Electronic Library of Scientific Literature - © Academic Electronic Press


Volume 51 / No. 2 / 2003


Book Reviews

Independence of a Central Bank and Position of the European System of Central Banks


In the sixties of 20th century, monetary policy was still considered as an integral part of demand oriented economic policy, the objective of which was to achieve full employment and gross national product at the level of potential product by optimal combination of fiscal and monetary policy instruments. In that context, moderate inflation was perceived as a legitimate means to achieve mentioned goals. But supply shocks and follow-up inflation advancement in the seventies led to the understanding of the price stability achievement and sustainability as a top-priority task of monetary policy. This change in the economic theory main stream came up at the same time with convincing arguments in favor of an independent central bank. In its monetary policy, bank of circulation independent from politicians, electors or media has the best conditions for preferring the long-term objective of price stability to the short-term economic growth and employment increase. On the contrary, politically dependent central bank would be scarcely able to face the possible pressure of the government trying to bring on a favorable political economic cycle and therefore intentions declared in the anti-inflation policy wouldn’t be perceived as credible by economic entities. In the effort to ensure the credibility of anti-inflation policy, it is also possible to bind monetary policy by standing rules as an alternative to an autonomous central bank. But this approach did not acquit well either.

The arguments against politically independent central bank go out particularly of the statement that it is incompatible with elementary democratic principles when the group of non-elected technocrats disposes of large competence and act without direct control carried out by the parliament. This objection can be disproved – besides the existing pre-cedent in the form of independent courts – by a mention of indirect legitimacy of a cen-tral bank. In a final consequence, it is exactly democratically elected politicians who make the decisions about a degree of the central bank political autonomy, determine mo-netary policy objectives and they also name senior officials of a central bank. Moreover, various empirical studies confirm the expediency of an independent central bank for economic development of the country. The states with an autonomous central bank show besides the lower inflation rate also low unemployment, and the rate or volatility of economic growth is not negatively influenced by the independence of a central bank as well.

Following these arguments, the question of what degree is the independence of their own central bank ensured to, thus becomes very important for the citizens of present and future Member States of the European Economic and Monetary Union. For the purpose of the analysis focused on a degree of autonomy of the European System of Central Banks (ESCB) and the European Central Bank (ECB), we usually distinguish between functional, institutional, personal and financial independence.

Functional independence implies the question whether a central bank has adequate space for autonomous execution of monetary policy when trying to achieve certain objectives. In this point, it is very important that the ESCB can decide autonomously about a suitable monetary policy strategy. Very significant is also the fact that neither the ECB nor individual national banks are no longer allowed to provide credit to public sector organs and institutions. Potential limitation of functional independence represents exchange-rate policy, which falls within the cognizance of the Council of the European Union. In its execution of exchange-rate policy, the Council of the EU is indeed obliged to respect the primary objective of price stability as well as the independence of the ESCB. In the case of the Exchange Rate Mechanism II (ERM II), even the competence beyond the frame of the Treaty on European Union was conceded to the ESCB.

Institutional independence is being connected with a question of the rate in which other bodies and institutions (government or parliament) have an opportunity to influence a decision-making process in the competent central bank gremium. In this context, when exercising the powers and carrying out the tasks and duties conferred upon them by the EU Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making bodies may seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks. None of the EU political representatives or the individual Member State representatives can even dispose of voting right in any decision-making body of the ESCB. The ECB is exclusively the subject to the European Court of Justice’s juridical control as well as the European Court of Auditors´ and independent external auditors’ control.

In the view of ensuring personal independence of the ESCB, it has to be evaluated positively in particular that the term of office for the ECB Executive Board Members is limited to a maximum of eight years and shall not be renewable. Shorter five years term of office for the presidents of the national central banks (governors), even possibly renewable, represents kind of a risk for the independent performing of the tasks related to their function.

Financial independence is achieved when a central bank disposes of an adequate amount of financial resources necessary for staying in a position to fulfil entrusted duties. Financial independence violation could result in a menace of either functional or institutional independence of a central bank. In the case of the ESCB, financial independence is guaranteed by the fact that the Budget of the ECB is separated from the Budget of the EU, as well as by the fact that not national governments, not the European Union, but the national central banks have provided basic capital of the ECB.

In conclusion, it has to be underlined that there is a difference between the formal and the real independence of a central bank. Finally, general public attitude towards inflation risk determinates whether monetary policy oriented on the maintenance of price stability is successful or not. However, the European Economic and Monetary Union exists too short to give a final verdict considering the importance that the citizens of Euro-zone attribute to a stable currency.

