By Petra Spescha

European economists have been nearly unanimous about what Europe's recovery from the crisis will look like on a chart: L-shaped -- a severe slump with a prolonged period of flat or minimal improvements in the economy.

But at the Reuters Central European Investment Summit Ewald Nowotny created a new shape when he tried to clarify a statement he made to an Austrian newspaper earlier this month about the economic turnaround.

"It was not a real L-shape --it was an L which was a bit upward bending,” Nowotny, who is on the European Central Bank’s Governing Council, said.

So it appears Nowotny, an economics professor, takes a less pessimistic view of the recovery than we previously thought. Not quite a rebounding ‘V’ shape or a steady ‘U’-shaped rise but somewhere in-between those shapes and the downbeat 'L.'

Nowotny said last month there was unlikely to be a ‘W-shaped’ recession if exit strategies are timed well. He talked more about exit strategies, rates and the economic outlook here.

Ewald Nowotny gestures during the Reuters Central European Investment Summit, September 28, 2009. REUTERS/Leonhard Foeger

Reuters Central European Investment Summit, September 28-30, 2009

The former Communist countries of central Europe have been the last to be hit by the global economic crisis, but th e hit they took was among the hardest. Only big neighbour Russia’s deep plunge into recession is rivaling the sharp fall from record economic growth that’s in store this year for the economies between the former Soviet Union and Western Europe.

Global risk aversion and deleveraging exposed the weaknesses that the countries had been able to gloss over during the boom years – which in retrospect appeared to have been, in some countries, a colossal binge bankrolled by cheap foreign credit extended by Western European banks that had to come to an end when funding dried up.

Even the specter of a region-wide meltdown lingered over the countries this winter as investors turned a blind eye on the differences between fundamentally sound countries like Poland, and Ukraine, Hungary or Romania, which could avert the threat of default, social unrest and instability only with aid from the IMF and the European Union.

But since the IMF and the EU moved in and made clear they would let no country fail, a pickup in risk appetite has driven up emerging European assets to the extent that some investors already worry about the next bubble inflating.

Worries remain. Many of the region’s export-geared countries’ recovery will depend on a return of demand for their exports in Western Europe. Unemployment is on the rise. Budget deficits balloon. And the mostly Western-owned banks still face an inevitable rise in bad debt that will continue well into next year and could thwart a fledgling economic pickup.

Key policymakers and corporate leaders will discuss these and related issues at the Reuters Central European Investment Summit on Sept. 28-30 in Vienna and Warsaw. We will be blogging about it here.

Poland's Prime Minister Donald Tusk gestures as he speaks during a conference at the Warsaw Stock Exchange August 28, 2009. REUTERS/Kacper Pempel

   A veteran of the long-running dispute between the West and Iran over its contentious nuclear programme,  the director-general of the International Atomic Energy Agency  urged the 35-nation governing body to “put (your) heads together to break the logjam,” on the same day that Tehran submitted a package of proposals to foreign powers.

   He criticised countries -- he did not name them but was clearly referring to Israel and France -- who have suggested he hid evidence from his latest written report on Iran, pointing undeniably to illicit Iranian research into the making of atomic bombs.

   “Talking about formalities, whether the work plan has been implemented or not,  whether people telling us how to suck eggs, how to write our reports, whether there is a (secret) annex  (on Iran)  -- these are not the issues,” he said in a swipe at both sides of the debate.

   “If anybody…has any information we have not shared, that has passed muster, been assessed critically in accordance with our practices, please step forward today. Otherwise, as a preacher would say, you should forever hold your peace,” ElBaradei told delegates.

   "We have, in our reports, always tried not to understate the facts or overstate the facts. We have serious concerns, but we are not in a state of panic. Because we have not seen diversion of nuclear material, we have not seen components of nuclear weapons. We do not have any information to that effect."

   ElBaradei's Aug. 28 report lent credence to a Western the intelligence dossier implying military dimensions to Iran's nuclear activity.  But ElBaradei said caveats were still in order.

   “It's alleged (studies), the whole question is about accuracy, whether this is real -- that is the $64,000 question. That is where we are stuck, we have a limited ability to authenticate,” ElBaradei said. “People talk about assessments. I'm not a rocket scientist,” the 67-year-old lawyer and diplomat said.

