 My name is Heather Conley. I'm Senior Fellow and Director of the Europe Program here at the Center for Strategic and International Studies. And we are delighted to be able to host our colleagues from the International Monetary Fund, who are going to be talking about a recently released IMF report entitled, Central Eastern and South Eastern Europe, External Funding Patterns and Risks. We have with us, Isim Hussein, who is the Deputy Director in the European Department of the IMF. And he is joined by his two colleagues, Li Zheng, currently an economist in the European Department, and Yasmin Rahman, who is Deputy Chief of the Emerging Europe Unit. Our IMF colleagues are going to give about a 30 minute presentation, lots of fabulous graphics, I am told. And they will give us the overview of the report. When they are done, I am then going to welcome two colleagues who have graciously agreed to join us. And with us is Dr. Anders Osland. Anders, as many of you know, is a Senior Fellow at the Peterson Institute. He's also adjunct professor at Georgetown University. Anders has been an economic advisor to the government to Russia in the early 1990s. He also served a similar capacity in Ukraine from 1994 to 1997 as one of the authoritarian voices about the transition process for Central and Eastern Europe. And Anders is going to give us a little more focused conversation about Ukraine and Russia and sort of response to the IMF report. And Anders has some slides as well. So he's going to show you his slides, a little PowerPoint presentation battle there. And then when we're done with the two presentations, we're going to welcome the panel up. And we're going to be joined by Tom Wright, who is a fellow at the Brookings Institute. And he's engaged in the Brookings Project on International Order and Strategy. I have always eagerly sought out Tom's advice and counsel as he looks at the geopolitical consequences of the Euro crisis. Tom will give his reflections on the IMF report as well. And then I will moderate a conversation. And I promise while you're thinking of your questions and your comments that we will invite you into the conversation. I think it was James Carville in 1992 that famously said in the presidential campaign, it's the economy stupid. Perhaps we will return to that. It may not just be the economy, it may be the corruption that we will talk about a bit today. But I think we are sure that it's the geostrategic implications of the global economy. And in particular, this part of Europe that will give us a moment for reflection and pause about the importance of the economy. And with that, IMF colleagues, I'll invite you up and you can fill us in. Thank you again for joining us. OK, so thank you very much. First, thanks to Heather for that very nice introduction. Thanks to the organizers of this event, especially James Minor for welcoming us here and giving us the opportunity to present the work that we have done. I also would like to thank Jesse Yang, who just went to the back for the fancy graphics that you're about to see. And actually, those fancy graphics will be enhanced if maybe those lights could be a little bit dimmer. Perfect. OK, and I also would like to thank one of my colleagues who's not going to speak today, but Anaylina, who is actually the head of the team that produced this work. So we started about a year ago with a new publication in the IMF, which is called the Regional Economic Issues Paper. And it is specifically about this region, the Central, Eastern, and Southeastern European region of the world. We call it SESI for short. And I'm going to do that for the rest of this talk. This is a new publication that looks really at the issues that are critical and current in that region. And we do this twice a year. So this is the third in this series that we've produced. And this particular issue focuses on external funding and the risks related to external funding. And that covers this time around three key areas, the geopolitics, which has a big impact on external funding. It covers global financial volatility, which too has a big impact on external funding. And it covers Western Europe or the Euro area, which for this region has a huge impact on external funding. And we talk about how to safeguard those risks of external funding for this region in the report. Now, the story of this REI starts exactly a year ago, or just about exactly a year ago. As you will recall back then, the Euro area was in recession. And as we all know, the Euro area is hugely important for SESI, both because of trade, but also because of financial links. Euro area banks account for a large portion of external funding to SESI. So the Euro area a year ago was still in recession. And importantly, almost to the day a year ago, the Fed started to talk about tapering. And as you all know, the financial markets in emerging markets especially reacted quite strongly to that talk. And for at least a few weeks, if not months, it looked like emerging markets generally and emerging markets in the SESI region in particular were in for a pretty bumpy ride. So from the perspective of a year ago, as it turns out, there were concerns. But things worked out rather better, perhaps, than could have been expected back then. Growth in the SESI region, which was very exposed to external funding problems and the financial volatility that was being seen, actually started to pick up. And in the second half of the year, registered positive growth. Now, in large part, that was due to the Euro area. The Euro area started to see recovery at last and being an important trading partner, an important source for financial flows for the SESI region. We saw some recovery in the SESI region. Now, both domestic and external demand in the region started to pick up. This positive momentum is also there going into 2014. Excluding the biggest economies in the region, that is excluding Russia, excluding Turkey, and also excluding Ukraine, growth in the region is actually expected to double or almost double in 2014 compared to 2013. That, of course, is the good news. On the other side, this doubling of growth for the rest of the region, excluding the large economies, is still a little bit of a downward revision on average relative to where we were, say, six months ago, for most countries or for many countries. Second, it, of course, leaves aside the fact that for the largest economies in the region, Russia, Turkey, and also Ukraine, growth has been revised down by quite a bit. Now, we will go into this in more detail shortly. They're due to some specific factors for each country. And in some cases, particularly Russia and Ukraine, the downward revisions and the growth outlook have occurred in just the last couple of weeks, so before actually, sorry, since this report was produced. Now, in the case of Russia, which is an important trading partner for many other countries in the region, the effect of a downward revision and growth has not yet been incorporated into these projections that you see before you. Now, that brings me to the risks to this outlook for the region that we see. At the moment, we are, I think, confronting what we call an unusual constellation of risks. The first one, which I alluded to already, has to do with spillovers from the geopolitical tensions surrounding Russia and Ukraine. Now, clearly, the impact of these tensions, first and foremost, are on the economies themselves. In other words, on Russia and Ukraine themselves. But Russia being a very large economy and an important trading partner for some other countries has the potential to have large spillovers that will affect other countries in the region. So what precisely will happen to the Russian economy because of the geopolitical tensions is, of course, very hard to predict. Of course, it depends on what actually the sanctions will be. It's difficult to start predicting what actual sanctions could take place. But even more importantly, it's not just the sanctions that are in place at a particular point in time that matter, but actually also the expectation of what future sanctions might look like, the fear that comes with it, the uncertainty that surrounds not knowing what the next step might be. That hurts confidence. And we're already starting to see the effects clearly of weaker confidence in economic data that are coming out. So one piece of news that came out already in, I think it was in early April, was very large capital outflows in the first quarter from Russia. That was a reflection of weaker confidence. It clearly has an implication for investment in Russia. And the preliminary numbers that we saw for first quarter growth in Russia suggested that Russia may already be, in fact, in a technical recession. Now, what impact will a weaker Russian economy have on the rest of the region? I think what this chart