30 October 2006

Croatian FDI flows fast and furious

By Eric Jansson
Published by Financial Times, 30 October 2006

A year ago it appeared certain that British American Tobacco would pack up and leave Croatia. The world's second largest tobacco producer, a prominent investor, declared publicly its view that the investment climate was "hostile".

The tone of the complaint indicated BAT's departure was imminent after an eight-year struggle to make good on an investment, estimated to be $70m, in Tvornica Duhana Zadar (TDZ), a cigarette rolling plant. BAT had once called its "foothold in the Balkans", although major problems culminated in bankruptcy for the TDZ operation last year.

BAT's complaint and TDZ's bankruptcy chimed with a survey published by the World Bank and International Finance Corporation, ranking Croatia 134th in the world for its record on investment protection and rating its economic performance behind all other former Yugoslav republics.

For government officials in Zagreb, who describe Croatia as an excellent, proven destination for foreign investment, this was bitter news.

But a year later, BAT is still there and foreign direct investment is increasing apace.

Rather than walking away, the company has chosen to fight for the shares of TDZ which BAT insists it rightfully owns. Its determination to reclaim a competitive stake in this relatively small country of 4.5m people, now the subject of a multi-faceted legal battle, is indicative of multinationals' settled view of Croatia as a desirable entry point to the broader Balkan market of 60m.

Foreign direct investment topped $1.3bn last year, an 8 per cent rise on 2004, which was equal to 3.3 per cent of gross domestic product. This year, foreign investment figures will rise again, much more sharply, following US-based Barr Pharmaceuticals' $1.9bn acquisition of Pliva, a Croatian pharmaceuticals manufacturer.

The Pliva deal is so big in Croatia's diminutive economy that analysts predict central bankers will need to intervene to minimise the consequent appreciation in the value of the national currency, the kuna.

Damir Polancec, deputy prime minister in charge of economic policy, lists a series of reforms that, he says, keep foreign investment streaming in. However, he adds that Croatia "cannot be satisfied" yet with the current level.

Reforms include a "regulatory guillotine" intended to cut red tape, a "one-stop-shop" enabling new companies to register with the state in four to eight days, tax incentives and a public service reform that Mr Polancec says will help smooth relations with business.

The strong influx in foreign investment, BAT's decision to stay, and the government's actions in favour of business put the alleged hostility in context. But they do not cancel out foreign investors' complaints entirely.

Here BAT's case is instructive. The tobacco company's position in Croatia fell apart last year when the High Commercial Court stripped the company of its majority shareholding in TDZ, cutting its stake from 85 to 25.21 percent, ruling that BAT had acquired shares illegitimately, a claim the company vigorously denies.

But even before the ruling, BAT alleges, the company was undermined by excise taxes that discriminate against foreign cigarette brands in favour of TDR, a local tobacco giant, and "trade blockages", for six years the subject of an unresolved case pending at the Croatian Agency for Protection of Market Competition.

In a statement this month, BAT said: "Although Croatia has started accession negotiations with the European Union and has already harmonised some regulations with EU standards, we believe the Croatian government could do more in terms of pro-actively managing the process of harmonisation of tobacco related regulations and in particular the law on excise.".

Mr Polancec says he believes that BAT has "in no way suffered from discrimination so far", while adding that Croatia's judicial system can be expected to judge fairly if it has.

But other prominent investors echo BAT's allegation of malign neglect and interference by state institutions.

"Most of the problems stem from the fact that the Croatian decision-makers still do not fully understand how a free market economy should function," says Denis Mohorovic, spokesman for MOL, the Hungarian oil and gas company that in 2003 purchased a 25 per cent stake in INA, Croatia's state-owned oil company.

MOL's chief complaint regards the state's regulation of oil prices and debt write-offs to state-owned customers, which Mr Mohorovic claims has "effectively decreased INA's value in excess of $710m between 2003 and 2006."

Mr Mohorovic adds that the government's newly unveiled plan for continued privatisation of INA, through offerings of a 17 percent stake on the London and Zagreb stock exchanges, is "too small to make a significant difference".

Mr Polancec responds that "all we are doing is following the law on INA's privatisation" passed in 2001, and, indeed, MOL remains fundamentally pleased to remain INA's strategic investor. INA's pre-tax profits more than doubled from 2003 to 2005, reaching 1.5bn kuna (€203m) last year. Mr Mohorovic calls Croatia "a good market with solid growth and a skilled and reliable workforce, but also one that still creates some serious challenges for any business wishing to work in it."

In a broader central European and Balkan economy where administrative barriers to investment and corruption remain commonplace, this may be regarded as good enough. But it is far from ideal.

Star entrepreneurs but an unreformed state sector

By Eric Jansson
Published by Financial Times, 30 October 2006

This summer's bidding war for Pliva, a generic drug maker, marks how Croatia's top companies have attained global standards.

The rival bidders, Barr Pharmaceuticals of the US and Actavis of Iceland, pushed the price to $2.5bn before Barr won this month.

Bruce Downey, chairman and chief executive of Barr, spoke of the combination of "two great companies". Rarely do western investors describe acquisitions in central Europe or the Balkans in such glowing terms.

But Croatia is an exception, with several large comapnies.

Pliva, listed on the London and Zagreb stock exchanges, boasts the largest turnover of any drug maker in central and eastern Europe.

Podravka, a food pro- cessor, claims a hefty market share in eastern Europe, where its Vegeta brand spice is a household name. State-owned Uljanik, a shipyard, claims a significant share of the world market for car- transporters.

The growth of such companies, backed by strong performances by small and medium sized businesses, helped gross domestic product rise 6 per cent in the first half of 2006, up from by 4.2 per cent in 2005.

Unemployment remains uncomfortably high at 14.3 per cent, but is falling and is at its lowest level since 2000. Central bankers are keeping inflation low, despite soaring oil prices.

New arrivals are surprised at the appearance of wealth in a country whose economic reality has normalised faster than its international reputation.

World Bank economists say the country has adopted a genuine reform path, as indicated by a raft of legislation adopted to cut administrative hassles.

In a survey last month, they rated Croatia seventh in a list of the world's top reforming economies. The former Soviet republic of Georgia was placed first.

But difficulties persist. The same World Bank survey included a list of "countries where doing business is easiest", in which Croatia came 124th, just five places above dictatorial Belarus.

This state of affairs is generally blamed on an early wave of privatisation in the 1990s, when the government sold state assets to known loyalists in a process now known as "tycoonisation".

Many "tycoons" were newcomers to business, who sapped the capacity of their companies or sold them off in parts, while amassing private fortunes.

Where the state chosenot to privatise, as withthe shipyards, subsidies often insulated lacklustre management from com- petition. Large portions of the economy are still unrestructured as a result.

That may change. The era of private disinvestment is over, replaced by a spending spree. Credit is readily available amid frantic competition in a financial sector dominated by western banks, and private investment is soaring.

Investment as a share of GDP grew 10 per cent over the past five years, "and most of this increase came from the private sector," says Zarko Miljenovic, chief economist at Zagrebacka Bank, which is owned by Italy's Unicredito.

At the same time, the government has moderated its spending habits, cutting back on infrastructure investments and slowing the growth of pensions, while stabilising the country's external debt.

Athansios Vamvakidis, resident representative for the International Monetary Fund, praises Mr Sanader's government for halving the annual budget deficit over three years, from 6.1 per cent in 2003 to 2.8 per cent, the figure projected by policymakers in 2006.

Goran Saravanja, senior economist in Croatia for Austria's Creditanstalt Investment Bank, says the picture is not quite as pretty as the IMF paints it: "If you include debt to pensioners, the budget deficit goes up to 4 per cent.

"It's not included in the IMF-sanctioned numbers, but it is significant," he says. "The headline figures look good, but when you cut beneath the surface there has not been much reform."

Private indebtedness is increasingly a greater concern than public indebtedness.

Another risk is posed by politics. With parliamentary elections due next year, some economists, including Mr Vamvakidis of the IMF, wonder aloud whether the government will maintain fiscal responsibility.

But he adds thatthe political temptation to scrap restructuring and privatisation plans forthe critically important shipyards will be tempered by economic reality.

"The situation is so bad" that commercial banks have begun denying some shipyards credit needed to cover operational costs, he says. "The pinch is here."

Bullets need biting in Croatia's shipyards

By Eric Jansson
Published by Financial Times, 30 October 2006

The Hoegh Delhi, a massive windowless box of raw steel plate, floats quietly in the Uljanik shipyard. Uniformed workers swarm over the enormous vessel, adding finishing touches to the largest floating garage ever built, big enough and powerful enough to haul 7,000 cars across an ocean.

Uljanik's world record-breaking shipbuilding job for Norway's Viking Car Carriers, owner of the Hoegh Delhi, will continue into next month. Even before completion, the boat has become a symbol for Uljanik's workers of the shipyard's successful transition from socialist management to streamlined global competitiveness.

