October 27, 2005

10:49:42 am Balkans Diary  

Tuesday, October 25, 2005 - Zagreb, Croatia

High 60s, sunny. Went to Croatian History Museum--really just an old small palace residence--no historical exhibits, skip. Zagreb City Museum was better, covers 1000+ year history of city. Some English, more would have helped. In AM, we decided to stay second night at the Westin here, allowing us to get laundry done. Nice city, although we don't really another full 24 hours. But after two long driving days to get here, we are just not motivated to leave, even for a two-hour trip to Ljubljana, Slovenia. Went to HG Spot, a local version of Best Buy. While they sold ThinkPads, they did not sell power accessories, and could not think of anyone who did, other than an importer that would not have any in stock. So I'm satisfied I can't get the replacement power that I need here.

Zagreb's old town area is nice, like the Baltics and Prague. We found country more developed than EU-members Poland and Slovakia, and well ahead of other EU aspirants Romania and Bulgaria. Croatia was in line to enter in 2004, but was later blocked because EU felt they had not done all they could to identify war criminals in the 1990s Balkan Wars.

Reading the In Your Pocket guide for Zagreb revealed some fiscal surprises though. Unlike the other Eastern European countries, Croatia seems to be modeled more after the lethargic west, with high tax rates and the resulting low economic growth. I don't have the guide with me as I write this, but it described a staggering tax load: top marginal income tax rate of 45% plus 20% tax for Zagreb residents (you may get a deduction on your national tax for the amount of city tax you pay, but this was not mentioned). Social security took 20% of your paycheck, with employer's kicking in an additional percentage in the high teens. Oh and VAT is above 20%. GDP growth was something in the range of 1%-2% over the past year, not very impressive, unless you are German.

Pre-World War I, Croatia was part of the Hapsburg Dynasty that became the Austrian-Hungarian Empire. The Turks occasionally threatened them, but not to the same extent as is nearby Bulgaria where the Turks ruled for 500 years.

Some key Croatian historical dates:

1526: Hapsburg rule begins in Croatia, continuing under the successor Austrian-Hungarian Empire proclaimed in 1804.
1867: Hungarian independence movement results in Hungary gaining partial independence within the Dual Monarchy with Austria. One year later Croatia granted similar autonomy within the Hungarian realm.
1918: After World War I, Austrian-Hungarian Empire dissolves; Croatia joins new state of Yugoslavia, along with former lands of Slovenia, Bosnia-Herzegovina, Serbia, Montenegro, and Macedonia. Serbia dominates the new state, causing resentment and resistance from the other nationalities.
World War II: Germans initially hailed by Croatians as liberators from the Serbs. Reality proves otherwise. A Croat state is set up, but ruled by Italy.
1946: Yugoslavia reconstituted with Croatia as one of six republics.
1991: Croatia one of several republics that secede from Yugoslavia. A war ensues between Yugoslavia (today what is left of Yugoslavia is known as Serbia and Montenegro). For several years, Yugoslavia holds portions of Croatian territory, but Croatians are ultimately victorious in 1995. Remaining lands returned to them in 1996 and 1998.

Wednesday, October 26, 2005 - Zagreb, Croatia; Ljubljana, Slovenia; Venice, Italy

A few hours drive from Zagreb to Venice. We stopped and drove through Ljubljana, the small capital of the small country of Slovenia. It seemed to have a nice old town area, from what we could tell (you could not drive into it). In 1990 when I was in Manila, I remember reading an article in Time or Newsweek about pending trouble in Yugoslavia, with all of the constituent republics desiring independence and some guy I had never heard of (Slobodan Milosevic), preaching ethnic hatred. The article had a picture of three teenage girls standing on a bridge in Ljubljana, looking optimistic about the future. The article wondered if their optimism with regard to independence (actually they were probably thinking about boys, not politics) was misplaced, and if their future would instead be a choppy one. The article was right and wrong at the same time. Yugoslavia's experience in the 1990s was indeed a terrible time, with Milosevic starting four separate wars against his former countrymen--and losing each one, by the way. But Slovenia has done well for itself. The first to face Milosevic's armies, it defeated them easily in few months in the second half of 1991, and today it is an EU member with a standard of living ahead of the other Eastern European members who joined last year.

With my PC officially shut down until new power arrives via momnet in two weeks, it is hard to keep this site and especially this travel log up to date. So I'm not going to. While in Italy, I won't be writing the travel log beyond perhaps a spartan listing of places visited, if even that.

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10:43:09 am Romania and Bulgaria Diary  

Wednesday, October 19, 2005 - Budapest, Hungary and Bucharest, Romania

A long day of driving as Romania's capital is on the far side of the country. Barring something unforeseen, Romania is going to be one of the next three countries to join the EU, along with Bulgaria and Croatia. The earliest this will happen is 2007, but the EU may delay their accession if they don't meet all of their fiscal and legal requirements. Right now, I'd put a delay for Romania and Bulgaria up to 50% likely. I'm not sure about Croatia--they are more advanced, but they have an additional war crimes issue to resolve. I wanted to see a before picture of Romania and Bulgaria, having seen the just after picture of the other former communist Eastern European countries that joined the EU last year. Romania, and the same will hold true in a couple days when we are in Bulgaria, is visibly less advanced. Farmers haul their crops with horse-drawn wagons, for example. The roads, usually two lanes, could be worse, but they--along with the driving--could also be much better. The quality of driving services--food and lodging--is low outside of the capital city. McDonalds was about the best thing we saw before Bucharest, and we were surprised and happy to have even that. For me, that is really saying something! Not a fan of the Golden Arches. Stayed two nights at the El Greco Hotel in the city center of Bucharest.

