The owner of some of the Czech capital’s chic restaurants unveiled a novel approach this week to lure business clients to one of his upscale dining rooms: Let diners pay what they like.
The owner, Sanjiv Suri, hopes executives will not want to appear cheap to their guests when presented with a blank check after dining at the lunch buffet, laden with grilled vegetables instead of foie gras. Even if they pay nothing, he added, they will almost certainly return as paying customers.
“During an economic crisis you need to be creative,” Suri said, sipping pinot noir in a half-empty dining room.
Breaching the old adage that there is “no such thing as a free lunch” is just the latest tell-tale sign that the financial crisis has reached Eastern Europe, even in a relatively resilient economy like the Czech Republic’s. As exports to Western Europe — its biggest market — begin to falter, companies are scaling back. Unemployment is starting to rise, hitting 6.8 percent last month, versus 6 percent a year earlier. The country’s GDP is expected to contract by about 0.3 percent this year, the Czech National Bank said this week, after growing about 4 percent last year.
How bad it gets remains to be seen. Czech optimists say that they should fare better than countries to the east, which are far more dependent on loans from Western banks and have less developed economies. Indeed, the crisis threatens to widen the economic divide within Eastern Europe, as richer, well-run countries like the Czech Republic better withstand the downturn, leaving weaker peers further behind.
“The disaster spotlight is now being pointed at east and central Europe,” said Gernot Mittendorfer, the Austrian chief executive of Ceska Sporitelna, a large Czech bank owned by the Erste Group of Austria.“But panicked investors are wrongly lumping all of the countries in this region together, and the reality is that there is not widespread rot,” he said.
The most vulnerable are the newer states. Moody’s Investors Service warned in a report last week that western owners of East European banks are coming under pressure to withdraw capital from countries already reeling from budget deficits and foreign borrowing. The countries most at risk, the report said, are the Balkan countries, Hungary, Croatia and Romania.
While Asian economies recovered fairly quickly from the 1990s financial crisis by exporting their way out of recession, the export outlook does not look promising. Demand for goods is plummeting almost everywhere in the world.
Here in the Czech Republic, the problem hit home last week after foreign guest workers, who filled manufacturing jobs during the boom years, were offered free airline tickets and a 500 euro (US$637) allowance to go home.
Few economists expect the region to avoid the recession rippling around the world. Nonetheless, Mittendorfer said, panic is not justified. The financial perils in places like Ukraine, he said, are not inextricably linked with wealthier, better-managed economies like the Czech Republic, Slovakia or Poland, which are already in the EU.
Indeed, while emerging European markets need to repay more than US$400 billion in short-term debt this year, a recent UBS report said that more than half this debt was held by relatively resilient economies like the Czech Republic.
Much of the alarm over Eastern Europe has been focused on Austrian banks like Erste, Raiffeisen and Bank Austria, which came into the region after communism fell, eager to profit from the heady appetite for consumption and credit. Today, Austria’s loans to the east amount to 70 percent of its GDP. Though many Eastern European subsidiaries could scarcely survive without their parent banks, Austrian bankers and financial analysts said they are confident the banks can provide it.
Andreas Treichl, chief executive of the Erste Group, one of Austria’s top three banks, said in a telephone interview that Erste had no intention of retrenching. He said the bank remained profitable and had adequate capital to cover its foreign exchange risk, even in volatile countries like Romania.
“We will definitely not retreat,” he said.
Treichl pointed out that while many in the West were experiencing profound economic crisis for the first time in their lives, Eastern Europeans are more resilient, having lived through communism, dictatorship and 300 percent inflation.
“People in this region are 10 times better equipped to cope with a crisis than spoiled investment bankers in New York,” he said.
Even if they are not and the trouble spots implode, economists and analysts here said they were confident that the EU, the world’s biggest trading bloc, would find a way to come to the rescue rather than allow financial chaos to spread across the Continent.
Manufacturers are planning for the long haul.
Radek Spicar, a spokesman for Skoda, the Czech automobile maker, said the company had suffered a steep decline in orders from Western Europe, in particular Germany. Skoda has reduced its temporary workers to 800, from 4,000, and has shortened its work week to four days, from five. So far, it has not dismissed any of its 25,000 full-time workers
Germany’s stimulus package includes an offer of 2,500 euros to every person who scraps a car nine years or older and buys a new one, and that is bringing more Germans to Skoda showrooms, Spicar said. The Czech government is designing its own stimulus package as well.
The biggest casualty of the crisis in Eastern Europe could be unfettered capitalism, ardently embraced by countries that came out of communism. Thousands of people have taken to the streets in Poland, Latvia, Bulgaria and elsewhere, angry that their social safety net is tattered. In the Czech Republic, there was palpable resentment this week that Czechs were being punished for economic transgressions committed elsewhere.
Tomas Sedlacek, who served as an economic adviser to former Czech president Vaclav Havel, said that in the 1990s, the West lectured the former Eastern bloc about the need to privatize and deregulate. Now, the message emanating from Washington is to nationalize and to regulate.
“This crisis has turned the world upside down,” he said. “People here who argue that open markets are the solution to everything are no longer being taken as seriously.”
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