October 20, 2014

October 20, 2014
This is bne's Southeast Europe daily newsletter, a list of the top stories from the
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1. Albanian PM postpones Serbia visit
2. China's CGN selected for Romania's nuke project
3. Putin gets hero’s welcome in Serbia
4. Turkish prosecutor drops charges in major corruption probe
5. UBS sues Croatia in U.S. over $45 mln in Yugoslavia-era debt
6. Govt critics deride Hungary's Potemkin economy
7. Growth in Russia is in the toilet
8. Serbian central bank leaves 1-wk repo rate unchanged at 8.50%
9. Fitch Affirms Slovenia at 'BBB+; Outlook Stable
10. Bosnian Serb rivals bid for coalition partners
11. Discredited Politics, Inconclusive Election Leave Bulgaria Adrift
12. First Investment Bank Buys Major Portion of Assets of Bulgaria’s RemotexRadnevo
13. Romanian social-democrat “grey eminence” faces arrest in illegal restitutions
14. Romania’s Credit Rating Affirmed by S&P on Falling External Debt
15. Serbia Establishes National Committee On Investments
16. Slovenia's Istrabenz to sell its 4 pct stake in Petrol
17. Slovenian Economy Minister Petrovic resigns
18. Turkey Sales Agency Working Itself Out of a Job, Finance Minister Says
19. Turleys set to build €250m ethanol plant in Macedonia
1. Albanian PM postpones Serbia visit
October 20, 2014
Albanian Prime Minister Edi Rama has postponed a visit to Belgrade until November
after a brawl at a football match between the two countries sparked a diplomatic
Rama’s visit to Belgrade, originally due to take place on October 22, will now be
delayed until November 10 to allow tensions to calm. Both Rama and his Serbian
counterpart Aleksandar Vucic say they want the visit, designed to signal a
turnaround in the two countries’ troubled relationship, to go ahead.
A qualifying match for the Euro 2016 football championships between the two
countries held in Belgrade on October 14 was interrupted when a drone carrying an
amended version of the Albanian flag was flown into the stadium. The flag showed a
map of “Greater Albania”, drawn to include parts of Greece, Macedonia and Serbia.
Fighting broke out on the pitch when Albanian players tried to defend the flag from
their opponents, and the match was abandoned.
Rama’s brother, Olsi Rama, has been accused by Serbian officials of being
responsible for sending the drone into the stadium, though he has denied the
The incident came at a time when relations between Albania and Serbia were
showing signs of improvement. Rama would have been the first Albanian leader in 68
years to visit Belgrade, signalling a warming in relations between the two countries
after a lengthy history of conflict that intensified during the mainly ethnic Albanian
Kosovo region’s war of separation from Serbia in the late 1990s.
Rama and Vucic discussed the issue on October 19, deciding to delay the meeting
until tensions had eased, rather than cancelling. The two prime ministers said there
were still “obvious disagreements” about how the incident occurred, adding however,
that “they must not and will not miss the opportunity to meet and work on
maintaining regional stability,” according to a statement on the Serbian government
“The two prime ministers concluded that it is time we turn a new page in the political
and economic relations between Serbia and Albania,” the statement adds.
The violence on the pitch on October 14 was followed by a series of attacks on ethnic
Albanian targets within Serbia in the following days.
After the match, several bakeries owned by ethnic Albanians were attacked in
Serbia's northern Vojvodina region. A hand grenade was hurled into a bakery in
Stara Pazova, and another Albanian-owned bakery in Sombor was set on fire, while
three others in Vrsac were vandalised, Serbian broadcaster B92 reported. Also in
Vojvodina, the door of the Muhajir Mosque in Subotica was set on fire early on
October 19. In a further sign of anger over the incident in Serbia, Red Star Belgrade
fans set an Albanian flag on fire during a match against Partizan Belgrade on October
Serbian officials have condemned the violence, with Vucic saying in a statement that
the government will guarantee the safety of the entire population. “[T]hese are
criminal acts and the government will respond by protecting its citizens," Vucic told
television channel RTS.
