requirements for the investment directions of that amount. Therefore, Danish funds not only leave a large portion of their funds inside the country, but are also intensively financing start-ups and strategic projects. Whereas Estonians, who have opted for a riskier– a larger share of stocks – investment strategy, instead of investing in domestic start-ups and refining their image as a country of technologies, are allocating a big portion of funds, alas, not to Estonian companies.

Political and investment populism

When it comes to attracting funds accumulated in the second-pillar pension funds, the issuance of bonds worth 20 million EUR by the Latvian "Latvenergo" company at the beginning of the year 2013 could be mentioned as a successful example. The decision to raise funds for strategic projects in this manner proved to be successful: 25 buyers were interested in the bonds, among which – pension funds as well, and the price of the bond issue reached more than 42 million EUR. It is planned that "Latvenergo" will issue bonds worth 70 million EUR in total, and for the money received it will modernise production facilities, distribution and transmission networks.

Namely the funding of strategic projects, according to the experts of the Bank of Lithuania, is one of the directions along which the Baltic States' fairly young pension funds could and should move. However, we must acknowledge that pension funds controlled by Scandinavians, at least so far, are moving very slowly with investing funds in the Baltic States. And this turns out to be the main reason why a young and poorly developed Baltic financial market is growing old and does not evolve.

Most weird is that fund managers' arguments – logical or not very much, which should justify their reluctance to invest in the Baltic States' markets, actually fail to explain why, regardless of the rapid growth of these countries' economies, they deem that it is not worth investing here.

One of the arguments is really related to a high risk: should investments be made in the Baltic States, the risk of bubble formation would grow, and consequently, more attention would need to be devoted to risk management and to the efforts of solving the long-lasting problems that are troubling the pension system. Alas, one patently noticeable effort is the focus on saving the pension funds' income and not the pursuit to ensure the quality functioning of the entire system. Such a standpoint from the pension fund managers is no less populist and irresponsible than that of politicians who also avoid solving long-lasting systemic problems, but who can very easily propose fixing the systemic holes of the pension system at the expense of the funds.

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Lithuania builds new EU–China transport corridor

Arūnas Spraunius

According to the data published by Eurostat (as of 13 Feb 2012) the export of the 27 European Union (EU) member states to China increased by 21 percent during the first ten months of 2011, compared with the same period of the previous year while import of goods from China to EU increased by 5 percent. As reported by China Customs, the turnover between trade partners reached 567.2 billion dollars throughout the 2011 and rose by 18.3 percent in comparison with 2010. China is second-largest EU trading partner behind the USA while the EU itself is the top partner of dynamically rising Southeast Asian powers and important supplier of advanced technologies.

Competition and Cooperation on the Eastern Coast of the Baltic Sea
As anticipated, intense competition for at least some of East-to-West and West-to-East cargo flows is taking place within the EU as well as with third countries. According to Andrius Šniuolis, head of Water and Railway Transport Policy Department of the Ministry of Transport and Communications of the Republic of Lithuania, Asian market of cargo transportation is immense, so it is understandable that every country, not just the EU, tries to get a portion of it. Therefore, no illusions should be entertained – competition between Baltic countries in this situation will only intensify.

Marius Matulaitis, Deputy Director of Market Research and Development Department of Cargo Transportation Directorate of state-owned railway operator "Lietuvos Geležinkeliai" (Lithuanian Railways) agrees with that, too. According to him, Lithuania competes against its Baltic sisters in cargo transportation sector, however, this competition for it isn’t well-proportioned due to the fact that it can take advantage of only one seaport, whereas its neighbours (Latvia in particular) – of more. Therefore, let us say Latvia can attract to one of its ports a business structure as a shareholder to construct a terminal, which will ensure cargo flows, as well.

Another field of competition, this time in the railway transportation corridors, lies between Belarus Brest (to Poland) and Lithuanian Šeštokai (also to the neighbouring country). This competition poses considerable difficulty for Lithuania as Warsaw can freely choose priorities and means of implementation of its transport policy (direct the freight via Belarus, as well as Lithuania). However, Vilnius doesn’t possess such a room of manoeuvre.

Nonetheless, state-owned railway operator Lithuanian Railways carry on railway projects. "Šeštokai Express", to name one of them, aims to direct the freight from Warsaw through Vilnius to Smolensk, where it is distributed to further destinations.

On the other hand, aside from the competition in certain spheres the Baltics seek pragmatic adjustment of their interests. As an illustration, Baltic States jointly work on equal freight transportation issues employing so-called container trains (Latvians have "Zubrus" carrier while Lithuanians operate "Vikingas", also "Saulė" is gradually being launched). Also, steps are made to resolve tax tariff concerns.  In the meantime, a joint Lithuanian and Latvian task force is being established, which besides other matters will discuss and accommodate pragmatic railway transportation interests.