Business Environment – The Problem of Economic Conditions or Institutional System Difficulty?

Jaroslav NĚMEC

The critical conditions in Slovak enterprises – and consequently in whole economy – have been for a long time related to the failures in business environment. That is usually identified with the legislative and institutional frameworks in which business activities take place. Its defects are attributed to unfinished System reform, wrong government policy actions, but mostly to imperfect legislation and its ineffective execution. It is said that environment defined in this manner has a crucial impact on business entities’ acti-vities which summarily represent not only the state of single firms but also the performance of whole economy of the country. In these consequences, it isn’t paid such attention to the other determinants of business environment, e. g. to the situation of domestic and foreign market (price levels, exchange rates, incomes level, rates of interest, etc.).

In submitted article, the criticism of reform policy as well as of institutions and legislation imperfections is mostly accepted there. But the statement that above-mentioned specification of the environment is the reason for that critical condition of enterprises and national economy – which dissatisfies the society and politics and is the most serious economic problem in Slovakia for a longer time – is refused here. That critical state is characterized in particular by low production of resources which leads to excessive number of lossy firms and firms (represent majority) which profitability does not cover renewal of fixed capital or formation of adequate own current capital. Low production of resources in enterprises is thereafter transferred into the wider environs (business partners, banks, state budget, employees, and other segments) and causes high indebtedness, business commitment defaults, and other features which are the common objects of business environment criticism.

The article proves that major barriers which unable to overcome the low production of resources of the country does not primary occur inside the enterprises but rather in the society-economy. They are generated not by legislation or institutions but mostly by relation between the Slovak production structures and the world markets and terms of trade determined by them – especially exchange rates and price levels. The losses in such a great number of companies have been caused not only by the lack of business activities but mainly because the supply of the firms (products and services) cannot meet at the market (home or abroad) such an appropriate level of demand which would be able to allow them to avail all the production potential and to sell at the prices covering their reproduction costs (fixed and operating) and to make necessary profit.

The first part of the article analyses the impact of rapid market reduction in early 90-ties on the exploitation of production potential and dynamics of GDP evolution, on exchange rates, trade balance, prices, costs, incomes and profit. The cumulative effect of mentioned changes evolved to strong imbalance between resources production and overall consumption which could not be promptly reduced to resources production level. The immediate reduction was possible only in the part of overall consumption which was covered with current incomes – corporate profits, wages, salaries and other citizens incomes, capital yields, taxes etc. However, the immediate reduction has not been required by the long-term goods which were possible to consume as long as they were supplemented. That was the case of a huge amount of fixed capital inside as well as outside the companies – social and cultural facilities (hospitals, schools, theatres, museums etc.), housing stock, railroads, roads and other infrastructure. Physical existence of these goods (funds) does not only enable the usage without compensation but also enforces it and hereby determines the range of the usage as well. Despite the fact that the enterprises´ sources had allowed just partial renewal of initial fixed capital (initial fixed capital depreciation represented only a fragment of its renewal price), it loaded the production process with raising unit costs and thus notably contributed to final loss. Public consumption funds were available also without immediate renewal but their usage required operating expenses which started to exceed the capability of tax incomes very quickly.

The difference between consumption which wasn’t able to be reduced immediately and resources formation which couldn’t be increased in conditions of limited markets and missing investment sources, became immediately expressed in all sectors as a per-manent deficit with a tendency to grow. It was followed up by consistent de-capitalization in enterprises, debt rising (in home and foreign banks), overdue accounts, together with various deformations of business manners – different liability avoidances, dubious loans, “tunnelling” of corporate property and so on. These features seem to be the major problems of business environment. In the context of general genesis of this state it is clarified that losses and business failures haven’t been initiated by criticized practices but vice-versa, the chronic lack of resources and the barriers which companies were not able to overcome led to indebtedness, liability defaults, and finally to such a wide law-breaking, atypical in normally functioning economy.

Tasks of ECONOMIC Centres in Controlling


The rise and development of market economy in countries of Central and East Europe requires looking for new tools of company management which enable a constant rise of the efficiency of companies. The effort to achieve high efficiency led companies to setting up controlling. Problems connected with setting up operational controlling in our conditions, especially with creating responsibility centres and defining tasks for these centres, led to writing this paper.

In the first part of this contribution we are judging the impact of controlling on the efficiency of company. Results of research show that a good functioning system of controlling enables to manage the company on the basis of self-regulation principle, thus contributing to cuts in costs and reaching better results. This system can function correct-ly only if it is consistently directed to: aims, future, narrow places, market and customer.