2. China's CGN selected for Romania's nuke project
October 20, 2014
Romania and China General Nuclear (CGN) signed on Friday a joint letter of intent to
build two new reactors in Romania's Cernavoda nuclear plant for which the Chinese
company has been designated as an investor.
Read more here:
3. Putin gets hero’s welcome in Serbia
October 19, 2014
Russian President Vladimir Putin received an unequivocally warm welcome in Serbia
on October 17. The visit served to cement ties between Russia and Serbia in the
diplomatic and military spheres, despite the latter’s prioritising of EU membership.
The Serbian military put on a lavish display for Putin on the 70th anniversary of the
liberation of Belgrade by the Red Army alongside Serbian partisans. More than 3,000
Serbian soldiers took part in the military parade, with Belgrade even moving forward
the date of the event (the Belgrade offensive started on September 14) to fit in with
Putin’s schedule. During his six-hour stopover in Belgrade, Putin was awarded
Serbia's highest honour, the Order of The Republic of Serbia, by his Serbian
counterpart Tomislav Nikolic.
Serbian President Tomislav Nikolic said in a speech at the parade that the two
countries shared an “unbreakeable bond”. “Serbia and Russia are linked by their
roots, language, customs, creed, history, culture,” Nikolic said.
While this ignores a sizeable chunk of recent history - the Soviet-Yugoslavia split
came just three years after the liberation of Belgrade - more recently Russia has
been a staunch supporter of Serbia. In 1999, Rusia opposed the Nato bombing of
Yugoslavia over Kosovo, and Moscow has continued to support Belgrade's opposition
to Kosovo’s independence.
Putin confirmed on October 17 that this will continue. "We supported Serbia in the
past and we intend to continue supporting it in the future. In Russia friendship is not
an object of trade-offs," Putin said.
While the current Serbian government under Prime Minister Alexander Vucic is
staunchly pro-European, Putin’s popularity among ordinary Serbians was apparent,
as thousands of people lined the parade route to cheer him.
The visit also yielded seven agreements spanning the military and economic spheres.
An agreement on technical cooperation between the armed forces of the two
countries paves the way for future cooperation and modernisation of Serbian military
equipment, Serbian Defence Minister Bratislav Gasic said the following day.
Trade and investment is due to be ramped up in the agriculture sector. Since Serbia
is exempt from the one-year Russian embargo on western agricultural imports,
Moscow is encouraging Serbian producers to export more to the Russian markets,
despite pressure from the EU on Belgrade not to take advantage of the ban.
Putin said that if the agreements in the sector signed on October 17 come to fruition,
“exports of Serbian products to the Russian market will increase from $130m to
$500m according to the government.
He added that the sanctions were a “real chance” for producers in countries that
wanted to develop cooperation with Russia.
To date, Russia has invested a total of $3bn into Serbia, but Putin told a joint press
conference with Vucic that within three years this total could double, or reach as high
as $10bn.
Russia has already extended a $800m loan to Serbia for modernisation of its
railways. During Putin’s visit, Russian Railways’ subsidiary RZD International signed
a contract to rebuild three sections of the Trans-European railway Corridor 10, and a
second agreement to supply 27 diesel locomotives to Serbia.
Both sides also reiterated their commitment to the South Stream gas pipeline,
acknowledging, however, that the project would only be viable if the EU countries
along its route agree to go ahead. Putin told journalists he was "deeply convinced"
that the project was beneficial for European consumers, but added, "South Stream
cannot be realised unilaterally if our partners are still in two minds about it. This is
like love, it can be happy only if there are two participants of this wonderful process,
who both want to develop relations."
Since the start of the Ukrainian conflict, Serbia has become Russia’s closest partner
within Europe, and one of only a small handful of European countries not to sign up
to EU sanctions against Russia over the annexation of Crimea.
At the same time, however, Vucic’s government has made EU accession its priority.