Seeking to take full advantage of opportunities presented by the "East–West" transport corridor, Lithuania should improve its infrastructure in the sector Klaipeda–Vilnius–Belarus border. In addition to already elongated railway stations, (which are now capable of receiving longer trains) it is essential to lay secondary tracks and encourage more intense locomotion in both directions. By the way, China is also trying to get access to longer and heavier trains that are capable of carrying not just 6 000 tons as of now, but 7, 8 and even more thousand of tons.

The most expensive way of transferring cargo is by air transport, second, in terms of cost, is the railway and the cheapest solution happen to be the marine transport. Obviously, the price is heavily corrected by the existing infrastructure. The majority of freights from Southeast Asia are carried by sea transport, however, it takes time to circumnavigate Africa and pass the Suez Canal. The task confronting any railway company is to build a kind of infrastructure capable of competing with the sea transport. It is sought to adjust railway routes because these provide twice as fast delivery at a competitive price. However, Russia is a factor that has to be taken into consideration as it interferes between pragmatic China and Kazakhstan. Russia's decisions regarding freight transportation are often politicised and not necessarily based on economic considerations.

Moscow does not confine itself to merely economical means in pursue to conduct cargo flows to its rapidly developing sea ports, like Ust-Luga. The port’s capacity is being expanded to 180 million tons per year (in comparison, Klaipeda port currently loads 36–37 million tons, and even after maximal deepening and reconstruction of the quay the new territory and infrastructure will boost its capacity just to 65 million tons). Russian authorities allocate massive investments to expand their ports and related infrastructure.

Investments into Railways and Port
Since time is a key factor in freight transportation business, smooth cooperation between the airport and railway is essential. State-owned railway operator "Lietuvos Geležinkeliai" (Lithuanian Railways) and state enterprise "Klaipėdos valstybinio jūrų uosto direkcija" (Klaipeda State Seaport Authority) join efforts in the shared infrastructure projects and such cooperation intensifies. A balanced development of both sectors is being sought. The importance of these sectors is recognized by the state, too as railway and sea transport at the Ministry of Transport and Communications is supervised by the same Water and Railway Transport Policy Department.

A lot of money has been invested into Klaipeda seaport as well as country’s railway development over the last seven years. The new EU financial prospects for the years 2014–2020 intend new investments, for example, to allow mooring of larger vessels. Currently, different scenarios of port extension are being considered (specific details should show up at the beginning of the next year). Upon realization (it is anticipated to occur after 2020), the port capacity could reach 100 million tons.

The state railway operator Lithuanian Railways invested about 700 million litas into infrastructure in 2012. At the start of this year, the company developed and presented its strategic development project up to the year 2030. This time limit is chosen because of slow momentum typical to the railway industry as a whole due to its long rolling-stock service duration, long lasting implementation of infrastructure projects and slow investment absorption. The strategic transport corridor Kena–Klaipeda is planned to be a two-way road capable of transferring 85 million tons of cargo per year. Klaipeda will extend itself by building new stations: "Draugystė", "Pauostis" and "Rimkai".

By transporting freight via the "East–West" corridor Lithuanian Railways earns its basic income (70 %) and competes with Latvian, Estonian, Russian, Ukrainian and Polish ports, also with Belarus Brest transport corridor. Although working in harsh conditions of competition, according to "Railway statistics" of 2009, Lithuanian Railways still transported less than Italy, UK, Austria but outpaced Romania, Czech Republic, Turkey, Spain, Denmark and Belgium. Due to environmental considerations EU plans to carry at least half of the load by railways and Lithuania already does this. The strategy up to the year 2030 aims to preserve traditional freight market share and seeks to improve cargo handling from Asia.

In 2001, Klaipeda port has reloaded 17.2 million tonnes of cargo and 36.6 million tonnes in 2011, which are even 19.4 million tonnes more. This was strongly influenced by investments – Klaipeda State Seaport Authority invested into port infrastructure about 1.34 billion litas, while companies operating in the port, twice more. In 2013–2015, investments are expected to reach 467 million litas. The new investments will allow integration into European transportation networks and establishment of a sea highway system.

In the wake of dredging operations Klaipeda port has widened to 150 metres and deepened to 14.5 metres. The port is now capable of receiving the so-called "Post-Panamax" class of ships that are 300–310 meters long and 40 meters wide. One more project being implemented is Container Distribution Centre (so-called "Klaipėdos Smeltė" HUB). Upon its completion, "Klaipėdos  Smeltė" has a potential to increase the volume of containers transfer over the decade to up to a million per year.