Thursday, October 20, 2005 - Bucharest, Romania

Walked to the National History Museum, where the world's most common exhibit--closed for renovation--was showing. From there, walked to and took a tour of the parliament building--Ceausescu's grand 1980s monument to himself. It's the second largest building in the world in terms of interior space, behind the Pentagon. Overall, there is not that much to see in Bucharest. It's faded and dusty and uninviting. And it's probably ten times better now than it was five or ten years ago. Capitalism has arrived in all of its good and bad forms. The result is not yet pretty, but it has created an oasis here and there, and reasons for optimism within what previously was not a nice place under communism. Foreign investment is exploding here, as Romania's 22 million people are a large enough market opportunity to be attractive. I don't have the figures with me but Romania's domestic stock market is up two to three-fold in less than two years, as people are betting that EU entry will lift the country's fortunes. I think they are right.

So in summary, Romania is a country I find interesting to observe at this point in its development. It's far from having arrived, and not yet enjoyable, but it has definitely departed. Deanna did not like it at all, which I can understand. We will probably both have the same respective feelings about Bulgaria.

Friday, October 21, 2005 - Bucharest, Romania and Sofia, Bulgaria

Went to Romania's military history museum in the morning and then drove 240 miles (6 hours) to Sofia, where we are staying two nights at the SAS Radisson. Temperature was pleasant during the drive, in the low 60s and sunny.

Romania was on the right side in World War I, but the wrong side in World War II. Their territory doubled after World War I, as they were given lands from Austria, Hungary, Bulgaria, and the Soviet Union. At least with regard to the first three countries, the exchange was more a case of punishing the losers than rewarding Romania. I remember a comment in the Imperial War Museum in London that the British questioned how useful an allay Romania was as they kept initiating unwise battles that required the other allies to bail them out. Similar sentiment, of course, was not present in Romania's military history museum. Romania had a fascist dictator heading into World War II, and let's just say he was not a good negotiator. Before the fighting really got started, Hitler forced Romania to give territory to the Soviet Union (with whom Germany had just signed--and not yet broken--a mutual non-aggression treaty), Hungary (this got Hungary excited about joining the German cause), and Bulgaria (this may have helped get Bulgaria on the German side). Romania got the territory given to Hungary (Transylvania--yes, where Dracula is from) back after the war, but I don't think they regained the Soviet territory (I believe this approximates the country of Moldova today, a former Soviet republic).

Had I not read Jim's Rogers books, with his many tales of maddening border crossings (they budgeted one day to cross a border in third world countries), I would have thought the Romanian border crossing at Giurgiu was the worst in the world. Having read his book, I know we got off light, paying only four taxes and being delayed only 30-45 minutes. Here is what we paid:

- Romanian road tax. This is a legitimate tax that all drivers must pay to drive on Romanian roads. Several European countries have a tax like this. Our Peugeot lease has prepaid all of these taxes. To my amazement, when I explained this to the border guard who had never heard of such a thing, he took the initiative to call his supervisor who confirmed my explanation and we did not have to pay.

- 414,000 leu (about $12) Giurgiu city tax. I will have to compliment Giurgiu's finance manager for his creativeness. In the three minutes we spent in his town, he found a way to fleece us of nearly all of our remaining Romanian currency.

- 370,000 leu environmental tax. Like a line at Disneyworld that gets longer every time you turn the corner, this border became more complicated and more costly every time you passed through a gate. Ahead was not the Bulgarian side, but rather another gate with another creative tax. Apparently, our time spent in Romania had caused irreparable damage to the environment, and so we need to pay for the pollution our 40+ miles per galloon vehicle caused. It was unclear whether this was a national tax or a city tax. It was also unclear how to pay since the last tax had nearly wiped out our supply of leu and the border guards were uninterested in dollars, euros, or credit cards. So we sat there. And they sat in their both, content to pretend to fill out paperwork. Finally, the stalemate broke, when Deanna spied a currency exchange. You might think someone would have thought to mention this, but apparently such a revelation did not occur. Of course, the exchange rate was terrible, costing us about $15 instead of the $12 it should have.

- 6 euros bridge toll. Okay, it was a rather large and impressive bridge, but at the time of collection we did not know that and we were rather irritated. Fortunately, they had the courtesy to accept multiple currencies from fleeced travelers.

- 3 dollars fee for disinfecting car. Having crossed the Danube River into Bulgaria, we wondered what border shenanigans awaited us. Fortunately, the Bulgarians were less greedy, although their one attempt at confiscation was commendable in its originality, chutzpah, and fiscal restraint. After the guard station, a muddy pool of water awaited us. I thought this was a preview of terrible road conditions ahead, but no, this filthy puddle was a "disinfecting pool", for which we paid a $3 fee in US dollars to drive though. Thus, we entered Bulgaria with muddy, but apparently disinfected, tires.

Totaling up the damage, it cost us 414,000 leu, 18 US dollars, and 6 euros (converting all figures to dollars, it was just under $40) to drive from Romania to Bulgaria. It could have been worse, but I imagine once these two countries are EU members, all of this nonsense will be gone. This is all part of the before picture that I want to see.

Saturday, October 22, 2005 - Sofia, Bulgaria

Nice day, in the mid-60s. Went to the National Military History Museum and the National History Museum. In an upset, the military museum had more English. Often, military museums, established decades ago after either World War I or World War II, are only in the national language, especially in former communist countries. But this museum had newly updated translations, while the national museum, moved to its present location only five years ago, did not. The national museum was a yawner anyway.