The second part of the contribution is devoted to the nature, importance and criteria for creating responsibility centres. The complexity of the production process requires a purposeful division of work, which is leading on one hand to a factual segmentation of the organization (organizational structure), and on the other hand to a segmentation from the perspective of authority and responsibility delegation, i. e. structure of responsibility centres (economic structure). The need to set up such centres was awakened by applying the principles of economic responsibility in internal company units. The responsibility centre is a tool of valuation management of the company in order to achieve company objectives. A centre is then defined as a “responsibility” unit with determined functions, for which it is motivationally efficient to follow the value variables: at the input costs, at the output returns.

The basic prerequisite of successful functioning of responsibility centres is:

· relative closing of the centre,
· identification of partial performance,
· appreciation of performance by an internal company prize.

From the results of research it follows that when creating responsibility centres it is necessary to keep to the following principles:

· economic centres must be detached and have their own economy, organization, technology, accounting and finance,
· costs and performance of their activity must be measurable,
· distinctly recorded,
· there must be a possibility of planning and analysing their activities.

In business practice the economic and financial detachment whose minimum criterion is the possibility to set up a budget, is considered most important. On its basis measuring of the degree of fulfilling of a certain task is carried out, in the phase of planning, realization and completion. To achieve this, we must consider responsibility centres as fully-fledged subjects of the management process with special tasks. An important principle of creating centres of responsibility is to define their objectives. Each centre must have its individual activity plan resulting from the company strategy as a whole, but specified with regard to the single tasks and requirements of clients. The centre must have sufficient material and financial means. All workers must be familiar with the new economic structure. Without their sufficient support it is not possible to achieve expected results.

The main reason for creating these centres is the effort to raise the efficiency of all activities of the company and ensure its competitiveness.

In order that controlling could function correctly, the responsibility centres:

· must be created in a way which enables their mutual cooperation and mutual use of their results,
· their mutual relations must be arranged in a way which would ensure that their own objectives are in accordance with the objectives of the company as a whole,
· must have free access to company resources, especially in the field of scientific research results.

Depending on the degree of decision-making independence there are four types of responsibility centres: centres of costs, returns, profits, investments.

In the interest of raising the efficiency of the company it is necessary to create centres of responsibility in the form of quasi-autonomous economic centres. These centres can be seen as independent centres of decision-making and responsibility. Its main aim is independent management. It is especially important to work out a certain system of activity assessment variables for single centres. This system should enable to determine unambiguously the responsibility of management staff for carrying out the assigned tasks.

The system of assessment of the responsibility centres should be worked out for the conditions of each company. It is not possible to create generally applicable rules and principles.

Responsibility centres on one hand enable to create an internal economic tool, which serves for rational use of entrusted funds. On the other hand it can be used as a tool for stimulating better results. The precise determination of the authority of the centres should be visible in the form of efficiency raise and by strengthening the position of the company in the market. As a final result it leads to achieving the basic aim of the company – to maximization of company market value.

On the basis of empiric research that we carried out, it is possible to state that intro-ducing the principles of controlling is a prerequisite for real evaluation of the activity of company organizational units. Controlling influences the increase of the discipline of managers, and at the same time it helps to raise the efficiency of the whole company. It is so because the manager of the responsibility centre has all the necessary information about processes running in the centre. Controlling raises the decision-making indepen-dence of the managers of the centres by involving them into the management process, by making them participate actively in the management process. Correctly applied rules of controlling enable to create a casually-consequent relation between responsibility for achieved results and rewarding.

The result of comparisons of countries applying for the access into the EU show that the efficiency assessment of selected internal company activities contributes to the increase of quality of internal company management.

Combining the results of this assessment with motivational system of management staff and other staff can contribute to reaching better economic and financial results of the company.

We assume that this system of management will improve the economic and financial results of the company and will lead to quality increase of management due to introdu-cing new procedures and tools of decision-making. All this creates a good basis in the fight with increasing competition in the global market in the accession process of our countries into the European Union.

Retrospective and perspective of the European union


The European integration processes enter the second half-a-century of their existence. The origins of integration have been marked by activities of many significant post-war political personalities. A special position among them is reserved for two Frenchmen: Jean Monnet and Robert Schuman.

Monnet’s international relations concept originated from the following principles: preference of law to power, unification of people, shift of sovereignty to common institutions, power of institutions, equal rights.