"We may be small, but by our measure we now hold 10-20 per cent of the car carrier market worldwide," says Hrvoje Markulincic, the hard-hat-wearing lawyer who heads Uljanik's public relations.

The shipyard's switch from general shipbuilding to its specialisation in car carriers took 12 years, starting in 1987. The workforce fell from 20,000 to the current 2,000, but added 1,000 subcontractors

But Uljanik still depends on state subsidies to survive, and even with such help it made a loss last year. Croatia's four other large state-owned shipyards performed worse.

However, officials say the time has now come for restructuring and privatisation. A proposal is expected next month.

Free market purists - an embattled minority in Croatia - call for cuts across the board. Natasha Srdoc-Samy, president of the Adriatic Institute for Public Policy, a free market think-tank in the shipbuilding city of Rijeka, says the industry should be privatised immediately, as it is, with no restructuring financed by taxpayers' money.

"Shipyards for which there are no buyers should be closed," she says, adding that compensation paid to laid-off employees would cost less than "sustaining dying companies".

Damir Polancec, deputy prime minister in charge of economic policy, is more cautious. He predicts a "transitional period" during which the shipyards will be brought into line with European Union standards on state aid.

Analysts say a dose of privatisation along the way will be required to bring in foreign capital and industry expertise. "Any regulation without privatisation will fail," says Zarko Miljenovic, chief economist at Zagrebacka Bank.

European Commission pressure being applied to state-owned shipyards in Poland, an EU member since 2004, suggests what may lie ahead for Croatia if the government shirks reform.

The size of the heavily subsidised yards, and their importance to Poland's economy, has proved little defence against EU competition rules.

Croatia's shipyards have traditionally counted ongovernment officials, who were able to resist pressure from the International Monetary Fund to refuse heavy subsidies. But as Croatia's IMF's loan arrangement phases out and EU negotiations roll forward, government officials have begun hinting at changes ahead.

Mr Polancec says the government is obliged to "take into consideration all possible scenarios" including permanent closure. Vladimir Drobnjak, chief negotiator on European Union accession, echoes the hope for a way out: "I won't be exact, but the shipyards are located on prime real estate, in the heart of the Mediterranean. These are not back yards in the middle of nowhere."

Shipyard managers would prefer privatisation to closure, though they cringe at the prospect of either.

Mr Markulincic says Uljanik has no interest in being sold to a foreign investor, but acknowledges that no Croatian company is qualified to run the technologically advanced yard.

He says the state must keep "at least" 25 per cent of Uljanik, with shares being sold to workers and other companies in the shipbuilding sector.

Foreign buyers would be less likely to use Croatian suppliers along the chain of production, he argues.

In this way, sale to a foreign buyer would erase the "multiplier effect" held precious by the defenders of subsidisating the industry, who claim that for everydollar earned by the shipyards, $2.90 of economic activity is generated elsewhere in Croatia.

Awkwardly straddling low and high ends

By Eric Jansson
Published by Financial Times, 30 October 2006

With its grand pillars and ornate mouldings, the Hotel Riviera oozes the exclusivity and retro-mystique advertised by Croatia's official tourism marketing campaign. "The Mediterranean as it once was," proclaims the 30-second promotional clip played on a loop by CNN and other satellite television channels.

The outside of the Hotel Riviera lives up to the slogan. A stone-built flourish of Habsburg grandeur on the harbour's edge at Pula, an attractive coastal city known for its ancient Roman amphitheatre, the hotel was built in 1908.

It stands steps away from both the water and the impressive ruin. At €39 per night, a room here sounds like a great deal - and not just any room but, according to a receptionist, "the best room in the house".

Yet step inside and one soon discovers that the "best" room is just like all the others. During Yugoslav communist rule, the opulent hotel was gutted. Untold volumes of crystal and gilt were no doubt carted away, as demolition crews cleared the way for practical furniture and low-end tourists. What remains is essentially a dormitory disguised by a lavish exterior.

Despite the undoubted glory of Croatia's coast and islands, the country's tourism sector as a whole bears more resemblance to the poor Hotel Riviera than many would like to admit. Genuine luxury can be found, at a price, but visitors too frequently find mediocrity and worse.

Short-sighted state managers do not deserve all the blame. Characteristically, the Hotel Riviera's holding company, Arenaturist, is privatised and traded on the Zagreb Stock Exchange.

Croatia's critically important tourism sector as a whole swells with private capital. Investors understandably identify it asthe country's obvious growth sector, starting with the Adriatic seashore.
But while flush with cash and clients, leading tourism businesses are stymied by a genuine challenge - how, when starting from a low base, to adapt most profitably to the fast-changing structure of demand in an evolving global tourism market.

They must choose the right clients. Experience teaches that mid-level and low-end European tourists make reliable return visitors, even if yields are low. But increasingly, the high-end plays an important role.

Confusingly, a proliferation of offers from foreign low-price tour operators and discount air carriers blurs the line between rich and poor tourists, since many in the middle and below can now afford luxury and pampering, too. The temptation is to fudge it and choose both. But this summer, tourism operators received a warning that their effort to straddle both the low and high-ends is proving costly.

After a highly successful 2005, in which more than 10m foreign visitors stayed more than 50m nights in Croatia, spending some €6.4bn, early returns suggest that figures dipped this summer. A final tally at year-end may show that Croatia has experienced its first tourism recession since the war a decade ago.

Optimists say revenue may have continued to grow despite the drop in visitors, reflecting a useful trend towards luxury. But the spending shift would need to be large.

Return visitors, accustomed to shoulder-to-shoulder pedestrian traffic in Dubrovnik, said the walled city felt less packed this August, usually the busiest month. Hoteliers blame poor weather and the distraction of the World Cup.

A more likely reason for the slump is that many operators have adopted luxury prices without improving their offering. Torbjörn Bodin, general manager of the Regent Esplanade, a luxury hotel in Zagreb, says tourist numbers fell in Dubrovnik "because they raised prices hugely without adding value."

Discount airlines seem determined to top up flagging demand. Ryanair, the Irish no-frills carrier tomorrow launches flights from London Stansted to Pula - its first foray into Croatia. Easyjet entered the market earlier this year, opening routes from the UK to the coastal cities of Split and Rijeka. German and Norwegian discount carriers compete, too.

"Low-cost airlines and open skies policy are very significant. You have a lot of options around the world, and cost is an issue. Without low-cost airlines flying to Croatia, you can go cheaper to Thailand," says Mr Bodin.

Foreign hoteliers aim to fill the luxury gap on the coast. Hilton has opened a luxury hotel in Dubrovnik. Luxury operators Kempinski and Le Meridien are also preparing for openings along the coast, and a growing number of luxury boutique hotels also suggests a trend toward luxury and exclusivity.

Local hoteliers increasingly share the same goal. For example, Kristian Sustar, a senior executive at Maistra, a Croatian company that owns and manages 20 hotels and tourist villages with 31,917 beds, says refurbishment of the company's properties will cost €350m through 2009. He predicts that by 2010 hoteliers will book 65m overnights, up 30 per cent from 2005.

To accommodate such an influx successfully and to encourage repeat visits to this precious stretch of natural beauty on the Adriatic, capacity and quality must both grow sharply.

07 October 2006

May it ever remain so blissful

By Eric Jansson
Published by the Financial Times, 7 October 2006

Naxos, Paros, Mykonos, Santorini. If one knows the Greek islands - even if one has never gone there - then these are the Cyclades one knows. Tightly-packed, whitewashed cubist architecture, arid landscapes sprinkled with sea-spray, beach umbrella resorts and all that. Most everyone who goes returns justifiably effusive and exquisitely bronzed.

Yet the chief reason people flock to these Greek islands, rather than other ones, is that they have airports. How much better to visit a place, not because it hosts a Tarmac wasteland built for massive machines, but because you have friends there ready to host you. I happen to be just so blessed, with friends on Andros, the northernmost island in this glorious archipelago.

Andros has no airport. May it ever remain so, for this, the second largest of the Cyclades, benefits greatly from being cut off from the party-hungry hordes who fall out of the sky onto islands further south. Though it is the closest Cycladic destination to Athens, Andros remains splendidly quiet. Indeed, if not for the invitation I accepted, I would never have noticed it.

One sails from Rafina, near Athens. Ploughing across the azure Aegean for two hours, inhaling facefuls of the warm winds that whip over the surface of these waters, one begins to appreciate the vastness of the sea. When Andros appears, it looks scarcely habitable - a parched wilderness of bare, sun-baked rock and sparsely shrubby hillsides, rising from the blue.

Call it the other Isle of Man - andros, the genetive "of man" in ancient Greek - a retreat vastly warmer and drier than its equally windswept namesake in the middle of the Irish Sea. In fact the name may refer to Andros, grandson of Apollo, yet the isle of man it is.

