The first step to succeed or the last chance to survive march 2013


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An invitation to policy makers, financial institutions, entrepreneurs and innovators, academics and other interest groups to share their observations and experience those may reveal factors required to attract investors and remove barriers for sustainable development.

Dedicated to support sustainable development trends those strengthen resilience during financial shocks and contractions of economy.

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The first step to succeed or the last chance to survive march 2013

  1. 1. 14 March 2013The first step tosucceed or thelast chance tosurvive –an invitation tosustainabledevelopmentPlease share!An invitation to policymakers, financialinstitutions, entrepreneursand innovators, academicsand other interest groups toshare their observationsand experience those mayreveal factors required toattract investors andremove barriers forsustainable development.Dedicated to supportsustainable developmenttrends those strengthenresilience during financialshocks and contractions ofeconomy.Author: Ms Asta Pravilonytė
  2. 2. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable development The first step to succeed or the last chance to survive – an invitation to sustainable developmentAbstractInflated assets’ bubbles remain the key to financial risks. The other risk is ignorance ofmarkets’ inertia. It seems that financial stability encourages the economic growth, and viceversa, economic growth is required to keep financial stability. But if consumption does notgenerate enough incomes to cover capital expenditures, is it a sign of bad luck orunconsidered actions those fail to match customers’ preferences? The main criterion ofefficient markets is equal opportunities to gather information so that market participants wereable to estimate and compare the value of assets. However, with markets’ distortions investorstake inadequate higher risks than expected returns. Thus, are there sustainable developmentstrategies those allow companies to generate incomes during economic contractions andenable investors to withstand financial shocks in the financial markets?A brief review of European policiesRecession in Europe undermined local amounted 26.2%, 18%, 17.6% respectivelybusinesses and consumption. According to and the unemployment rate of 26.4% inthe Eurostat data the real GDP growth Greece which was registered in Decemberrate in European Union’s 27 countries of 2012. The analysis of EU-27 householdwas -4.6% in 2009 which followed by a final consumption expenditure published inpositive increase of 2.1% in 2010, 1.5% in February 2013 at the Eurostat’s Statistics in2011 and decline of -0.3% in 2012. The rate focus revealed that actual individualwas projected to increase by 0.1% in consumption in 2011 was close to the EU-2013 and 1.6% in 2014. The biggest 27 average of 70% of GDP for mostrates of economic contraction in 2012 countries; however, the range of the actualwere registered in Greece, Portugal, individual consumption per capita in eurosCyprus, Slovenia and Italy. The recorded varied from €35000 in Luxembourg andreal GDP growth rates amounted -6.4%, €29600 in Denmark to €6400 in Hungary in-3.2%, -2.3%, -2.3% and -2.2% 2011 (respectively €3400 in Bulgaria andrespectively. According to the data €4200 in Romania based on last availablerecorded in January 2013, the data for 2010). According to the survey theunemployment rate in 27 European Baltic economies and Greece were thecountries comprised 10.8% with the highest most severely affected, with loss of actualrates in Spain, Croatia, Portugal those Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 2 United Kingdom
  3. 3. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable developmentindividual consumption (in volume terms) of Moreover, financially fragile countries12% to 15% between 2008 and 2011. required financial assistance to implement structural reforms in order the borrowingEuropean region is also the case of multiple costs were kept at sustainable level in thedecisions regarding bailouts, fiscal markets. According to the Europeandiscipline policies, strategies for economic Financial Stability and Integration Reportrecovery and financial stability measures. prepared in 2011, the joint European andAccording to the European Financial IMF’s financial assistance to GreeceStability and Integration Report prepared in amounted €110 billion in 2010, financial2011, during 2008 and October 2011, the stability support to Ireland reached up toCommission approved total state aid €85 billion. Portugal received an approvedmeasures of €4.5trillion (36.7% of EU €78 billion bail-out in May 2011.GDP), the majority of which in the form of Additionally, the financial assistanceguarantees on bank liabilities. The actions programmes have continued in Latvia,taken to insure stability involved enhanced Romania and a precautionary programmefinancial supervision in Europe with was also requested by Hungary. One of theestablished new European Supervisory exceptional cases could be mentionedAuthorities for the banking, securities private investors’ voluntary acceptance of amarkets and insurance and occupational 50% Greek bond haircut which enabledpensions sectors those started operating in both a €100 billion cut in GreecesJanuary 2011, the Commission’s sovereign debts and allowed a new Greekcontribution to the new Basel agreement on programme of aid of €100 billion at the endbank regulation (Basel III) in 2010, the of 2011.European Financial StabilisationMechanism (EFSM) and the European European financial sector also requiredFinancial Stability Facility (EFSF) those governments’ interventions and bailouts ofwere created in 2010 to provide up to €500 banks due to mismanaged aggressivebn to Member State governments for business strategies. According to thereduction of tensions in euro area sovereign European Financial Stability and Integrationdebt markets as well as established the Report 2011, the total amount of state aidpermanent European Stability Mechanism actually used by the financial sector in EU(ESM). The other policies include measures 27 during October 2008 and Decemberfor increased transparency such as 2010 comprised €1.6 trillion (13.1% oftemporary restrictions on short sales, EU27 GDP) of which: €1.2 trillion and otherprohibition to use credit default swaps in liquidity measures; €288 billion foremergency situations, standardised OTC recapitalisations; €121 billion for asset reliefderivative transactions’ clearing via central interventions. Restructuring of banks incounterparties as well as the maximum Ireland, Denmark, Germany, Spain, Unitedguarantee cover for held deposits to Kingdom involved mergers, recapitalization,€100000 and investors’ compensation deleveraging and operational optimizations.scheme to cover investments to €50000. Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 3 United Kingdom
