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June 23, 2020

EUROPE: CEE PULSE

BY Andrius Tursa

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( 4 mins)

Following Serbia’s general election last Sunday, voters in three other Central and Eastern European (CEE) countries will head to the polls in the coming weeks. Polish President Andrzej Duda expects the White House visit will boost his campaign ahead of the first-round vote on 28 June, although the visit may become a double-edged sword. Victory Day celebrations on 24 June will pave the way for a week-long vote on constitutional amendments in Russia, while Croatia is expected to hold its general election on 5 July despite renewed concerns over Covid-19. Finally, Slovakia’s government announced plans to scrap a banking tax as the main opposition party fractures.

Croatia

After successfully coping with the pandemic, the country saw a notable increase in new Covid-19 cases during the past week. Most new cases have been imported from abroad, which has prompted authorities to tighten border restrictions with neighboring Serbia and Bosnia and Herzegovina. Resurgence of Covid-19 could have an impact on the upcoming parliamentary election on 5 July. A few parties have already cancelled their campaign events, while one of the top officials from the ruling Croatian Democratic Union (HDZ) hinted at the possibility of postponing the poll. While such a scenario remains unlikely, increased public fears of new infections could negatively affect the turnout. This could hurt the smaller parties in the poll, which must pass a 5% threshold to win seats in parliament. The ruling HDZ could also take a hit as successful handling of the disease is at the center of their electoral program.

Poland

Tomorrow, 24 June, President Andrzej Duda is set to meet his US counterpart Donald Trump to discuss a potential increase in US military presence in Poland. Polls show that around 60% of Polish voters would support such an agreement, which could boost Duda’s slumping ratings ahead of the first round of the presidential election next Sunday, 28 June. However, details over the financing or legal status of the US troops may be just as important as the deal itself in terms of public support. Also, polls show that supporters of the far-right candidate Krzysztof Bosak view a potential increase in US troops least favorably. This may become an issue for Duda, who aims to attract Bosak’s supporters in the anticipated second round runoff.

Meanwhile, to boost job creation and investment, the government is considering exempting companies with an annual revenue below PLN 50mn (EUR 11mn) from paying corporate income tax on reinvested profits. The measure – estimated to cost the budget around EUR 1bn per year – is expected to come into effect in 2021 and be valid for four years.

Russia

The postponed Victory Day celebrations marking the 75th anniversary of the Nazi Germany’s defeat in the World War II will take place tomorrow, 24 June. This flagship annual event aims to boost national pride and emphasize Russia’s global power status at home, but this year’s celebrations will be significantly downsized due to Covid-19. The event will kick off a week-long vote on amendments to the country’s constitution between 25 June and 1 July. Although the vote is not legally binding, it is expected to serve as a sign of public approval for Vladimir Putin’s continued presidency after his current term in office expires in 2024. Opinion polls show that 44-47% of voters support the amendments, 31-32% oppose them and 22-24% are still undecided. However, an unusual voting system which allows for voting online, at home or at polling stations, may leave room for irregularities. To bolster public sentiment ahead of the vote, today President Putin announced additional social support measures for families and social workers, lowered taxes for the IT sector, and an increase in personal income tax to 15% for annual earnings greater than RUB 5mn (around USD 73,000) as of 2021.

Slovakia

On 22 June, Prime Minister Igor Matovic (Ordinary People, OLaNO) announced plans to cancel a special banking tax. The levy has been in place since 2012 and generated annual revenue of around EUR 150mn. According to the government’s agreement with the Slovak Banking Association, banks would use the saved funds from scrapping the tax to increase lending both to public and private projects thereby stimulating economic growth. The proposal still needs to be approved by parliament, but no significant complications are expected.

In the meantime, rivalry for leadership in the largest opposition party Direction-Social Democracy (SMER-SD) has led to its split. Earlier this month former prime minister and vice chairman of SMER-SD Peter Pellegrini announced intentions to leave the party and start a new political movement, likely attracting some of his former colleagues. Cracks in the opposition bodes well for stability of the Matovic government in the near-term but will lead to even greater fragmentation of the Slovakian political landscape in the longer run.

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