Docking at the port of Gavrio, a big ferry nearly dwarfs the little port town, whose humble collection of white block buildings crowds on a horseshoe-shaped shore. One looks out upon an absence of large-scale tourist infrastructure, merely a row of cafés and practical shops like the local greengrocer. The odd sign points to a small hotel. A small boy, reclining drowsily on the concrete pier, dangles a fishing line in the water while the new boatload of Athenians descends upon the ice-cream vendors.

To a visitor craving genuine, glamour-free vacation - in the true sense of the word - it is a vision of paradise.

My hosts occupied a house distantly overlooking Gavrio from a parched hillside, graced, here and there, by almond trees and gnarled olives. New houses, rising fast in some places, still remain too sparse to eliminate the feeling of wilderness. The Kyriakopoulous, unreservedly welcoming, opened their summer house to friends and friends of friends, lavishing hospitality upon all comers while setting an unchallenging pace of daily feasting, bathing, drinking, reading, conversing and resting.

Patterns of life throughout the long summer develop defensively around the siesta, guarding that vital hour of rest. Siesta becomes a need in the scorching midday, if one is to survive happily without air conditioning. Upon waking in the morning, I was mindful already of the fleeting hours remaining for coffee, a swim, conversation and lunch of meats, bread and dopio tyri, the outstanding local soft cheese. Soaring temperatures would soon force a retreat back to the house, curtains drawn against the sun, for a snooze. At second rising, inevitably it was time to start discussing plans for the evening, perhaps taking time for a second dip in the sea before heading to the market to buy dinner ingredients.

Then evenings stretched effortlessly into wee morning hours when light pollution would drop to zero and, under clear skies, Andros' vistas became visible again, bathed in starlight.

One need not do much to become absorbed by the physicality of the place. The potent mix of setting, activity and food proved immensely invigorating. To get the heart really pounding, better to drive through the rugged hills to Zorkos, a supremely secluded beach through most of the year, a crescent of sand at the end of a bay, framed on either side by steep rock piles that form a corridor out to the open Aegean - a proper strand, benefiting from the seclusion of a tiny cove.

Swimming for the open sea with friends Maria and Hari, crawling over the rotund swells that rolled into Zorkos bay, we cast ourselves adrift in a wilderness of crystal clear blue. A long sprint back to the beach left us panting and hungry, so we retired to an open-air taverna positioned above the sand and gorged ourselves on calamari, salads and a jug of local wine, swelling with simultaneous exertion and satiation. And meanwhile the lone waiter listening to his radio would have had Zorkos entirely to himself, had we not shown up.

The only regret I felt upon leaving Andros after a week was that I never even began to explore the island's substantial archaeological wealth. It is presumably a mistake all too easy to make while holidaying on any Greek island. But Andros has sites of especially timely interest, as one of them was revealed by archaeologists just one year ago - the remains of a large Bronze Age town, dating from about 1900 BC, with four well-preserved buildings so far uncovered.

There is also the impressive Aghios Petros tower, roughly 2,000 years older than the recent find - one of the best-preserved ancient towers in the Cyclades - and evidence of a long warring history which has seen Andros occupied variously by Persians, Spartans, Romans, Turks and Germans. The tower survived it all.

But Athens won out in the end. It seems plausible that the Athenians' desire to keep their island retreat to themselves may be the real reason why there is no airport - and why you have heard so little about Andros before.

04 October 2006

Big institutions stay away from CEE bourses

By Eric Jansson
Published by Euromoney, October 2006 issue

More than two years after the enlargement of the European Union, many large equity investors remain convinced that the combined equity markets of central and eastern Europe are too small for them to invest in, despite a combined equity market capitalization of €211 billion at the end of 2005.

The trouble is that this market cap is split between 10 bourses of greatly varying size. Warsaw, for example, posted €106.8 billion in equity market capitalization and Riga just €1.8 billion. While the growing EU aegis boosts access to equity in the region and limits perceived risk, investors must still pick through a highly fragmented trading environment in order to identify good buys.

A bigger target is Russia, so many emerging Europe investors head there, treating the space between Frankfurt and Moscow as fly-over territory.

"We’ve had an extended commodities cycle. We have a high oil price. Russia’s the relatively low risk destination in some ways. Why not buy a Russian company that’s pumping oil out of the ground at $70 a barrel? Why not?" asks Paul Tucker, senior European finance analyst at Merrill Lynch.

In the new EU member states, by contrast, Tucker says: "From the perspective of a global institutional investor, there are not many companies to invest in. In Hungary you can buy three or four. In the Czech Republic you can probably only buy two." The region’s smaller exchanges, such as those in the Baltic republics and Slovakia, are "very seriously off-piste" in Tucker’s view.

Is preference for this size indicative of prudent conservatism or does it amount to a reckless lack of interest?

Leading indices on exchanges across the new EU member states have swelled since enlargement, with Warsaw’s WIG20 index up 76% and the Cyprus exchange’s general index up 177%. Other top indices in the region show post-enlargement growth rates between those of Warsaw and Cyprus, with the exception of Ljubljana’s slower SBI 20.

Some major investors freely admit that they have missed a fantastic bull run.

Peeter Saks, managing director at Suprema Securities, a Tallinn-based investment bank focusing on Estonia, Latvia and Lithuania, says big players that stay out now are missing an opportunity to benefit from what amounts to "Chinese growth on Swedish markets", citing strong fundamentals in the Baltic Republics and the benefit of the newly introduced EU regulatory environment.

"If you don’t need to invest hundreds of millions of euros immediately, the Baltic markets offer very good investment opportunities," Saks says. "Strong macroeconomic growth, the strongest in Europe for several years to come – for example Estonia recorded 12% in the second quarter of 2006 – stable politics, budget surpluses, low taxes, fixed currencies, strong Nordic financial and industrial influence make it a really low risk, high growth area."

However, risk is variable. Some countries in the region, most egregiously Hungary, suffer from twin fiscal and trade deficits, and attendant political risk. Rioting in Budapest in September coincided with a fall in the BUX, though it soon stabilized.

However, even where strong fundamentals exist, they offer little insulation against emerging market risk. Falls seen in May and June on exchanges across the region demonstrated this clearly. All 10 exchanges felt the blow when interest rate increases in the US spurred a retreat from global emerging markets.

Claude Tiramani, fund manager in charge of east European products at BNP Paribas Asset Management, says the retreat revealed a healthy opportunity for more patient investors. "The industry is too much short-term oriented," he says.

"Investors want to cash in before year-end. They want to play it safe. Marginal operators get out. People with smart money should exploit this, they should benefit from this irrational behaviour. These economies are going to benefit from transfer of structural funds from western Europe, and these markets should experience better growth than western Europe, as others like Greece and Portugal did before."

In the months since the May-June fall, the exchanges quickly recovered lost ground. After watching more than 50% of post-enlargement gains vanish, top indices on the region’s three biggest bourses – Warsaw, Budapest and Prague – had by late summer all recovered 60% or more of their losses.

Ljubljana’s SBI 20 surged past previous post-enlargement peaks. Only minuscule Malta has failed so far to rebound substantially.

The May-June fall appears to have invited change. "There was a general reappraisal of risk appetite," says Merrill’s Tucker. "Then when people decided that they wanted to come back in, they differentiated more than they had done before. All of a sudden the macro mattered."

Greater differentiation could bode well for smaller exchanges, whose defining disadvantage remains illiquidity.

"The exception on a relative basis is Poland, because of the big Polish pension funds," says Tiramani, manager of BNP PAM’s Parvest Converging Europe and Parvest Emerging Markets Europe funds.

Small exchanges might partly offset their illiquidity downside with low currency risk. All new EU member states aim to adopt the euro, and all but Poland and Czech Republic have established euro pegs. With confidence in the US dollar sagging, euro linkage gives new EU equity a key advantage over dollar-denominated Russian equity.

20 September 2006

The self-nullification of Mikhail Gorbachev

By Eric Jansson

One takes it for granted nowadays that great nations must reckon with the fabled balance between freedom and security. Well, our warring world has not exactly been waiting for him to weigh in, but at last we have a new perspective on this pesky balance problem from a man regarded by many as an epic champion of liberalism and peace: Mikhail Gorbachev.

And what shining words has he given us? Presenting his new book, In the Politburo of the Soviet Communist Party, Mr Gorbachev has declared that he takes it all back.

"I have reviewed my values and made conclusions," he says, as quoted by Interfax news agency. These conclusions include one about Boris Yeltsin, who in 1991 delivered Russia from an eleventh hour return to hardline rule. Mr Yeltsin should have been sent into diplomatic exile, safely away from the real action around Red Square, he says.