  4. 4. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable developmentIn addition, the European Central Bank’s total volume of outstanding refinancing(ECB) role was also significant. According operations to nearly €900 billion, andto the European Central Bank’s Annual thereby contributed to lower money marketReport 2009, following the consequences of rates also at longer maturities. Thefinancial crisis the Governing Council of the stabilisation in euro area and the recoveryECB lowered interest rate on the main in asset prices from the record lows afterrefinancing operations at 1.00%, the rate on the collapse of Lehman Brothers werethe deposit facility at 0.25% and the rate on indicated first time at the end of the firstthe marginal lending facility at 1.75% in quarter of 2009. However, due to2009. The rates were slightly increased in dysfunctional markets the ECB continued2011 as a result of the improved economic interventions in 2010, 2011 and 2012.outlook; however, due to new demand of According to the European Financialliquidity and intentions to support economic Stability and Integration Report 2011,recovery with facilitated lending to between May 2010 and the end ofbusinesses, the interest rates were lowered December 2011 the ECB bought securitieseven more in 2012. The effective rates from those amounted €218 billion, and at the end11 July 2012 are the following: rate on the of 2011 its holdings contained about €211main refinancing operations is 0.75%, the billion. Furthermore, due to the ECB’srate on the deposit facility is 0.00% and the launched two 3-year long-term refinancingrate on the marginal lending facility is operations (LTROs), the ECB allotted €4891.55%. According to the ECB’s annual billion in December of 2011 and during thereport prepared in 2009, the enhanced second round of LTROs in February 2012credit support to economy comprised the the ECB lent a total of €529 billion.following five measures:– the provision to euro area banks of Moreover, investigations of supervisoryunlimited liquidity at a fixed rate in all authorities disclosed other systemicrefinancing operations against adequate weaknesses of the European financialcollateral; sector such as mis-sales of insurance,– the lengthening of the maximum maturity illegally fixed Libor rates and moneyof refinancing operations from three months laundering cases. Taxes on transactionsprior to the crisis to one year; and caps on bonuses are the further– the extension of the list of assets policies beside increased capital andaccepted as collateral; liquidity requirements those are intended to– the provision of liquidity in foreign shift banks’ business models towardscurrencies (notably US dollars); and stability and credibility.– outright purchases in the covered bond The basis of stronger European Union wasmarket. set in the Treaty on Stability, CoordinationThe first 12-month LTRO, conducted on 24 and Governance in the Economic andJune 2009, resulted in a record €442 billion Monetary Union on 2 March 2012. One ofbeing allotted to the euro area banking the main elements of the Treaty was the so-system at a fixed rate of 1%, bringing the Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 4 United Kingdom
  5. 5. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable developmentcalled fiscal compact which proposes steps impose higher tax burden, createsforward towards greater budgetary uncertainties for businesses, stagnates thediscipline and better coordinated fiscal US economic growth and job creation waspolicies in the EU. The other major expressed. Consequently, the Budgetagreement was reached regarding the Committee proposed to spend $4.6 trillionEuropean banking union in December less in the next decade compared to the2012. Member States agreed to give to the current path of spending. Private sectorECB a supervisory responsibility. Тhe which is highly dependent on theSingle Supervisory Mechanism will enable government stimulus policies may suffer thethe ECB to detect risks in banking sector, most due to the government’s budgetrequest necessary actions, ensure discipline policies.compliance with capital requirements,grant and revoke licences for creditinstitutions. Other potential threats for the financial stability were reported in February and March. While money laundering investigations and €17 billion bailout whichObservations about recent events was negotiating for Cyprus seemed to beConsidering the economic contraction, insignificant in terms of the scope ofraised unemployment and diminished influence on financial markets, theconsumption due to austerity measures the downgraded UK’s AAA credit rating to AA1European countries went through in order by rating agency Moody’s and the Bank ofto balance their sovereign budgets, stabilise England’s estimates on the capital shortfallfinancial sector and reduce borrowing of £35 billion for Britain’s banks if risk-costs, similar economic consequences may weighted assets were standardised areaffect the US as it also attempts to reduce important risk factors consideringsovereign deficit. According to the investment. Moreover, it seems that the USCongressional Budget Act of 1974, an Federal Reserve’s report on the stress testagreement for the budget for the United of banks was also ignored. According to theStates