The bulk cargo distribution centre ("Bega" HUB) operates from the 13 of June, 2013. The Company runs a universal agribulk export and import terminal here suited for all types of agricultural products: corn, various extruded products, rough milling grain, granules, of raw sugar, etc. In technical terms, terminal is capable of both import and export operations, its capacity and technical potential also allow receiving the "Post-Panamax" class of ships.
Container trains as a counterbalance to "political cargo".

The so-called intermodal transportation model equips businesses with a fast and efficient freight transportation means not only to neighbouring countries, but also to more distant economies. One of such container trains "Vikingas" has been put into service in 2003, in Lithuania. This project links the Baltic Sea and the Black Sea regions. A lot of efforts are applied to include Sweden into it; cooperation with the country's national railway carrier is being conducted. For example, talks regarding harmonisation of transportation conditions for component parts to one of the giants of passenger car assembly plants in China are being held. In case of success, the component parts would be carried from Karlshamn in Sweden to Klaipeda port and then, by "Vikingas" would move further to Belarus, where the train connected to another one, would be transported to China once a week.

In the realization of another project "Saulė", the first 42 containers packed with computer hardware have been shipped from China to the port of Antwerp via Šeštokai station. A reverse transportation test also carried out from Klaipeda to China, which took just 11 days. Although the project cost is not terribly competitive, it is still pursued; every month partially filled containers from Klaipeda are heading to China. Lithuanian Railways view this route as a prospective one, particularly in the light of China's plans to develop industry in its western region. This is typical in cargo carrying business – container train "Vikingas" has been running already for more than ten years and is still expanding its geography and attracting new countries.

In 2013, the first container train "Baltijos vėjas" departed from Vilnius Paneriai railway station to Kostanay town in Kazakhstan. The train will transport cargo by this route twice a month and will reach its final destination in a week. The expected volume of each train is up to 120 TEU’s. The train is operated by Vilnius company "Hoptrans Projects". The project implementation is contributed by companies "Transkonteiner", "Autoverslas", "Kedentransservis", "Unico Logistics" and Lithuanian Railways.

The importance of the project is determined by the direction of cargo flow from West to East. Up to now the majority of railway freight in Lithuania flew from East to West. "We intend to carry about 80 containers every month by the train "Baltijos vėjas"," said Valdemaras Zakarauskas, CEO of Lithuanian logistics company "Autoverslas".  "We have a long term contracts with car parts suppliers, so we deliver car bodywork, assemblies and component parts to Kazakhstan. It is extremely difficult to predict the arrival time if cargoes are shipped in a single railcar."

Mr Matulaitis claimed that implementation of the container train projects for Lithuanian Railways is also vital in the sense that this is a counterbalance to so-called "political cargo" (such as oil, fertilisers); although these make up the bulk share of the transported freight (the biggest competitor in this segment is Latvia). In fact, container trains constitute only 5% of all carried cargo.

Representatives of the Chinese Business would not take seriously talks that Lithuanians alone could transport the commodities from China to Europe. Even if Lithuania managed to "snatch" just one percent of this volume, Lithuanian Railways and Klaipeda port would probably not be able to service it. That is why Lithuanian Railways hold talks with their counterparts from China neighbouring Kazakhstan on establishing a joint venture. Discussions are not confined just to cargo carrying issues alone, but also involve the establishment of public logistics centres in Kazakhstan. Such centres could service the container trains coming not only from China, but from the entire Southeast Asia. The cargo would flow to the already being built logistics centres in Vilnius, Kaunas and Klaipeda, reloaded here and transported further to the West via Klaipeda seaport or Polish railway.

Fervour for Public Logistics Centres
Implementation of projects for the establishment of public logistics centres started in 2008 in Vilnius and Kaunas while Klaipeda joined them in 2012. According to estimates of the Lithuanian Railway specialists, such centres will save time (from current 40 to 7–8 hours), that is still taking containers to be dispatched from the seaport by the railway.

The most advanced of all projects is about 360 hectares Vilnius logistics hub near Vaidotai railway station, which is planned to be included into the terminal. The future plans envision building Vilnius roundabout at the terminal, thus ensuring egress to the motorways in the direction of Minsk and Klaipeda. The mandatory requirement for terminal is to be surrounded by transportation and logistics businesses nurturing it with cargo flows. That is why Lithuanian Railways and Vilnius municipality established in 2011 public organization called "Vilniaus logistikos parkas" (Vilnius logistics park), whose purpose is to develop infrastructure and to map land lots around the intermodal terminal. Four land lots are already mapped and offered to potential investors.

The project of Kaunas public logistics centre is linked with the "Rail Baltica" project. The terminal will feature two types of railway track gauge – European and Russian and will boast super fast cargo reloading procedure from one type of railcar to another, also to automotive transport. According to the representative of the "Rail Baltica" project, Domas Jurevičius, the planning stage of European type of railway track gauge is finished from the Polish border to Kaunas and construction works that have started in this sector should be finished at the end of 2015. The European track gauge building is taking place in Lithuania only – neither Latvia nor Estonia has set to work yet.

