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

Campbell Soup CEO Doug Conant, who spends his day selling soup, V8 vegetable juice and crackers, wrapped up his appearance at the Reuters Food Summit in Chicago with an exercise tip.

"Our lives are incredibly chaotic," said the 57-year-old CEO, who says he has found an easy way to step up his exercise and burn off calories from some of his favorite foods, such as Campbell's tomato rice soup and a grilled cheese sandwich made on his company's Pepperidge Farm bread.

"My assistant looks for a free half hour every day," said Conant, who is ready to lace up his sneakers when the moment is right. 

"Conant says he can get in 3,000 steps or more in a half hour.  Some studies suggest that 10,000 steps a day can help control weight.  But even if you fall below that, experts say any amount of exercise is good.

"It's a great way for busy people to get fit," he said.

(Photos: Campbell Soup, Reuters)

Global markets are tanking, investors are hoarding cash and the financial crisis has hit central and Eastern Europe. Where do you run when the world is on fire?

We asked that very question — or a watered-down version of it, at least — to the executives and policymakers at this week’s Reuters Central European Investment Summit in Vienna.

The question was this: “If you had 10 million euros of your own money and had to invest it in any one thing in the region, from a small business to an asset fund, what would you do?”

I expected our Hungarian speaker, deputy central bank Governor Ferenc Karvalits, to give the question more thought.

After the huge selloff in Hungary’s debt, currency and stock markets this month, mainly due to concerns over the health of the country’s banking sector, including the largest bank OTP, I thought he would be hard pressed to think of a good investment.

But he didn’t hestiate.

“OTP,” he said. “Either that or contemporary art. Even though I heard the run on artwork has slowed.”

He wasn’t alone.

Despite the almost complete collapse of stock markets across the region — OTP itself was down 57 percent on Friday compared with Oct. 2 — All of our guests said the panic selling by mostly foreign investors was ignoring fundamentals.

“All the share prices in central and Eastern Europe are cheap; you cannot be completely wrong to invest in any of the companies in the region,” said Wolfgang Ruttenstorfer, head of Austrian oil and gas firm OMV.

It’s been a bad month for the region, and investors have been dumping assets ever since Iceland flirted with economic collapse, fearing other countries could follow.

The forint has fallen at least 15 percent. The Polish zloty is close behind. Stock markets across the region have fallen 30-40 percent since the start of October.

But those who know the region best said they weren’t worried by a little panic among foreign investors. Where traders in London and New York see risk, they saw opporunity.

“Some of the assets are looking increadibly discounted and I would imagine if they are not at the lowest of the low, they certainly look really attractive on the price,” said Mariusz Grendowicz, head of Commerzbank unit BRE in Poland.

“Whether it is the moment to buy, I don’t know. Looking at that, I would look very actively at some of the Russian assets because after a freefall on the stock market there I would imagine there are some very interesting pickings.”

Billionaire investor Warren Buffet has said he is “buying American” — a bet that fire-sale prices will pay off in the long run for U.S. firms that have good products and plenty of growth potential in a normally-functioning economy.

But the question people are asking here in emerging Europe is who will be brave enough to jump back into these plummeting markets. Or whether anyone takes any investment pick seriously when the market has ravaged even the most pessimistic scenarios.

“At this moment, I would say Iceland is a lovely country to invest in,” Czech deputy central bank Governor Miroslav Singer said with a wide grin. “It’s just (near enough) to the point of bankruptcy to give you some return.”

Talk in western Europe of possibly nationalising private banks to save them from the credit crisis is sending shivers down the spine of policymakers in ex-communist central Europe.

They remember how their government controlled financial systems completely collapsed in the 1990s and threatened to take the countries’ economies along with them due to pouring money into firms with little prospect of returning it.

“There are very strong attempts to nationalise banks, which, in my opinion, is a very short sighted approach,” Slovak central bank Vice-Governor Martin Barto told the Reuters Central European Investment Summit in Vienna this week.

He pointed to what he said was “very extensive experience with state owned banks” in Slovakia.

The Slovaks bought non-performing assets from state-controlled banks for over 100 billion Slovak crowns ($4.13 billion), or roughly around 12 percent of GDP, prior to their sale to western investors early this decade.

Polish Deputy Finance Minister was also unimpressed when asked about government ownership. “This is a very delicate issue particularly for countries in our region because 20 years ago banks were not private but public,” she said at the summit.