What an extraordinary turnaround. Disarmed, aging and evidently drunk on the compliments he receives incessantly from adoring German lefties, Gorby decides to side with the very Brezhnevite coup plotters who had him kidnapped.

As for "separatists" – and within historical context one presumes he refers here to the democratically-elected leaders of the many nations brutalized under Soviet rule, among them the Baltics and Ukraine – they should have been "hit", treated like the "criminals" they were.

"I was too soft" is the essence of Gorby’s analysis. Yet his softness in the decisive hours of Soviet collapse is probably his record's primary redeeming feature – otherwise it was mostly a series of untenable tactical retreats from wildly unsustainable hardline positions.

Grotesque! To make matter worse, parroting Vladimir Putin, Gorby also says the collapse of the USSR was a "geopolitical catastrophe", when in fact the great catastrophe was the USSR itself, poisoned at its very root, Marx-Leninism.

Whatever good one could find in the Soviet system, it could have been had without the captivity of nations, the inhumanity and insanity of centralized rule, the enslavement of souls and the mass murder of perceived enemies. The good in Soviet power was, at the start, only the (false) expectation of vivid, transcendental democracy. Later, its good was found wherever the falseness crumbled and old hopes were accordingly re-exposed to daylight.

I suppose that Gorby forgets now, as so many others do, just how bad Soviet rule really was. He believes he should have rushed to preserve it. But had he done so, he and Raisa would have ended up like a couple of Ceaucescus, sprawled right around the corner of the Kremlin wall, over by the eternal flame, behind the pines.

One might write off his musings as a pensioner’s gibberish, except that Gorby retains – in some circles, anyway – a certain moral gravity. It is the kind of moral gravity you or I can freely share if we wish: the satisfying knowledge that we are virtuous because, when the chips were down, we didn’t shoot our rivals dead or exile them to the Gulag. You didn’t, did you?

Nonetheless, his moral gravity counts for something in a northern hemisphere that, today, thanks to democratic spirit in the east and consequent Soviet collapse, we can broadly describe as post-totalitarian. After all, it did count for something, in 1991, that Gorby didn’t shoot.

But what a profound comment he makes, by accident, about our current confusion about freedom, its balances and its benefits. One hates to think that, after all we have won over the past two decades, on the backs of so many brave and daring individuals, that an old lust for security can bring a feted champion of liberalism to misty-eyed reminiscence for the safer, jollier days of... Chernenko.

And what a profound comment he makes, by accident, about the way unprincipled liberalism risks cancelling itself out with pride and good intentions. It is as if Gorby would like to nullify his very self. God help Russia should she agree with him.

17 September 2006

What I love about... Racine

By Eric Jansson
Published by the Financial Times, 16 September 2006

I once knew a guy who got shot in the head. Call him Jim. He was a popular guy in a small town and so, as the story goes, an innocent victim. When Jim got shot, we learned that God had given him a skull made of something like steel. The bullet lodged in his skull and he carries it round with him to this day.

Jim had been hanging out in one of the rougher neighbourhoods in Racine, Wisconsin, an industrial town on the west coast of Lake Michigan. The lake is home to the loveliest series of lakeside cities in the country: Racine, Kohler, Manitowoc, up north to Sturgeon Bay.

A rough neighbourhood in Racine looks like a blossoming Eden to anyone from anywhere genuinely rough. It has wooden houses built in the early 20th century, roomy verandas, tidy little front yards angling down to the street. The serpentine Root River flows through under the shadow of old willows. Crisp breezes blow off the enormous lake through lush green summers, fiery orange autumns and deep white winters.

The only trouble is drugs. Racine makes a handy drop-off point for narcotics traders from Chicago to the south and Milwaukee to the north.

Rumour counts in a small place and one rumour had it that Jim came too close to one of these hardmen. But the true, incredible, story is that some violent fool tried to steal his shoes.

What is it about the US that marries pleasant, peaceful places and splendid natural beauty with sudden, aberrational, extreme violence? Hard to say.

Once I was riding my bicycle in Racine when a terrific black cloud appeared overhead. The sky had been quiet and blue. Then rolling out of the west came a floating wall of squid's ink what looked like a mile high.

This happened on the good side of town, along a curvaceous lakeshore where urbanity has yet to scare away the deer, fox and raccoon. Here in the prismatic interplay of lake and sky, residents owe their wealth to the robust presence of smart, adaptable light industry - something increasingly rare elsewhere in the US.

So I was pedalling along some cosy avenue in Wind Point when the demon cloud drifted in.

The world went perfectly still. The jet-black cumulonimbus veiled the sun, a breeze picked up, trees bent, hailstones clattered, sticks flew. Wind toppled my bicycle. I ditched it, sprinting for shelter. The universe roared like a steam engine. They say it always does when tornados touch down.

What they don't say is that a tornado can leave a chaos of beauty in its wake. Scattered everywhere were shredded bits of tree and melting ice pellets. Tranquillity returned abruptly. A new sky of mute pastels coloured the earth. Bright-eyed people emerged from basements, full of vigour, grateful to be alive. Their houses remained intact, apart from one rooftop ripped off a garage by the whirlwind.

Racine is a city for survivors; it does not "do" atrophy.

A couple of decades ago, downtown was a dead zone. It was the 1980s, when some newfangled thing called the shopping mall was devastating main streets across smalltown America. Where the river flowed into the lake, Racine's landmark buildings stood soot-blackened and derelict. Among them is the Shoop Building, once headquarters of the city's 19th-century "patent medicine king", Clarendon Shoop. In its shadow, one felt the American dream had sailed through, never to return, as if the age of industry might curl up and die.

What saved the city was an invisible weapon: invention.

This is the birthplace of the kitchen blender and garbage disposer, Horlick's malted milk, Jerome I. Case's wheat thresher and the many products of Johnson Wax. Floating like a frosted halo above all these inventions is the queen of pastries, the kringle - a Danish import perfected in Racine. These peculiar assets kept the city going through hard times.

Today, Racine's latest invention is its own reinvention. How else to explain the decision by the New York Times to brand this hardworking town "the Hamptons of the Midwest"? Racinians roared with laughter when they read the description. Solid and sober, Midwesterners count on New Yorkers, slick and snobby, to stretch the truth. Yet, as a Racinian by birth returning to the city with fresh eyes (after a corrupting spell in New York), I agree with the glittering review.

Try to find a more impressively rejuvenated main street in the Midwest. Non-chain shops and art galleries bustle with activity. Steps away, the once-neglected lakefront - now a permanent festival site - offers splendid views, boat moorings and luxury accommodation.

Pleasure-seekers who until recently had never heard of Racine flee the skyscrapers of Chicago on warm weekends to sit in quiet beer gardens by Lake Michigan's gilded horizon. Shades of the Hamptons, indeed.

Even the old Shoop Building looks jolly these days. An almighty sandblast has revealed that its outer walls are not black but patterned in cream and red brick. A mildly resurgent 19th-century aesthetic now rubs shoulders with the Frank Lloyd Wright buildings of downtown.

What is it about this place that makes it so conducive to invention, reinvention and survival? Whatever it is, it goes way back.

One guy even moved to Racine just to reinvent himself. It was 1852 when Joshua Glover, a Missouri slave, ran away from his master. Some 300 miles north in Racine he found people who loved freedom and loathed slavery. They welcomed him with a job and lodging.

In 1854, Glover's grisly old master tracked him down, seizing him with the help of federal marshals who then spirited him away and jailed him in Milwaukee. When citizens of Racine caught wind of Glover's abduction, they exploded with righteous fury. A flotilla of private ships sailed for Milwaukee.

The Racinians landed and marched to the jail, smashing down the doors and freeing him. They hid Glover from the law, then sailed him 300 miles further to freedom in Canada. How many little cities can tell a prouder story than that?

07 September 2006

Blair’s downfall a giant blow to Bush

By Eric Jansson

The imminent end of Tony Blair’s leadership in Britain means the loss of George W Bush’s most treasured ally in the global war against terrorism.

The key question now is whether the President and the country will lose just Mr Blair, or whether the US will lose Britain as a whole.

The Bush administration lost Spain and Italy before, seduced away by a soft, anti-war European leftism offering false hopes and no viable policy alternatives. By comparison, the loss of Britain will be a massive, stunning blow.

It will happen in stages, less suddenly than the US’s loss of comparatively expendable former coalition members in Rome and Madrid – but far more importantly. For the loss of Britain from Mr Bush’s "coalition of the willing" will deprive the US of its prime advocate in Europe and its most persuasive rhetorical champion.

Abroad, it will gradually drain the coalition of its second-most potent fighting force. At home, it will strip Mr Bush of the propaganda value the alliance with Britain brings; Americans still cherish geopolitical echos of the old fighting days with Churchill, their gruff moral compass though the "Good War". It will split the English-speaking world in a dangerous age.