The military museum provided facts, but not necessarily explanations. Bulgaria's recent military history is one of constantly switching sides. Consider the three Balkan Wars of 1912-1914, the last of which led into World War I. In the first, from 1912-1913, Bulgaria, allied with Greece, Serbia, and Montenegro, defeated Turkey. In 1913, though, the victors couldn't get along, and so a second war started, with Greece, Serbia, Montenegro, plus Romania, ganging up on Bulgaria. In World War I, Bulgaria joined the Central Powers (Germany, et al), one of whom was recent enemy Turkey. So in a three-year period, Bulgaria managed to fight alongside but also against most of its neighbors. Why did the first Balkan War victors turn against Bulgaria? Why did Bulgaria join the Central Powers? These explanations are not to be found in the museum.

World War II again found Bulgaria allied with Germany. Why? Again, the museum did not explain. Was it because Germany strong-armed another of its allies, Romania, into territorial concessions toward Bulgaria? I'm sure that did not hurt. Bulgaria joined the war in 1941 (can you say buying at the top?), but did not participate in the invasion of the Soviet Union. How did they avoid this when other German allies were coerced into attacking the USSR? You guessed it, this was not explained. The Soviet Union did not return the favor. They invaded Bulgaria in September 1944 once they turned the tide and began rolling westward. Bulgaria, quickly sized things up, saw that they were no longer on the winning team, declared war on Germany, negotiated a peace treaty with the USSR, and spent the rest of the war fighting the Germans. The Soviets, of course, controlled Bulgaria from Moscow for 45 years, until communism fell in 1989.

Sunday, October 23, 2005 - Sofia, Bulgaria and Timisoara, Romania

Spent about 10 hours in the car today, driving from Bulgaria to our stopping point in Romania. There's no reason to go to Timisoara--it's just a rare, large town with decent accommodation on the route to Zagreb, Croatia and eventually on to Italy. The first political demonstrations that eventually toppled Romania's communist dictator Nicolae Ceausescu in December 1989 occurred here. I remember Christmas Day 1989 the two main news stories on CNN were the US invasion of Panama and the toppling of Ceausescu in Romania. Having been caught in the Philippines coup earlier that month I was rather tuned in to violent political uprisings and regime changes.

Our leased car is insured in nearly all European countries other than former Soviet republics (except that the Baltics are covered), plus some border countries like Morocco, Turkey, and maybe Tunisia. The exception to this is Serbia and Montenegro, Bosnia-Herzegovina, and Albania. The most direct route from Sophia to Zagreb is right through Serbia and Bosnia, so the lack of insurance means that we must take a lengthy diversion via Romania and Hungary. Our route looks more like a semi-circle than a straight line.

The same border shenanigans occurred going from Bulgaria to Romania that I described earlier leaving Romania to Bulgaria. This time Bulgaria benefited more from border tax creativism. I will say their disinfecting pool actually did have a few remnants of soap suds amid the dirty water. The actual crossing was a ferry ride across the Danube that at this point is wider than the Mississippi River. There was our car, one or two other passenger cars and about a dozen semis on the ferry. The silliness of crossing a border between two non-EU countries removed any unfulfilled longing I had to drive to Serbia and Bosnia.

Disaster during the car ride. My PC just stopped working. Screen froze up again and again. I could only turn it off by unplugging the power and removing the battery. All combinations of power sources (DC car power and PC battery, battery only, DC power only) yielded the same result after a few minutes. Same thing happened in hotel room with AC power. Was able to work for 1-5 minutes before screen froze. Finally after about two hours, freezing stopped. I backed up all data, updated all virus and security software, and updated various device drivers that I thought could be related to the problem.

Monday, October 24, 2005 - Timisoara, Romania; Hungary; Zagreb, Croatia

Disaster returned. After about 10 hours of working properly in hotel, PC gave out after five minutes in the car. In the hotel at night, I was able to work for 1-20 minutes or so before screen froze. My only guess at this point is that after 45 countries or so and 45 slightly different currents and slight voltage differences, my power supplies were shot. I got the PC working long enough to order a new power adapter and a new battery that my mom can bring with her in two weeks when we meet them in Milan. Until then, I will be grumpy.

On the bright side, my expectation that any border crossing would be smooth if one of the sides is an EU member held up. Romania and Croatia know not to screw around with their borders to Hungary.

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October 20, 2005

01:07:08 pm Czech Diary II / Austria, Slovakia, Poland, Hungary Diary  

Monday, October 10, 2005 - Prague, Czech Republic

Our last full day in Prague. I did not do much sightseeing, as we saw a lot yesterday and I wanted to update our web site. In the afternoon, I went to the National Museum, which Rick Steves labeled as "dull." He was too kind. A better description would have been something like "If you could calculate a ratio between the beauty of a building and the merit of its contents, the National Museum in Prague would have the highest ratio, thus making it the poorest use of space of any museum in the world. If you enjoy looking at hundreds of display cases of rocks, by all means do go, otherwise you will be more enriched by watching Czech-language television all afternoon in your hotel room."

Deanna went to the Jewish quarter and checked out the garden grounds around the palace. Her trip to the Jewish quarter reminded me of something I meant to mention about the Jewish museum in Berlin, but forgot. This is always happening, right after posting a log, I think of three additional items I neglected to mention. Anyway, one question I have always wondered is what is it about the Jews that made everyone hate and persecute them. Was it lingering resentment over the Crucifixion? The museum provided this answer. In the 13th Century (1215 sticks in my mind, but I'm not sure if this is the correct date), my favorite whipping boy, the Catholic Church issued an edict that Catholics should not live next to Jews. They required Jews to live in segregated areas, wear a yellow patch to identify themselves as Jews, and prohibited Jews from many jobs in society. In the centuries that followed, they were expelled outright from Catholic countries such as France and Spain. Sound familiar? Just another reprehensible episode in the long history of the Catholic Church.