Serbia received a positive assessment in the European Commission’s latest
enlargement reports released on October 8, although its divergence from EU policy
over South Stream was noted. The last year has marked a turning point for Serbia
on its road towards EU membership, with the accession negotiations process formally
launched in January 2014.
4. Turkish prosecutor drops charges in major corruption probe
Kivanc Dundar in Istanbul
October 20, 2014
A prosecutor on October 17 dismissed charges against 53 people in a corruption case
that targeted President Recep Tayyip Erdogan’s inner circle, and resulted in the
resignation of four ministers when the scandal broke in 2013.
The prosecutor argued that there were problems with collecting evidence, and the
case lacked proof of criminal elements, Hurriyet Daily News reported.
The suspects included the sons of former Interior Minister Muammer Guler, former
Economy Minister Zafer Caglayan, Turkish-Iranian businessman Reza Zarrab, and
the former manager of the state-run lender Halkbank, Suleyman Aslan, in whose
home police found $4.5mn cash in shoe boxes. Businessmen with close ties to the
ruling Justice and Development Party (AKP) were also detained when the corruption
scandal erupted on December 17, 2013. All suspects were later released pending
Zarrab was suspected of forming a criminal network that bribed state officials to
facilitate illegal gold trading with Iran via Halkbank, in breach of international
Read more here: http://www.bne.eu/content/story/turkish-prosecutor-dropscharges-major-corruption-probe
5. UBS sues Croatia in U.S. over $45 mln in Yugoslavia-era debt
October 20, 2014
UBS AG sued Croatia in New York federal court on Friday, claiming the republic owes
it $45 million in principal and interest on defaulted debt assumed after the breakup
of Yugoslavia.
According to the lawsuit, Yugoslavia issued the debt in 1988 as part of a series of
restructurings, as the country tried to keep its struggling economy afloat. It said the
terms of the notes in question call for any legal action to be filed in New York.
Read more here: http://www.dailymail.co.uk/wires/reuters/article-2797453/UBSsues-Croatia-U-S-45-mln-Yugoslavia-era-debt.html
6. Govt critics deride Hungary's Potemkin economy
Kester Eddy in Budapest
October 20, 2014
Rozsa Beer is crystal clear when it comes to offering her opinion on the Hungarian
economy. Mrs Beer, 59, who has retired from running a small knitting business with
her husband, reels off a list of reasons why she and her family are happy with local
economic developments.
"We've got a large house in the Budapest suburbs, and the utility bills have really got
cheaper because of the [government mandated] regulated price cuts,” she says.
Her daughter, who is buying a house with a foreign-exchange based mortgage loan,
expects to see a “significant” reduction in monthly repayments due to the
government's efforts to get such loans judged “unfair.”
Meanwhile, having just had a baby, the same daughter will see will see the extra
housekeeping costs greatly eased by the latest child benefit schemes.
“She can get full child allowance after going back to work when the baby is 12
months. This, and the personal income tax rate [of 16%], really favours families with
kids," she says.
Read more here: http://www.bne.eu/content/story/govt-critics-deride-hungaryspotemkin-economy
7. Growth in Russia is in the toilet
Ben Aris in Moscow
October 20, 2014
Russia's ruble is tanking and economic growth has stalled. The economic news could
not be much direr. But even in the worst economic climate there is one product that
people will always need – toilet paper.
"For the tissue paper market there has been practically no crisis, as we are a cheap
product and, after bread and milk, probably the third most essential item in the
average shopping basket," Mark Reznik, CEO of Syktyvkar Tissue Group (STG),
Russia's second biggest maker of quality toilet paper, tells bne.
One of the most remarkable differences between the current crisis and the last big
one in 1998 is that the Russian population has so far been largely sheltered from the
pain. Russia's macroeconomic picture is bleak, but at the street level wages have
continued to rise by about 10% a year since 2008, supported by the slowly shrinking
working population, which has also led to record low post-Soviet unemployment
rates. It has only been in the last half a year that consumer spending has started to
slow and Russians became worried enough about a currency devaluation to start
buying dollars again.