A threat for the future was the division of the European continent into two social and economic systems. It had taken more then forty years before the Berlin wall fell and before the beginning of a new era for the future of Europe was announced. And it had taken more than fifty years before the circumstances, that would enable the countries of Central and Eastern Europe to join the original six West European states, which founded the European Coal and Steel Community (and additional nine, that have been joining them gradually), arose.

Support of the political stability in those countries, which decided to join the integra-tion process, assumed economic strengthening and pursuing economic liberalisation.

The “liberalisation tactics” should have been based on the following principles: Continuity Principle, Parallel Start Principle, Actual Compensation Principle, Universality Principle, Concentrated Approach Principle.

Experience from the development of integration relations in the European Union have shown that despite the fact that these principles were used as guiding principles, they have not been applied completely – sometimes only temporarily and merely in some cases. It has proved, on the other hand, that in many cases it was the application of these principles (e. g. of the compensation principle) that helped to overcome existence difficulties of the integration community.

The European Union nowadays faces an important crossroad of the past and of the future. The summit of the highest EU Member States’ representatives held on 14 and 15 December 2001 in Laeken has become a significant step forward to the future of an enlarged European Union. The summit facilitated the decision to create a Convent of 105 members the goal of which is to analyse the shortcomings of EU institutions and to propose structural changes, by means of which the EU should get ready for its enlargement in 2004.

Problems exist in several areas. Citizens demand a more intensive participation of the EU in maintaining justice and security, fighting international crime, the control of migration inflow and receiving asylum-seekers and refugees from more distant military zones, solving employment problems, fighting poverty and exclusion from the society, and in economic and social cohesion, common measures regarding pollution of the environment, climatic changes, food fitness and safety, and managing issues regarding world events, security and defence (e. g. clashes in conflict areas).

It is expected that the Convent will consider the key issues that may arise with regard to the future development of the EU and will try to identify various possible reactions to proposed solutions. For Slovakia is important that it is represented in the Convent too, and has accordingly become a co-creator of the future shape of the EU.

The Commission decided to enlarge the current EU membership by ten states (inclu-ding Malta and Cyprus) in 2004. Accession treaties should be signed with individual membership candidates (spring 2003) before then, their content should be approved by popular referenda and their accession to the EU itself should take place from 1 May 2004 on. Shortly, the new members should consequently elect their representatives to the European Parliament in direct elections.

It should, however, not be forgotten that the European Commission wishes to issue the final report on the state of readiness of individual applicants for membership four months preceding the scheduled EU enlargement; much will have to be done in the Slovak Republic in certain areas in order:

· to improve law enforcement,
· to intensify the fight against corruption despite “some progress” that has already been achieved, as it remains a “reason for serious concern”,
· to pay attention to the unfavourable situation of the Roma population and to reduce regional disparities,
· to strengthen independence of the judiciary significantly
· to intensively deal with the high rate of unemployment, significant budget deficit as well as the discouraging effects of the social security system, and
· to introduce more flexible legal acts regarding work, etc.

To solve these problems completely or partially will only be possible in a close co-operation with citizens, the EU will not find the way out for us. Successful management of these will in the end finalise the whole pre-accession process and the Slovak Republic will not only become an object, but also a subject co-creating the shape of the European Union as well as of the whole European continent.

Slovenia: What People know about economy


The article is discussing dealing with securities in Slovenia. The authors are trying to find the answer on a fundamental question – how much – if anything at all – the citizens of Slovenia know about the securities. In this article the results of two researches about this topic are presented. Those researches have been carried out in the year 2001.

In the first part of the article a short history of securities’ dealing in Slovenia is presented. In this part some statistical data about saving habits of Slovenian citizens and trading at Ljubljana Stock Exchange are presented. It was established that approximately a third of Slovenian citizens has the income high enough to allow them to save systematically. But the purchase of the securities is still relatively low.

In the following part the authors ponder how much about the securities’ dealing is reported by the media. It was established that Slovenian media report a lot about the stock exchange dealing. A lot of companies have also Public Relations departments. But generally, to small investors the media don’t pay a lot of attention.

The basic conclusion of this research is, that the citizens of Slovenia don’t know a lot about the stock exchange dealing. However, a greater part of the population knows that the stock exchange exists and that this is the place where the trade with securities is carried out. But quite a few people know how to buy or sell the shares. The reason for this resides in the past when people didn’t have the opportunity to acquire this kind of knowledge. They weren’t taught about the stock exchange in schools. Yet today, the media are reporting about the stock exchange dealing, but those news are followed regularly by less than a third of the population. This is why the final conclusion of this article is: the greater part of the dealing at Ljubljana Stock Exchange Market is carried out by the people, that have interest and above all –the necessary knowledge to do this. Eventually, this is a smaller part of the population. The greater part of the population still doesn’t posses the indispensable knowledge, and this is why they save their money in the banks in a classical way.