Mr Blair announced today that he will step down before September 2007. In so doing, he acknowledged his political impotence, effective immediately.

Even a lame duck is more powerful than a dead one. In Britain’s parliamentary system, where the prime minister does not personally wield executive power, they don’t go lame. They die.

Smiling at the funeral and muttering impatiently under his breath through the eulogy is the old-style Labour party bruiser who forced it: Gordon Brown, chancellor of the Exchequer.

The "coup attempt", as Blair allies are calling the power shift sweeping through Westminster and Downing Street, is engineered to force Mr Brown’s ascendancy to the post of prime minister no later than Christmas, although he may wait a few month longer if necessary. The very nature of this business tells us a lot about what Mr Brown is like.

Driven grimly by a need to lead, he has moaned privately for years that he deserves to govern. Almost anyone would be thrilled beyond their wildest dreams to wield the power Mr Brown has wielded for almost a decade as master of Britain’s purse – and more recently as Mr Blair’s imminent heir apparent. Not Mr Brown. His uninspiring egotism requires swifter satisfaction.

"Uninspiring" is the key word, for Mr Brown lacks a credible, inspiring and positive vision – precisely the asset Mr Blair brought to Labour when he took over party leadership in 1994, and the same asset that swept Labour to power in 1997.

It is also the asset that has kept Mr Blair at Mr Bush’s side through the horrifying series of bungles and crimes committed in Iraq, and this is the salient point.

The consequences of civil war in Britain’s Labour party are not necessarily obvious to policymakers in Washington who see Britain as a natural, traditional ally. Urgently, they need to grasp that without Mr Blair and his particular vision, Britain looks likely to turn away from Mr Bush’s policies and priorities across all the territories of the Great Game – from Palestine to Iraq, from Iran through Afghanistan to the Chinese border.

The US risks losing Britain at a key moment. Just weeks ago in Israel and Lebanon, the world received a foretaste of the conventional warfare that Iran stands ready to bring to the region, starting with her proxy forces in Hezbollah.

Such moments call for renewed unity. Instead, Mr Brown elected to make his cynical move at a time when it would throw Britain into the strategic paralysis of a leadership vacuum. No one is more pleased, surely, than Mahmoud Ahmadinejad, Iran’s ruthlessly practical president.

Yet beyond the current leadership vacuum, we can look forward to government under Mr Brown, and this is nothing to look forward to. It will be a very different kind of government, bowing as Mr Blair refused to bow to popular anti-war pressure from Labour lefties who, drawing on worn-out Communist-era stereotypes, see the United States as the world’s primary menace – and who view Israel as a menace in the Middle East.

Grassroots pressure for radical changes to Britain’s foreign policy is now immense. Tellingly, even local Labour party organisations have begun to turn on Mr Blair, siding with the Brown revolt. One local party leader in Islington spoke today on BBC Radio 4, explaining that Mr Blair’s support of Israel in the recent conflict with Hezbollah had been "the last straw".

Quite an extraordinary reason to overthrow a British prime minister.

Of course, Mr Brown may never get his chance to govern. As Mr Blair retreats from leadership, Mr Brown will discover that there remains a deep-seated popular mistrust of old-style, inward-looking Labour in today’s UK, a country reshaped and rebranded by the complementary legacies of Thatcherism and New Labour rule.

In which case David Cameron’s Conservatives may rise to the occasion. Yet their electoral position remains brittle, and they will not be risk-takers. Returned to power, the Conservatives would seek instinctively to befriend Washington and retain the "special relationship". But they have misplaced their confidence in the post-Thatcher era. Mr Cameron’s strategy for recovering it calls for sacrificing old presumptions. This may include, if necessary, the iron-clad alliance with Washington.

After watching Mr Blair’s leadership fall apart under pressure from anti-war pressure at the grassroots level, Mr Cameron will undoubtedly think twice before embracing the risky politics of principled alliance with the US.

Whoever finally comes out on top, Mr Brown or Mr Cameron, today is likely to be remembered as the beginning of the end of this political era in Britain.

Only a major security crisis can stop the rot, by exposing Mr Brown’s soft left as a greater sham than Mr Blair and his contingent ever were. Ironically, the major security crisis exists, but some prefer to pretend it does not.

28 August 2006

Kosovo's closer

By Eric Jansson
for Financial Times, 28 August 2006

Joachim Ruecker, Kofi Annan’s new envoy in Kosovo, personifies the UN Secretary General’s understated approach toward the explosive issue of Kosovo’s political status.

The United Nations Security Council aims to see the Kosovo problem solved, at least nominally, before 2007. Taking office a few days from now, the German diplomat stands to play a major role in determining the way forward.

It will not be easy. A bomb blast last Saturday, injuring nine including a British policeman, highlighted the divisions between ethnic Albanians and Serbs as the UN tries to broker a deal expected to give independence to Kosovo and autonomy to its Serb-dominated northern municipalities.

An Albanian youth was held after the bombing, accused of lobbing a grenade into a Serb cafe in the divided town of Mitrovica. As long as such occurences can be expected, Kosovo will remain the most volatile Balkan flashpoint in the former Yugoslavia.

As a navigator through Kosovo's choppy politics, Mr Ruecker is a surprising choice. He conspicuously lacks the international heft of Martti Ahtisaari, the former Finnish president and veteran negotiator who at Mr Annan’s behest presides at ongoing status talks between Kosovo Albanian and Serbian leaders. Until his move to the post-war Balkans in 2001, Mr Ruecker spent eight years away from Germany’s foreign service as mayor of Sindelfingen, a tidy Stuttgart suburb.

But his obscurity belies a proven ability, on the ground in Kosovo, to achieve results.

While Mr Ahtisaari’s seven-month-old negotiation drive grinds forward, it is bogged down by enduring enmity between pro-independence Kosovo Albanians and anti-independence Serbs. By contrast, Mr Ruecker, as the European Union appointee in charge of Kosovo's privatisation programme, has quietly succeeded over the space of two years in transferring much of the province’s economic capacity into local hands, setting essential groundwork for any future steps toward independence.

In first appearances as Mr Annan’s special representative designate, Mr Ruecker has therefore received warm welcomes from pro-independence leaders. Muhamet Hamiti, senior political advisor to Kosovo’s president, Fatmir Sejdiu, praised him as "someone who has been on the ground, who does not have to start from scratch and who will need no learning period".

Mr Ruecker offered further encouragement to leaders in Pristina by scolding Sanda Raskovic-Ivic, Serbia’s top official for Kosovo, in his first press conference. After Ms Raskovic-Ivic floated the idea of partitioning Kosovo along ethnic lines, in a BBC interview, without naming her he shot back: "We cannot and will not accept partition as an option."

Such firm language wins points from senior UN officials concerned that the rival delegations presently corralled in Mr Ahtisaari’s talks be kept on common ground. But it may also signal the end of Mr Ruecker’s honeymoon in Kosovo as an savvy technician who, while tackling the practical challenge of privatisation, succeeded in steering mostly clear of the high intrigues regarding Kosovo’s future political status.

Last month the negotiations descended into near farce when the presidents and prime ministers of Serbia and Kosovo sat across a table in Vienna. At the round, nicknamed "the meeting of the elephants", Pristina’s negotiators rejected outright a surprise Serb proposal for "20 years of autonomy, to be revisited in two decades", Mr Hamiti said.

Belgrade’s negotiators appear to have been forced back to the drawing board thereafter. Serb officials disowned Ms Raskovic-Ivic’s proposal of partition after Mr Ruecker pooh-poohed it.

Despite such difficulties, Mr Ruecker said he intends to "switch off the lights" when he leaves Pristina, signalling the end of the UN’s administration of Kosovo, now seven years old. To get there will require both technical savvy and political muscle.

28 July 2006

In childbirth, the new makes way for the old

By Eric Jansson
Published by askdrmanny.com, 27 July 2006

Few women in labor, awaiting the birth of a baby, spare a moment to think of their state legislature. But they might be surprised to learn that, increasingly, state legislatures across the United States are thinking of them.

Following the passage in April of a reform bill legalizing the supervision of home births by certified professional midwives (CPMs) in Wisconsin, similar reform efforts are now underway in no fewer than nine states.

Alabama, North Carolina, Idaho, South Dakota, Illinois, Kentucky, Georgia, Missouri, and Indiana all await legislative debates that could lead to the licensure of certified professional midwives, says Ida Darragh, chairman of the board of the North American Registry of Midwives (NARM), the national organization that tests and registers CPMs.

Legalization and licensure of CPM practices in all these states would represent a massive legislative victory for advocates of traditional home birth.

It would also be a startling rebuke to the many physicians who have long maintained that such practices are unsafe, despite growing statistical evidence that suggests CPM-supervised home births are as safe – sometimes safer – than hospital births.