At night, we went to a modern dance performance at the Black Light Image Theater. Half of it was very interesting, but the comic relief interludes between different segments were insipid and could be cut out completely, with the effect of making the whole show better.

Tuesday, October 11, 2005 - Prague, Czech Republic and Vienna, Austria

Drove about four hours from Prague to Vienna. Similar to the trip between Berlin and Prague, about half the route--mainly the Czech part--was on a two-lane road. The government is building four-lane roads, but this takes time. So, the Eastern Europe roads infrastructure is like the US in the late 1950s and 1960s--major routes are sometimes four lanes, but other times only two. In a decade or two, they will be mostly four lanes. The communists built fantastic public transportation--subways, trams, buses--within cities, but travel between cities was not a priority. The train network is okay, although not as good as Western Europe, but--since most people did not have a car--the roads infrastructure between major cities is not what it should be.

One thing I forgot to mention earlier when we crossed the border from Germany was that the Czech roadside was full of billboards, just like the US, something we have not seen recently. While I have never read this, I assume most Western European countries must outlaw roadside advertising. It's interesting to see different society's differing tolerances for advertising. Western European athletic jerseys look like a NASCAR driver's uniform. Instead of the jerseys saying Manchester United or Real Madrid, they say Vodafone, Siemens, or Emirates. I'm sure the European fans recognize which teams have which jerseys, but I can never remember because the team name is dwarfed (or even non-existent) next to the sponsor's emblem. You never see this in US team sports. Remember the controversy when MLB proposed having a small Spiderman emblem on second base in a movie tie-in for one weekend's worth of games. Why you would have thought they were proposing that pitchers henceforth would have to pitch underhanded, such was the outcry about how the game would be ruined. Our attitude on not polluting an athletic jersey is similar to Western European attitudes on roadsides ("how dare you have signs that inform drivers of restaurants, gas stations, and motels ahead!"). Each side considers the other nuts because it's what they are not used to. Czechs take neither side--they put advertising everywhere. For example, the ice surface on a Czech ice rink has so many ads that you can hardly see the puck (they don't limit themselves to just the boards and the neutral zone ice as in North America).

On a related matter, the UK must severely limit the number of gas stations that can operate. How else could we have run out of gas there, not seeing one station during a 40-mile stretch through a crowded metropolitan area? Continental Europe so far has stations everywhere. As for gas prices, the UK is by far the most expensive. This is most likely an issue as to the level of taxes, but the limited supply of stations may also be a factor. UK prices were roughly $7.50 per gallon, doing the double conversion of liters to gallons and currency to dollars. It cost over $100 to fill up our tank. Elsewhere is Europe, the prices have ranged from just over $4 to around $6 per gallon. I remember correctly, Belgium was surprisingly low for Western Europe, at around $4.50 per gallon. In general, Eastern Europe is lower than Western Europe, as taxes and costs are lower here. Prices between $4 and $5 are the norm here, whereas Western Europe is typically over $5.

We're spending three nights at the Austria Trend Hotel Albatros in Vienna. We walked around the old town after arriving mid-afternoon, spending much of the time comparing our two maps--one super detailed but with no tourist landmarks on it and the other showing all of the tourist spots, but with key details such as street names often neglected. In frustration, I went to the tourist information booth and the man there kindly turned over my detailed map to reveal that what I wanted--a detailed map with tourist sites marked--had been on the reverse side the entire time.

We went to the Haus der Musik (Music Museum). It offers highly interactive exhibits on classical and more modern new-ageish type music. You can even create short compositions. Very unique.

Like Prague, Vienna is full of old, well maintained buildings from centuries past. One hundred years ago, Vienna, at the heart of the still important Hapsburg Austria-Hungary Dynasty, was something like the fifth largest city in the world (presumably behind only New York City, London, Paris, and Berlin). It's population was around 2 million, as compared to about 1.5 million today, a figure that would not place it in the top 50 (top 100?) in the world. Vienna is nicer than Prague, which is to be expected, as they did not have to live through nearly 45 years of communism. Austria's per capita GDP is much higher than the Czech Republic's because of this: in absolute dollar terms $26,720 versus $6,740. The two countries are about the same size, are adjacent to each other, have similarities in history and culture, and have similar populations--Czech Republic 10 million, Austria 8 million. Is there any reason why then, with communism thrown off and both part of the EU now, their economic output per person should not be similar in a few decades time? I can't think of any. Maybe being German speaking gives Austria a slight advantage in that they can better serve the large German market. But the Czech Republic also has the advantage of being newer to capitalism and thus able to learn from the mistakes of others in Western Europe (e.g. don't build huge social welfare programs that sap the incentives from the economy and that ultimately you cannot afford to maintain). This should allow them to leapfrog more developed countries in terms of some technologies and processes. So in an investing sense, I would invest in the Czech Republic rather than Austria.

Some of the Czech Republic's catch up may occur quickly through currency effects. On a purchasing power parity basis, they are not as far behind--Austria's PPP per-capita GDP is $30,000 while the Czech Republic's is $15,750. Austria uses the euro. The Czech Republic uses their own koruna, but plans to switch to the euro, perhaps in 2007 if they meet certain economic targets. I expect the koruna will appreciate between now and then, and once on the euro, the Czech Republic will not be as much of a bargain as it is now.