   But the agency is losing patience with Iran, he said, for stonewalling IAEA efforts to verify that its nuclear programme is peaceful.

   “I know you have been reacting to others,” ElBaradei told Iranian ambassador Ali Asghar Soltanieh, referring to Tehran's 2006 decision to stop wider-ranging agency inspections because of U.N. sanctions. “But you are not penalizing others, you are penalizing yourself.”

   Further, ElBaradei prodded Iran to stop evading a U.S.-led big power offer of negotiations that would provide it major trade benefits if it reined in its nuclear activity and made it transparent to non-proliferation inspectors.

   "I've told (Iran) I don't see where the problem is. The U.S. is making an offer without preconditions on that base of mutual respect. Soltanieh has said they are ready to have a comprehensive dialogue. I say the offer by the US can not be refused because it has no conditions attached to it and is based on mutual respect."

   He also warned  Iran's strongest Western critics against hyping the Iranian threat by talking about supposed IAEA cover-ups.  "(You are) trying to undermine the agency, (but) in the end (you are) undermining your own credibility. We went through this during the time of Iraq.”

   An outspoken ElBaradei clashed with the former U.S. administration over what he saw as its confrontational policy towards Iraq and Iran. He has said that anyone considering military force against the Islamic Republic would be “bonkers”.

   ElBaradei's more soft-spoken, reserved successor, Yukiya Amano of Japan, takes over in December.

Senior figures from across Austria's political spectrum have condemned the head of the far-right Freedom Party, Heinz-Christian Strache, over his party's European election campaign directed against Israel and Turkey.

In an advertisement in the newspaper Kronen Zeitung, Freedom opposes the accession of Turkey and Israel to the European Union. Although Turkey is in EU accession talks, Israel is not.

Heinz-Christian Strache prepares for a TV discussion in Vienna, Sept. 17, 2008. REUTERS/Heinz-Peter Bader (AUSTRIA)

"What is the most distasteful and despicable is the style," says Ernst Strasser, the conservatives' candidate in next month's elections for the European Parliament, referring to Strache's campaign. "This style is abusive. He vilifies other religions and ethnicities."

According to Chancellor Werner Faymann, Strache is "a hate monger, a disgrace".

"It makes absolutely no sense for Israel to be mentioned. Israel is not a candidate for accession. There isn't even an accession process. The only reason to mention Israel is to serve anti-Semitic prejudices. It is disgraceful."

Strache, who denies he is preaching hatred, accuses Faymann of being a "rabble-rouser" and abusing his position as chancellor.

The dispute indicates more than just political opportunism in the run-up to the poll, although that is obviously playing a part.

Freedom, which polled 18 percent in September's national election, has become a hard-right party since former dental technician Strache took the helm in 2005. It has also focused on religion. A recent rally where Strache waved a crucifix drew condemnation from politicians and religious leaders. Another campaign slogan, "The West in Christian hands", was not well received, either.

The hard-right rhetoric, an eye-catching campaign aimed at the youth vote and dissatisfaction with the centre parties, appears to have given Freedom a boost. However, Strache's line has at times been a bonus for the more moderate Alliance for Austria's Future, the party of late far-right leader Joerg Haider, who used to lead Freedom.

A controversial European Union election campaign poster of Austrian far right Freedom party in Vienna May 11, 2009. Posterreads " The West in Christian hands - Judgement day". REUTERS/Dominic Ebenbichler

The parties are often lumped together as "Austria's far right", such as when they polled almost a third of the vote last year. Together they could make a serious political force -- they outpolled the conservatives and were just behind the Social Democrats in September. the Alliance has tried to use the dispute to portray itself as the more mature. "(Freedom) is using the only way to mobilise votes it has," Alliance's EU candidate Ewald Stadler says.

Freedom's popularity has nevertheless affected mainstream policy, with centre parties loath to open up a flank to the far right. The conservatives and Social Democrats have spoken out against the EU asylum directive and oppose lifting labour market restrictions to the eight ex-communist countries that joined the EU in 2004.

The International Monetary Fund’s bumbled calculations on the financing needs of some eastern European countries revealed last week were met in Austria with disbelief, ridicule but also a quiet smile.

The IMF said it had overstated external financing needs of some countries in its Global Financial Stability Report, released on April 21, largely because of double-counting errors. The corrections have trickled in.

