Central and Eastern Europe

The countries of Central and Eastern Europe emerged from Communist rule in the late 1980s to adopt the economic capitalist model and to embark on a campaign to modernize their economies, initially through the mechanism of privatization.

Austria, having always been an important entrepot between the West and the Eastern Bloc countries, has retained a significance in dealing with Central and Eastern Europe.

Countries have emerged at varying speeds. Although the annual rises in GDP may be impressive in percentage terms, this has often been achieved from a very low base. Per capita GDP in the former Communist countries is in the EUR4,000 to 7,000 range.

Governments are also attempting to reduce taxes to attract investment, while at the same time having the remnants of the Communist social security systems, high public sector debt and a current account deficit on Balance of Payments.

Where countries are acceding to the EU and desire thereafter to adopt the euro (which involves access to markets but also expenditure on preparation and compliance, and adherence to lower deficits), tough political choices may need to be made.

As regards the banking markets, they consist in the main of pre-existing banks - merged and/or acquired by Western banks.

In the meantime the local payment infrastructure can still be quite basic, with cash an important method of payment even for commercial business. The postal system is pivotal in some countries, both to the handling of cash and to enabling the retail customer to make and receive payments.

The elements that can restrict Cash Management in Western Europe are even more common in the countries of Central and Eastern Europe:

• Local withholding taxes on interest
• Central bank reporting
• Stamp duty
• Incomplete and/or unfavourable double tax treaties

Further inhibitors can exist:

• The currencies may be restricted in convertibility.
• Permission may have to be sought in advance to transfer money out.
• There may no place to invest the currency outside its home market.
• Normal transfer routes may take several days.
• The transfer fees can be very high.

Overall, the integration and consolidation trends will continue with the ongoing liberalization of Central and Eastern European countries and the adaptation of their banking systems to a European standard – either via official EU membership or unofficially as these countries try to align themselves with the practices of their neighbors.