highlights is that apart from energy, direct trade links of Russia are not major for most European countries, except those in the immediate neighborhood. So the CIS countries, the CIS, the Commonwealth of Independent States, and the Baltic countries are sort of relying on Russia importantly for their trade. But for the rest, Russia is not the major, or even a major trading partner. The same broadly holds true for foreign direct investment and for remittances. Again, for those, the immediate neighbors do rely heavily on Russia. But outside the immediate neighborhood, the dependence on Russia is not major. But energy links of all of Europe, really, with Russia are a different matter. Those links are quite large. In fact, Russia accounts for the majority of energy consumption in many countries in Europe, both east and west. So clearly, a disruption in energy flows or possibly related to sanctions or counter sanctions or otherwise could have a major impact on the entire region. Now, another important risk going forward. I mentioned geopolitics. The second one is financial volatility. So as you'll recall, after TAPR talk, there was concern that financial flows could indeed reverse for the region. This slide shows financial flows to the region in the last few years. One interesting story has been what's in the light blue. These are the bank flows. So in the entire SESI region, lending by Western European banks or subsidiaries of Western European banks had been a major story behind the pre-crisis boom. Since the global financial crisis, banks have reduced their exposures to the SESI region. And that's shown in the generally negative light blue lines throughout that period. Now, despite this deleveraging of cross-border exposures by Western European banks, the headwind to growth in the SESI region was not huge. And part of the reason for that was that there were large offsetting portfolio inflows. This was captured by the red bars since the global financial crisis. So with the easy monetary policy adopted by the major advanced economy central banks, money was flowing to emerging markets broadly and certainly also to the SESI region. So the inflows of portfolio flows had been offsetting outflows of bank lending. That situation changed rather sharply in the third quarter of 2013. This is right after the tapering talk began. And there was worry that this could get what much worse. Now, as it turns out, there was a big rebound of portfolio flows in the fourth quarter. And many countries were able to take advantage of that to pre-finance funding needs for the coming year. But it looks, going into 2014, the first couple of quarters do not look great. And the high frequency information that is available suggests that portfolio flows could be negative or at least much smaller than what we saw in the fourth quarter. So that is an additional risk for external funding for the region going forward and therefore also for the economic outlook. The last risk that I want to allude to is, of course, also something mentioned in the beginning. And that is the outlook for the Euro area. So the Euro area recovery is underway. But as we just saw last week with the release of first quarter data for the Euro area, that recovery is uneven. The German economy seems to be doing rather well. But other large economies, Italy and France in particular, are not. If that recovery remains very slow and there is a very protracted slow growth in the Euro area, that clearly will have important implications for the Sassi region and for funding for the Sassi region. So with that constellation of risks, geopolitical, financial, as well as economic risks relating to the Euro area, the Sassi region is poised for potential external funding risks going forward. And the topic then of our report is looking more closely at the external funding structures and the risks related to that and thinking about how to safeguard against them. With that, I turn over to my colleague Lee. Because of the risks associated with external funding, so we decide to focus on this topic and make the issue of this regional economic issue report. So let's start with external funding structures. So Sassi countries, they are especially exposed to risks associated with external funding because they are highly reliant on external funding. So on this slide, we can see that at the end of 2008, the gross external liabilities were about 70% on average for Sassi countries. So this ratio has climbed up even further since the global financial crisis, now reaching over 90% for the region as a whole. So this is much higher than the average for other emerging market economies, which is only about 55% of GDP. So from this slide, we can also see that there are large differences across sub-regions and countries. So for instance, we can see that for both countries and central European economies, their gross external liabilities were about 150% of GDP. While on the other hand, the two largest economies in this region, Russia and Turkey, their gross external liabilities were about 65% and 80% of GDP respectively. The accounting of gross external liabilities, include foreign direct investment, which is a significant part for most Sassi countries. So we know foreign direct investment provides a certain degree of stability. But even if we exclude FDIs, we can see that the external debt level for most Sassi countries is still high. So for the region, at the end of 2012, external debt is about 50% of GDP, and that's almost twice the average for other emerging market economies. Another point we can see from this slide is that, in general, private external debt is much larger than that of the public sector. So for private debt, that's shown in the dark blue. And for the public sector, it's the light blue. So for the region as a whole, private external debt accounts for about three quarters of the total. So that's why we'll first zoom in on the private sector. In this chart, we are showing the private external debt for each Sassi country. So high level of external debt is certainly of concerns. But in this chart, what we want to emphasize is that the structure of external debt also matters. So we break the external debt into two big categories. So in blue, are borrowing from affiliated creditors. So for the non-financial private sector, so that's what we call inter-company lending. And some people may prefer called that inter-company lending. For the financial sector, that covers the lending of borrowing by subsidiaries from parent banks. So this type of funding tends to be more stable, partly because of the vested interest of creditors in the borrowers. So in red, are external borrowings from non-affiliated creditors. So this includes direct cross-border borrowing and also investment in debt securities by foreigners. If we take out the funding from affiliated creditors, we can see it gives us a very different picture in terms of the relative ranking of countries. Here we see that Croatia, Ukraine, and Moldova would stand out if we only look at the borrowing from non-affiliated creditors. This is very much different from Latvia, Hungary, and Estonia, as we saw in the previous slide. So external borrowing also brings foreign currency risks. So in this slide, the dark part is the direct cross-border borrowing by non-financial private sector, which is the same as in the previous slide. So foreign currency risks are probably less relevant for countries that have already adopted Euro and those that say have a credit currency pack. This is why we are seeing fewer countries in this slide than in the previous one. But foreign currency risks can also arise from domestic loans that are the denominator or linked to foreign currencies. That's shown as the, well, I hope you can see, as the light part in this chart, which compounds the foreign currency risks from external borrowing. So taking both into consideration, we can see Croatia stands out as a clear leader here, followed by Serbia and Ukraine. We have more detailed analysis in our report, but here, let's turn quickly from private sector to public sector and take a look at what about the public sector debt. We know public debt for sexy countries has increased rapidly since the global financial crisis. Now the median of the public debt is over 40% of GDP. So part of the public debt is also exposed to foreign currency risks. That's shown in this chart by the dark red part. And here we can see standing out as Serbia, Croatia, and Hungary. So far we have been talking about stock risks. Actually, there are also flow risks that arise from large financing needs. One point we want to make here is that large financing needs can also arise from a moderate stock of debt if most of the debt is of short maturity. So highlighted in this chart by the red circle is a group of countries that have both large external