A lot of discussions draw High Speed Train track construction between Kaunas and Tallinn where trains could be capable of reaching 240 kilometres per hour speeds. Transport ministers of the Baltics have signed a joint statement regarding this issue; so far, this is yet the initial stage at which matters of establishing of a joint venture are discussed. By the 15 of November a specific assessment of impact on environment had been performed, that had to clarify the dilemma of the line route via Panevėžys vs Šiauliai.

European railway track gauge from the Polish border to Kaunas may actualise the North-to-South (Poland–Finland) passage as well as the East-to-West direction in a sense that the cargo reloaded in Kaunas public logistics hub could be transported further to the West via Poland not only through Klaipeda port, but also by the railway. By the way, there are plans to implement the project "The Eighth Corridor", which would connect Belgium, The Netherlands, Germany, Poland and Lithuania.

In reality, taking an advantage of the potential or failing to do so will be decided by various factors – cargo transportation tax rates, cargo volumes and carrying capacity. In Poland, for example, an outdated infrastructure prevents trains from putting on higher speeds. Polish government promises reconstruction of the track width by the year 2024 (by then the high speed train line Kaunas–Tallinn should be launched) permitting to put on speeds up to 160 kph. Poland has actually started reconstruction of the track in certain strips; therefore, it is likely that these pledges will be fulfilled. This would suffice that freight moves smoothly to Western Europe.

Potential is Seen by Everyone
The cargo flows in the direction from the EU to China are still obviously weaker than the opposite China–EU direction, also due to the different levels in development of the parties. Up to the recent time Chinese could not afford purchasing goods "made in Europe". Actually, the Chinese get richer, their middle class increases, thus the country is trying to get rid of the "world factory’" reputation and move on to manufacturing that would be more complex and requiring more expensive technologies. As a result, the Western brands gradually become more attractive to the Chinese. By the way, Scandinavian countries are particularly interested in Chinese market.

As regards competition between the various cargo transportation types from China to the EU (and vice versa), it should be worth noted that it is considerably segmented. Suppose, that the products that should be instantly delivered (such as clothing – China is known as speedy manufacturer and distributor of famous and fashion brands) are transported by aircraft. The vast majority of other commodities are being transported by ships. In regard to railways, projects begin to evolve, including the transnational ones. For example, "Russian Railways" and German company "DB Schenker" have established a joint venture, which carries cargo from China to Western Europe by container trains.

According to M. Matulaitis, this is the mere beginning yet. One of the reasons is that transportation of cargo by railways across China (including third countries) to Europe is too expensive. The Chinese industry just a while ago started to move from its eastern part which is rather urbanised to the western part that is closer to the EU and, therefore, larger quantities of Chinese commodities that will be transported by railways can be expected approximately in five years. Moreover, the Chinese have strong freight shipping companies (such as "Cosco" which is one of the largest in the world) that would not be happy if railways took over their cargo (or part of it).

During the Asian and European "ASEM Transport Ministers’ Meeting 2009" that was held in Vilnius in October 2009, Lithuanian Transport minister Eligijus Masiulis declared that Lithuania wanted to become a bridge between Asia and Europe. At that meeting, the Vilnius declaration was signed.  The document states that closer cooperation between Asia and Europe should be encouraged. Almost at the same time, in the capital of Lithuania the Asian and European transport development forum took place. During the closing conference the China's transport minister Lee Shenglin emphasised that his country was ready to solve the transportation problems actively because it was interested in easier and faster movement of the cargo between China and the EU.

The priority of the European Commission (EC) is to provide environment-friendly, clean transport, and railway belongs to such type of transport. This means greater investment into this sector on a scale of the entire Old Continent. The EC also works on the transport corridors aiming to connect them with the transport networks of so-called third countries (Russia, Belarus, Kazakhstan etc.). The EU cannot make direct investments, let us say, into railway construction somewhere in Belarus, Russia or Kazakhstan. However, the EC can initiate a preparation of a feasibility study of this subject. No doubt, this is crucial in order to take advantage of the cargo flows in the East–West and West–East directions. Also, a joint China and EU work group has been established. Transport issues received a lot of attention in its agenda.

Of course, the business assesses and calculates financial expenses and time ratio and makes its own choice what type of transport – sea, land or their combination – to choose from. Anyway, this discussion is more about the prospects, although initial steps that have been taken already. For example, the project "Saulė" is widely supported by Kazakhstan. There is no shortage of preparatory works, in particular development of infrastructure; however, the potential is seen by all participants.

