Spotlight on Ukraine

The European Commission President, José Manuel Barroso, had some frank words for his host, President Victor Yushchenko, in Kiev today at an EU-Ukraine Summit that was dominated by fears over possible new disruption to European gas supplies via Ukraine, the former Soviet Republic’s economic decline and its ongoing political turmoil. As Mr Barroso declared starkly, ‘it often seems to us that commitments to reform are only partly implemented and words are not always accompanied by action. Reforms are the only way to establish stability[and] closer ties to the EU.’ Mr Yushchenko is determined to pursue the eventual goals of Ukraine’s membership of both the European Union and NATO, to the concern of the largely ethnic Russian inhabitants of the Crimea, and it is by no means certain that he will win presidential elections next month against his bitter rival, the Prime Minister, Yulia Timoshenko, or his predecessor, Viktor Yanukovich (and nearly a dozen other, lesser contenders).

While the Summit was on in Kiev, I was attending a seminar on Social and Economic Developments in Ukraine at the ING (Bank) headquarters in the City of London, organised by International Financial Services London (IFSL). As Chatham House rules were in force, I shall not reveal who said what, but suffice it to say that the main presentation was almost brutally honest about the economic problems that Ukraine has been going through over the past 18 months, though there have been recent signs of a recovery. Manufacturing ouput, in particular, has slumped, though agriculture (including agricultural exports) has done well, and there are some sectors attracting inward investment, including telecoms. Apparently, there are more phone subscribers than inhabitants in Ukraine, which shows that it is not only in the Arabian Gulf that people like to have two or more mobile phones.

The Ukrainians present stressed the importance for them of the strategic partnership between Ukraine and the United Kingdom, while several of the Brits highlighted their goodwill towards Ukraine. But it seems clear that concrete cooperation is largely on hold until the political situation is clarified. The first round of the presidential election is scheduled for 17 January, with a run-off (if necessary) on 7 February.

Hungary: Sick Man or Dynamic Hub?

Hungary’s charismatic State Secretary for the Economy, Abel Garamhegyi, was in London today and gave a presentation at Eversheds’ splendid new offices near St. Paul’s on his country’s economic performance since it joined the European Union in 2004. He’d just been at Bloomberg TV, where he was asked bluntly whether Hungary is the new Sick Man of Europe (a term applied to the Ottoman Empire in its closing days). But he was going on to British Telecom, which has invested heavily in Hungary, where he could be assured of a more upbeat welcome. His task at the briefing with corporate lawyers and other City types (plus me) was to portray Hungary as the dynamic hub of a European sub-region, notably looking east and south, with heavy involvement in places such as Montenegro and Romania.

It is true that Hungary’s growth rate is well below that of some of its neighbours, but Mr Garamhegyi argued that this masks a reality in which the state sector has been shrinking (including a reduction in the number of teachers, as school enrolments have declined), whereas the private sector has been blossoming. Certainly there has been some encouraging inward investment, the biggest catch so far being a giant project by Daimler Benz. Moreover, despite its small size, Hungary attracts 15 per cent of all new Research and Development jobs in Europe, second only to the United Kingdom.

As everywhere, Hungary has been hit by rising energy and food prices and there are certainly significant macro-economic problems at the moment. Things are not helped by the strength of the Hungarian currency, the forint. Given its high level against the euro, there is little prospect of Budapest opting to join the eurozone soon.

The seminar was arranged by International Financial Services London