Received an e-mail from Don Furman in response to the question in my October 4 diary entry:

If memory serves, 99 Luftballoons was the #1 song of 1984 as played on a radio station somewhere during your travels in Australia in April or May.

Noprize?

I was amazed at Don's power of recall (other than it was the #1 song for the month of April 1984 not the entire year on the aforementioned Australian radio station, but that's quibbling). I had forgotten all about writing this. When I posed the question, where have I mentioned "99 Luftballoons" previously in this log, I had in mind the Tampa entry at the beginning of the trip, where the anti-war song fittingly came on as I was playing Missile Command, a nuclear annihilation video game, in a Tampa arcade in January. Although I did not promise a no-prize for answering, I think Don deserves a double no-prize for knowing my subject matter better than I. Your award is not in the mail, Don, and you will not receive it before Christmas.

Wednesday, October 12, 2005 - Vienna, Austria

Went to the Sigmund Freud Museum, the Wien (Vienna) Museum and then took a walking tour of the old town area. The Freud Museum was located in his former office and home before he immigrated to England before the start of World War II. It probably is of interest to fans, but it is really more a collection of mementos than a museum that explains his theories or his significance. I left as I entered, suspecting much of his work was well-intentioned genital-obsessed psychobabble. The city museum was okay although it seemed unaware that Vienna and Austria played any role in either world war. The tour was good, but at 90 minutes did not really do justice to the rich history of Vienna's old town. It easily could have been twice as long without seeing everything. At night, we went to a Mozart concert, a touristy thing to do, but quite good.

Thursday, October 13, 2005, Vienna, Austria

Went to the Belvedere museum, housed in one of numerous Hapsburg Dynasty palaces in Vienna. Having overdosed on palaces in Russia, I just have no desire to see any more, nor really does Deanna. They are all beautiful, but their extravagance is so over the top, that you begin to find them a pointless squandering of wealth for a small group of overprivileged people while the masses suffered. I went to the Belvedere because it had an exhibition on 20th Century Austrian history. This filled in all of the pieces that were missing in the city museum yesterday. Afterward, I went to the Museum of Military History, an aging, but reasonably well done tribute to the Hapsburg proclivity to fight wars with its neighbors. Trying to keep track of all of their battles is like trying to stay on top of a fickle schoolgirl's ever-changing boyfriends. One reason I favor modern history is that I just can't keep track of the earlier periods--all of the different wars begin to blur at some point, although I have come to understand them better on this trip. Finally, I went to the Leopold Museum, an art museum, with an impressionist exhibit from the Museum d'Orsay in Paris. It was okay. Deanna did many of the things I did, but we were on different schedules, as I was staying up late watching the Cardinals playoff games and then sleeping until around 11AM. It's like being in college again.

German-speaking Austria was on the wrong side of history twice this century. Allies with Germany, Austria-Hungary was one of the central powers (Germany, Austria-Hungary, Bulgaria, and Turkey) in World War I. From 1938 to 1945, Austria did not exist. It was merged into Germany, a union (the Anschluss) forced by Hitler but generally supported by the population. Each war carried consequences for Austria afterward. World War I ended the Hapsburg Dynasty, dismembering Austria-Hungary from a great empire to a small country. (As an aside, it is worth noting the unexpected consequences of war--World War I ended the age of monarchism just as World War II brought the colonial era to a close. Neither war was fought toward these aims, but these political systems were no longer sustainable following the wars.) The end of World War II saw Austria re-established as a separate nation from Germany, but one occupied by the four victorious powers just like Germany. Fortunately, for Austria, the outcome was different than in Germany. The occupation zones never became a divided border, and in 1955, the four powers left, with Austria becoming a permanently neutral nation.

Just who are these Hapsburgs, a family name not well known in the US, other than by students at liberal arts colleges? Here's a short history, as I understand it:

1273: First Hapsburg ruler, Randolph I
1500 - 1558: Charles V (Charles I in Spain). Through conquest and marriage, the Hapsburgs ruled the Holy Roman Empire (most of central Europe, centered in Germany), Netherlands, Spain, and all of Spain's colonies. At this point, the Hapsburgs were the most powerful rulers in the world. After Charles V, the Holy Roman Empire and Spain were separated.
1618-1648: Hapsburg power in Germany declines during the Thirty Years' War, a continent-wide conflict between Catholics and Protestants.
1804: Austrian Empire proclaimed; two years later, in 1806, the Hapsburgs abolished the Holy Roman Empire. Partly the HRE had outlived its purpose, but also according to my tour guide, they feared that an ascendant Napoleon coveted the title of Holy Roman Emperor. As long as the HRE existed, the Hapsburgs thought they were more vulnerable to Napoleon she said.
1867: Bowing to a Hungarian independence movement that had raged since 1848, the Dual Monarchy of Austria-Hungary is established.
1914: Archduke Franz Ferdinand, the heir to the Austrian throne, is assassinated in Sarajevo by a Serbian nationalist. Austria-Hungary declares war on Serbia. Russia, an ally of Serbia, mobilizes for war. Germany, an ally of Austria-Hungary, attacks France, an ally of Russia, hoping to defeat it and turn its sole attention to Russia. Desiring an element of surprise, Germany's attack route went through Belgium, and this violation of Belgium sovereignty brought the UK into the war. World War I begins.
1918: Austria-Hungary defeated, the nation of Austria created with about one-eighth the territory of the Austrian-Hungarian Empire. The last Hapsburg ruler sent into exile.