financing needs and large fiscal financing needs. Finally, another potential source of risks for sexy countries is the highly concentrated investor base. So highlighted in the middle of this very complex network chart are the top five cross-border lenders to the sexy region. So together they would account for over half of the total cross-border lending to sexy countries in 2012. Well, not shown here are Sweden and Italy. They came close as number six and the number seven. If we count for the top seven, they together would account for over two thirds of the total lending to this region. Also not shown in this chart is that in each of these top creditors, it's often only one or a few large financial institutions that account for the vast majority of the cross-border lending to this region. And therefore, if there's a big shock to one of those creditors or to a particular financial institution in these countries, the potential risk of spillover could be large. So with that, I'll hand the presentation over to my colleague Jasmine. So next we look at which countries in the region are vulnerable to external funding shocks. For that we draw on the private and public sector balance sheet analysis that Lee was just discussing and we add a third dimension to it, which is external fundamentals. For stock vulnerabilities, we look at the overall stock of debt, but also the debt composition. How much of debt is exposed to FX risks? How much of debt is owed to non-affiliates? For low vulnerabilities, we look at financing needs, both external and fiscal, and sovereign funding costs. For external fundamentals, we look at the degree of exchange rate misalignment and the level of foreign exchange reserves. And for all of these indicators, we benchmark them against performance of broader emerging market countries where we have data and where we don't have data, we benchmark them against performance of the SESI region. For exchange rate and reserves, if a country's exchange rate is not significantly misaligned or reserves are broadly adequate, this is not considered to be a source of vulnerability for the country. And the idea here really is not to look at crisis probabilities, but really to look at relative vulnerability to external funding shocks. When we do this assessment, here is how the region looks. So we have five countries showing stock vulnerabilities, the green circle, five countries showing flow vulnerabilities, the blue circle, and only one country showing external fundamental weaknesses. So in other words, the stock and flow vulnerabilities, these are the main sources of vulnerabilities for the region as opposed to weak external fundamentals. And that is not surprising given that since the crisis, many countries in the region has done large external adjustment. And when we superimpose these three, there are four countries which show multiple weaknesses. And these are the countries which are sort of at the center of the Venn diagram, Belarus, Croatia, Hungary, and Serbia. So these countries are exposed to external funding shocks because of high debt, the structure of debt, and financial needs. But of course, external funding structure is not the only thing that matters when it comes to vulnerability to funding shocks. What also matters is external funding conditions themselves and how sensitive countries are to these conditions. So that's where we look at next. We start with a few charts which sort of give a background on how external funding conditions, both flow and prices, have evolved for this region in recent past. So the first chart shows you cross-border banking flows to the region, cumulative. The blue line shows you flows to the region as a whole, and the red line shows you flows to the region excluding Turkey and Russia. We exclude Turkey and Russia because these countries carry a large weight for the region. It's about 60% of the region. So it's important to look at the region excluding these two big countries as well. So as Asim was mentioning in the beginning, the little blue bars that you saw in the capital flow chart. So the region has taken, has seen a big reduction in cross-border bank flows since the crisis. Cumulative reduction in funding is 10% of GDP if you exclude Russia and Turkey. For some individual countries, this is as large as 40% of GDP. So this is clearly, there has been significant reduction. In terms of portfolio flows, portfolio flows have really just followed development in global financial market. Because of QE in the US and ECB actions, we've seen a large amount of liquidity injected in the global financial market. And the region, just like many other emerging market countries have benefited from that. You can see the blue line which shows the bond flows. They have surged, at least until the May, June, or tough last year, since then things have reversed. The third chart shows you EMBIG spreads. So this is risk premium, which clearly matters for borrowing costs. So after the taper talk, there was a spike for all countries in the region. Since then, spreads have come down to pre-taper talk levels for most countries, for some even lower than that. That's the red line there. But for some other countries, spreads have stayed elevated. So we have clearly seen a divergence in the countries in the region in terms of risk premiums. So of course we want to know what are sort of the factors that explain these developments in bond flows, cross-border bank flows, spreads, and borrowing costs. So in our report, we do econometric analysis to look into that. And we use two sort of explanatory variables. One sort of factors that capture the global market conditions. So there we have key policy rate in advanced economies, key benchmark bond rates, risk sentiment, and global liquidity. But then we also have a second set of factors which capture domestic aspects. So we have a range of variables capturing macroeconomic fundamentals, things like growth prospect, current account deficit, fiscal deficit, public debt, but also policy rate. And for cross-border bank flows, we have host banking sector characteristics. So things like NPL ratios, loan to deposit ratio, dependence on parent bank funding, and so on. So this chart gives you a snapshot of all the regression results and sort of showing you the part of the variance that's being explained by external factors, which is the blue part of the bars, and the part of the variance that's being explained by domestic factors, which is the red bars. So clearly, sorry. Clearly. Clearly. Sorry. External factors are important, but domestic factors matter too. So what this chart shows you is that having good macroeconomic policies, having solid macro fundamentals help you counter all these external shocks. So given the importance of global factors, we sort of zoom in on one of the risks that I've seen mentioned in the beginning, which is that normalization of monetary policies in the US. We know that US is having a recovery. We're expecting normalization of monetary policy, which means interest rates go up. The blue line here shows you the baseline projection for short-term interest rate. But what if the recovery is faster and the normalization of monetary policy takes place at a faster pace so the interest rates rise faster? So that scenario is captured by the red line. In this particular scenario, which is the same scenario that was used in the last IMF World Economic Outlook report, in 2014, the US short-term interest rate goes up by 50 basis point. Now when that happens, that has implications for the rest of the world. Interest rate goes up everywhere and in addition, emerging market countries may also experience the same kind of volatility that we have seen in the last, you know, last May, June, and also partly in January. So we ran a scenario for our report to sort of see what would be the impact on the real economy if that were to happen. And basically this is, here you see in this chart the impact on real GDP, you know. The dark line shows you average for the region and the shaded area shows you the range for the whole region. And basically the thing is that although US economic recovery helps with exports and growth, the overall impact is negative. That's because the financial channels are so much stronger than the real channel, you know. This set of countries, the CES economies, are not so tied to the US economy in terms of exports and so on. So clearly the financial channels take over and overall GDP, real GDP level can go down by about 1% in the trapped year. And this impact could be as large as 2% for some countries. This of course depends on if a country has policy space, fiscal policy space or monetary policy space to counter this downturn. That's one thing. And the second thing that matters is also how sensitive that country's risk premiums and borrowing costs are to global