Notes:
Warsaw can freely choose priorities and means of its transport policy (to direct cargoes through Belarus, as well as through Lithuania); however, Vilnius doesn’t possess such a room of manoeuvre.
Moscow seeks to direct cargo flows to its rapidly developing seaports, such as Ust-Luga, resorting not only to economic measures.
In the wake of implementation of the project "Saulė", the first 42 containers with computer hardware have been delivered to the port of Antwerp via Šeštokai railway station.
Plans are being designed to implement the project "The Eighth Corridor", which will link up Belgium, the Netherlands, Germany, Poland and Lithuania.

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Investing in Belarus: pros and cons

By Maksimas Saveljevas, Attorney-at-law, Partner in Minsk, Representative of Raidla Lejins & Norcous Vilnius office in Minsk

Map of foreign investments in Belarus and China role
The origin of foreign investments in Belarus has remained quite the same. The largest amounts of foreign direct investments traditionally come from Russia and EU countries. It is noteworthy that since 2007 the Russian Federation, the United Kingdom and Cyprus have been among the top five countries investing in Belarus. Statistical data show an increase in European investments in Belarus against a backdrop of deteriorating Belarus-EU political relations.

The situation with foreign investments from China remains unclear. Belarusian-Chinese economic cooperation receives special attention in the Belarusian media, however, actual Chinese investments in Belarus are still quite modest. The most significant contributions come to Belarus from China as earmarked loans from Chinese banks aimed at carrying out projects involving the use of Chinese goods and workers. Two-way trade between Belarus and China has been showing impressive results during the past decade, however looking from a regional perspective, the figures don’t appear to be extraordinary.

It is noteworthy that Chinese and Belarusian authorities have announced quite ambitious plans for the future. In 2011, China and Belarus signed an agreement on developing an industrial area in the suburbs of Minsk (the Sino-Belarus Industrial Park). Xinhua News Agency reported that there was a Chinese investment of USD 5 billion in the project. In July 2013, China and Belarus established a partnership by signing a large number of cooperation agreements, including the offer of loans by the Export and Import Bank of China for the first Belarusian nuclear power plant. According to the statement made by the Belarusian Government on 11 July 2013, for the purposes of the nuclear power plant, from 2013 to 2018 Belarus will take a soft loan of USD 323.8 million from the Export and Import Bank of China for a 15-year period.

While Belarusian officials are very enthusiastic about the prospective inflow of investments from China, a number of experts remain rather sceptical. The Belarusian Institute for Strategic Studies believes that Belarusian authorities want, somewhat naively, to turn their country into China’s stronghold in Europe. However, the goal will not be easy to achieve as Belarus has strained relations with the West. Experts from the above-mentioned institute emphasize that while Belarus is borrowing, China is making money. Some experts believe that Belarus overrates the potential of economic benefits of cooperation with China, stressing that large-scale project financing schemes impose certain limitations on Belarusian enterprises and pose risks related to external borrowing.

A joint venture with Belarusian partners: a good business model or a future failure?
One option that many foreign investors consider when they looking for ways to invest in Belarus is establishing a joint venture with reliable Belarusian partners, bearing in mind certain difficulties they may face due to lack of knowledge of certain aspects of the local market.

Belarusians are quite positive about establishing joint ventures with foreigners. However, as there is always a question of reliability of local partners, foreign investors need to be careful about the process of selecting such partners. A proper operational due diligence review, based on information obtained from reliable third sources of information or by investors themselves, is always strongly recommended. The financial viability of local partners should also be checked in advance, though this is a pretty difficult exercise on the Belarusian market due to a lack of well-recognized reputable credit agencies on the market. When making a business plan for a Belarusian joint venture, foreign investors are quite often advised to produce a number of alternative business plans and solutions in case the initial business plan does not work. It is always good to think about any exit strategy as early as at the stage of entering the Belarusian market – this can pay off if things really go wrong.

Unfortunately, shareholders’ agreements are a grey area in Belarus, since there is no relevant regulation at the moment (though such a regulation is in the plans of the government). Therefore, a foreign investor who enters into a shareholders’ agreement with a Belarusian partner within the framework of a Belarusian joint venture the way he is used to do in other jurisdictions has to be aware that in the event of a dispute, such an agreement may be declared void or voidable by a Belarusian court or arbitral tribunal and eventually become unenforceable.

Nevertheless, foreigners could consider establishing an overseas holding company and regulating the relationship with Belarusian partners by means of a shareholders’ agreement of the holding company governed by foreign substantive laws and providing for settlement of disputes outside of Belarus. However, there is always uncertainty if any foreign judgement or arbitral award in any dispute arising out of the shareholders’ agreement will be recognized and enforced in Belarus. Often foreign investors are advised to check in advance whether Belarusian partners have any sufficiently liquid foreign assets in case of any overseas holding company setup.

