[size=75:p5ps8j8z]EurActiv 2 April 2010

Slow Recovery Looms Large over East European Politics

A prolonged deterioration of economic prospects could undermine public support for reform ahead of political elections in many of the EU's ten Central and East European member states, warns the latest World Bank report on the economic situation in the 'EU 10'.

Background

Nationalist and extremist parties could do well in forthcoming national elections in Poland, Slovakia and Hungary, warned political scientists at a recent debate organised by EurActiv France.

In particular, the next presidential elections in Poland and the legislative polls in Slovakia and Hungary should strengthen the extremes, experts said.

In Hungary, opposition party Fidesz (European People's Party-affiliated), which is set to win national elections next month, has been campaigning on a nationalist ticket, banning foreigners from buying land.

Hungary's 2004 EU accession treaty barred foreigners from making land purchases until 2011 in an effort to prevent wealthy European investors from buying up large chunks of arable land in the poorer new member states.

If implemented, Fidesz's pledge could put Budapest at loggerheads with its European Union partners and ultimately lead to it being taken to the European Court of Justice for obstructing the free movement of capital.

While the recovery in the global economy is well underway, the outlook for the EU 10 region remains fragile, the report says.

The so-called 'EU 10' stretches from north to south and includes Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Romania, Slovenia and Bulgaria.

In real terms, EU-10 output will not regain pre-crisis levels until the second half of 2011, the report predicts.

"
Credit to the private sector remains sluggish. Unemployment is still rising. The duration of unemployment is increasing for many workers, and job market prospects for workers with basic education levels and little work experience are likely to stay impaired for several years,"
the paper states.

It will be 2011 before all the EU-10 countries are experiencing growth, while the threats posed to the recovery are stark, the World Bank warns. Growth could be undermined by a weak recovery in Western Europe, on which the EU-10 depends first and foremost for boosting its export, manufacturing, credit and job prospects, the study states.

Unemployment on the rise

Joblessness continues to rise across the EU-10 region, the World Bank reports. Unemployment rates in the EU-10 rose from 6.5% in June 2008 to 9.5% in January 2010, increasing from 2.9 million to 4.6 million people.

However, the report records vastly diverging fortunes from country to country. From June 2008 to January 2010, unemployment rates increased by around 16 percentage points in Latvia, 10 percentage points in Estonia and Lithuania, and less than four percentage points in Slovakia, the Czech Republic, Hungary, Slovenia, Bulgaria, Poland, and Romania.

The number of unemployed is expected to increase from 4.1 million in 2009 to 4.4 million in 2010. Governments in all EU10 countries, with the exception of Romania, project higher unemployment in 2010 than in 2009. In view of the weak recovery, companies are likely to postpone hiring new workers until growth is on a firm footing, the report states.

The World Bank warns that the main challenge facing governments in the region is to prevent cyclical increases in unemployment from turning into structural unemployment.

Slower growth rate

The EU-10 region is set to return to growth in 2010 and 2011, but growth rates are likely to be lower than pre-crisis, the report forecasts. According to national governments, after contracting by 3.6% in 2009, the EU-10 countries are projected to expand by 1.6% in 2010 and 3.6% in 2011. While the EU-10 region is set to outgrow the EU-15 region in both 2010 and 2011, the recovery is weak, the World Bank points out.

Downside risks are also significant, the report warns. First, the main risk is a weak recovery in Europe, as prospects for exports, manufacturing, credit and jobs in the EU-10 region depend on a sustainable recovery in the EU-15 region. Europe's recovery from the global financial crisis, which triggered a sharp and synchronised contraction, could be sluggish and may still be followed by a relapse.

Euro adoption to be delayed

Euro adoption remains a central reform anchor for the EU-10 countries outside the euro zone, but massive adjustment needs have delayed the entry date for some countries, the World Bank points out.

The Czech Republic, Hungary and Poland, where exchange rate flexibility played a crucial role in absorbing the shock of the global financial crisis, have not announced a specific target date for euro adoption. Estonia appears on target to enter the euro zone in 2011. Other target dates are 2013 for Bulgaria, 2014 for Latvia and Lithuania and 2015 for Romania, the report notes.

Purchasing power in all EU-10 countries except Poland is set to decline in 2011 compared to 2008. With average EU-27 purchasing power at 100, Bulgaria ranks the lowest in the EU 10 with 40, while Slovenia is closest to the EU average with almost 90%, the World Bank report shows.

Positions

The financial and economic situation will obviously have a major impact on forthcoming polls throughout the region, Jean-Michel de Waele, professor of political science at the UniversitàLibre de Bruxelles (ULB), told EurActiv.

Poland, however, is an exception, because in his words the Civic Platform (Platforma Obywatelska;
PO), the ruling European People's Party-affiliated party founded by current Prime Minister Donald Tusk, has "
resisted well"
populist tendencies and has even become more centrist.

"
As for Hungary, Slovakia and the Czech Republic, where general elections are due in May, it looks to me that the financial crisis is impacting in a significant way on politics. The reasons for this are that those governments have mishandled their responses to the economic crisis and played the nationalist card,"
he said.

"
[In Hungary] obviously Fidesz cannot promise big economic news to the population, and therefore pulls out the nationalist card, which by the way risks giving Jobbik [an extremist party] a good score. Fidesz and Jobbik reinforce each other by playing the nationalist card,"
he explained.

"
The same goes in Slovakia, where the government [of S&D-affiliated Prime Minister Robert Fico] cannot any longer claim credit for the Slovak economic miracle, and therefore plays the nationalist card to get re-elected,"
he said.

The question to be asked, De Waele said, is "
who speaks on behalf of the losers of the transition"
from communism to a free-market society.

"
In Hungary, in Slovakia and in the Czech Republic, there is no democratic party to defend the losers from the transition. This is the historic weakness of the Left in Eastern Europe: being incapable of responding to the needs of this population. This opens a political highway to nationalist and populist parties,"
he stressed.