/ FT.com Comment & analysis / Analysis - Why reform fatigue has hit the eastSkip
to main content, accesskey 's'
Homepage, accesskey '1'
Financial Times FT.comCOMMENT & ANALYSIS AnalysisSubscription pageCloseWhy
reform fatigue has hit the east
By Stefan Wagstyl and Christopher Condon
Published: September 26 2006 19:19 | Last updated: September 26 2006 19:19
Once, the sight of tens of thousands of east Europeans demonstrating against
their governments would spark waves of hope and joy in the west.
Not any more. Riots in Hungary the first since the overthrow of communism
are prompting doubt and concern about the regions future. Demonstrators stormed
the state television station in scenes reminiscent of the developing world, not
of the well-heeled centre of Budapest.
While only in Hungary have people lately resorted to violence, there are also
signs of instability elsewhere among the states that joined the European Union
in 2004.
In Poland, voters could soon go to the polls for the second time in a year
following the collapse of an unruly coalition. The Czech Republic has had no
effective government since a June general election produced a hung parliament.
In Slovakia, Robert Fico, the populist prime minister, holds power with the
backing of Vladimir Meciar, an authoritarian predecessor, and Jan Slota, leader
of the radical Slovak Nationalist party. Ferenc Gyurcsany, the Hungarian prime
minister, says: There is real rivalry in these countries between nationalist
radicals and progressives.
The dangers should not be exaggerated. Central Europe is not in crisis. Economic
growth is 23 percentage points faster than in western Europe. Hostility to
reforms may be no worse than in Germany, France or Italy. More than 15 years of
economic progress, EU and Nato membership and foreign investment act as
stabilising forces.
But prolonged instability would cause real harm. Mainstream parties are courting
popularity by postponing painful reforms needed to complete post-Communist
modernisation. While living standards are nearly 40 per cent higher than in
1989, they remain 45 per cent below west European levels. Dissatisfaction is
opening doors to populists with sometimes limited allegiance to EU principles
such as fiscal rectitude, market-based economic policies and respect for
minority rights.
Trouble in central Europe could also undermine efforts to revive support for the
EUs further enlargement. While the European Commission on Tuesday gave
conditional approval for Romania and Bulgaria to join next year, there is
considerable uncertainty about future applicants, notably Turkey.
The origins of the turmoil lie in reform fatigue. Some 17 years after communism
fell, central Europeans have had enough of restructuring. The benefits of change
have been unevenly spread, leaving the low-paid, the unemployed and pensioners
feeling abandoned and abused by corruption.
These sentiments were kept in check before EU accession, as few politicians
wanted to risk losing membership through political or fiscal indiscipline. But
since joining the EU in May 2004, central European politicians no longer feel
the need to be on best behaviour.
In addition, with the need to maintain consensus gone, politicians are free to
resume old quarrels, including disputes between ex-Communists and former
anti-Communists that have resurfaced in Hungary and Poland and ethnic rows in
Slovakia. Aleksander Smolar of the Stefan Batory Foundation, a Warsaw
think-tank, says: I think we are seeing a delayed reaction to the whole very
costly and very painful process of European integration.
These effects differ between countries. In Hungary, where the communist regime
was relatively liberal, the post-communist transition has been fairly smooth.
Both the ex-communist Socialists and the conservative Fidesz have shamelessly
courted voters through fiscal hand-outs, which have stretched public resources
to the limit.
Mr Gyurcsany, the Socialist prime minister who won re-election this spring, has
pledged to break with the past and introduce fiscal discipline. But he queered
his pitch with an admission to party colleagues that he won the election by
lying to the public about the governments finances (see below).
Despite the street protests, Mr Gyurcsany has held his ground, saying his words
were a call to action. While the demonstrations have eased since the weekend,
the prime minister faces a key test in local elections on Sunday.
Like Hungary, the Czech Republic has recently followed a fairly smooth economic
course, allowing governments of both the leftist Social Democrats and the
conservative ODS to dodge painful restructuring, notably in healthcare and
pensions. With economic growth strong, business people are unconcerned that the
country was without a government for three months and that Miroslav Topolanek,
the newly appointed ODS prime minister, is unlikely to last more than a few
months. There seems little to drive Czechs to political radicalism, but the lack
of a stable government may yet prove unsettling.