The central Europeans may shrug off the notion of nationalisation at least for now. Their banks, after being cleaned up and sold, have fed on domestic financial services growth in the past decade and have largely avoided the scraping for profit that forced western banks invest into highly leveraged assets that have turned sour.

But some analysts say attitudes may change fast if another bout of the crisis hurricane sweeps though their markets.

The other measure under fire is guarantees on deposits, both private and on the interbank market. Central Europeans have frowned upon deposit guarantee hikes in some countries as infringing competition. Czech Finance Minister Miroslav Kalousek has opined that European politicians were “going crazy”.

Hungary central bank Deputy Governor Ferenc Karvalits said the European actions to aid euro area markets “have some unintended consequences by creating an uneven playing field for financial institutions in non euro-zone members states”.

First, the ECB’s instruments are not available to non-euro banks and at the same time they thin money markets that those banks need to finance.

Also, guarantees on interbank deposits cut off those not covered from borrowing. And non-euro zone assets cannot be used as collateral in ECB operations, which leads to banks dumping them.

The EU boasts of its global leadership in fighting climate change but some in the energy industry wonder whether the bloc will put money to work to cut greenhouse gas emissions.

EU governments have been reluctant to back clean technologies — such as carbon capture and storage (CCS) that could sharply reduce pollution from coal — with cash, potentially killing their future, Czech power utility CEZ told the Reuters Central European Investment Summit this week.

“I see a very big gap between the rhetoric of the EU representatives, saying it’s a number one priority of the EU and on the the hand zero commitment to put any funding behind (it),” CEZ sales chief Alan Svoboda said.

“There are billions of euros channelled into agriculture a year and zero goes to fighting CO2 on the R&D and technology side,” he said. “Without public money CCS will not be born.”

Perhaps after years of food piles and wine lakes, the EU doesn’t want to face a carbon mountain or a CO2 reservoir.

There are some who say the economic downturn means ambitious plans to fight global warming should be put on ice.

But Wolfgang Ruttenstorfer, the head of Austrian oil and gas group OMV, reckons cutting carbon emissions is inevitable in the long run, despite the financial crisis and its impact. 

“I think the price signals of the last two years will not be forgotten by consumers and politicians and therefore the thrust towards renewables will continue, maybe at a slightly slower pace,” he told the Reuters Central European Investment Summit. 

For some, going green is a luxury in harder economic times: Poland and Italy aren’t too happy about European Union legislation to fight climate change and say it could hurt their
economies at a time of slower growth.

The EU has stressed that climate plans will be affordable but as the worst financial crisis in 80 years continues to unfold there are doubts over whether there will be enough money or willpower to invest in cleaner energies.

“We stay committed,” Ruttenstorfer says. “We have our future energy fund and we will continue to work on this and definitely not put it on the shelf.”

OMV has been aiming to make its refining more environmentally-sound, to cut down on carbon dioxide emissions and is participating in pilot carbon capture projects. Cleaner gas-fired power plants are also seen as a good option by the company.

“In the medium and long-term, this (environmental) situation will not go away,” Ruttenstorfer says.

East European economies have weathered the global credit crunch so far, but they are becoming increasingly vulnerable and governments must tighten fiscal policy to avoid overheating, said Christoph Rosenberg, Senior Regional Representative Central Europe and Baltics at the IMF during his presentation at the Reuters Central European Investment Summit.

Recent events also highlighted downside risks for the region, said Rosenberg.

In its a report on the world economic outlook published on Wednesday, the IMF said it had revised downward all of its 2008 GDP forecasts for EU members in east Europe, with the exception of Lithuania which remained unchanged.

To read more from Rosenberg on eastern Europe, click here. If you want to read a story on the latest IMF report, click here.

This cartoon from The Economist illustrates for Christoph Rosenberg, IMF Senior Regional Representative Central Europe and Baltics, most aptly what the situation looks like for Europe’s new member states in the region.

Especially when it comes to fiscal policy, there is still a bit of work to do, Rosenberg told the Reuters Central European Investment Summit, also giving his wish list on policy issues. Meanwhile, the whole debate surrounding the adoption of the euro currency was very much focussed on countries meeting the Maastricht criteria and less on how the new member states could actually improve their economies to do well in the bloc, said Rosenberg.