The toilet paper business turns out to be a case study in the microeconomic impact
of the crisis on Russia's development. At this level the picture looks much more like
business-as-usual, which has also supported Russian President Vladimir Putin’s skyhigh popularity.
Read more here: http://www.bne.eu/content/story/growth-russia-toilet
8. Serbian central bank leaves 1-wk repo rate unchanged at 8.50%
Tim Ash, Standard Bank
October 20, 2014
Not a big surprise given recent volatility in global markets, and likely given that the
Serbian authorities are still trying to line up a new precautionary arrangement with
the IMF with somewhat limited fiscal adjustment. The NBS is likely trying to signal
that they are keeping up their end of the bargain by keeping monetary policy
appropriately tight, which might then cut some slack for fiscal adjustment to be a bit
more moderate. Tight fiscal policy is also important for supporting the RSD - itself
important given the high share of FX debt in public sector debt and focus therein on
rising public sector indebtedness
The CPI did rise to 2.1% YOY in September, from 1.5% the month
earlier but is still well below the bottom end of the NBS's inflation target
The message
to the IMF likely is, hey dudes monetary policy is tight, we are undertaking key
structural reforms (new bankruptcy bill, privatisation laws, labour market reform and
pension reform bills, and plans to close/sell 503 SOEs over the next year), and we
have announced EUR700m in fiscal measures - so cut us some slack please.
Meanwhile, Uncle Vlad is in Belgrade this week, and the message therein is that with
Russian/UAE cash, Serbia has some alternatives...
9. Fitch Affirms Slovenia at 'BBB+; Outlook Stable
Fitch Ratings
October 17, 2014
Fitch Ratings has affirmed Slovenia's Long-term foreign and local currency Issuer
Default Ratings (IDRs) at 'BBB+'. The Outlooks on the Long-term IDRs are Stable.
The issue ratings on Slovenia's senior unsecured foreign and local currency bonds
have also been affirmed at 'BBB+'. The Country Ceiling has been affirmed at 'AA+'
and the Short-term foreign currency IDR at 'F2'.
Slovenia's 'BBB+' ratings reflect the following key rating drivers:
- Slovenia's gross general government debt (GGGD), at an estimated 82% of GDP in
2014 (or 70% of GDP net of government deposits), is nearly four times its 2008
level, and over twice the 'BBB' median, as a result of poor economic performance,
fiscal slippage and large-scale bank clean-up operations in 2013 and early 2014.
Fitch forecasts that GGGD is near its peak, as the bulk of bank recapitalisation and
impaired asset transfers has taken place, the budget deficit has narrowed, and
macroeconomic performance has improved.
The centre-left government formed in September 2014 by Prime Minister Miro Cerar
faces a challenging task in bringing the general government deficit to below 3% of
GDP in 2015, from an estimated 4.4% (3.5% excluding financial sector operations)
in 2014, to comply with the requirements of the EU's Excessive Deficit Procedure.
Fitch forecasts that the deficit will only fall to below 3% of GDP from 2016.
- Economic activity has recovered faster than expected, and Fitch now estimates that
real GDP growth will reach 2% in 2014. Nevertheless, the gap in average growth
between Slovenia and its 'BBB' peers remains wide. Furthermore, external risks to
Slovenia's small and open economy are on the rise, with the eurozone recovery
faltering and the likelihood that western sanctions on Russia (and Russian countersanctions) will remain in place through 2015 and thus damage the export prospects
of some Slovenian companies (Russia accounts for 5% of Slovenia's exports). Fitch
thus forecasts that growth will slow to 1.6% in 2015, followed by a modest pick-up
that will nevertheless leave GDP growth well below the 1993-2008 average of 4.2%.