Worrying reports earlier this year indicating west European banks had lent $1.7 trillion to IMF-bailed-out states like Ukraine and Hungary worsened a steep selloff in the region's assets. Policymakers lashed back at the time, saying the fear was blown out of proportion.

The IMF mistakes were front page news in many newspapers – especially in Austria, where the exposure of its banks to the emerging Europe region has been a topic of fierce debate.

Austrian banks have lent the equivalent of 70 percent of the country’s gross domestic product to emerging Europe and the exposure has driven market concerns that they could need a massive government bailout. The worries have driven up the price of Austrian government debt and prompted some, like U.S.economist Paul Krugman, to speculate that Austria could be on the brink of default.

This has made the Austrian central bank pretty angry, not to mention rankling politicians, bankers and the media. This one in The Telegraph really got them going.

Even before the IMF correction, many in Austria blamed an Anglo-American conspiracy trying to divert attention away from their own banking troubles by painting a bleak picture of Austria's stake in emerging Europe.

"Would we be better off if we were active in the United States, in Great Britain or in Germany?," Herbert Stepic, the chief executive of emerging Europe's No.2 bank Raiffeisen International asked last month. "I can only say: categorically no."

So the financial stability of the emerging Europe region, a motor of Austrian growth in recent years, is close to the Alpine republic’s heart and the IMF mess-up gave room for a touch of Schadenfreude.

"An embarassing calculation mistake -- (Finance Minister) Proell sees himself justified," on state broadcaster ORF, "Not the first mistake" popular daily Kurier and Die Presse  said, pointing out a previous IMF miscalculation and emphasising Austria's battle against the negative flow of news from the region. 

“There is a serious risk that policymakers will now use this in order to avoid addressing the issues that have been there all the time,” said Lars Christensen, Emerging Markets Chief Analyst at Danske Bank.

Austria likes to point out that ratings agencies have confirmed its triple-A debt rating and have dismissed concerns of a downgrade like that of fellow eurozone member Ireland -- let alone the prospect of an Iceland-style default.

When the IMF got its figures on Eastern Europe wrong, Central Bank Governor Ewald Nowotny also told Die Presse newspaper that he felt his position strengthened.

“We just couldn’t believe it,” he is quoted as saying in reference to the original figures. He does add that the IMF is a reputable institute and that the exposure problem should not be dismissed “We have to be realistic and say there are big problems in the region, one of them being the proportion of credit in foreign currencies as a proportion of total credit,” he said.

Nowotny has been keen to make clear the distinction between different countries in the region and stresses over and over again that Austrian banks are stable, invested mainly in EU member states, that Austria has a banking package and will not pull out of the region.

“It’s highly embarrassing that the IMF made this slip-up and it has led some to question whether Central and Eastern Europe was in such bad shape. But the numbers have been blown out of proportion in both directions.” Christensen from Dankse Bank said.

Worries about the region cannot be based or dismissed using just these figures, he says. Concerns are based on more than one set of data. “But the revised IMF figures are still pretty terrifying.”

It is sure to be a topic when IMF Managing Director Dominique Strauss-Kahn visits Vienna later this week. 

International Monetary Fund Managing Director Dominique Strauss-Kahn, Washington, April 26, 2009. REUTERS/Yuri Gripas

Austrian Vice Chancellor and Finance Minister Josef Proell, Vienna, May 12, 2009. REUTERS/Leonhard Foeger

Austrian central bank (OeNB) Governor Ewald Nowotny, Vienna, December 9, 2008. REUTERS/Heinz-Peter Bader

It could be if you believe Zsolt Hernadi, the chairman of Hungarian rival MOL, not to mention some scary headlines about Russian gas in the British press.

Earlier this week Austria's OMV sold a 21 percent stake it held in MOL to Russian oil group Surgutneftegaz for 1.4 billion euros ($1.9 billion), double the amount the stake was worth as stock. The stake was originally bought from ... a Russian family Almost half of the stake was originally bought from ... a Russian family.

"Suspicion arises ... that because the Russian investor bought this stake at exactly the (initial purchase) price, it (OMV) was just a front," Hernadi told a Hungarian parliament committee.

The sale came just days after OMV's chief executive said he did not plan to let go of the stake this year, fuelling speculation there was an ulterior motive behind the swift deal, finalised in the middle of the night on Sunday.