Well-organized opposition within medical lobbying groups makes such a one-sided result unlikely within the next two years, Ms. Darragh says. But, when asked if the flurry of activity in the nation’s statehouses is indicative of a national trend in support of traditional childbirth methods, she adds: “We certainly hope so.”

As with many health issues, the debate about CPMs may seem arcane to non-experts. The debate is a minefield of acronyms, and home births account for just 1 to 3 percent of all births in an average year, with similar percentages in each state.

Yet the debate casts in sharp relief a philosophical tug-of-war over the nature of childbirth that powerfully affects how expectant mothers approach the ordeal of birth.

Elsewhere as in Wisconsin, this tug-of-war pits midwives and physicians who support “natural childbirth” outside the hospital setting and with minimal intervention against the many physicians and nurses who view medical birthing techniques as safer.

When Wisconsin’s reform takes force in May 2007, Wisconsin will become the 23rd state to institutionalize a way for expectant mothers to reject a medical birthing culture entrenched since the 1950s.

Activist midwives say the Wisconsin reform adds bulk to a growing body of circumstantial evidence that America’s popular view of childbirth is in flux, with parents adopting new perspectives on labor and the role of modern medicine in it. CPMs describe labor and birth as “natural” events rather than medical emergencies necessitating medical intervention.

“I think it is a trend,” says Katherine Prown, legislative chair of the Wisconsin Guild of Midwives. “We have seen Minnesota, Utah, Virginia and now Wisconsin all pass laws since 1999. There is a lot of momentum behind these bills.”

Traditional midwifery is struggling to reemerge from the obscurity in which it has languished since passage of Medical Practice Acts (MPAs) by all 50 states, in the 1950s. These acts criminalized the “practice of medicine” by unqualified individuals. They need not have impacted traditional midwifery, but they did in 49 states because only Mississippi offered an exemption for midwives, Ms. Darragh says.

Yet whatever the movement’s momentum, there is also powerful opposition. The American College of Obstetricians and Gynecologists (ACOG), a well-funded proponent of childbirth in the hospital setting, opposed the Wisconsin reform, publishing a position paper stating that CPM-supervised home birth “cannot be considered safe”.

ACOG also urged state officials to take “immediate aggressive action” against “unsafe birth practices”.

Such action was seen earlier this year in Indiana, where state prosecutors earlier this year charged Jennifer Williams, a CPM, with practicing medicine without a license. Ms. Williams, who says she helped 1,500 women give birth safely before she faced any charges, pled guilty. She has since filed a lawsuit against the state attorney general, asking an Indiana circuit court to distinguish between midwifery and “the practice of medicine.” Ms. Williams is also part of the group campaigning for legalization and licensure of CPM practices in Indiana.

The divergence in approach between Wisconsin’s legalizers and Indiana’s prosecutors shows the wide variety of options available to legislators and regulators. States have essentially three options: to legalize, license and regulate the work of CPMs as Wisconsin and 22 other states now do, to prosecute CPMs as Indiana and some others have done, or to turn a blind eye as Mississippi does.

Democratic pressure on statehouses throughout the country could one day yield a consensus, either in CPMs favor or against them. In the meanwhile, those embroiled in the debate are confronted with a growing body of scientific research.

One study frequently cited by CPMs was published last year in the British Medical Journal, an academic publication, by Kenneth Johnson, senior epidemiologist for the surveillance and risk assessment division of Canada’s Center for Chronic Disease Prevention, and Betty Anne-Daviss, a project manager at the Ottawa-based International Federation of Gynecology and Obstetrics.

The study reviewed records of all CPM-supervised home births in North America in the year 2000 and led Dr. Johnson to conclude that “planned home birth for low-risk women in North America using certified professional midwives was associated with lower rates of medical intervention but similar intra-partum and neonatal mortality to that of low-risk hospital births in the United States.”

Asked to provide any statistical evidence contradicting such studies, for the sake of this story, ACOG sent none but e-mailed two policy statements further explaining the organization’s position on the certification of midwives.

15 July 2006

Whiffs of mystery, visions of glory

By Eric Jansson
Published by the Financial Times, 15 July 2006

"Just be quiet for a moment. Try to smell it," whispers Milan, a black-robed novice at the monastery church of Jesus Christ the Pantocrator in Decani, western Kosovo. So I close my eyes and inhale.

The eyes of a thousand painted saints watch us as we stand silently in the central nave. White light pours in through a high window, then glows blue as it bounces off the 14th-century church's richly frescoed arches and walls. Directly above, the intense face of the Panto­crator - the omniscient Christ - stares down from the interior of the great dome.

"Now do you smell it?" Milan asks. The sweet odour of the wax candles burning behind us mingles with what must be the scent of myrrh. "Yes, that's the smell of incense left over from this morning's service," I reply.

"No. It is almost exactly like incense but it isn't that," he says. "I have learnt to tell the very slight difference between the smell of incense and the smell of the king."

Every Thursday the monks raise the body, clad in crimson and gold and lain in an ornamental sarcophagus, and venerate it. Since the death of King Stefan Decanski in 1331, his majesty's complexion has darkened somewhat and the royal hands have thinned. Even Milan, faithfully in awe, admits that the old monarch looks "like he has lost some water". But the "miracle" of the saintly monarch's uncorrupted body, housed in Decani's magnificent, Unesco-listed monastery church, still powerfully fuels the faith of the monastery's Serbian Orthodox believers.

"God has kept his body from decay to show us that saintliness and holiness are possible, to show us that the kingdom of heaven is here," the novice says.

The emanation of the scent of myrrh from the king's body is one of many enduring medieval marvels in Kosovo that strike the modern heart and mind like unwelcome lightning - flashbacks from a rejected age of faith. Do they illuminate, or do they blind? They certainly disarm and dazzle the visitor, just as the holy places in Serbia's breakaway province have always done, by defying the spiritual pretensions of the outside world and demanding an answer.

One could stomp out through the monastery gate, cursing, and drive away, calling it all a hoax. But standing toe to toe in that glorious nave with gentle Milan, the mere thought of such a reaction seems flagrantly presumptuous, wildly proud.

He asks me if I believe in the uncorrupted body of the saint. Pressure. Either it is a hoax or it is real. Either the shaggy-bearded brothers working quietly in the monastery yard outside the church's walls are liars or they are deluded or they are guardians of a genuine holy relic. I am tempted to cop out. Relativist instincts whirr into motion and suggest a noncommittal reply: "Why shouldn't we believe it when the universe is full of so many wonders?"

But discipline kicks in. A leap of faith is a truer option. "Yes, I do believe it," I say, looking Milan straight in the eyes. He looks back with a mild, sceptical grin.

Now am I the liar? It is something to ponder as I walk out of the monastery grounds, past the group of Italian soldiers stationed at the whitewashed stone gate.

I drive past the tank traps and barbed wire that protect Decani against the Albanian militants who would see it burnt down. I go back out into the anguished secular landscape of this pretty land of fertile fields, grand mountain ranges and exotic fables.

The Orthodox monasteries of Kosovo are diamonds scattered in this moral scrapyard. They count among the places, so rare in the present age, where one's agnosticism and relativism seem to blow away. These places demand focus and reckoning.

If for some visitors the uncorrupted body of Stefan Decanski fails to force the big issue of personal faith, then the constant state of danger in which the monks live inevitably does. These havens of prayer and joy have become the most threatened places in Kosovo since the 1998-1999 war.

On any ordinary day, profound peace prevails in the cloisters. Order becomes beauty as life moves to the rhythm of bells and the low tone of the semantron, a wooden board that strikes the call to prayer. The patterns, colours and shapes of Byzantine, Romanesque and Balkan aesthetics fuse seamlessly in ancient buildings and immaculate gardens amid the muffled clamour of labour from the workshops.

The sheer pleasantness of the scene causes some visitors to doubt that these communities live in genuine danger. But no one can dispute the reality of the routine attacks against Orthodox religious communities in Kosovo, none worse than the 2004 pogrom in which more than 30 churches were destroyed and Decani came under mortar attack.

The diamond metaphor comes to mind again, for the gems are formed under massive pressure. So is the kind of peace that prevails here. The monks and nuns speak no ill word of the ethnic Albanians outside their cloister walls and some even dare to muse, in unreason­ably good humour, that someday the monasteries in Kosovo may all be overrun by militants. "Temples fall. It happens. What matters is that we preserve the community of prayer," a monk says.

So fearless and infectious is this disposition - tempered by what the monastics call harmolipi, "joyful mourning" - that the modern western traveller who ventures here risks departing as a pilgrim, even if he has arrived as a tourist.

I drive onward to the famous monastery at Gracanica, two hours from Decani. The road crumbles into a wilderness of potholes as I cross into the small Serb enclave where the 14th-century monastery stands. The location means security is a smaller problem. A lone Swedish soldier at the modest gate, a member of the same Nato force to which Decani's Italian guards are attached, dreams away the hours with a rifle cradled in his arms.