Government for fiscal year 2014 and Federal Reserve’s released results on 7appropriate budgetary levels for fiscal years March 2013, the nations largest banks2015 through 2023 should be achieved by have continued to improve their ability toApril 15. The findings of the House of withstand severe economic conditions withRepresentatives reported by the Committee stronger capital positions. However, due toon the Budget at the legislative text stated the stress scenario which includes a peakthat measures those were used to boost unemployment rate of 12.1%, a drop ineconomic activities during the recession equity prices of more than 50%, a decline inand early stages of recovery added over $1 housing prices of more than 20%, and atrillion to the debt though economy sharp market shock for the largest tradingcontinues to perform at a subpar trend. firms, projected losses at the 18 bankMoreover, a view that large debt levels holding companies would total $462 billion Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 5 United Kingdom
  6. 6. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable developmentduring the nine quarters of the hypothetical Even though the international standardsstress scenario. Additionally, the aggregate and supervision on financial institutionstier 1 common capital ratio, which were enhanced, deterioration of assets’compares high-quality capital to risk- value remains a major pressure on stability.weighted assets, would fall from an actual Consequently, investors may face waves of11.1% in the third quarter of 2012 to 7.7% gradual downtrends if performance ofin the fourth quarter of 2014 in the companies misses estimated earnings duehypothetical stress scenario. to diminished consumption and weak economic growth. The other possibleDespite the on-going fiscal discipline scenario is higher volatility - if resilience ofmeasures, economic contraction threats declined equities’ value is stimulated withand estimated potential losses due to continuing monetary easing shocks the S&P 500 Indexexceeded pre financial crisis level and And if it is not true, then how much suchreached 1556 on the 11th of March 2013. development cost and how long suchThe FTSE 100 Index similarly reached a recovery last?new high of 6510 on the 12th of March2013. Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 6 United Kingdom
  7. 7. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable developmentAn invitationCertainly, various regions are exposed to different economic development and financialstability challenges; however, is it possible to balance economy and financial stability bysuccessful expansion of sustainable businesses and reduced financial risks?Taking into account threats of current economic growth and financial stability issues, we wouldlike to invite policy makers, financial institutions, entrepreneurs and innovators, academics andother interest groups to share their observations and experience those may help to identifyfactors required to attract investors and remove barriers for sustainable development. So, thatlaunched financial facility programmes supported development necessary to strengthenresilience during financial shocks and contractions of economy.Proposed topics are the following. 1. The concept and benefits of sustainable development. Threats and barriers attracting investors. Consumer’s preferences. Estimation of the long term value instead of initial costs of the investment projects. Business resilience during financial shocks and contraction of economy. 2. Challenges introducing specific sustainable development projects/investment opportunities in different regions. The attractiveness of business environment, issues related to the market uptakes of innovations, transfer of knowledge and skills. Preparation of investment projects and managing risks of project implementation. 3. Business development, competitive advantage of investment in environmentally friendly innovations those let to achieve greater resource efficiency. International investment opportunities, benefits and challenges of business development, international cooperation, cross continental partnerships, required legal reforms, preparation of business development plans and risk management. 4. Market uptake of innovations, issues related to standardisation and investment in innovations. Protection of intellectual property rights, practices and strategies for launched innovations. 5. Attractive investment opportunities, expectations of investors, assessment of investment opportunities, risk management practices. What makes proposed investment project attractive? 6. Fund raising practices. Available alternative funds and financial facilities for implementation of sustainable development projects. Preparation of investment proposal, feasibility of investment opportunity, assessment of alternative strategies and project risk management. 7. Balanced interests in public and private partnerships. Balanced rights and obligations of public and private partnerships, challenges managing conflicts of interests. Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 7 United Kingdom
  8. 8. 14 March 2013 The first step to succeed or the last chance to survive – an invitation to sustainable development 8. Financial stability issues. Management of counterparty, credit and market risks. Practices and challenges in estimation of risks, returns and costs of capital, assessment of leverage in financial decisions. 9. Sovereign wealth funds interest in sustainable development solutions. Investment priorities of sovereign wealth funds, assessment of attractive investment opportunities. 10. Managing conflicts of interests, international disputes. Demand of legal advice, services and reforms.If you are interested in topics mentioned above and investment in sustainable developmentplease let us know.Thank you for your time in considering cooperation.We look forward to hearing from you.Yours sincerely,Ms Asta PravilonytėWebsite: +44 (0) 2083166205Mob: +44 (0) 753122259622 Hastings StreetLondon SE18 6SYUnited Kingdom Author: Ms Asta Pravilonytė 22 Hastings Street Website: London SE18 6SY Email: 8 United Kingdom