"Sometimes the markets offer opportunities you have to take," OMV's spokesman said. The sale also came after a miserable takeover attempt by OMV, which was repelled by the Hungarian group at every twist and turn.

The European Commission warned on the deal last year, saying it could create big competition problems and lead to higher prices. OMV eventually withdrew its $23 billion bid. Unofficial talk among EU officials has also highlighted worries about OMV's Russian connections.

But doesn't selling the stake just make good business sense? And if OMV is a Russian lapdog, why is it spearheading a consortium for the Nabucco pipeline, a project aimed at diversifying European supplies of gas away from Russia?

Well, Russia's hold on energy supplies is an ever-sensitive issue. A spat with Ukraine over payments escalated into a two-week supply shutdown earlier this year, hitting parts of Europe and underlining reliance on Russian gas.

So Russia and OMV-bashing gets some sympathetic ears, even if MOL's Hernadi said in 2007 that his company would be better off in the hands of the Russian firms than OMV.

Russia, for its part, may not have been keen to see a consumer of its oil fall into hostile hands.

Surgut, believed to have around $19 billion sitting on its balance sheet as of September 2008, could probably afford to pay a healthy premium. Investors, who have begged the company for years to put its cash in play, rewarded it with a rise in its stock price.

OMV has been doing business with Russia's Gazprom since 1968, describing the oil giant as a "reliable partner" even during the last gas row.

It has to toe a fine line. While it relies heavily on Russia for some of its big contracts and for developing a major gas hub, it is also keen to push the Nabucco project, emphasising all the while that the plans are not politicised and certainly not anti-Russian.

Nabucco's managing director told me late last year that the consortium does not worry about where gas comes from, as long as the sources are diverse - Iran, even Russia, are possibilities, it is about pragmatism, not politics, he said.

Most analysts think of the MOL stake sale as purely pragmatic too, ignoring the politically-charged comments from Budapest. "The price is favourable as OMV has achieved close to a 100 percent premium to MOL's share price at the close on Friday," UBS analysts wrote in a research note. "The deal eases liquidity worries at OMV."

But whether OMV is just pragmatic or secretly a Russian puppet, this is unlikely to be the last time it gets drawn into the politics of energy.

And his fondness to talk at length on ECB rate policy, the euro, emerging Europe, recession, inflation, deflation, growth forecasts and bank rescues has in turn set tongues wagging. He's even done an internet chat with readers of Austria's Der Standard.

"Ewald Nowotny is almost omnipresent. Barely a day goes by without (him) popping up in one of Austria's publications airing statements about the current economic situation," German
financial daily Handelsblatt wrote in a recent article, which only appears in its paper version.

There are some good reasons why Nowotny is omnipresent.

He came to office two weeks before the collapse of Lehman Brothers, the height of the financial crisis. After nearly every bit of gloomy economic news, whether European or Austrian, he is there to reassure in his careful but direct style.

"In times of crisis he wants to get his message across and concerns himself with improving public sentiment," Handelsblatt wrote. "For Nowotny, economics is also psychology."

He has been cited on nearly 50 separate occasions by Reuters since Septmber 1. In the same period fellow board members Guy Quaden (Belgium) and Vitor Constancio (Portugal) have been cited  11 times each and given only a handful of interviews between them.

Nowotny tends to talk in a free and general style, according to Gilles Moec from Bank of America, and his comments should be taken as an informed opinion on the state of the economy rather than clues as to future ECB action.

"He's a central banker but he gives his opinion on what he thinks the economy IS and not really about where interest rates should go.  From this point of view, he is very interesting -- he gives an overview."

Nowotny's Kenysian slant also means he is slightly apart from the other ECB council members while his belief that it is now more up to fiscal, rather than monetary policy to escape the crisis, is also unusual.

"It's a very clear-cut approach. He is the only (board member) to my knowledge who tackles this policy-mix issue in a straight-forward manner," Moec said.

Haider, who was enmeshed in nearly every part of Austrian political life, is now being hailed for his efforts to help two Austrian hostages being held in the Sahara months before his death.

According to a newly-published e-mail, Haider asked the son of Libyan leader Muammar Gaddafi in March for help in freeing Andrea Kloiber and Wolfgang Ebner, who disappeared in February while on holiday in Tunisia. They are believed to have been held by al Qaeda's North African wing.

