News & Analysis

Emerging Europe this week

Central Europe

Google will invest as much as two billion US dollars in a data centre in Poland to deal with cloud services, the Puls Biznesu daily said on Wednesday. News of the investment follows an announcement by Microsoft in May that it will invest one billion US dollars in a Polish data centre, as the largest economy in the European Union’s eastern wing tries to position itself as a regional technology hub. “Region Google Cloud in Warsaw is the biggest investment in infrastructure of this type in Poland,” the paper quoted Magdalena Dziewguc, Google Cloud’s business development director in Poland and Central and Eastern Europe, as saying. “We are getting ready for it to be operational at the beginning of 2021.”

Hungary’s MKB Bank has launched a due diligence process at Croatia’s Slatinska Banka with the aim of entering its shareholding structure, the Croatian lender confirmed this week. Slatinska Banka revealed no further details about the intended transaction in a brief filing to the Zagreb Stock Exchange (ZSE). According to ZSE data, the largest single shareholder in Slatinska is Zagreb-based law firm Zupic and Partneri, with a 9.22 per cent stake. The remainder is held by a number of minority shareholders, including the government’s Centre for Enterprise Restructuring and Privatisation, CERP, with 5.23 per cent. Slatinska is Croatia’s 18th largest bank.

Hungary this week agreed to buy 6.2 billion cubic metres of natural gas from Russia’s Gazprom and will begin talks on a flexible, long-term gas supply agreement with the Russian energy firm. “Our goal is to sign three five-year deals, which allows cancelling the agreement at the end of each five-year period,” said Foreign Minister Péter Szijjártó.

Slovakia this week agreed to replace a special tax levied on bank balance sheets with a commitment from banks to lend more to public and private projects. The special tax was introduced in 2012 after the global financial crisis to create a buffer fund to help cope with future crises. It has raised about 150 million euros a year. “We have agreed to introduce an entirely new scheme instead of the bank tax,” Prime Minister Igor Matovič told a televised news conference.

The lower house of the Czech parliament this week approved a rise in the 2020 central state budget deficit to a record 500 billion crowns (18.7 billion euros). The Czech government is seeking to raise enough funds to shore up an economy hard hit by the coronavirus pandemic. It had earlier increased the deficit plan to 200 billion crowns and later to 300 billion, from the initially planned 40 billion crowns. The latest proposed figure would equate to around nine per cent of the expected 2020 GDP.

Romanian anti-organised crime prosecutors this week dismantled a crime ring specialised in forging the country’s plastic money. The Directorate for Combatting Organised Crime and Terrorism (DIICOT) claims that the network’s leader is the biggest forger of plastic banknotes in the world. Since the group began operating in 2014, DIICOT claims it has produced and placed in circulation over 17,000 banknotes of 100 lei (20.66 euros).

Bulgaria’s prime minister, Boyko Borissov, has threatened to impose a ban on spectators at domestic football matches unless social distancing among fans improves. “We gave our players the opportunity to play in front of spectators,” Borissov told a government meeting. “What did the fans do? They gathered together, not wearing protective face masks. What do they want to demonstrate?” Ironically, Mr Borissov himself faces a 300 leva (153 euros) fine after photos emerged showing that he had not been wearing a mask during a visit to the Rila monastery.

Eastern Europe

A new study from the Vienna Institute for International Economic Studies (wiiw) has revealed that cost of reconstructing Ukraine’s war torn Donbas region will be at least 21.7 billion US dollars, or 16 per cent of Ukraine’s GDP. These costs include damage to physical capital (44 per cent), human capital expenditures (40 per cent), and mitigation of environmental threats (16 per cent).

The European Bank for Reconstruction and Development (EBRD) said on Thursday it had provided a 20 million US dollar loan to Armenia’s ACBA-Credit Agricole Bank so it can give financial support to companies affected by the economic impact of the coronavirus pandemic. ACBA-Credit Agricole, one of the leading banks in Armenia, finances agriculture and micro, small and medium-sized enterprises in rural areas in particular.

Furniture retailer IKEA said this week that it would review its wood supply chain in Ukraine after a report by Earthsight, an environmental NGO, alleged illegal logging in the Carpathian mountains, home to endangered lynx and brown bears. The report alleged IKEA suppliers illegally sourced wood used in some of the Swedish company’s most popular chairs, and said that federal inspectors in Ukraine had found that state forestry business Velyky Bychkiv had allowed manufacturer VGSM, an IKEA supplier, to cut trees during periods when logging was not allowed.

