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June 10, 2020

EUROPE: CEE PULSE

BY Andrius Tursa

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( 4 mins)

Despite vast differences in the epidemiological situation across Central and Eastern Europe (CEE), the economic reopening is accelerating. Key Russian cities started easing restrictions earlier this week, Latvia is ending the state of emergency today, 10 June, and Romania is expected to follow suit on 15 June. Meanwhile, Ukraine secured a new 18-month arrangement with the IMF, while the upcoming presidential election and the Covid-19 outbreak in the mining regions are dominating the political discussion in Poland.

Latvia

With the number of new Covid-19 cases per day remaining in single-digits for the past two weeks, the government is lifting the state of emergency as of today, 10 June, but keeping social distancing and sanitary requirements in place. Also, free Covid-19 testing will be available to all residents until the end of June. With economic and public activities returning to normal, the government has approved a three-stage EUR 2.2bn economic recovery plan through the end of 2022, which will focus on human capital, digital transformation, innovation, the business environment for exports, and access to finance and infrastructure. Until now, Latvia lacked a comprehensive economic development plan that focused on its most competitive export-oriented sectors.

Poland

After delivering 1.6mn voter signatures supporting his presidential bid to the electoral commission earlier this week, Warsaw Mayor Rafal Trzaskowski (Civic Platform) is expected to officially become a candidate in the upcoming 28 June presidential election. While President Andrzej Duda (Law and Justice) still holds the lead in the polls, Trzaskowski could pose a severe challenge to the incumbent in the likely second-round run-off. In the meantime, the government is dealing with a sharp spike of new Covid-19 cases, which are concentrated in large coal mining companies in the southern region of Silesia. The authorities have suspended the operation of several mines for three weeks and are conducting extensive employee testing programs. To mitigate the considerable discontent from trade unions – an important support group of the ruling PiS – the government has rolled out a 100% of salary compensation for all furloughed miners. This, however, may cause discontent from workers in the other sectors, who have been offered lower amounts of support.

Romania

The minority government led by Ludovic Orban (National Liberal Party, PNL) is under increasing pressure from business groups and the opposition to speed up the economic reopening. The opposition is expected to reject in parliament the government’s proposal to extend the state of alert beyond 15 June. Opposition parties in parliament now appear to hold a majority and have already overturned the government’s earlier decision to postpone the doubling of child benefits. The opposition is also threatening a no-confidence vote in the Orban cabinet if it backs down from a 40% pension hike scheduled for September, which the finance minister considers unrealistic. As the pandemic gradually recedes and as the local and general elections approach in the second half of 2020, the risk of political turmoil is expected to rise.

Russia

Public support for quarantine measures has decreased significantly. With the “All Russian” poll on constitutional amendments approaching between 25 June and 1 July, the main cities are moving to ease lockdown measures. The city of Moscow has recalled the self-isolation regime as of yesterday, 9 June, and most public services and retail activities are set to reopen within the next two weeks. St. Petersburg – the country’s second-largest city – is expected to present a phased lockdown exit plan later this week. However, official figures show that the number of new Covid-19 cases has not decreased significantly since the peak levels, although the new infections are more spread out across the country.

Ukraine

On 9 June, the IMF board approved the 18-month USD 5bn stand-by arrangement aimed at helping Ukraine to weather the economic consequences of the Covid-19 crisis. The first tranche of around USD 2.1bn is expected to be disbursed within several days, and the remaining amount should come in four installments through December 2020. Besides tackling the economic fallout from Covid-19, the new arrangement aims to advance “a small set of key structural reforms,” which include (1) ensuring central bank independence and a flexible exchange rate; (2) safeguarding financial stability while recovering the costs from bank resolutions; and (3) moving forward with key governance and anti-corruption measures. However, progress in the latter two areas may be slow and contentious.

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