Admirers call Gracanica "the queen of Kosovo churches". Standing in the middle of her broad yard, she appears regal but petite. Yet beneath her multitude of little domes is a vast blue and gold universe of iconography in which to wander.

Beneath an image of the Hebrew prophet Elijah, fed by ravens in the desert, I am greeted by a nun. Sara approaches me, clad in black from head to toe, bubbling with enthusiasm and keen to chat in whatever combination of Serbian, English and French suits me best.

"What's in the golden box next to the altar?" I ask.

"The relics!" she exclaims. "One of them is a bone from the body of St George. You know it is the saint because it still smells beautiful!"

Surprised, I ask: "St George, the famous one? The dragonslayer?"

"Yes," she says. "Come on St George's Day. You can see it for yourself."

24 June 2006

Europe's undiscovered playground

By Eric Jansson
Published by the Financial Times, 24 June 2006

Fearsome black crags jut up toward the belly of our aircraft as we float in the direction of Podgorica, capital city of Montenegro, the world's newest sovereign state.

From the air, it looks treacherous. A strange, bent universe of limestone spans the horizon: the Dinaric Alps. Weirdly shaped monoliths here and there break off into deep canyons, then rise again as highland plateaux. Many call this magnificent former Yugoslav republic a Mediterranean paradise.

Yet, after all the tectonic jolts of politics and war the Balkans have absorbed during the past 15 years, first-time visitors cannot help wondering about the lie of the land when they arrive.

A hopeful new chapter in Montenegro's political life is unfolding peacefully after a May 21 referendum in which voters chose to declare independence from Serbia. Yet by its very nature, this land still celebrates the violence of creation. A topographical wonderland, Montenegro is an ancient wound in our planet's skin, rendered by the furious forces that formed the planet.

We begin to descend and a break in the Dinaric peaks reveals a fertile valley. We soar over the vast Zeta plain, layered with vineyards and dotted with red-roofed country houses. An aquamarine river strewn with white boulders follows a jagged line through the valley, as if someone has scribbled playfully over the bright green ground with a giant blue oil pastel.

Then, somewhat alarmingly, as if the pilot has fallen asleep, we pass over tiny, concrete Podgorica and its little airport, drifting onward.

More vineyards and country houses appear below and the plain becomes waterlogged. Little brooks appear, then multiply and combine, forming the rim of an astonishing body of water - Lake Skadar, marking Montenegro's border with Albania, a shining swirl of turquoise and dark blue matted with lily pads and ringed by verdant hills.

The aircraft angles sharply, cutting a 180° arc back toward the city. We roar back, descend rapidly and fly low over the fields before touching down on the airstrip. Disembarking in the open air, we step out into a deliciously warm breeze.

The spectacular horseshoe-shaped approach to Podgorica's airport allows just a glimpse of this country's lauded "wild beauty". There is much more. Montenegro serves up a vast feast for the senses. It must be seen, felt and tasted to be believed - and nothing of what the air passenger beholds as he descends compares to the biggest draw: the beach.

Now that Montenegrin independence is certain - a formality to be worked out in technical consultations between Podgorica and Belgrade - this new country dearly hopes that the rest of the world will descend upon it. Tourism, never so big here as in Croatia, will be a key factor in Montenegro's success or failure. So let the world descend; there is no reason we should not. One need only touch down in the capital to start sharing Montenegrins' faith in their future as the owners and hosts of Europe's next great playground.

From the airport car park it is just a 45-minute drive to the sparkling Adriatic. The road passes through the stunning Lake Skadar region, ornamented with medieval ruins and ancient Orthodox monasteries. It then shoots through the 10-km Sozina tunnel, newly bored through the mountains between the airport and the coast.

It is less opulent than Amalfi and not so enormous as Big Sur, yet it resembles both. Montenegrin beaches, some sandy and some stony - many sparsely inhabited by sunbathers - lie where the mountains slope into the sea. In some places, enormous chunks of stone rest just offshore, somehow sliced off the mainland and hurled into the water.

Off Petrovac, a holiday idyll near the coastal end of the motorway tunnel, squint and you can spot a tiny stone seafarers' chapel improbably crowning one such island. Montenegro is packed with such marriages of heavenly and human ingenuity.

Many of those who visited Montenegro before Yugoslavia's wars of secession will think immediately of Sveti Stefan, a fishermen's island converted after the second world war into a tourist village and linked to the shore by a white stone causeway. Sveti Stefan is still there and it remains one of the pearls of the coast. But a more extraordinary, lesser-known gem is found to the north at Perast, on the the butterfly-shaped Boka Kotorska - southern Europe's only fjord, an ever-changing body of water fed by sea tides and freshwater aquifers.

Tiny, tranquil Perast was built by medieval Venetians and later adopted as a Russian naval port by Peter the Great. It is now a sleepy beauty spot. At the shore, local oarsmen wait to carry passengers to the picture-perfect islands in the middle of the fjord. One of the islands, heavily pine-clad, is home to a former Benedictine abbey. On the other, the Gospa od Skrpjele, a manmade stone platform set on a foundation of sunken ships, stands a blue-domed church. In the late afternoon, sunlight illuminates the humid air and shafts of light shine like spotlights on the jaw-dropping scene.

Dive off halfway between Perast's islands and the shore. Swimming back to the dock, you can bathe in the interplay of warm sea currents and the aquifers that spout chilly rivers of melted snow, channelled through underground waterfalls, into the fjord. Delightful.

The fact that ravishing, Unesco-protected Perast is not overrun by tourists is a clear sign that Montenegro's heyday has yet to arrive. This is because, for many visitors, retreats such as Perast are simply "boring" - as some tourists overnighting in nearby Kotor put it. No working hotel, no working restaurant: just the oarsmen, the humble Café Il Giardino, an ice cream vendor, the townsfolk renting rooms and the surrounding splendour.

This is not enough to attract the old stalwarts of Montenegrin tourism - many of them urban party-loving Serbs and Russians. But it could be perfect for an incoming class of high-end western visitors. Enterprising Montenegrins are keen to catch the wave.

If the Boka Kotorska is a butterfly, then one wingtip away from Perast lies the equally sleepy village of Morinj. Drive down a dusty road, local chickens racing you over the potholes, and you come across a restaurant called Catovica Mlini - the old flour mills of the family Catovica. Here, Lazar, the father, has built a glorious prototype for the future of Montenegrin hospitality, a "restaurant" in the original restorative sense of the word. Everywhere, brooks babble and little springs spew out of the ground. Birds tiptoe across the watery lawns, sending quiet calls out over a dining area where waiters erect great linen canopies to shield tables from the scorching sun.

Increasingly, such refined means of relaxation can be found throughout Montenegro. But a different scene still prevails in the big coastal cities. Many of these, like Perast, were built by seafaring Venetians, and the heritage shows in the ancient stone. Budva, Kotor, Herceg Novi, Bar and Ulcinj contribute understated urban tone, throbbing discos and shopping to a coast otherwise better suited to laying back.

Visitors who crave both action and idleness should simply stay near a city - Budva, Kotor and Herceg Novi are best - as many tourists have learned to do across the border in Croatia, where nearby Dubrovnik is already overrun by the camera-clicking horde.

If there is a mystery about Montenegro's potential to become a world-class getaway, it is the country's immense and imposing northern mountains. So long tucked away as a southern backwater of the former Yugoslavia, this republic somehow failed to advertise the fact that it possesses the second deepest canyon in the world, through which the emerald Tara River flows. Although the 144km Tara attracts local white-water rafters, it remains obscure outside the region.

The same can be said for Zabljak, a northern resort town. On its outskirts, peasant smallholders tend cows and bees. Spartan cabins for self-catering tourists, some going for just €15 (£10.20) a night, are scattered in the valleys. A mirrorlike Crno Jezero (Black Lake) reflects the peaks of Durmitor, the north's greatest massif. This is a playground for hikers for half the year. When the winter snow falls, it becomes a haven for skiers into the spring.

While comfort in the north remains scarce, the opening of a British-owned hotel in Kolasin, south of Zabljak, offers a vision of the future. The Bianca Resort and Spa, an old communist complex refurbished to current standards, offers tourists a stylish toehold in the north.

Amazingly, back at the coast, Montenegro offers another untapped resource. Daytrippers from Ulcinj and Bar have long known about it but few others visit the 12km beach at Ada Bojana. Broad fields of dark golden sand stretch as far as the eye can see.

Someday this giant, empty beach may become a seashell- strewn boulevard of Mediterranean mega-hotels - a new Ibiza or Costa del Sol. Today it is only the cry of a gull, the perfume of magnolias, the lapping of waves and an uninterrupted nap under the sun.