Georgia’s central bank cut its key refinancing rate on Wednesday to 8.25 per cent from 8.50 per cent. The central bank had kept the rate unchanged at nine per cent at meetings in January and March, but cut it to 8.5 per cent in April. Consumer prices in Georgia rose 0.2 per cent month on month in May after rising 0.9 per cent in April. Annual inflation in May was 6.5 per cent, up from 4.7 per cent in May 2019 and down from 6.9 per cent in April this year.

President of Belarus Alexander Lukashenko has accused Russia of meddling in his country’s presidential election campaign and trying to discredit him. Lukashenko, who has ruled Belarus for 26 years and allows little dissent, said on Thursday that “external forces” stood behind his opponents, disseminating information to discredit him and his family members. The election, set to be the most competitive in years, is scheduled for Augist 9.

The Council of Europe’s Commissioner for Human Rights, Dunja Mijatovic, urged Moldova on Thursday to ratify the Istanbul Convention on violence against women and domestic violence “without further delay”. “The government should ensure that the public has accurate information about the true nature and scope of violence against women and domestic violence and the measures envisaged in the Istanbul Convention to respond to and prevent these phenomena,” she said.

North East Europe

Sweden’s financial watchdog on Thursday fined lender SEB one billion crowns (95.44 million euros) for failures in compliance and governance in relation to anti-money laundering regulations in the Baltics. The watchdog launched the investigation after Swedish broadcaster SVT alleged in November that a number of accounts at SEB in Estonia were held in names that should have alerted the bank to the risk it could be being used for money laundering.

Lithuania’s president, Gitanas Nausėda, refused to attend a planned meeting with his Estonian and Latvian counterparts on Thursday, saying he did so after the countries failed to agree to ban electricity purchases from a new nuclear power plant in Belarus. Lithuania sees the nuclear power plant, built by Russia’s Atomstroyexport near its capital and financed by Moscow with a 10 billion US dollar loan, as threat to its safety and national security, something Belarus disagrees with.

Estonia began its first ever presidency of the UN Security Council this week with a signature, virtual event putting cyber security at the heart of its agenda. The event focused on cyber stability, conflict prevention, and capacity-building, but Russia, one of the five permanent security council member countries – did not attend.

South East Europe

US diversified innovation and technology holding company Attis Industries plans to invest up to 80 million euros in the construction of a biofuel factory in Kula, in northern Serbia, the Kula city government has said. The US holding company plans to hire 160 employees at the factory and expects to complete construction in 18 months, Vanessa Bageto, a representative of Attis Industries, said after the signing of a memorandum of understanding with the Kula city government.

Commercial operations got underway at Moglice hydropower plant in Albania this week, delivering renewable power to the Albanian grid. Moglice is the largest of two hydropower plants in Albania’s Devoll valley, and will generate approximately 450 GWh of electricity per year. Together with the second plant, Banja, hydropower production in the Devoll valley will eventually reach 700 GWh per year, equal to approximately 13 per cent of Albania’s total electricity generation.

Meanwhile, the largest oil producer in Albania, Chinese-owned Bankers Petroleum, has resumed operations following a suspension of almost a month due to the coronavirus pandemic, local media reported on Wednesday. Nearly 95 per cent of the wells in the Patos-Marinza oil field have restarted operations, producing about 2,050 tonnes of crude per day. The company plans to produce about 60,000 tonnes of oil in June.

Montenegro’s prime minister Duško Marković this week said that his country had been given the green light to open the eighth and final chapter of EU accession talks. “This is a great day for Montenegro, which will thus become the first current candidate country to open all chapters,” said Mr Marković. Montenegro has so far provisionally closed three negotiation chapters.

The International Monetary Fund (IMF) on Thursday approved 74 million euros in emergency assistance for Montenegro under the Rapid Financing Instrument (RFI) to meet urgent balance of payment needs stemming from the outbreak of the Covid-19 pandemic.

Bosnia and Herzegovina’s state-owned power producer Elektroprivreda BiH said this week that it had completed the foundations for the first of 15 wind turbines that will comprise the 48 MW Podvelezje wind farm. The 65 million-euro wind farm is being built by a consortium comprising Croatia’s Siemens Gamesa Renewable Energy and Denmark’s Siemens Wind Power A/S, both units of Spanish engineering company Siemens Gamesa, near the southern town of Mostar, and is expected to begin producing electricity next year.

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