As a limited liability company (a общество с ограниченной ответственностью (ООО) in Russian), which is the most popular business setup option in Belarus, may be set up by at least two founders, those foreign investors who prefer a limited liability company over a single-member unitary enterprise (a унитарное предприятие in Russian; applicable to situations when there is only one founder) attract a Belarusian partner as a co-founder, assuming there are no ready-made solutions for creating а company with exclusively foreign investors as founders. In a number of instances, to avoid a joint venture setup with involvement of Belarusian partners, foreign investors go for an option of two foreign founders employing two related foreign companies as founders and members, or for an option of allocating a pretty marginal number of shares to an expatriate CEO of the limited liability company established. There are also optimal solutions available on the market for legally correct and economically viable disposal of a single-member unitary enterprise or the second partner’s joining the business after a while.

It is also in line with the existing practice that any foreign investor, who is contributing a major investment, retains the controlling stake enabling him to have a qualified majority at corporate level. However, this is not a uniform recipe, since Belarus has witnessed disputes among foreign and local shareholders, when the locals with a minority stake were effectively blocking the majority’s decisions or otherwise opposing the majority. Long-lasting disputes between shareholders brought to the court have also taken place in Belarus. That is why it becomes extremely important to have the Articles of Association of a newly established company properly worded and agreed to among the shareholders, so that the interests of majority and minority shareholders are properly reflected in order to avoid any disputes or mitigate their effects from the outset.

The impact of membership of Belarus in the Customs Union (CU) and the impact of Russia’s membership in the World Trade Organization (WTO) on economics and the investment environment in Belarus
One of the most important changes associated with the CU is that agreements signed within the framework and decisions made by the supranational institutions of the CU (the Commission of the CU, and, since 2012, the Eurasian Economic Commission / EEC), which change trade flows in terms of magnitude and direction (for example, Belarus had to reduce tariffs for about 2,000 products, but had to increase them for 700 products), are binding on all members of the CU. Most of EEC’s decisions are adopted unanimously, but the role of Russia seems to be dominant, which strengthens the risk of dependence of Belarus on Russia. At the same time, exports of Belarus to Russia and Kazakhstan are now seeing steady growth.

Investors with presence in various CU countries generally quite positively perceive the CU as a transnational structure eliminating or reducing trade barriers; however, they still have some concerns regarding its impact on the investment environment (for example, it seems that free economic zones in Belarus or any major tax incentives granted in such zones might be abolished as a result of the CU).

By joining the WTO, Russia bound itself to reduce tariffs, which automatically means a cut in import tariffs in Belarus, due to the country’s participation in the CU. Different industries in Belarus are and will be affected, in particular those that produce import competing products (for instance, pharmaceutical products, TV sets, refrigerators, truck tractors and trucks etc.). At the same time, even if Belarus is able to maintain its current levels of state support for agriculture, Russia can force Belarus to ‘deliberately’ reduce its exports of some goods to Russia, if Russian producers complain of unfair competition due to the high levels of subsidization of Belarusian agriculture. Some economists believe that this is likely to happen in the coming years.

Privatization in Belarus
Eight small and medium size State Owned Enterprises (SOEs) representing different industrial sectors have been selected for the first pilot privatization and assigned to the Belarusian National Investment and Privatization Agency. On 22 December 2010, the Belarusian Ministry of Economics and the International Bank for Reconstruction and Development (World Bank group) signed a Grant Agreement, pursuant to which the Ministry of Finance of Austria established a Trust Fund in the amount of USD 3.6 million for a 5-year period to support the Belarusian privatization programme implemented by the Agency. The project is implemented under the supervision of the World Bank. The aim of the privatization programme is to implement a small scale case-by-case privatization programme in accordance with international practices. A case-by-case privatization process is aimed at: (i) attracting the best strategic investors of either domestic or foreign origin able to ensure further development of the company; (ii) generating revenues to the state budget as a result of successful sales; (iii) minimizing the potential negative social impact of these transactions.

Overall, the progress of pilot privatization is quite slow. It is not fully clear whether the privatization process is going to be completed in the case of at least one of the above-mentioned eight companies in the nearest future. As the process is supervised by the World Bank and financed by the Government of Austria, it is generally perceived as fairly transparent. In fact, privatization processes in Belarus have only started. A number of privatization deals were completed in the past; however, these were very specific cases targeted at either Russian investors or local investors.