- The banking sector's outlook has improved markedly since the recent clean-up
operations, but remains fragile. The sector's capital adequacy ratio stood at 16% in
mid-2014, and a small measure of profitability has returned. Nevertheless, impaired
loans (on Fitch's preferred definition including doubtful loans in the 'C' local
regulatory definition), while lower than before the asset transfer, have stagnated
above 20% of the total in 2014. The rehabilitation of the banking sector will proceed
in parallel with that of the corporate sector. Both are likely to take several years still.
Net corporate liabilities are falling, but were still high in 1Q14 at 106% of GDP.
- At an estimated 24% of GDP in 2014, net external debt is higher than the 'BBB'
median of 5%. The economy is rebalancing externally at a quick pace. The current
account is in large surplus (an estimated 5% of GDP in the year to July 2014) and
Fitch expects it to remain largely in place in 2015-16. This is helping to fund bank
and corporate deleveraging (the capital and financial account deficit amounted to 7%
of GDP in the year to July 2014).
- Government financing flexibility has improved as evidenced by substantial bond
issuance in early 2014 and lower spreads. Increased government deposits (11.4% of
GDP in 2014 from 9.1% of GDP in 2013) roughly cover expected gross public
borrowing requirements for 2015, reflecting Slovenia's prudent approach to debt
- Indicators of human development, governance and per-capita incomes exceed
comfortably the median of the 'BBB' category. EU and eurozone membership and a
fairly high value-added and diversified economy also underpin Slovenia's sovereign
The Stable Outlook reflects Fitch's assessment that upside and downside risks to the
rating are currently balanced. Nonetheless, the following risk factors could,
individually or collectively, trigger a positive rating action:
- Budget deficit reduction remaining on track consistent with the public debt ratio
being placed on a firm downward path
- Increased confidence that bank and corporate balance-sheet clean-up are
progressing. In this respect, the outcome of the ECB comprehensive assessment is
- Sustained economic recovery, particularly if supported by structural reforms such
as the privatisation of key state assets
-Significant reduction in the net external debt/GDP ratio
The following risk factors could individually or collectively, trigger negative rating
- Deterioration in the public debt trajectory resulting from either widening budget
deficits or the crystallisation on the sovereign balance sheet of unexpected liabilities,
for example related to banking or corporate sector clean-up
- Severe worsening of macroeconomic and/or financing conditions
Given the uncertainties involved, Fitch does not assume a contribution from the
realisation of returns on distressed assets held on the Bad Asset Management
Company (BAMC)'s balance sheet for the purpose of its GGGD projections. Fitch
makes allowance for only a limited contribution to GGGD reduction from privatisation
proceeds, given that the sale of significant assets in the telecoms and banking
sectors is still not certain at this stage.
Fitch assumes the eurozone will avoid long-lasting deflation, such as that
experienced by Japan from the 1990s. Fitch also assumes the gradual progress in
deepening fiscal and financial integration at the eurozone level will continue; key
macroeconomic imbalances within the currency union will be slowly unwound; and
eurozone governments will tighten fiscal policy over the medium term.
10. Bosnian Serb rivals bid for coalition partners
The Journal of Turkish Weekly
October 20, 2014
Neither of the two parties that won most votes in the elections in Bosnia’s mainly
Serbian entity can govern alone - so each is hunting for potential coalition partners.
The parties that did best in last Sunday’s elections in Republika Srpska are now
weighing up their options for forming a new government in the entity.
Read more here: http://www.turkishweekly.net/news/173806/bosnian-serb-rivalsbid-for-coalition-partners.html
11. Discredited Politics, Inconclusive Election Leave Bulgaria Adrift
World Politics Review
October 20, 2014
Over the past 20 months, Bulgaria has seen four governments, ongoing antiestablishment street protests over living standards and corruption, a banking crisis
and sanctions as well as other pressure from the European Union due to its close ties
to Russia. Some hoped the country’s second snap election in two years on Oct. 5
might have provided impetus for change to a discredited and directionless political
leadership overseeing the EU’s poorest economy, which has lost its emerging-market
sheen since the 2009 financial crisis.
