Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 17: Some remarks on good governance and sound finances
17. Some remarks on good governance and sound ﬁnances Josef Christl1 The Central and Eastern European countries have experienced an impressive transformation of their economic system over the past 15 years. This process has provided substantial opportunities for foreign investors, including Austrian ﬁrms. Today, Austrian companies belong to the largest investors in the region in terms of the invested capital stock. In some countries, like Slovenia or Croatia, they even rank ﬁrst. Over the past 15 years, the acceding countries have also come a long way in reforming their ﬁnancial systems and improving ﬁnancial stability. Bank restructuring, recapitalization and privatization have been advanced substantially or even completed. Following the opening up of the sector to foreign ownership, majority foreign-owned banks now account for a predominant share of total bank assets, whereas state ownership of banks has been signiﬁcantly reduced. Austrian banks as well have invested heavily in the Central and Eastern European – the CEE – region. For example, in the Czech Republic, Slovakia and Croatia, Austrian banks’ market shares reach impressive levels of around 30 per cent of total assets. Altogether, CEE subsidiaries account for around a quarter of consolidated pre-tax proﬁts of Austrian banks, which further stresses the importance of these markets for Austria. What is important is that the structure of the ﬁnancial sectors of the new member states diﬀers signiﬁcantly from that observed in the EU. In particular, the degree of ﬁnancial intermediation remains below EU levels. Additionally, bank lending tends to be overwhelmingly...