Central European Leaders Call For Unity In The Face Of Crisis

NOVI SAD, Serbia -- Central European leaders from 14 countries have called for more regional cooperation in the wake of the global economic crisis and for a better distribution of energy resources.
At a regional summit in the Serbian city of Novi Sad, host president Boris Tadic led the calls for solidarity in dealing with both economic and energy issues."We cannot permit that (these matters) become a source of our division, especially in the period of crisis," he said.The region has been battered by the global economic crisis hitting the budding economies of the formerly communist central and eastern Europe particularly hard. Measures to tackle the recession, including cuts in the welfare benefits and salaries have provoked widespread protests from Latvia to the Balkans.Austrian President Heinz Fischer said the global economic crisis remained "the most fundamental challenge," requiring multilateral cooperation."We must focus on the necessity to keep social balance and cohesion in our own societies. There's a special responsibility to protect the poorer and weaker," he said.Key region in securing Europe's energy suppliesApart from the economic woes of the global economic crisis, the summit's focus has been on energy issues. The region suffered severe shortages of heating gas last winter, when a dispute over payments between Russia and Ukraine saw supplies cut, particularly to Bosnia, Bulgaria and Serbia.Serbian President Boris Tadic pointed out that Serbia and other western Balkan states were key to securing energy and stability for the rest of Europe."Our region is becoming an energy bridge leading to consumers in other parts of Europe. I am sure that we are going to succeed in this if we pursue a common energy policy."Polish President Lech Kaczynski and Ukrainian leader Victor Yushchenko joined the call for better distribution and diversification of energy resources.Yushchenko urged European countries to adopt a "common policy and a common gas market" to minimize the risk of another gas crisis in the future.The meeting brought together presidents from 14 countries - Austria, Bosnia, Bulgaria, Croatia, the Czech Republic, Italy, Macedonia, Moldova, Montenegro, Poland, Serbia, Slovakia, Slovenia and Ukraine - for the 16th time.

Russian rescue operation for crashing car market

Russia's involvement in the deal to rescue troubled European carmaker Opel could provide a lifeline for cash-strapped oligarch Oleg Deripaska's GAZ, but the Russian car industry remains on the skids as sales plummet and foreign carmakers cut back production.
This week saw two high-profile, car-related public appearances by Prime Minister Vladimir Putin - first, as he drove his vintage GAZ automobile to a ceremony at Skolkovo Business School over the weekend, and then the opening of the $200 million Nissan plant in St. Petersburg on Tuesday.
At the opening ceremony, also attended by Nissan CEO Carlos Ghosn, Putin witnessed the first Teana sedans and Xtrail sports utility vehicles rolling off line.
Putin took a Teana for a test drive around the factory, with Ghosn in the passenger's seat. "It's a good car - high-quality and beautiful," Putin told reporters.
Nissan currently plans to assemble 18,000 to 36,000 cars a year - less than the plant's capacity of 50,000 units - and is counting on parts from 40 local suppliers.
But neither the Opel deal or Nissan's show of confidence in the market could dispel the gloom and sense of unease about the future of the industry, which until the crisis hit last fall was one of the biggest success stories for foreign investment, with around a dozen foreign-owned plants across the country.
On Monday, Sberbank emerged as an unlikely potential saviour of both Opel, the European arm of bankrupt US giant General Motors, and GAZ, which could benefit from its tie-up with its Canadian partner in the deal, Magna International.
Under the tentative deal, rushed through to help GM manage its US bankruptcy, the US company will reduce its stake in Opel to 35 per cent, Sberbank will take 35 per cent, Magna will have 20 per cent and the remaining 10 per cent goes to Opel employees in Germany.
Sberbank hopes to utilize Opel's new technology at GAZ's struggling Nizhny Novgorod plant, replacing its unpopular GAZ Siber model production with Opel cars.
The deal intriguingly would make Russia and America direct partners in the car industry for the first time, as US President Barack Obama is taking 60 per cent of GM into state ownership.
But the exact advantages for GAZ and synergies in the deal were not clear to industry experts.
"GAZ's strong suit is not passenger vehicles, but light commercial vehicles and buses," said Elena Sakhnova, an automotive analyst at VTB. "It would have been better for GAZ to concentrate on that. So far, all their [passenger] projects have been quite unsuccessful. GAZ does have production capacity, and the result may be good, but the risks are high."
While the deal would help GAZ boost its market share, it would take Deripaska's company three to five years to overtake AvtoVAZ as the biggest Russian car company, as customers would take time to trust its products, Sakhnova said.
Putin this week said the Opel deal should boost the Russian car industry, which has lagged behind its foreign competitors in recent years as Russians increasingly switch to foreign brand models.
Last year, locally-produced foreign branded cars were the most dynamic segment of the Russian automotive market. While Russian brands sold almost 10 percent fewer units, 32 per cent more locally-made foreign brand cars were sold, representing a 57 increase in cash terms.
The foreign brands made in Russia maintained this level of growth despite the drastic drop in sales in the last few months of 2008.
Overall car production in Russia dropped drastically in the first quarter of this year, due mainly to the overall market decline, and both foreign-branded and Russian carmakers have slashed production to cope with left over stock from last year.
The highest drop was so far in the production of local-brand Russian cars, and Russian carmakers, including GAZ, made the headlines with three-day work-weeks, pay cuts and extended holidays, causing rising workers' discontent.
"Russian manufacturers were more affected because it's no secret that Russian people prefer foreign brands," said Christoph Schenk, KPMG's top auto expert in Russia and the CIS. "I believe that when money gets tighter, people think twice about whether they should invest a bit of their savings in a product which they do not believe in, or put a bit more money on the table and buy a foreign branded car. The latter seems the better investment over time."
That is not to say that foreign brands have not suffered setbacks. Ford, which has been assembling cars near St. Petersburg since 2002, is cutting its work week to four days from June 8, when the workforce comes back after an extended vacation from May 25 to June 5.
Ford insists the four-day week is simply bringing Russia in line with its production slowdown in other European countries.
The prospects for a recovery in the Russian market are not particularly bright, as unemployment is over 10 per cent, salaries are falling and car-loan providers are demanding bigger down payments as well as higher interest rates.
The US, Japan and most countries in Europe are tempting potential buyers with incentives to scrap old vehicles and replace them with new, more fuel efficient models.
Such incentives could be particularly helpful in Russia, given that the average car here is older than elsewhere in Europe, said Stanley Root, an auto expert at PricewaterhouseCoopers. "Russia's road safety record lags behind that of its European counterparts partly because of the age and condition of its cars," he said. "Moreover, such a scheme would have an immediate impact on consumer demand."
With import duties on foreign made cars hiked to 30 per cent in January, many Russian buyers are being forced to choose locally manufactured foreign brands.
"It does not make sense for the top segment to produce locally, but medium-priced cars should see growing demand in Russia," said Schenk. "Opels, Fiats, Peugeots, Citroens, VW, they will continue to localise, they will invest, and if they are smart, they will not stop their activities in the Russian market."
One of the government's best moves was to make cheaper car loans available to buyers of cars costing up to 600,000 roubles, up from a limit of 350,000 roubles before, said Ivan Bonchev, an auto expert at Ernst & Young.