The hostages were released last week, several months after Haider wrote to his close friend Saif al-Islam Gaddafi. The Austrian Foreign Ministry said Libya only helped in initial negotiations but not the eventual release.

Whether Haider's contribution was decisive or not, the news has only added to his image as a "hero of the people".

The daily Oesterreich, which printed extracts from the e-mail, has already published a DVD of Haider's life and romantic images of him dressed in traditional Austrian costume, looking out over the mountains of Carinthia, where he was provincial governor. Some 25,000 people attended his memorial service in Klagenfurt last month.

Many did not seem to think his divisive anti-immigrant rhetoric was much of an issue and were fiercely loyal towards Haider, one of Austria's few internationally recognised figures.

Even Chancellor Alfred Gusenbauer, a Social Democrat who openly opposed many of Haider's views, has admitted that his opponent had enormous ability to reach out to people.

It's already been a big theme in Germany, France, Turkey and the Netherlands, and now the Austrian far right is asking: Should public employees be allowed to wear Muslim headscarves at work?

Two women have become the first schoolteachers in Vienna to wear headscarves while teaching.

One is also a local centre-left Social Democrat politician.

Teachers in other parts of the country already wear headscarves, and there is no law banning public employees from wearing such items as there is in some other European countries.  

But the two women have now found themselves featured on the front page of the Austrian daily Oesterreich and have drawn criticism from the resurgent far right, which won a combined one-third of the vote in a parliamentary election several weeks ago.

"Headscarves are a symbol of Islamism and female oppression. They have no place in Austria," says Heinz-Christian Strache, head of the far-right Freedom Party, which has now become Austria's third most powerful.

The director of the state schools in that part of Vienna fully supports the women -- one-third of the school children come from Turkish families so the women "break down linguistic and cultural barriers", she says.

But some feel a division between religion and state is more important.

"Something that would be unthinkable in Turkey is a reality in red (left-leaning) Vienna," says Martin Strutz, the general secretary of the right-wing Alliance for Austria's Future.

"The (Vienna) Social Democrats don't value the separation between church and state any more," he adds, calling for a complete ban on headscarves and veils in public office.

While Freedom and Alliance call for symbols of Islam to be removed from state schools, they do not seem to object to symbols of Christianity in Austria, which is predominantly Roman Catholic.

The ban on religious symbols in France, on the other hand, covers all faiths in a strict separation of religion and state. The arguments to uphold the ban there also focused more on women's rights, rather than equating the veil with Islamism.

By targeting Muslims specifically and raising fears about Islam, the Austrian far-right parties can touch on the kind of themes that helped them win so many votes in September 

 Just when you thought his story couldn't get more dramatic -- he died on Oct. 11 in a high-speed car crash while drunk -- we now learn that Haider, who was married with two daughters, was not only a populist who polarised the public with remarks about Nazism and immigrants, but might have been gay too.

 But wait a minute. Speculation about Haider's sexuality is not at all new, at least not in Austria. Here, his death has not really led to breathless speculation about his private life as it has elsewhere.

 Why not?

 Questions about Haider's sexuality had been asked in Austria since the 1990s, when the charismatic, folksy leader surrounded himself with a group of young and successful male followers, earning his entourage the nickname "The Boys Posse".

 Far-right parties have never been especially women-friendly anyway.  Haider never said he was gay, nor denied it and Austrians' reaction to this is interesting. They don't really care. Whether true or not, this speculation was largely politely ignored or deemed not newsworthy.

 Overall the Austrian press abides by the unwritten rule that private lives should only be written about when made an issue by the politician themselves, or has an effect on public policy.

 "If Haider was gay or bi or whatever, so what?" writes Marco Schreuder, an openly gay member of the Vienna regional assembly. "In our society, diverse sexual tendencies should be an accepted as a fact by enlightened, 21st century people...Drinkdriving is life-threatening. But visiting a gay bar doesn't
threaten your own life or anyone else's".

 Haider's political parties -- far-right Freedom before 2005 and later the splinter group Alliance for Austria's Future, did not pursue anti-gay policies.

 Question marks over Haider's sexuality were not a political issue and are not new. Should we care nevertheless?