Friday, October 14, 2005 - Vienna, Austria; Slovakia; Krakow, Poland

A driving day, going from Vienna to Krakow. I'm not sure of the exact mileage--it was probably in the range of 300-350 miles. This took us eight hours, although we did stop once. Staying two nights at Hotel Francuski, a renovated property in an old building in the old town area.

This was our first time in Slovakia and our route took us threw a string of rather grim looking communist-era industrial towns. There are signs of foreign investment though--the European hypermarkets are here, namely Tesco and Carrefour (respectively, UK and French grocers and general merchandisers somewhat akin to Wal-Mart).

Saturday, October 15, 2005 - Krakow, Poland

We spent the day visiting the Auschwitz I and Auschwitz II-Birkenau concentration camps, over an hour's drive from Krakow, where approximately 1.5 million Jews and other persecuted groups were murdered during World War II. This makes Auschwitz the largest scene of mass murder in human history. Afterward, we visited the Oskar Schindler factory in Krakow. Schindler was not necessarily the nice guy depicted in the movie--he was a war profiteer, utilizing slave labor, and a womanizing alcoholic. Nevertheless, he had an epiphany, and saved over 1,000 Jews who otherwise would have been murdered. Their 7,000 descendents today undoubtedly care less about Schindler's flaws than the positive action he took when it really mattered.

Sunday, October 16, 2005 - Krakow, Poland; Slovakia; Budapest, Hungary

We spent the morning in Krakow, touring the salt mines, and driving around Nowa Huta. Afterward, drove about 300 miles to Budapest, mainly through Slovakia. This took about six hours, less than we expected. The roads in Poland are not that good, mainly two lanes with deep groves in the pavement and a lot of traffic. You creep along at around 30 miles per hour. This will be different in a decade or two. There are more four-lane roads planned than presently exist. For now, though, you tend to get a short stretch of motorway and then it's back to the two-lane creep. Slovakia generally has better roads, although two-lane roads are still plentiful. They just seem a couple years ahead. Actually, I'm glad we are seeing and experiencing Eastern Europe as it is now. It is going to change a lot, and for the better, but I am glad to have a data point of what it's like now, for later comparisons.

The salt mines have to be seen to be believed. No longer active, except for tourism, they are centuries old, and are filled with intricate statues, all carved from salt. It's a bit kitschy, but utterly unique. See image gallery. Nowa Huta is a planned worker's paradise community, built around a steel factory that once employed 40,000 people, and heavily populated Krakow. It was less interesting than I expected--it would probably be better to see on a tour, where its background and key sites could be described. Notably, the central square of this post-World War II Soviet showcase is now named Ronald Reagan Square. The workers' paradise community ironically became a hotbed of political dissent in the 1980s. Western Europe may not give Reagan his due, but the East, experiencing the iron fist of the Evil Empire firsthand, certainly does.

Our drive back in Slovakia took us through the procession of grim industrial towns at first, but further into the country the terrain became more mountainous and the scenery prettier. There were several ski resorts along the way.

In Budapest, listened to NLCS game 4 that began around 2:45 AM. The Cards lost a must-win game 2-1, and now trail in the series 3 games to 1. They had numerous scoring chances, including first and third with no outs in the 9th, but they could not pull it out.

Staying three nights at art'otel, the same hotel we stayed at in Berlin. The rate actually is more here than in Berlin. More on Hungarian prices tomorrow.

Monday, October 17, 2005 - Budapest, Hungary

Went on a four-hour walking tour of the city. All of the seven other people on the tour (five Australians and two Americans) were traveling for an extended period in Europe, the shortest trip being about five weeks. That's the first time everyone we have been with on a tour was traveling long term. We all swapped many notes and observations of different destinations. The weather was cool, mid 50s, but with bright sunshine that made it feel warmer.

Although it is over 1000 years old, Budapest does not have the narrow old town streets of other Eastern Europe capitals. The streets are wide in a manner that mildly reminded me of Moscow. The city has the old architecture you would expect, with the 19th Century most dominant.

Prices here are higher than I expected, closer to Germany than the rest of Eastern Europe. I don't know why this is--I have not heard a good explanation. Wages and per-capita GDP is in line with the Czech Republic, Slovakia, and Poland, but prices are higher. Possible reasons could be that Budapest is a larger city (about 2 million people) so real estate is more expensive (I don't know if it is), or that there is more foreign investment here (again, I don't know if there is), perhaps because Hungary was first to throw off communism. GDP growth rates are decent--between 3% and 4%--but nothing special, and perhaps a bit laggardly, for Eastern Europe. The government's fiscal situation is poor with a budget deficit over 6% of GDP, and the euro won't be adopted here anytime soon. The government's target date of 2010 is being questioned as too aggressive, considering the budget deficit. My conclusion is that the currency is overvalued. I emailed a friend of mine, Roger Neale, about this. Roger is English, but now lives in Chicago with his Monika, from Hungary. He agreed that Hungary's currency, the forint, could be overvalued. He said an additional risk is that Hungarian consumers often take out consumer loans in Swiss francs to get an interest rate below the local forint rate. He did not think this situation--foreign imports financed by foreign loans--was healthy.