Investors interested in the privatization of particular companies could obtain individual investor guarantees and incentives by entering into specific investment agreements. Legal experts usually advise to seek a 100% stake in the targets in privatization to avoid any kind of pressure (whether actual or implied) from the minority represented by the State. Also, it should come as no surprise for investors that any kind of additional social or loss-bearing entities are sold together with the targets in privatization. Furthermore, foreign investors should be aware of the intentions of Belarusian authorities to introduce the ‘golden share’ rules that would enable Belarusian authorities to intervene, under certain circumstances, in the management of the privatized companies. However, it is worth mentioning that scandalous stories of nationalization or de-privatization (when the results of privatization were revised) are quite rare in Belarus and have happened when strategic industry enterprises are involved.

Some key legal risks and practical tips for foreign investors
Below is the summary of some key legal risks and practical tips when considering Belarus for investment.

Legal risks
·    Lack of regulation of the shareholders’ agreement, which may be void or voidable.
·    A large number of official bodies performing controlling functions.
·    Insufficient attention to the peculiarities of local legislation (currency regulations, taxation, book-keeping and corporate legislation, in particular) may lead to severe implications.
·    A lot of legislative changes, some of which are made retroactively (e.g. restrictions on circulation of shares were adopted with retroactive effect).
·    The case law sometimes differs from legislation.
·    Enforcement of judgements and arbitral awards can be time-consuming; bailiffs should be properly supervised by the creditor to avoid a ‘no asset to exact’ situation.

Practical tips
·    Foreign investors thinking of investing in large-scale projects may seek to conclude individual investment agreements providing for substantial tax and non-tax benefits and operational guarantees.
·    In case of a significant investment project, be ready to invest additionally into local social projects supported by the State.
·    When considering privatization, always target for a 100% stake, and do not leave any minority stake to the State or local authorities.
·    Preferably choose foreign arbitration as a forum for any contractual disputes with the State or local authorities.
·    When you consider investing in Belarus, explore various investment scenarios in the case something goes wrong with your main investment plan.
·    Have an exit strategy from the outset.
·    A thorough tax and legal analysis and planning of prospective business operations in Belarus is highly recommended.

 

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Global Economy to Face the Apocalypse in 2014!

Such a conclusion comes to mind when you analyse the insights of the 2 best-known economists for 2014. Neither one of them predicts a plague, a famine, or an economic disaster. Even N. Roubinis, who in recent years predicted different challenges for the global economy rather unsuccessfully, this time refrains from apocalyptic prophecies. So ironically, it can be said that the world's economy is in a position where a serious global crisis is not currently possible, or we are observing a suspicious conspiracy of economists to conceal a looming disaster.

However, the editorial board of our magazine believes that the first option is more realistic, and the majority of economists who attempted to forecast the risk of the next, greater recession following the crisis of 2008, just got tired and decided to stick with moderate insights. However, we are in no way blaming predictions that most often never come to life, as closely monitoring the economic as well as scientific situation, we have to admit that today the modified, illustrated, scandalised or unrealistically exaggerated reality sells best. So if you want to get on the front covers, you simply have to dish out terrible statements that may not come true, because there is no media attempting to embrace false insights and notify the public – it does not care.

Indeed, who could care about the past? Everyone cares about the future and, in particular, if it is very scary for someone. Therefore, we have to admit that even with our scary heading, the majority of Scandinavian entrepreneurs will never read this comment, because it, like the entire magazine, seems insufficiently cool. However, if we had used a more serious title, such as “The world economy has stabilized”, the number of our readers would probably be equal to zero. This is understandable, because there is an overload of information. The flow of information is so large that convincing the reader that he could find insights in our magazine that might be useful for him, is almost impossible. Therefore, the only way to attract attention is associated with emotions.

It is for this reason that a large proportion of serious publications still try to focus on the status provided by the created image, catering for their audience in various ways such as constantly explaining to businessmen (and they really love it) that the state does not appreciate them, taxing them unnecessarily and that generally, the country would collapse without them. Meanwhile, the media, with a focus on hot issues, is hunting for flagrant statements of prominent economists and politicians, often without regard to the purposes for which they are made and how true they can be.

So when we talk about standing out in the information space, it is important to realize that standing out with captions is of course not serious, but pretending to read a solid release, when it constantly nourishes you with scandalised content, is ridiculous. For this reason, we expect your forgiveness, if, while reading our magazine, you get the impression that we are overly flagrant in formulating our article titles or illustrating them too “deliciously”. We only performed this unpleasant job so that you can read the essence on paper. We have no doubt about the value of this information because we only write about what is really important, and only authors whose competence and objectivity causes no doubt for us share their insights with us.

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On the left – a chasm, on the right – a gulf, everything surrounded by darkness

On the left – a chasm, on the right – a gulf, everything surrounded by darkness
Swedbank's chief economist, Dr Nerijus Mačiulis

No, it's not about politics. At least not the politics you thought about. It is about the monetary policy choices of the world's major central banks and the attempt to decide whether they still have to fight the risks of deflation – price and wage downward spiral – or maybe extinguish the inflation that has begun to materialise in the markets of some assets.