financial conditions, which is sort of the analysis we did just a few slides back. So that brings us to the final part of the presentation, which are what are some of the policy options countries have to counter these risks and vulnerabilities that we discussed. In the near term, allowing for exchange rate flexibility and increasing policy rate, if market stress returns remains appropriate. Countries can also use targeted liquidity provision by central banks, for example, by decreasing reserve requirements. Active debt management is also useful. Many countries have taken advantage of when market conditions improve to pre-finance their fiscal needs. That remains very appropriate. And finally, international cooperation. This is important for cross-border bank flows, flows dialogue with parent banks to make sure that funding reduction doesn't happen in a very abrupt way to make sure that there is no pickup. We have V&I initiative, you may have heard about that, so close dialogue in the context of V&I initiative is also very important. In the medium term, basically all countries in our region, in the SSE region have a long to-do list. Rebuilding fiscal buffers. Most countries in the region have very limited other policy space because either because of fixed exchange rate or their balance sheet concerns. So fiscal policy is the key macro policy too. So rebuilding these fiscal buffers as growth comes back is important. Addressing crisis legacies, particularly NPL resolution is important because this is the way the region is likely to see credit coming back. Addressing structural weaknesses. The low growth in the region is reflective of low potential growth. So to lift up, most of the to-do list is in structural area. And finally, diversifying funding sources. Both externally away, a little bit away from the Eurozone because the region depends so much on this one particular area. And also domestically by developing capital market. So with that, I conclude. Thanks. Let's see. Okay. Yeah, my name is Anders Osloen. And Heather's asked me to comment a bit upon the presentation, which I haven't seen before, but I've read the report. But I wanted to focus on something else, which I think is not sufficiently discussed here. I don't think that the big problem right now is finance. Finance is what we have gone, financial crisis is what we have gone through. What I see in the region now is a growth crisis. Of course, the task of the IMF is finance. I don't protest against it, but I explain why I would like to discuss something slightly different. So I will focus on one thing, economic growth. And here you can see the dominant development in this region, the post-communist region, is during the last two decades, is economic convergence. But this economic convergence has not been universal. The star in the class is Poland, that has more than doubled its GDP per capita in purchasing power parity. And Russia and Turkey have done reasonably also. Who has not done well is Ukraine. Other countries in that class, particularly Moldova, which has become the poorest country in Europe. So while Poland has doubled its GDP per capita, Ukraine has lost 20% of its GDP per capita in the last 20 years plus. If you instead look upon GDP per capita at current dollars, Poland has risen three times. So this is really quite a striking development. And this figure is what I think explains it all. On the x-axis, I have Transparency International Corruption Perception Index. So the further to the right you are, the less corrupt you are. And on the other axis, I have democracy. It's the Freedom House Index of Political and Civil Freedom. So what do you see here? You see that the more democratic you are, the less corrupt you are. And specifically, who are the countries up in the blowering? Well, indeed, all the 10 Central and East European countries that have joined the European Union. There's nothing that can fight corruption as well as the European Union. And I hasten to add an exception. Michel Chakashvili, who took up the very corrupt country of Georgia to a fully European standard of control of corruption. And in the other corner, you have countries that you would not be surprised of seeing. In the IMF now you don't deal with Central Asian caucuses in the European department, but you have them essentially down there together with Russia and Belarus. These are the countries that are caught in a trap of a massive corruption. And if you have a massive corruption at the top, what do you want? You want a nice authoritarian rule so that you can keep all the money. And this is what we are seeing in Russia, Central Asia, the Belarus. And then we have interesting countries that are in between. I've already pointed out Georgia. Moldova has made some advances. Armenia is also out there. And of course, Ukraine. Ukraine is the big piece that is lost, not only in geopolitics, but also in terms of what kind of political and economic system it will have. Two weeks ago, the Peterson Institute organized a conference in Budapest with the old great reformers a quarter of a century later, Leszek Balzerovich, Vasslav Klaus, Anatoly Chubais, and a lot of other such people. And what I came home with as the big conclusion is that the most important is to get a clear disruption to clean out the old elite, to have lustration. And essentially, well, most of the Central East European countries have had that. Those that did not, that's Bulgarian, Romanian, but have the biggest problems with corruption. And worst of all is of course the secret police. Because the secret police is by definition secret. So it's very non-transparent. And also, they have a high degree of competence, which is of course good if you want to be really crooked. And they also have very strong networks. So they are ideal for organized criminal activity, which is what they have developed so well. So we really have to lift our hats to their competence, which doesn't mean that we should necessarily support it. And let me move to the next explanation here. This is the EBRD composite transition index, which represents structural reform, mainly liberalization, also some privatization. The big point here is that structural reform essentially stopped around 1998. And after that, there has hardly been any advances. So the EBRD and its latest transition report called it stuck in transition. The reforms are not proceeding in almost any countries. And under both circumstances, you would expect economic growth to fall, which is what we are seeing. And let me show you here just a few countries to give you the contrast. My first picture of GDP growth has three sharply contrasting central and east European countries. The first is the start performer, Poland. You see a steady growth rate close to 5%, not even during the financial crisis, Poland turned down because they had a good restraining monetary policy in the early 2000s, unlike almost all other countries. And they have good reforms which they could live on. Then you have a yellow line, which is Latvia, which is, so to say, most fun, with an economic growth from 2000 to 2007 of an average of 9%. And you ask, isn't that too much? Yes, it is. They turned out to be massive overheating. All of them hardly had anybody deficit. And therefore, Poland was punished with 25% decline. But with good structural policy, Latvia has now come back to 5% growth and seems to stay at the level of 4% growth going forward. That's what happened when you have done the reforms and have corruption under control. Then we have the one sad country in Central East in Europe that is Hungary. Hungary, as you see the blue line, has did poorly in the good days. And it did badly also in 2008, needing an IMF program. And it's not going anywhere now either. Been stuck at a growth of at most 2%. What is the problem? Social welfare trap, too large public expenditure, and therefore too high taxes, and also too high public debt. And the Hungarians can't get out of it. Nobody is really prepared to revoke that system. So therefore, they are stuck there, and instead turn to populism. So Hungary is the only country that looks sad of Central East European countries. But let me then move on to the other places, Russia and Ukraine. The reason why I put up the growth in Russia and Ukraine here is to point out that Russia is not that superior to Ukraine. You can see how closely these two growth follow one another. And both are now down to stagnation and likely to stay there. Why? Because of state and chronic capitalism, which we saw leading to the revolution in Ukraine, increased protectionism, as we are seeing in Russia. And there was really no reason to expect any growth, regardless of what happened to the finance. There can be a financial crisis. That's quite possible. But it's the very bad business environment that now drives business out. And