After the walking tour, I took a long multi-hour nap to recover from last night's game, which ended about 5:30 AM, and to prepare for Monday night's game, beginning at 2:30 AM. Throughout the trip I've poked fun at various countries or institutions for their ridiculous practices, so let me now criticize an American institution--Major League Baseball--for their provincial Americanism in not understanding the international market. I've been watching the baseball playoffs over the internet, or when my connection is not fast enough, listening to an audio feed from KMOX, the Cardinals station. Last night (game 4) and tonight (game 5) I have had a fast enough connection, but the MLB site blocked me from watching the video, assuming (incorrectly) that I was in the US (where the games are blacked out on the internet, due to the exclusive that Fox has in broadcasting the games within the US). The message that popped up invited me to call customer service if I thought this was an error, and provided a toll-free number for me to call. US companies have a total blind spot on this, not realizing that anyone outside of the US and Canada cannot call a US toll-free number. Thus, a service available to international fans has a customer service number that none of them can access. Brilliant! They do also have an e-mail address, hidden deep within their web site, but responding quickly to e-mail does not seem to be a priority. I'm okay listening to the audio, as the announcers tend to be more descriptive anyway. And I do recall that only a couple of years ago, there was no video option anyway (nor would there have been a wireless internet connection in my Budapest room then either). For that matter, it was only just over five years ago that audio became available. So technology has made all of this available in a short period, and my expectations have risen accordingly. A decade ago, I would have had no way of knowing the outcome of the game in real time. I would have had to find the International Herald Tribune two days after the game to learn the score.

The game of course provided one of the top moments in Cardinals baseball history. Down three games to one in the series, facing elimination, losing the game 4-2 with no one on, two outs and two strikes in the 9th inning against the best closer in baseball, the Cardinals improbably won the game. The real reason for their victory is that Deanna woke up just in time to cheer them on in the 9th inning. The Astros, one strike away from the World Series, now have to go to St. Louis for game 6 and hopefully game 7, wondering if once again they have let opportunity slip through their fingers, in a manner worthy of the Chicago Cubs.

Tuesday, October 18, 2005 - Budapest, Hungary

Got up about 11:30, after listening to game until 6 AM. Went to Museum of Military History and National Museum. Tried to go to city history museum, but it was closed. The two museums I did go to were decent, with enough English to make sense of everything. Hungary threw off communism three times, but it was like a virus that kept coming back. After World War I, a Bolshevik regime took hold, but lasted less than a year. After World War II, the Soviets installed a puppet government. In 1956, the Hungarians believed that, at the end of October, they had overthrown the communists. They declared themselves a neutral state, ended censorship, opened their borders, routed Soviet troops, and withdrew from the Warsaw Pact. It lasted about a week and a half. On November 4, Soviet tanks rolled in to Budapest. The leader of the uprising, Imre Nagy, was executed, and Soviet order was restored. In 1989, Hungary was the first of the eastern block countries to fall. They opened their border to Austria, providing a circuitous escape valve to the west. East Germans, for example, could get to West Germany by crossing four borders: Czechoslovakia, Hungary, Austria, and West Germany. This time, the Soviets did not have the willpower to oppose Hungary, and by late October--about two weeks before the collapse of the Berlin Wall--Hungary declared itself a non-communist state. Imre Nagy was reburied as a state hero, a ceremony attended by 300,000 people.

Hungary picked bad partners with regard to the world wars. Aligned with Austria within the Hapsburg Dynasty, it was dragged into World War I when Austria thought they would teach Serbia a lesson. The end of the war also saw the end of the Hapsburgs, and this breakup led to the creation of numerous new countries, to include Czechoslovakia and Yugoslavia. Hungary lost 70% of its territory and 60% of its population to these two countries and to Romania in the 1920 Treaty of Trianon. Hitler promised Hungary this territory back, and the revenge-minded Hungarians signed on, not really knowing what they were getting themselves into. They participated in Hitler's invasion of the Soviet Union, and when the tide turned, they became a Soviet satellite for nearly 45 years. While I'm no fan of the Soviet Union, I can begin to understand their desire to have a buffer zone of satellite states after the war. They were after all, attacked by troops from Germany, Finland, the Baltics, Austria, Czechoslovakia, Hungary, Romania, and probably others. Now the USSR attacked Finland and the Baltics first, so no sympathy there, but the other states--under Germany's sway--contributed to the German invasion of the USSR. The Soviets probably did not fear these states directly, as much as it was fearful of Germany's ability to influence them. So the USSR desired that these states, that became German satellites in the late 1930s, become Soviet satellites in the late 1940s. And that is what they did. Hungary did briefly get all of its pre-World War I territory back as Germany promised, but after World War II, its territory reverted to the 1920 Trianon treaty borders.

I read where Northern Ireland (the UK part of the island) has banned smoking indoors, including pubs and restaurants, effective 2007. Then the entire island of Ireland will be smoke free. The Republic of Ireland's (the non-UK part of the island) ban has proved popular with smokers and non-smokers alike, with 90% in one poll supporting the ban. Pubs in Ireland are not just drinking places, but typically the main restaurants in the smaller towns and people appreciate being able to eat smoke free.

Weather: high in mid-50s, low in mid-30s. Oh, and MLB finally responded to my e-mail, providing me with a non-toll-free customer service phone number.

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October 11, 2005

01:25:46 am Czech Diary I  

Saturday, October 8, 2005 - Berlin, Germany and Prague, Czech Republic

We left Berlin and drove about four hours southeast to Prague. Again, we did not notice any measurable difference between the former East Germany we were now driving through and former West Germany, where we drove through a week ago. At least that's the view from the relatively new motorway, paid for by the (West) German taxpayer. We had a real border crossing at the Czech Republic, as it is not yet in the Schengen zone. The area after the border is rather interesting--a run-down Czech town with girls in bikinis by the side of the road offering their services to passing motorists. I had to laugh when one house by the side of the road had three bikini-clad girls dancing by themselves in the large picture window, as if this was what young Czech women did on a sunny Fall Saturday afternoon, since there are no college football games to cheerlead. Stayed three nights at Ibis Smichov in Prague, a long walk from the old town. Many hotels were booked because Saturday was a World Cup qualifying game day, with the Netherlands in town to play the Czech Republic, so we had to stay a bit further away from the city center, than we preferred.

