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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Statement by Vice-President Kallas at the Annual Meeting of the European Bank for Reconstruction and Development
EBRD Annual Meeting
Warsaw, 15 May 2014
Chairman, Governors, Ladies and Gentlemen,
It is a pleasure to be here in Warsaw, an emblematic city for the European Bank for Reconstruction and Development (EBRD) to hold its Annual Meeting this year. Indeed, it was 25 years ago that central Europe embarked on its transition journey to democracy and the market economy, a year which saw the fall of the Berlin Wall and the first free elections in the region, those for the Polish Sejm. It is only fitting that we, shareholders of the EBRD, meet this year in Warsaw to reflect on the achievements on this journey and the contribution the bank has made to them. In addition, it is an appropriate time and place to take stock of the tasks still at hand, here and in the wider EBRD region, and to discuss the role the bank can and should play as a 'transition bank' in the medium term.
Poland is an important recipient country of the bank and the bank has been instrumental in supporting the country’s impressive achievements on its transition path over the last 25 years. While there is clearly more work to be done, we are pleased to note that Poland is now one of the most advanced transition countries in the EBRD region.
Last year, despite the continuing economic slowdown in many countries of operation, the bank again achieved a high business volume without compromising on its demanding standards of transition impact, additionality and sound banking. While the EBRD – unlike profit-oriented commercial banks – pursues primarily non-financial targets, we are pleased to see that the bank also reported on a successful year in terms of net income, which should further enhance its risk bearing capacity, a feature most welcome in the current difficult environment.
This environment is likely to remain challenging in the coming months. The global economy shows improving economic conditions and Europe is set for a slow, yet sustained growth recovery. However, in the bank's operating region, growth remains modest and slowdowns are being experienced in many recipient countries, including in the Russian Federation, in eastern Europe and the southern and eastern Mediterranean (SEMED) region. The EBRD region is strongly exposed to global developments and also bears significant risks of deterioration due to the direct and indirect economic fallout of the Ukraine-Russia crisis.
The economic and political crisis in Ukraine, the annexation of Crimea by the Russian Federation and the escalation of Russian-supported separatist activities in eastern and southern Ukraine raises severe political concerns. Our views on this are well known to all. What I wish to emphasise in this specific forum, is that from the bank's perspective these events have the potential for a very serious impact on its business activities and on its net income, even in a positive scenario in terms of crisis resolution, not to speak of the impact of negative scenarios. The crisis has already resulted in a breakdown of many channels of cooperation between the EU and the G7 countries and Russia. It has very negatively impacted the behaviour, the views and the expectations of many influential economic actors. Some of these have immediate effect, which can be witnessed in the evolution of exchange rates, of interest rates, of country and company ratings and in the erosion of Russia's capital market access; others will have a more sustained and longer term effect, resulting in subdued Foreign Direct Investment flows and slower growth in the medium term. Should the situation deteriorate further, any sanctions of an economic and financial nature would have a further serious negative impact on the Russian economy. As of today, we still hope that reason will prevail and a negative cycle can be avoided. However, the Bank has to take these risks into account and needs to analyse the longer term consequences of the crisis, drawing appropriate conclusions within the preparations of the 5th Capital Review. I would flag here two important issues: the appropriate level of country risk concentration and the potential for stepping up the bank's engagement in support of energy efficiency and energy security across its whole region of operations.
The EBRD has a vital role to play in supporting investment in its operating region and in promoting much-needed improvements in business climate. The bank should use its private sector expertise and unique business model to reinvigorate transition and adapt flexibly to the evolving environment, both in terms of risks and opportunities. It should uphold its high standards of transition impact and concentrate its efforts where such results can be achieved and where its additionality can clearly be established. We also encourage the bank to continue to develop its cooperation and seek synergies with the EIB Group and other multilateral banks.
The EU considers the bank to be an important partner within its region and appreciates the many fields where very good cooperation has been established on both policy and operational levels.
I would like to take this opportunity to thank the management of the bank and the Board of Directors for their swift and thorough analysis following the request of the Cypriot authorities for Cyprus to become an EBRD recipient country. We believe the bank can make a vital contribution to Cyprus' efforts to tackle the severe crisis in the country, via the proposed temporary recipient status and a well-focused intervention linked to the international programme, in coordination with the EU and International Financial Institutions partners.
I would like to conclude by outlining what lies ahead for the EBRD.
The bank is preparing its fifth Capital Resources Review in an environment that has significantly changed since the previous such discussion. A number of key strategic issues will need to be considered and agreed upon when setting the medium-term directions of the bank:
This is obviously a difficult, sensitive and complex agenda, but we trust that President Chakrabarti and the Board of Directors will look into these matters with the thoroughness and professionalism that is the hallmark of this institution.
Thank you for your attention.