I would like to ask, in particular, who's saying I hear that the IMF has done a high-stress scenario for Russia, where the big capital outflows this year of $150 to $180 billion, and the decline in GDP of 4%. So I would be interested to hear if it's not published. But if you have done such a stress scenario, and what you think of that is both possibilities. So just to finish up, the key concerns is the stagnation in performance of your junior. I did not mention Belarus here, which is equally bad. And Russia is really a big concern, not only for its misbehavior, but for its stagnation, which you discussed in your report. The main hope is the Ukrainian reforms. And something that is not much noticed is that the country that grew the most in Europe last year was actually Moldova, with a growth of 8.9%, which has done substantial reforms on its own. While, for the time being, fortunately, I think that the financial issues of secondary and corruption is the trap that really requires a regime change. Thank you. While we're finding our seats, Tom, you have the worst position. I call this cleanup. You get to clean up from two very rich presentations. So over to you, Tom. Thank you, Heather. And thank you for inviting me today for this terrific panel. I have no charts, so I apologize in advance for that. But I did find the report which I read fascinating on both presentations, the IMS and Anders, very interesting. I want to focus. I'll be relatively brief because I think we want to go to the floor for questions. But I want to focus on the aspect of the report that dealt with the risks. I think you identified three, the external financing, the geopolitical risk and the euro risk, euro area risk. And in the presentation, you focus, I think, more on the external financing side. So I want to talk a little bit about, very briefly, about the euro area and then one brief point and then sort of two substantive points about the geopolitical risks. That I think are important not only for Europe, but also for the wider global economy. On the euro area, I agree with the reports analysis that the risk of this is relatively high. I mean, it seems to me that if you look at the euro area today, the question is that now that the existential phase of the crisis is over, at least for the moment, are we on the road to a robust recovery or is there some form of a lost decade or prolonged period of stagnation? And while there has been a lull, nothing really has happened over the last year that leads me to think that it's anything other than a long period of stagnation. And the inflation numbers and other sort of metrics that have come out what I think would reinforce that. And so Heather sort of observed at the beginning that there's sort of uneven growth rates and Germany's doing relatively well. And I think we will see that, but ultimately I think the euro area is unlikely until some of the structural problems are fixed to provide robust growth. I think that will have a detrimental impact on this region. Although I do think that it's probably relatively limited in terms of its impact because it's really no major change from where we are at the moment. It's not likely that it's going to become severely worse in the immediate future, although some shocks can happen, but I see more stability there, but there's no sort of shining night in the horizon I think for the region. On the geopolitical side, I have two points really to make. The first is that I do think this is a watershed moment, not just for Europe's economy, but for the global economy as a whole. Because since the Cold War, the basic idea animating a lot of the global economy has been unfettered economic integration. Countries have integrated or become more interdependent with each other when it's made economic sense to do so. And that economic interdependence has, by definition, being mutually beneficial to almost all parties involved. Maybe to varying degrees, some will win more than others, but it's been a mutually beneficial practice. And by and large, geopolitical calculations have not come into play in terms of how far that integration ought to go, or whether countries or companies or investors should engage in it. And what this moment shows is that geopolitical risk actually does matter because that integration and that interdependence creates vulnerabilities. And so it's the same degree that a country is integrated with another, it is also vulnerable to actions, sanctions, or otherwise it may be taken. And we've seen that in the case of Russia, in the United States, where Russia is more dependent than the global economy than some other countries may be. And so it's more vulnerable to sanctions. And certainly there's been some sanctions already in place, but even more importantly, additional sanctions have been mooted. The ones that would very badly affect the Russian economy. And in the presentation we heard there were already some signs of hedging against this. Putin certainly heads against it even in advance of the crisis by trying to de-link Russia as much as possible from the global economy, but recently there's been capital outflows and other events. To me, what's important is not necessarily what's happened so far, it's the pre-cidental impact of this because for companies, for investors, and for countries, the message has been sent that sanctions and economic warfare is basically the first protocol in the event of a major geopolitical crisis. Now I actually think from a strategic point of view that's probably the correct call and I think the sanctions should be sort of tougher, but I do think that there is a significant impact on the global economy because it would be unreasonable and irrational for countries and investors and companies not to hedge against that in the future. So in Asia, for instance, I mean China is probably watching this very closely not because of anything that would anticipate in the next 12 or 24 months, but because if at some time or the next decade there was a major geopolitical crisis in Asia, some of what's been done in Russia may very well be a template for what will be done on China or vice versa in terms of China and the US. And so strategic planners will be thinking about how they can hedge against those risks, increase their leverage over the others, but reduce their vulnerability to potential adversaries. And I think that that's the first time really since 1991 that that strategic calculation is going to come into play. Now we've seen it most notably in the case of energy in Europe where European leaders are now saying it's a strategic priority to have energy independence, but I think you won't just see it limited to that. You'll see it over time on finance. We've already seen it in cyber. We'll see it maybe on some of the more general economic side and some key industries. And so I wouldn't say quite that this is the end of globalization, but I do think it's the end of globalization as we have known it in the sense that now there will be a more strategic approach to a country that will be more conscious of the risks that will arise. The second point on the geopolitical risk is I think that if, and the report is quite balanced and sort of hedges in a way in saying we don't know whether or not this will get worse or will stay like it is or will get better this week, it maybe seems it might be getting a little better. PPC seem to be getting worse. We won't really know I think for some time. I think though that there is also a chance that if it does get worse, that it will increase the risk of geopolitical crises elsewhere as well. So it's not just in Europe. I mean, we can all imagine scenarios where there will be a civil war or a major sort of crisis in Ukraine. But Russia, the administration's pursuit of a policy of isolation of Russia, which again I think is largely correct, is also somewhat premiss in the idea that there's no major downside to it, that there's very few trade-offs because Russian cooperation isn't massively required. And I think over time we will see that there is a cost to the isolation of Russia. That cost may very well be one word paying. But the idea that Russia can't do anything detrimental on Iran because it's not in its interest to do anything detrimental on Iran because it also doesn't want Iran to have a nuclear weapon, I think it's overly simplistic that there are plays they can make that will massively complicate the negotiations or potential scenarios down the road. Similarly, in Asia, even with something that it's not directly involved in, like the North Korean nuclear program with North Korean provocations over the next 12 months, which are largely anticipated, you could see that maybe Russia and not being as cooperative would allow, would reduce the pressure on China to take a tougher line on North Korea. So I think there are