Interview

Striking the right balance

An interview with Howard Rosen, President of COBCOE

With the world gripped by the worst recession since the 1930s, and a financial crisis that has morphed into an economic one, how successfully governments balance the often conflicting needs of short-term spending, long-term debt repayment, wealth creation, regulation, taxation and public sector cuts will determine how quickly, and how well, we come out of depression, says Howard Rosen, the president of the Council of British Chambers of Commerce in Europe (COBCOE).


And it as a partner to national and supra-national governments, rather than an issue-driven lobby group, that he best believes business can help politicians find their way when there is no easy, clearly defined road map.

"There are always going to be issues about how you allocate wealth in any community, clearly, but if you squeeze the generators of wealth too much, the very real danger is they will stop creating wealth, and that is to no-one's benefit," Rosen explains.

The president, who has held the post since 2005, has long argued against over-regulation of markets. It is a question of better, not more. "Criticism of senior bankers who did not have enough banking expertise from politicians who have no banking expertise can be hard to take," he says. "What we need is better regulation, from better regulators, and that can sometimes mean less regulation, provided it is properly enforced."

The European Commission is not exactly famous for being an under-regulator, but Rosen believes this is exactly where organisations such as his can be most effective; COBCOE has continent-wide reach, representing through its member chambers approximately 8,500 businesses across Europe. It is a voice that has enough critical mass to demand that it be at least heard, and at the same time, COBCOE can make a positive contribution to the way European policy makers look at setting future regulatory regimes for the business community, which, Rosen argues, must be sensible, even-handed and pragmatic.

While accepting that governments should, in the short-term, try to stimulate growth, ideally, he says, through capital expenditure, the building up “of long-term debt mountains must be avoided: I always view debt as future taxation.”

There is only so far that governments can go with more taxation, he warns. “There is a threshold; go beyond that and you begin to encourage people not to look for work.” The only realistic way forward is, he accepts, difficult for politicians, since it makes them unpopular with their electorate, and inevitably carries costs for society, too.

“There really is only one solution, and that is to cut public spending, and that is going to be painful, but it is inevitable.”

At the same time that governments are trying to face down the depression, they are under pressure to do more about climate change. But, once again, Rosen warns that change must not be introduced at the expense of business, or seen as means of creating a new revenue stream. Introducing one-sided “green” taxes on business will do nothing but take money out of the system. If carbon-heavy fuels are to be more heavily taxed, for example, then carbon-light fuels should be discounted so that there is an in-built incentive for the business community to contribute to the necessary fight against global warming.

“We need not just a sustainable low carbon economy but a sustainable business model to create it. If we make business too expensive, more production and jobs will simply be moved out of Europe with no benefit to the climate. So there is a danger we could tax and regulate ourselves out of business.”

Elsewhere, Rosen says the Council is looking to support European commerce on many different levels, creating networking platforms, looking at finding savings through collective purchasing, and above all working hard to “facilitate entrepreneurial networking and contacts and through that the creation of wealth and business opportunities.”


Interview by Robin Marshall

on Hungary’s political and economic outlook and envisaged investment environment

There has been something of an exaggeration in the way that the global financial crisis and its real impact on Hungary has been portrayed in the media and perceived by the public, said Dr. András Vértes on the sidelines of BCCH’s AGM in May.

“Hungary has certainly been deeply affected by the crisis but I don’t think there was ever a risk of financial default, nor will there be any risk of it. Hungary has been affected in line with other EU countries during the current crisis,” he said.

Dr. Vértes, who has advised many Prime Ministers and Ministers of Finance over the past 25 years, called for less politicising and more analysis of hard numbers in evaluating the true position Hungary finds itself in. “The Hungarian economic situation is a little better than media portrays, while the public view is strongly defined by which political party people follow. Hungary is over- politicised with the population and business very much affected by political announcements rather than by professional economic analysis,” said Dr. Vértes. Looking behind the numbers at Hungary’s net external debt, he noted that at roughly 100% of GDP, it is very high, the highest in the region, but also observed that more than 50% of that net external debt comprises intra-company borrowing. This could come from a British company loaning to its subsidiary in Hungary for example. “This is not real Hungarian debt, but it shows up in the statistics and in an economic sense it’s not a threat,” he said.

As opposed to being the out and out sick man of Europe, Hungary’s position in the current crisis mirrors Germany’s with very similar downward trends detected across both countries’ industrial, retail and trade. On a positive note, Dr. Vértes added that in Hungary, as in Germany, there are a few signs that there could be no further decline and even that the economy has moved slightly in the right direction over the last few months. “We wouldn’t like to say it is a turnaround, but there’s been a pause, however, where it will finally stop nobody knows,” he said. Dr. Vértes also mentioned that another reason for the halt in the downturn could be that the panic reaction that resulted from the crisis is subsiding. Overall, GKI Economic Research Co. predicts that Hungary’s GDP will decline by 5.6% in 2009.

Meanwhile, Hungary’s political climate remains far from stable, according to Dr. Vértes. Even though the Bajnai government has so far survived a very strong showing by opposition Fidesz in the European Parliament elections, and will probably remain in power long enough to see through economic reforms before the general election in 2010, this cannot be taken for granted. Early elections would, however, spell disaster for the completion of the much needed reforms implemented by the Bajnai government. Dr. Vértes agrees, in the most part, with Bajnai’s strong, non-politically oriented reforms, especially with the emphasis on getting everything necessary through in May, June and July in order to get the economy back on track as soon as possible. The door, however, will be open for Fidesz in the next general election.

Dr. Vértes referred to former Prime Minister Ferenc Gyurcsány as “a very talented PM but one who made some very important mistakes, such as postponing reforms until after his re-election in 2006. This came back to haunt Gyurcsány and Hungary, as seen by the very tough measures that had to be imposed due to a lack of action earlier”, he said.

With a poor export and domestic market, a lack of borrowing possibilities and liquidity problems, the investment environment is flat according to Dr. Vértes. “Greenfield investments, other than small ones or those planned before the crisis, are off the horizon,” he said. “Only after the crisis passes, maybe in the first half of next year, merger and acquisition activity could take off as Hungarian companies are likely to still be very cheap for foreign investors, but maybe less so for UK companies, depending on the relative strength of the currencies.”


Interview by Robert Smyth