Sunday, October 9, 2005 - Prague, Czech Republic

Got up at 5AM to watch the Cardinals sweep the Padres in Game 3 of the NLDS. A late start on the west coast (10 PM central) made the game time semi-reasonable for me. The internet speed here was faster, allowing me to watch the ESPN feed of the game instead of just listening to the KMOX audio, as I did for games 1 and 2. Took a couple of walking tours, one in the morning and one in the afternoon, and went to the Museum of Communism in between. The first walk was the Modern Walk covering 20th Century sites (World War II, communist takeover, Prague Spring of 1968, and 1989 Velvet Revolution). It was okay, but the problem is that there is not that much to see. You can visit a site where 200,000 people protested, but the protesters are not there now, they remain only in pictures. The afternoon walk was a 3.5-hour Best of Prague tour and it was visually more interesting. Prague was the seat of the Holy Roman Empire throughout the Middle Ages and it has well preserved architecture from that period up through its Art Nouveau architecture of the early 20th Century. One person on the tour ventured that Prague is the most beautiful city in the world, and while that answer depends on personal preference, it is definitely a strong contender for those who like old towns with non-modern architecture.

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March 21, 2005

05:47:06 pm Plane Reading  

March 21, 2005

On the flight from Christchurch, New Zealand to Sydney Australia, Nick caught up on recent newsmagazines. Of note:

- Who would have thought? The two-week old editions of Time (dated March 14), Newsweek (Newsweek content published inside of The Bulletin in Australia, dated March 15), and the Economist (week ending March 11) all had opinion pieces crediting the Bush Doctrine and the invasion of Iraq as the catalyst that has led to democratic openings in Palestine, Egypt, Lebanon, and Saudi Arabia. Best was Charles Krauthammer's piece "Three Cheers for the Bush Doctrine" in Time. To be sure, much is uncertain and much could go wrong, but it is possible that the January 30 elections in Iraq could be the Middle East equivalent of the Berlin Wall falling, as one of these articles put it.

Since we have been gone, a grudging acknowledgement also seems to have crept into the foreign press we've read that maybe some good after all has resulted from US involvement in Iraq. Whatever your view of the war (and we've certainly had mixed views at times), it's hard to dismiss the connection between elections first in Afghanistan and then in Iraq and the sudden willingness of Middle East leaders to lurch toward democracy as their constituents, emboldened by what they see elsewhere, have begun to demand it.

- High housing prices now means it is wiser to rent than to buy in many developed countries, according to a financial and tax analysis in the Economist. In response to this out-of-kilter situation, housing prices have begun falling in Australia and the UK (we read this in another source, not the Economist article). One Australian index showed prices down 7% in the fourth quarter 2004 versus a year prior, with Sydney down 16%. Japanese and German housing prices have dropped two years in a row, although this is due to their slack economies, not to high prices. Notably, Hong Kong, while up recently, is still down over 50% from 1997 when its property market peaked and before the 1997 Asian financial crises hit. Japan is down 25% since 1997.

How about the US? The Economist opines "there is a clear risk prices might fall" and estimates that prices here need to remain flat for 10 years to bring the ratio of house prices to rents back to its long-term norm. They estimate that based on current rents, US housing prices are 32% overvalued. That's better than the UK, Australia, and Spain, all 60% or more overvalued. We would add that we think excesses in the US are present in some markets (Southern California is one example) and not in others.

Think prices can't fall in the US? Think again. In the early 90s, both the Northeast and Southern California experienced drops of around 20%. The Chicago house we now live in sold twice during that period, each time for less than the prior sale. Overall, we think the US is in better shape than other countries, and we think most parts of the country have nothing to worry about (other than a possible future period of stagnant or low levels of appreciation). We do believe that some of the areas which have the highest prices or which have had the highest rate of increases over the past five years or so could see some degree of decline over the next year or two as US interest rates increase.

- Over the last 10 years, the following countries have adopted a flat rate personal income tax: Estonia (26% rate), Latvia, Lithuania (we think these two countries are also at 26% but Economist was not clear on this), Russia (13%), Serbia (14%), Ukraine (13%), Georgia (12%), Slovakia (19%), and Romania (16%). There's a move in Poland and the Czech Republic for a 15% flat tax rate. The ruling party in the Netherlands is considering a 30% flat tax, and other EU countries such as Spain and Germany are studying the idea.

So, totaling up, four of the 25 EU members plus future entrant Romania now have a flat tax. The expansion of the EU to the east, while opening up new markets for the west, is also putting tremendous pressure on the west to reform both business (see our Initial Impressions of New Zealand post which discussed the problems German automakers are having) and government practices. While US business practices have already reformed over the past two decades, government tax policy moved backward under Bush 41 and Clinton. We had moved close to a flat tax in 1986 under the second Reagan tax reform that left just two tax rates in place, at 15% and 28%. But Bush the elder, panicked, reversed course on his "Read My Lips" pledge and burdened us with a new 31% tax bracket in 1990, then Clinton piled on two more brackets at 36% and 39.6% in 1993. Both presidents, but primarily Clinton, added an explosion of new deductions, perverting the tax code away from the simplifications of the 1986 reform.

Bush the younger has partially rolled back the rate creep to 35% and promises now a "simpler, fairer" tax code. Looking to the east and the flat tax policies of the former Communist countries (that, having suffered under communism for so long, at times seem to have learned to appreciate capitalism better than west) would be a good place to start.

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