multiple ways that one sort of fraying of the geopolitical order could lead to a fraying elsewhere. So I think that I agree that there are these risks, but I think that for me, the geopolitical risks are probably beginning to replace the financial risks of the last sort of five years as the major sort of threat, not just to the Central Eastern, South Eastern, European economy in Europe as a whole, but also to the global economy more generally. And I think I'll leave it there for now. Tom, thank you so much. Again, thank you, colleagues. What a wonderful, rich discussion, and we have about 30 minutes for good questions and response. Tom, I just want to pick up very briefly. I think all of our assumptions are being sorely tested right now. The assumption that globalization, economic integration would prevent risk-taking conflict that countries would not go to war with each other because they're so tightly integrated, that assumption has now been severely tested. I think Anders, to your point in the EBRD report that in 1998 for this region, essentially reform plateaued. And we have assumed that these countries continuing in their EU, NATO, their institutional straitjackets would continue to progress. That is not the case. In fact, there's been backsliding. I think your example of Hungary is very important. One element we didn't talk about, and I don't know if this is a variable that needs to be examined, the alternative external financing of China. We're seeing increased activity of China, Belarus credit lines in central Europe as an alternative to other external financing models. Does that play a role? So just some comments, thank you. I have a few questions, and my heart is beating quite fast because I'm a non-economist and I am waiting in a territory that I ought not wait into. So with everyone's forgiveness, I'm gonna probably ask some questions that may demonstrate why I'm not an economist. But we have one question from Anders, which I'll seem that we'll just put on the table about the high stress scenarios, if you can share that with us. And speaking of stress, I'm thinking of the upcoming stress test for the European Central Bank that will be occurring this year, the quality assessments, and your chart about Austria being significantly in the Austrian banks, being significantly exposed to this region. I'm wondering, again, scenarios, if some of these, I mean, this was not figured in, I'm sure into the initial stress test of the annexation of Crimea and the geopolitical instability, whether this ought to be an element of stress, Austria, Germany, France, those banks and being exposed to this political risk, I would certainly welcome your thoughts on that. And then one final question, and Anders, I love your charts. I loved your chart with the corrupt, non-democratic, more democratic. The four countries in the middle were the Eastern partnership countries. Armenia has now gone to the other grouping. Ukraine, by making a decision or non-decision is in turmoil, but we have Moldova in Georgia that will be signing the association agreements at the end of June. In some ways, that was the perfect graphic description of that pull and tug. I just, I thought that was extremely important. So there's some questions for you all to maul and to take. What I'd like to do now is collect some questions from our audience and then I'll allow the panelists to take it away. We have a microphone. So if you could raise your hand, your name and your affiliation. We like our questions provocative and our comments short here at CSIS. So with that, ma'am, you're right there. A microphone's coming your way. Thank you. Thank you. Rina Giloska, Macedonian TV. Mr. Hussain, this is a question for you, sir. What is your assessment because you're deputy director of the European department of IMF for Macedonian economy this year? I believe you projected the economic growth of 3.5% this year. I'm gonna make James run today. Yeah, Thomas Ward, I'm an economist, formerly from the Royal Bank, and I did my master's in political economy, transition at LSE. But what I've been seeing is how Russia and China have been combing closer together, like in the Wall Street Journal today, they're talking about a big gas deal that's going on. And if you look, that offsets the multi-international gas players, such as the BP's, Exxon and everything are in their place. So it's a set off is what's happening. Thank you. We have a question right here, James. Thank you very much. Batokutelya, the McCain Institute. I'm from Georgia. And my question is, Mr. Aslan, you mentioned and your graph quite visually describe the dynamics on the Eastern European countries towards making, to be a democratic and non-corrupt countries. So what you think would be the preconditions of making this progress irreversible? Because in some cases, we've seen that this type of progress has been reversed. So what are the criteria of irreversibility from your standpoint? Thank you. Why don't we pause there and I'll give everyone a chance to respond to my questions and our audience questions and then I think we can have one more quick round. So if I see one of my start with you, we've been holding you back for a little while. So Heather, thank you. Since you are in charge, I'm gonna answer your question first and then maybe address a few others. So I guess with respect to the ECB stress test, this was something we considered indirectly. The whole point of the exercise that we analytically or quantitatively examined, which was the impact of tightening by the Fed faster than the rate currently expected by markets was to illustrate that tighter global financial conditions matter a lot for this region. Now, ECB stress tests are coming. We know that the SESI region is heavily reliant on euro area banks for lending in SESI countries. If the ECB stress tests result in a need for those euro area banks to increase capital, for example, or to increase capital ratios, that could prompt even more deleveraging than what they've been doing. So it's possible that that deleveraging happens at a faster pace. In effect, that means tighter financial conditions for the SESI region, which means lower growth. So the scenario that Jasmine showed you is something that's not just really about the Fed, that precise numbers are, of course, what comes out from faster Fed tightening. But in principle, tighter financial conditions coming from any other source could help. But I wanna flip this around. On the other side, there's a lot of talk now about the ECB possibly easing. And if the ECB does ease, that's not in there. So that could actually help the region by producing easier financial conditions, possibly offsetting tighter financial conditions coming from the Fed. So on balance where this ends up, stay tuned. Now, you talked about also financial links that European banks have with Russia, with Ukraine, and whether that might play into the stress tests. So there, I think there are some banks in Western Europe, some Austrian banks, some Italian banks, some French banks, that do have sizable operations, especially in Russia. Ukraine is a small share of their global balance sheet. Even Russian operations are a small share of their global balance sheet. So it's unlikely that it would impact their global capital positions. But Russian operations have been, at least in the last couple of years, an important profit center for these banks' global operations, partly because they've just not been making money in Western Europe. So a big loss in profits from Russia would affect their profitability potentially in the short term. If I may, I'll go back to a couple of points that Anders raised. First, we agree, I think the fund generally, I in particular, the team that produced this, agree completely that growth is hugely important for the region, so much so that it was actually the subject, the feature of our last REI. But there, what we looked at was, why is growth potential for the region so much lower now than it was before? Now, part of the problem, of course, is that growth potential was flattered by the boom pre-crisis. And there, you had very rapid accumulation of capital that was financed by this easy funding availability from foreign banks. Also, labor inputs were increasing as we went from, I guess this goes back a little further, but in the 90s from essentially planned economies to now free market economies, rapid movement of labor, some increased training and so forth. But going forward, the bank coming from more labor is gone. If anything, labor in some countries, Russia in particular, is going to have a negative contribution just because of the way demographics are shaping up. Capital is not going to accumulate at the pace as we've seen. So what's essential is to get total factor productivity up. And there, I couldn't agree more with Anders that