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.