Treasury Today Country Profiles in association with Citi
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May 2004

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EU Enlargement

On May 1st, the European Union welcomed ten new member states as the next stage in the enlargement process is reached. At the time of the last enlargement (1986, when Portugal and Spain joined), most of the new member states were part of the non-market European economy.

Since the fall of the Soviet Union, companies are starting to take advantage of the emerging markets in Central and Eastern Europe. For example, a number have moved production east to benefit from lower labour costs. Hungary has been identified as the latest tax-efficient location to site a treasury centre. Yet the legacy of years of Soviet influence and control remain.

From the treasurer’s perspective, it is the lack of sophistication in the banking and payment systems which have the broadest implications. We have been used to discussions concentrating on the integration opportunities in the Eurozone. Talk of straight-through processing dominates meetings between treasurers and their banks and software providers.

There are immense opportunities for businesses to expand into these new markets in Central and Eastern Europe. The role of the treasurer is to allow their companies to take advantage of these opportunities. The relative lack of sophistication in the banking systems in the new member states provides a major challenge.

The challenge for treasurers is to go back to basics. It is about making payments and collecting cash as efficiently as possible. As companies move into these new markets, the banks will compete to offer them full cash management services.

Although it seems that there is a significant difference between the services offered in the new markets today, remember too that Eastern Germany was under Soviet influence fifteen years ago. Treasurers need to anticipate that change will come in the Eastern European banking markets and that this change will come quickly. They need to remain alert to avoid being left behind.