By contrast, Slovaks have lived through turbulent times. After escaping from Mr
Meciars grip in 1998, the country embarked on liberal reforms and leapt from
laggard to leader in post-Communist transition and attracted big foreign
investors, headed by motor manufacturers. But with unemployment stubbornly high,
voters lost patience and this summer elected Mr Fico on an anti-reform ticket.
Despite warnings from EU partners, Mr Ficos Smer party allied itself with Mr
Meciar and Mr Slotas nationalists.
Pavol Demes, head of central and eastern Europe at the German Marshall Fund, a
US public policy institution, says the worst fears about the Fico government
have not been realised. However, Slovakias Hungarian minority is worried about
Mr Slota, business people are concerned about how electoral promises will be
reconciled with commitments to fiscal discipline and the Europe-wide Party of
European Socialists is preparing to suspend Smer over its ties with the
nationalists.
In Poland, a difficult post-Communist transition, involving a sweeping economic
overhaul, has left voters particularly disenchanted with political elites. As a
result, the conservative PiS last year won parliamentary elections by promising
to clean up politics. Voters expected PiS to form a coalition with the liberal
Civic Platform. But the putative partners fell out, leaving PiS to cobble
together a government with support from the leftist of populists Self-Defence
and the rightwing League of Polish Families.
But PiS and Self-Defence split this month, leaving PiS to seek new allies in the
Peasants party. If it fails, another election is in prospect. However, this
instability has not stopped President Lech Kaczynski and his twin brother,
Jaroslaw Kaczynski, the prime minister, from pursuing a radical agenda purging
ex-Communists from public life and centralising control of institutions such as
the central bank. They have also taken an assertive approach to foreign
relations particularly with regard to Germany and Russia, Polands big
neighbours, where they have stirred up past enmities.
Business people are concerned about the divisive effects of the anti- Communist
purge. However, they are less worried about macroeconomic policy: growth is
strong and the budget is under control, with the planned 2006 and 2007 deficits
below 3 per cent of gross domestic product the ceiling for joining Europes
monetary union.
Across the region, however, aspirations to membership of the eurozone have been
a victim of post-accession politics. Before 2004, governments were pledging
early entry notably in Hungary, which wished to join by this year. But
Hungarys 2006 budget deficit target is a towering 10 per cent of GDP.
Slovakia remains committed to a firm date 2009 but there are doubts whether
Mr Fico will stick to a timetable set by his predecessor. Some new EU members
are well ahead, with Slovenia joining next year and the Baltic states due in
2008. But for the rest in central Europe, the aim is for 2010-14.
Postponing their single-currency ambitions allows governments to delay reforms
required to bring deficits down to the euro-entry 3 per cent. Economists warn
that central Europe is missing an opportunity to undertake reforms that will be
needed later, perhaps in more difficult conditions.
Meanwhile, developments in the region are affecting relations with EU partners.
Poland, in particular, is finding it hard to square its new-found assertiveness
with the need for EU-wide co-operation, even in energy, where Warsaw wants close
ties.
There is little danger that big west European states will turn on central
Europe. But if central European countries develop unpredictable reputations they
will find it harder to influence their partners. This is particularly important
for further enlargement,favoured by most central Europeans.
Central Europe is not doomed to political irrelevance. Given its strong economic
record and importance to world business, it will not be ignored. However, the
region needs consistent and predictable leadership if it is to make its voice
heard at the EU table.
Stefan Wagstyl
Budapest wounds hurt 50 years on
One of Hungarys most powerful political symbols returned last week to the
streets of Budapest: the Magyar tricolour with a ragged hole in its centre.
Furious over their prime ministers admission that he had lied to win April
elections, demonstrators took scissors to their own flag.
By this simple act they connected their protest to 1956, when Hungarian freedom
fighters cut the Communist hammer and sickle from the national emblem during the
ill-fated anti-Soviet revolution.
More than opportunism, this was a potent gesture that taps a deep division in
both Hungarian politics and society. Indeed, Hungarys volatile politics, while
a dividing force in itself, is also a reflection of a deeply polarised society.
And one of its open wounds is 1956.
Next months 50th anniversary of the revolution, far from being a celebration,
will be a bitter occasion. The division is not just about 1956, says Ivan Baba,
head of Budapest Analyses, a right-of-centre think-tank. It is, he says, about
the entire Communist period and Hungarys failure under democracy to address its
injustices.
In the 1990s, there were no trials for former officials who committed gra...