Ruble Collapse Brings Wages Back to Earth

The days of spectacular wage growth that made Moscow an international employment destination have come to an end, economists say, with layoffs throughout the economy letting employers bring salaries back in line with productivity growth.The earnings cuts, alongside inflation and the weakening ruble, have dealt Russian wage earners a triple whammy, and the Central Bank's devaluation of the currency Thursday brought it past the 32 mark against the dollar for the first time since the 1998 redenomination .Over the past few years, real wages have increased at roughly twice the rate of worker productivity. Now that the value of the ruble is falling — and the job market is shrinking — employers say they'll be able to start paying employees to match their output.In just the past four months, investment bankers accustomed to annual salary jumps of 30 percent are now being offered new jobs at 40 percent of what they had been making. In advertising, sales and marketing, job candidates are facing salary decreases of more than 10 percent, according to recruitment agency Antal Russia.Yevgeny Nadorshin, chief economist at Trust National Bank, said the devaluation would correct what were previously "overvalued" wages and give employers a leg up in contract negotiations. "Eventually it will attract more companies to Russia and help us weather the crisis better," said Elina Ribakova, chief economist at Citibank.Wages grew 12.4 percent year on year in the third quarter of 2008, according to the most recent figures from the State Statistics Service, while productivity — real output per employed person — during the same period increased 8.24 percent, based on figures from Haver Analytics.The data already reflect a slowdown since the second quarter, when wages rose 12.6 percent year on year and productivity increased 5.93 percent. In the second quarter of 2007, wages increased 16.7 percent year on year while productivity rose 6.43 percent.For workers, though, "devaluation means high inflation" in the short term because of Russia's strong dependence on imported goods, Nadorshin said. Though inflation growth fell to a four month-low in December of 0.7 percent, the rate will rise once discounts from cash-strapped foreign producers disappear, he said. After the 1998 crisis, many Russia-based multinational companies paid their employees in foreign currencies or in rubles at the going Central Bank rate, but with increased stability over the past three to four years, many have switched to a fixed ruble salary.Tremayne Elson, managing director at Antal, said salaries were typically calculated at an exchange rate of about 28 rubles to the dollar and were not renegotiated to reflect inflation. Steve Castelete, president of Avalon Logistics Russia, said that most of his employees' salaries had been set to an exchange rate of about 27.5 rubles per dollar after the company switched to paying in rubles five or six years ago. Employees benefited during the years the ruble appreciated, Castelete added. According to Antal's figures, a "large number" of companies have already cut salaries, particularly in the banking and construction sectors. Castelete said Avalon had not yet been forced to reduce its workforce."We're not seeing a correction of salaries at the moment, but we would expect that they would become more realistic as more workers come into the marketplace," he said, referring to contracts for new hires. The shift will be what Danilo Lange, general manager of communications agency Louder Russia, calls a "market cleansing.""It was very difficult to find people for good value the last four years. The employee market was basically empty and everyone wanted super-high salaries," Lange said, clarifying that he believed his employees "deserved" their respective salaries.Louder re-evaluates its ruble-denominated salaries every six months to account for inflation, he said. While the company has not made wage cuts, they did eliminate 2008 bonuses."There's going to be more balance this year," said Castelete, of Avalon. "And I think that's a good thing."