structural reform really needs to come back. And there's some legacies that have been exposed by the crisis. So these are things we looked at in our REI six months ago. I invite you to look there, but some of the crisis legacies, addressing banking issues, addressing labor market problems, et cetera, those are hugely important. Last but not least on Russia and Tom's point, also some things that Anders said, one, we didn't do this scenario. I read it in news reports too. I think it's another IFI. I'm not sure who it was in us. What we have done though. I guess that sounds like a thought you had done. No, so what we have done though is we have revised down dramatically, I think, the Russian growth projection for this year. So our annual, what we call Article Four mission went to Russia in the second half of April. And based on the latest numbers that were available at that time, they revised down the growth outlook to 0.2% this year. Which is, by our standards, a very major downward division, almost a full percentage point since it's the previous one. The concerns are, this is the short-term thing and this is where the latest numbers in terms of capital flows, investment, Q1 GDP, et cetera, seem to be going. I think that's in the near term, but the issue that worries us, worries me in particular, is that over the medium term, if investment is going to be low, uncertainty is going to be high as a result of this. It's not just growth this year that's going to be weaker. It's growth potential going forward and this is in a context where demographics is not gonna help you either. And there, the issue that Tom raised, this issue of integration of Russia with the rest of the world. If that is going to go into reverse, then that has serious implications, of course, for the global economy, but I think I would argue even more so for the Russian economy. Yeah, thank you. Three points. First, the question on Russia-China cooperation. Well, I think that we saw a big setback today. There was no report about the big gas deal, which was the jewel in the crown and Putin's face, which always tells it all, looked very sad and irritated. I'm always happy to see that. And this was supposed to be a $400 billion deal. I didn't think it would happen because Gazprom hardly ever makes any deal. So why should they manage to make a deal this time? The Chinese are difficult to agree with. China made a huge deal with Ukraine on agriculture, which was considered very corrupt. Now this deal has fallen apart. So I'm not so sure about China's possibilities with Russia and Ukraine. On Georgia, what to make it happen? Well, at this conference in Budapest, we have Ivan Miklos, who was Minister of Finance for 10 years in Slovakia. And all of a sudden, 2003, 2004, they did massive reforms. So I asked him, how was that possible? Nobody apart from Georgia, of course, did reforms at that time. Nobody in the European Union, and here all of a sudden, you did it. How come? And he said, we had plans prepared for many years. We waited for the political opportunity. All of a sudden, it arose, we were prepared. We did it all when we could politically. So this is the answer. One can't predict when it comes. One can prepare so that one is ready when it comes. And of course, the IMF and the World Bank are very helpful in these regards. When the big financial crisis happened now in Latvia, I was a bit involved, and they needed to cut public expenditures. And of course, one doesn't know how to cut public expenses all of a sudden. And then it turned out that the World Bank had done bi-annually public expenditure reviews, where they had suggested how much that should be cut where, in comparison with the other Baltic countries. So they just took that manual and did it all in no time. So one has to be prepared. Just one comment on this bank exposure. I didn't quite like the tone in the presentation that there should be more diversification. The place that really has massive diversification is Russia, and we are with Ukraine. Ukraine had 17 Western banks, and everybody's fleeing as fast as they can now. And the situation in Moscow is always as bad. Well, if you compare with the countries that have more concentration of foreign banks, they have a foreign bank stay. A foreign bank wants to have 10, 20% of the market when they stay. So you want to have committed investors rather than very many investors to stay on. But looking upon these exposures, now what you asked about Heather, it's one Austrian bank, Bankreif Eisen, and the Société Générale and EMP Paribas that are big in Moscow. And they are simply behind the curve. They haven't noticed that the business conditions have deteriorated so much that they had better sell it earlier, and now they are too late. So they are likely to lose money in Russia. You can take, for example, HSBC, Bank Santander, the biggest banks in Europe, they understood what the situation was in Moscow and sold after a couple of years ago. I think I think it's gonna go back on the question on the GDP question that you had, and then Tom will turn to you. So apologies, I neglected to answer the question on Macedonia. So I think what is generally our outlook for most of the region, excluding the large economies from Macedonia, we also are projecting some further pickup in growth. So as you know, 2013 already growth recovered. And in 2014 for now, our projection is for the recovery to continue. So again, like much of the rest of the region, one critical risk is credit growth. And the funding of credit, it does rely partly on external funding. So if credit growth is weak, then private investment will be weaker and then the growth projection could certainly be at risk. Just a two finger on obviously the massive flooding that we're seeing in Serbia and Bosnia, the cost of that damage and massive infrastructure challenges will certainly weigh on that region. Although I didn't realize it was also Macedonia. It was Bosnia and Serbia, but as I said, the region will be impacted. Definitely Tom. Just two quick points. One on Russia and one on the China angle. On Russia and on your point about that their economy would be pretty badly hit. I think that's right, but I think one sort of additional element to it is that if the Russian economy is going to suffer because of its isolation and because of its sanctions in order to write that domestically, Putin needs a crisis environment. I mean, it's not enough just to have this slow burning sort of fuse of where the economy is damaged and geopolitically things are quiet. He can sort of justify that if there's a rally around the flag effect and if it is the crisis environment for a while because they're willing to pay more costs maybe or they calculate that they're willing to pay more costs than the West. And so I think that that would indicate to me that he may continue to push things. On China, I think this is a very difficult issue for China has been commented on before that there are different very much two sides of the coin for them. I think it's not likely that they're going to run into the arms of Russia. Russia creates a lot of complications and difficulties for them. And on the other hand, there are some advantages as well. And so I agree with Anders that this is a major a significant sort of setback today, but I don't think that that's the end of the story because I think there are sort of very much conflicting incentives in Beijing. And I think that it is significant even without the deal that Putin was is in China and that we may see some more movement and cooperation there, even though it will be somewhat limited. All right. I think we have time for a few more. Oh, great. We have two bundles here and one back there and microphones coming your way. Hold on one second. Can I just follow the stress? I'm sorry. Can you identify yourself? You're fine. Tony Vacherl from the World Bank. Can I just sort of follow up on the stress test for Russia? Because as I understand it, they owe about 170 billion this year of which 80 billion is short-term debt. If they can't roll over the short-term debt and if they can't raise new bank and bond financing, they're going to have to repay a lot of debt. At the same time, they've got substantial capital outflows and I'd be interested to know sort of what do you think oligarchs are moving the money out or the oligarchs might start bringing money in. But if they've got a combination of capital flight and having to repay a lot of debt and can't roll over the short-term, then the reserves are going to fall pretty steeply. They lost 27 billion in the first quarter. Wouldn't surprise me to find that they'd lost as much a gain in the last six weeks, although we don't have the figures yet. In these circumstances, they're going to have to run a current account surplus, which means they're going to have to cut imports