Read more here: http://www.worldpoliticsreview.com/articles/14229/discreditedpolitics-inconclusive-election-leave-bulgaria-adrift
12. First Investment Bank Buys Major Portion of Assets of Bulgaria’s
October 20, 2014
First Investment Bank (Fibank) has paid BGN 8,893 M at an auction to acquire the
main part of the assets of bankrupt machine building company Remotex-Radnevo.
Fibank now be able to get back around half of the loan of nearly BGN 16 M which it
provided to the company for the repair of heavy mining equipment.
Read more here:
13. Romanian social-democrat “grey eminence” faces arrest in illegal
restitutions case
Romania Insider
October 20, 2014
Romanian social-democrat deputies Viorel Hrebenciuc, one of the key people of the
Social Democratic Party (PSD), and Ioan Adam are facing arrest, as the National
Anticorruption Directorate (DNA) has asked the approval from the Deputies Chamber
to hold them in a corruption case of illegal forest restitutions, according to Mediafax.
Read more here: http://www.romania-insider.com/romanian-social-democrat-greyeminence-faces-arrest-in-illegal-restitutions-case/133831/
14. Romania’s Credit Rating Affirmed by S&P on Falling External Debt
October 20, 2014
Romania had its credit rating affirmed at the lowest investment grade by Standard &
Poor’s, which cited declines in its external debt and the budget deficit.
The Black Sea country’s long-term sovereign bond rating was maintained at BBB-, on
par with Russia, Brazil and India, S&P said today in a statement, keeping the outlook
Read more here: http://www.bloomberg.com/news/2014-10-17/romania-s-creditrating-affirmed-by-s-p-on-falling-external-debt.html
15. Serbia Establishes National Committee On Investments
InSerbia News
October 20, 2014
Serbia is the first in the region to establish a national committee on investments to
prepare and implement significant strategic infrastructure projects, Minister without
portfolio for European Integrations Jadranka Joksimovic said on Friday.
“Serbia is the first in the region to apply an approach to preparing projects that is
this systematic,” Joksimovic told a press conference, adding that the establishment
of the government body has also been given a positive assessment in the European
Commission report on Serbia’s progress on the path towards the EU.
Read more here: http://inserbia.info/today/2014/10/serbia-establishes-nationalcommittee-on-investments/
16. Slovenia's Istrabenz to sell its 4 pct stake in Petrol
October 20, 2014
Slovenia's tourism and energy holding Istrabenz will sell its 4.05 percent stake in the
country's largest fuel retailer Petrol at 275 euros per share, Istrabenz said in a
statement on Friday.
Read more here:
17. Slovenian Economy Minister Petrovic resigns
Deutsche Welle
October 20, 2014
Slovenian Economy Minister Jozef Petrovic has resigned after learning he is being
probed over alleged fraud in deals with the administration. He was appointed only a
month ago and denied any wrongdoing.
Read more here: http://www.dw.de/slovenian-economy-minister-petrovic-resigns/a18005047
18. Turkey Sales Agency Working Itself Out of a Job, Finance Minister Says
Business Week
October 20, 2014
Turkey is selling off state assets at a pace that could soon leave its privatization
agency sitting idle, said the country’s finance minister.
“I think at this speed, the privatization administration could be out of a job in a year
or two, because we’ve been very successful,” Finance Minister Mehmet Simsek said
in an interview in Ankara yesterday.
Read more here: http://www.businessweek.com/news/2014-10-17/turkey-sbreakneck-sales-to-leave-nothing-to-privatize
19. Turleys set to build €250m ethanol plant in Macedonia
Irish Independent
October 20, 2014
Greg Turley and his brothers, who sold online car rental business Cartrawler, are
planning a vast €250m investment to build an bio-fuel plant in Macedonia in
partnership with US industrial behemoth DuPont.
Read more here: http://www.independent.ie/business/world/turleys-set-to-build250m-ethanol-plant-in-macedonia-30674438.html