As legal professionals and human beings with empathy, we keep reflecting on recent developments in Ukraine. Our heart goes out to our fellow people, and we trust that history will show us again: an imagined order cannot be sustained by violence. “You can do many things with bayonets, but it is rather uncomfortable to sit on them,” Charles Maurice de Talleyrand-Perigord insightfully pointed out. I’d like to believe that violent actions in Ukraine will come to an end or will have already ended by the time of the publication of this issue. Will, however, the impact of this war simultaneously also come to an end? As a result, how will the legal practice in CEE evolve and what developments should we expect?
Economic Prospects in CEE
Analysts forecast that the economy could shrink by more than 10% this year due to rising inflation, caused primarily by rising input energy prices, but also by supply-chain disruptions and tighter financial conditions. Repercussions of the war in Ukraine will result in a much deeper recession than during the COVID-19 pandemic. The region’s economy reflects a dramatic reversal from the economic outlook before the war when a rebound from the COVID-19 crisis underscored expectations for growth. Growth is likely to falter on rising financial instability, diminished institutional credibility in certain countries, as well as deteriorating investment conditions. Government and private enterprises must face severely curtailed access to foreign capital and financial markets, capital outflows, and tighter domestic financial conditions, in addition to a weakened financial system.
A Global Perspective
As countries all around the world, including Europe, work to address global climate change, no effort is more front-and-center than the global energy transition. We are in the midst of an unprecedented transition toward zero and low carbon energy, on the cusp of breakthrough technologies, and addressing the impacts on economies that have been built around generations of fossil fuel development. At the same time, the focus on ensuring that everyone has access to reliable, affordable, and sustainable energy has never been more important.
Extreme weather events have become both more frequent and more severe, while events such as the COVID-19 pandemic represent a global threat to public health with huge economic effects that recovery packages have tried to address. These disruptive events, either alone or in combination, have had dramatic consequences on nature, human life, and the economy, calling for urgent action to mitigate their causes and adapt to their impacts.
Focus Areas for Law Firms
While it is true that Europe overall and especially Central and Eastern Europe remain highly localized — making it difficult to find common conclusions across each of the individual countries — there are trends that are worth noting, with special respect to the current geopolitical and economic environment. It goes without saying that safeguarding business from risk in the most efficient and value-adding way is, and will remain, the main focus for most of our clients. M&A transactions may be postponed and dividends paid out now, as no dividend payments may be justified in the upcoming phase of unavoidable restructuring, including setting up new, alternative supply chains, managing increasing energy prices, volatile exchange rates, and dried-up sources of financing. Much has been learned during the COVID-19 pandemic, and even before it, and a robust set of skills have been accumulating in the legal practices in terms of counseling during the unforeseen global disruption. The past two years have demonstrated a dominant preoccupation, revolving around transactions that had succumbed to material changes, significantly questioning the original meeting of wills that had led to the signing of these contracts. Based on this experience, keeping a close relationship with clients and asking about their imminent or predicted needs remains more critical than ever before.
The New Need for True Believers
We do believe that violent actions in Ukraine will come to an end but the impact of this war will stay with us. This, coupled with global trends, will certainly reshape legal practices in CEE as well. Some trends may not be envisaged yet. However, understanding the economics in general and the business of the client within this context, in particular, will certainly help in delivering value-added services to our clients. Finally, in such distressing times, it is worth recalling that believing in the core values of our profession, such as integrity and fairness, enables us to cooperate effectively and forge a better society.
By Eszter Kamocsay-Berta, Managing Partner, KCG Partners