and they're going to have to cut domestic demand. So your GDP of sort of flat of 0.2% might well be minus three or four or something like that. This is what we saw in the early 90s when Russia lost complete access to capital markets. Just a second question. I haven't seen any discussion of the sharing out of the debt. Crimean has sort of left Ukraine, but as far as I'm aware, it hasn't taken any debt with it. Normally, if a country broke up, you'd expect some of the debt to go with the breakaway. If Donbass was to join Russia, that's a large chunk of the Ukraine population. You'd expect a large chunk of the debt to go with them. Hello, I'm Katarina Sokol with Greek Daily Kathmarini. Dr. Aslund's description of Hungary actually reminded me of a bit of Greece as well. And I'm wondering if Mr. Hussain would have something to say if there are any similarities between the two countries and if that might be the case of the high stock of external debt that both countries hold. And to Dr. Aslund, I'm wondering, do you have a projection and estimate of where Turkey is in the success of yours between democracy and corruption? I saw the post-communist countries, obviously, but I'm wondering if someone would have that or your estimate on where it lies. Thank you. Hello, my name is Andrew Tsinsiruk. I'm a Global Trace Strategist. My question is for Dr. Anders Aslund. Next week, Ukraine will hold presidential election and the newly formed government will face challenges with European integration. They signed a first part of DCFTH free trade agreement and how do you think it's going to affect Ukraine's future trade relations with Russia? And do you see what are your predictions for Russia's customs union in this sense? We have five more minutes. So, Tom, if I can begin with you and we'll just work down our way down the panel and then we'll close up. Thanks, I think most of the questions are directed to others. I just have one comment on the debt and Crimea. I mean, it just seems to me that if we don't recognize that Ukraine doesn't recognize it, then you can't really give away any of the debt. I mean, if it's illegitimate annexation or departure sort of dividing up the debt or having a negotiated sort of element to it will be legitimizing it even sort of post facto. So I don't know how these things normally work, but I think that we're likely to see that very few countries are going to recognize the annexation. So first on capital outflows from Russia and what they could be for the year is a hard one, but in the first quarter, I think the net capital outflows from Russia were something on the order of 50 billion, which is a very large number compared to the total for 2013. I believe that the reserve, so the Central Bank of Russia changed its intervention rules. It had been moving toward increased exchange rate flexibility up until basically the early part of the 1st of March when the Ukraine annexation happened. And at that point, they changed their intervention rules and have intervened very substantially in the first few weeks of March, but that intervention has diminished very much and the numbers that I've seen through part of April are much smaller. So I would be very surprised to see a Q2 number as large in terms of reserve de-cumulation that we saw for Q1. I think the question on Russia is though a broader one and one thing that Tom said I think is worth sort of dwelling on a little bit more. I think that the Russian growth model, what powered growth in Russia during the pre-crisis decade between 1998 and 2008 was ever rising oil prices and a steady increase in capacity utilization. So capacity utilization by 2008 had reached record highs and at a level arguably that couldn't rise any further. And oil prices of course, since 2008's correction have been essentially flat. Going forward, those two drivers are unlikely to return as drivers of the Russian economy. So it's much more important for Russia in order to get growth, to look for other drivers, to look for total factor productivity, et cetera. So I'm not sure what the political calculations underlying all this might be, but just from a pure economic standpoint, relying on sort of past growth drivers is no longer viable. Last but not least, the question on Hungary versus Greece. I don't know very much about Greece so I'm not gonna be able to say a whole lot, but two important differences. Well, first to similarity, both have high public debt. Now Hungary's public debt is, I think in the 80s, percent of GDP, half that of Greece, so that needs to be kept in perspective. Another important, I think, difference is Greece is a member of the euro area. Hungary has its own currency and that is a substantial sort of instrument for external adjustment that Greece does not have. Anders, we'll let you have the last word. Thank you very much, Heather. Greece versus Hungary. Well, Greece is doing reforms, Hungary is doing the opposite, so Hungary is reversing, but Greece is according to all indices considered much less corrupt than Hungary, which is worth noticing. On stress test for Russia, the World Bank has put out numbers, highest stress scenario with $133 billion of capital outflow. The Institute of International Finance have a study which they have not publicized, which has something like 150, $180 billion, that's 10% of GDP. So this is really the driver in the situation. I totally agree with you that it will not be as much as it was in the first quarter, but if that happens, of course, the exchange rate will fall further. We have already seen inflation goes up and the interest rent of Central Bank has already been increased 200 basis points, likely to go more if there's more stress and who is being hurt, investment. The World Bank predicts 10% decline in investment and it's the decline investment that will drive down the GDP in the World Bank's scenario 1.8%. It could easily be 4% if we take a larger capital outflow, so that's the dynamism. And then absolutely nobody can know how much the capital outflow will be. Clearly the oligarchs are taking out the money and the state banks are being forced to pay back and the state cooperation because it's more difficult and more expensive for them to raise funds now. And it was interesting to see that Bank Russia, the first bank to be sanctioned by the US, in one month lost one third of their deposit base. So people don't want to deal with a sanctioned entity even if there's no legal reason for it. Donetsk will not be annexed. I think that it's pretty clear now that the wave has changed in particular with oligarch Rinat Akhmetov's very clear stand in the last few days. But that of course means that we have no idea what President Putin will do next because he's now caught with egg on his face in every relevant regard. And that's not the situation that he likes to be in. But I'm of course happy to see that. And on the question about Ukraine's presidential elections, it seems pretty clear to me now that Petro Poroshenko has 55% of the expected vote in the latest opinion polls. And we're also seeing that his majority increases. So I presume that he will win in the first round because the Ukrainian opinion polls are normally quite high quality. And unlike Russia, Ukraine is a free country. And the second part, the economic part of the association agreement with the European Union will be signed on the 27th of June together with George and Moldova. And I think that this will really revitalize Eastern partnership, which is of course a good reason for President Putin to come up with some novel idea before that. And this association agreement for Ukraine is really very substantial. The first part is very far reaching, a deep and comprehensive free trade agreement. The other part is a big reform program with implementation from the European Union for the Ukrainian state. So this is what Ukraine really needs. It's far more important what it means qualitatively than how much money that is involved with it. So I'm very optimistic about Ukraine that it's really now undertaken. I would say that in the last two months, Ukraine has undertaken more reforms than it ever has done before. So this is a great period for Ukraine if it works out. And now it's only the question, what happens with the Russian threat? And if the domestic vested interests can be managed. Thank you. Well, on... It was a statement by Stephen Fuehler yesterday. It's an official statement I'm referring to. And we look forward to watching this space in the next few days and weeks. Let me begin by a very big thank you to our colleagues at the IMF, to Asim, to Lee, to Yasmin. Thank you for a wonderful presentation to my colleagues, Anders and Tom. Thank you for pulling this out a bit and helping us understand the geostrategic implications of global economics. Please join us again at another CSIS event. Thank you.