10 June 2006

From beer to champagne

By Eric Jansson
Published by the Financial Times, 10 June 2006

A Chicago weatherman once delivered a radio report on the "mountains of Wisconsin". He referred to some resorts not far beyond Illinois' northern border - getaways frequented on weekends by Chicagoans wearying of the big city: Alpine Valley, Wilmot, a few others.

There was just one problem. Wisconsin has no proper mountains and along its southern frontier, nearest Chicago, there is barely a hill. The only "mountains" within easy driving distance from the city are mere wrinkles in the prairie, rigged up with gondolas. But if they feel like the Alps to northbound pleasure-seekers from Chicago, who cares?

The lesson is that "mountains" are relative, as is so much else in travel and tourism. A tourist's experience has a way of rushing up to satisfy his expectation. The cold hard truth is that Wilmot is a pile of dirt, dumped and grassed over for recreational purposes. But maybe only the locals know it.

As recently as two decades ago, many people from southern Wisconsin - myself among them - were still bewildered by the way world-weary Chicagoans seemed drawn to our state like Israelites to the land of Canaan. No milk, no honey, no giant grapes, yet still they thought of our humble home as the Promised Land.

When state tourism officials tried to capitalise on the cross-border enthusiasm by distributing free car bumper stickers urging visitors to "Escape to Wisconsin", locals cut out the "to" and used them that way.

The misused marketing ploy illustrated Wisconsinites' admirable penchant for smirking self-deprecation. But it also highlighted a certain self-doubt that plagued parts of the state and, above all, the cities - especially Milwaukee, the state's biggest.

It has always been easy to understand why Chicagoans flock north to immerse themselves in Wisconsin's natural beauty: its vast forests and pristine lakes, its hospitable red-barn farm country and splendid golf courses.

But Milwaukee - a proud, brick-built brawler of the 19th century - has been another story. It suffered as many smaller Wisconsin cities did through the middle of the 20th century from a terrible double whammy of modern uglification and early post-industrial failure.

When Chicago was still busy preening itself, teaching the world about skyscrapers, two hours north along Lake Michigan's shore Milwaukee was looking ragged as the giant breweries that once helped to power its economy fell on hard times.

One could have been forgiven for wondering back then if Milwaukee, earlier renowned as America's thriving "Beer Town", would ever again amount to anything more than being Chicago's poor cousin "up north". It was not hard for pessimists to imagine an ignominious fate of monotonous middle-class oblivion for this miniature Mitteleuropa perched precariously in the heart of the New World, with its Germans, Slavs, Scandinavians and Italians mixing with its Africans, Latinos and Irish. The industrial revolution tossed them all together. But where were they going?

Milwaukee has spent the past two decades gradually proving any such pessimism wrong.

Although the big breweries are gone, apart from Miller, the fabled motorcycle maker Harley-Davidson remains, and the city's extensive light industry has so far proved itself adaptable in the age of globalisation. Local wealth did not collapse as many once feared it would - it changed.

A certain energy seems to have saved this city of 580,000 from the mediocrity that bedevils other metro centres of similar size in the American Midwest. Visitors find Milwaukee blooming in new and exciting ways.

Interstate 94, the highway north from Chicago, elevated as it enters Milwaukee, sweeps into town over lower and middle-income neighbourhoods: big, century-old houses crying out for reinvestment and streets marked by the mild, niggling poverty that afflicts inner cities of the Great Lakes region.

But poking up from one of those same neighbourhoods, I spot a billboard. It bears, of all apparently incongruous images, a portrait of Johannes Brahms. "Brahms in da Haus," it reads. Only in Milwaukee: gangsta slang, reverence for a great composer, and German, rolled into one.

Curiosity drives me to the Milwaukee Symphony Orchestra in the evening, where I hear Brahms' double concerto for violin and cello played very well. Handsome Uihlein Hall with its 2,300 seats is packed and lively.

In ways like this, Milwaukee exceeds a visitor's expectations and improves on memories of past decades. The city has quietly transformed itself into a cultural gem, even luring cultural tourists from bigger, wealthier Chicago and farther afield - a feat once unimaginable in the days when Wisconsin's top draws were god-given, not man-made.

The symbol of this transformation stands - or rather flaps - today on the broad, blue waterfront where Lake Michigan stretches, a chilly blue, over the horizon.

Visitors cannot know what to think, taking in the sight of the Milwaukee Art Museum's spectacular Quadracci Pavilion, completed in 2001 at a cost of $125m. Is it a bird, a whale, a yacht or just a building? Seen from outside, this white structure with two 50-tonne retractable sun-shade wings, conceived by the Spanish architect Santiago Calatrava, looks like the strangely graceful skeleton of something - but what? The question is never answered.

But to enter the pavilion is to walk into a glass pyramid full of extraordinary angles, reflected light, sun and shadow, sky and water. Here is an extraordinary postmodern show-space for art that draws strength in its form from both a pre-modern faith in beauty and an unmistakably modern zeal for engineering and design.

Its director and chief executive, David Gordon, a former secretary of the Royal Academy in London, boasts that Milwaukee's arts scene "punches above its weight".

But this dynamic remains so little known outside Wisconsin that one simply must go there to absorb the impact of that punch.

30 May 2006

Safety in Kosovo remains elusive

By Eric Jansson
Published by the Financial Times, 30 May 2006

Few Serbs can forget the jumpy young man who scaled the Church of St Andrew in Podujevo two years ago.

Thousands of times, television screens across Serbia – including the beleaguered Serb enclaves in breakaway Kosovo – have replayed the videotape. It shows the man climbing to the burning church’s rooftop and attacking a metal cross – tugging, twisting it until it crashes down, to the delight of a crowd of ethnic Albanians in the churchyard below.

The unidentified man generated an iconic image of the pogrom that swept through Kosovo in March 2004. The three-day orgy of violence pitted tens of thousands of rioters against minority communities, Serbian Orthodox churches and their United Nations and Nato protectors.

The damage toll catalogued afterwards in a report from Kofi Annan, UN Secretary-General, listed 19 people killed, 954 injured, and 730 houses and 36 religious sites destroyed, some containing priceless examples of ancient Byzantine Christian art.

“The March riots” remain a vital reference point for diplomats and Nato military commanders gauging the probability of a sudden return to violence.

Since then, Kosovo’s secessionist leaders have struggled to persuade others of their commitment to the safety and human rights of minorities in Kosovo amid discussions about possible independent statehood.

“There will be no repeat of March 2004. The citizens are aware how much damage an event like that can cause,” says Fatmir Sejdiu, president since March this year.

But many observers warn that serious violence may erupt again if Kosovo’s provisional authorities do not achieve full independence from Serbia this year.

The president denies this, but he warns: “The international community has to be careful. We do not want to stimulate politics that could generate conflict. It is not good to test the citizens’ patience.”

When the UN and Nato intervened in the province, they pledged to create a safe, multi-ethnic space before determining Kosovo’s political status. It is no longer clear that this goal can be achieved. The UN initiated Kosovo’s status negotiations in late 2005 although an overwhelming majority of Serbs in the province still say their basic right to safety is trampled routinely.

A steady trickle of violent incidents against Serb communities keeps the intimidation factor high. This month alone brought several shootings and the stoning of a busload of 60 Serbs travelling to market. On May 6 gunmen ambushed a Serbian Orthodox priest, his wife and two children travelling in their family car. They narrowly escaped.

Extremists also struck Podujevo, vandalising a second church and setting back reconstruction efforts funded by the Council of Europe.

Sava Janjic, an influential monk who is the Serbian Orthodox Church’s diplomatic contact point in Kosovo, calls this “persecution”.

He says: “The Church is its people, and our faithful people, clergy and monks have been living for years without basic freedoms and dignity. In most of Kosovo we still cannot move without military or police escort, and we are exposed to everyday verbal abuses and harassments.”

Slavisa Petkovic, the only Serb minister in the provisional government, claims that open persecution ended in late 2004, when he took office, and that threats to minority communities are on the wane. “There has been a substantial relaxation of relations between most Serbs and Albanians living in Kosovo,” he says.

Yet Mr Petkovic’s own parents are among the many Serb refugees who choose not to return. More than 223,000 Serbs and other minority individuals have left the province since the war. Fewer than 15,000 have moved back, according to the UN High Commissioner for Refugees.

Contradicting both UN officials and Kosovo’s elected leaders, Hilmi Jashari, the province’s top human rights lawyer, says that little progress is being made. “I would not say that the human rights environment has changed dramatically from 2004 until today. In fact, from 2000 until now I have not seen a dramatic change,” he says.

As acting chief of Kosovo’s human rights office, a public institution founded by the UN mission but independent from it, Mr Jashari says he recently reopened his file on the March riots in response to complaints that they were “never properly investigated” by local or international authorities.

A Human Rights Watch report released today sides with the complainants, lending weight to claims that neither basic safety nor legal protection can yet be taken for granted.