For nearly five years, the major world central banks have kept the case interest rates close to zero. But it is clear that low interest has no significant positive impact on economic growth, that the population and businesses do not want to borrow, and quite the opposite – are trying to reduce their financial obligations. In this situation, central banks chose non-traditional monetary incentives and started to increase their balances, or in other words, to print money. Since the end of 2008, this has been happening at an unprecedented rate – for example, the U.S. Federal Reserve (FED) increased the monetary base by approximately four-fold.

However, the journey of central banks off the beaten path is not over. Currently, they are faced with a tough dilemma: continue the promotion of monetary policy, risking the creation of new bubbles, or begin to normalize the money supply and interest rates, risking the suppression of further economic recovery. The latter option is also unattractive because the first central bank to engage in such a policy will strengthen the national currency and reduce the competitiveness of exporters. The recent actions of the central banks show that the implied currency wars are already taking place, and most of them seek to weaken the national currency.

Another no less risky alternative of central banks is to continue to print money. The excess money supply distorts the prices of financial assets, and the efforts “to do everything and anything” in order to boost the engine of economic growth, create an asymmetric risk. For this reason, the inadequately high investment flow is seemingly directed towards the more risky instruments (such as stocks) in anticipation of not only higher returns, but also protection against potential inflation. Clues of new emerging bubbles are seen in the real estate markets of many countries.

The central banks' freedom of action is complicated by the unpleasant circumstances. They operate in darkness – they have never faced this kind of global financial crisis before and never applied a monetary stimulus of this magnitude. Therefore, it is difficult to predict how the normalization of the monetary policy affects international financial flows, financial institutions and their ability and willingness to provide credit to businesses and people. This summer, economists predicted that the FED's money printing pace would be reduced by September. However, the expectation of a slower pace of money printing alone (as opposed to reducing the money supply!) caused serious storms in the financial markets. The Indian currency has depreciated by about 20%, and other emerging markets also seriously bled. In this unexpected context, the FED dollar printing house postponed the reduction of its working hours for an indefinite period of time, and now it is expected that this will happen no earlier than in spring.

Over the past five years, the central banks have played a key role in stabilizing the world’s economy. Over the next five years, they will have the equally difficult task of not pulling it towards the deflationary abyss on the left, or over to the opening up inflation gap on the right. It will be difficult not to slip in the darkness.

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Then and Now: Bargains Galore!

Coupon Clipping is Contagious
If you’ve ever watched a show on coupon madness where a family of 11 goes to a store and comes out with enough food and health and beauty items to last until the apocalypse and it costs them less than $100.00, you’ve experienced coupon mania at its finest hour. While the times have definitely changed, one thing remains the same: everyone loves a bargain. From deep discounts, clearances and end of season sales at retail stores to “buy one get one free” items at the grocery store, to getting that special one day only deal, the key ways to save is with coupons. Nothing is as nostalgic as sipping coffee while pouring over the Sunday morning newspaper clipping coupons. There’s a certain thrill to finding those special items, going to the store and getting a great deal. (and if the store accepts double coupons, as in the case of many grocery stores, you get even more savings!)

Coupons Coupons Everywhere
What’s even better is not only do we continue to find coupons in our favorite hard copy printed materials such as newspapers, coupon clippers and magazines, the internet also provides a wealth of savings with digital coupons for traditional brick and mortar stores as well as online shops and stores. Sites like Groupon, ChameleonJohn and hundreds of other places offer daily online coupons on everything from coffee to meals to clothing, home décor and accessories. Almost every online store offers some sort of online coupon deal.

Smart Phones Equal Smart Savings
While some people still relish the art of traditional coupon clipping, preferring to carry their “hard copy coupons” with them in either plastic baggies or plastic accordion type containers sealed with elastic string, the convenience of the digital age where everyone has a smart phone of some sort allows you to search what you’re looking for via your favorite search engine, an online coupon site or the product’s website. Then you just click and download the app for easy, one step access. Then, when you head to the stores, instead of digging in your purse or worse, trying to present a coupon where you accidentally snipped off the UPC code which makes it unusable, the only thing you have to do is show your phone and let the cashier scan the coupon’s code, giving you instant savings without a hassle. For those of you who don’t have a smart phone or just prefer the feel of a paper coupon in your hand, there are plenty of online coupons that can be printed.

A Treasure Trove of Savings
Not only can you find coupons for just about any item, you’ll find a variety of percentages of savings and deep discounts. Online and digital coupons are a great way to save on just about everything you want or need. Whether you’re a traditional coupon clipper or a novice to finding the best bargains, coupons offer a treasure trove of savings.

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