Martin GREŠŠ – Ľudmila LIPKOVÁ

Organisation of Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq on 10th – 14th of September 1960. The five founder members were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. During the next decade they were joint by all of the current members Algeria, Indonesia, Libya, Nigeria, Qatar and the United Arab Emirates (UAE).

In the first decade of its existence, OPEC created all of its important bodies, most important being the Conference of Oil ministers, which meets twice a year (in March and September). There are also extraordinary meetings of the Conference in case of any unexpected situation that can happen on the oil market. The governments of member countries founded national oil companies and tried to move the price making policy and oil mining under these companies instead of the dominating seven sisters (Mobil, Texa-co, Exxon, Chevron, Gulf, British Petroleum a Royal Dutch/Shell).

One of the most important factors of dominant position of seven sisters (five of them were American companies) was high ratio of the USA both on mining and on production of oil in the first half of 20th century.

In the seventies OPEC substantially changed the global environment by increasing the oil prices from 1.5 USD/barrel to almost 15 USD/barrel in 1975 and over 30 USD/ barrel in the 1979 – 1980. These oil shocks had a great impact on the nations all over the world. There was an essential change in territorial and commodity structure of international trade. Oil shocks also accelerated the research and development and application of its results. There were various economical and political reasons that led to the oil shocks. First of all, the unbalance between oil supply and demand on the world oil market (demand exceeded the production capacity of all oil producing countries). Second, the oil price was underestimated for a very long time (and cheap energy supplies made the world economy significantly dependent on the energy supplies such as oil). Third, there was a fear in OPEC member countries of depletion of their oil reserves. Main political reasons were the Yom-Kippur War in 1973, Islamic Revolution in Iran, and Gulf War in 1991. Even though the high oil prices after two oil shocks raised oil revenues in OPEC member countries, they also gave rise to start the production in non-OPEC (NOPEC) countries.

On 14th of April 1995 the UN Security Council adopted resolution 986, establishing the Oil-for-Food programme, providing Iraq with opportunity to sell oil to finance the purchase of humanitarian goods, and various mandated United Nations activities concerning Iraq. The programme is funded exclusively with proceeds from Iraqi oil exports, authorised by the Security Council. In the initial stages of the programme, Iraq was permitted to sell 2 billion USD worth of oil every six months, with two-thirds of that amount to be used to meet Iraq’s humanitarian needs. In 1998, the limit on the level of Iraqi oil exports under the programme was raised to 5.26 billion USD every six months. In December 1999, the ceiling on oil exports was removed by the Security Council.

OPEC collects pricing data on a basket of seven crude oils, including: Algeria’s Saharan Blend, Indonesia Minas, Nigeria Bonny Light, Saudi Arabia Arab Dubai Fateh, Venezuela Tia Juana and Mexico Isthmus (a non-OPEC oil). The OPEC price – which was introduced on January 1, 1987 – is arithmetic average of these oils. OPEC uses its basket to monitor world oil market conditions. Because WTI is a very light, sweet (low sulphur content) crude, it is generally more expensive than the OPEC basket. Brent is also lighter, sweeter and more expensive than the OPEC basket, although less so than WTI.

At its March 2000 meeting, OPEC set up a price band mechanism to respond to chan-ges in world oil market conditions. According to the price band mechanism, OPEC basket prices above 28 USD/barrel for 20 consecutive trading days or below 22 USD/barrel for 10 consecutive trading days would result in production adjustments. These production adjustments include the 500 thousands barrel increase or decrease in oil production depending on the price of the OPEC basket.

Present situation requires the co-operation among OPEC and NOPEC countries. This co-operation is important in contemporary oil cut production. The most important partner for OPEC countries is Russian Federation (RF), which is trying to regain its position in the world economy that it lost after the end of communist regime in former USSR. RF is the second world oil producer and exporter after Saudi Arabia.

World oil demand is projected to increase to 118.9 million barrels per day in 2020. OPEC oil production is expected to reach 57.5 million barrels per day in 2020, nearly double the production in 2000, assuming sufficient capital to expand production capacity. Production from the Caspian Basin is expected to exceed 6.5 million barrels per day by 2020. By 2010, projected production in Brazil reaches nearly 2 million barrels per day.

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