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September 30, 2020

Europe

EUROPE: CEE PULSE

BY Andrius Tursa

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( 4 mins)

Belarus is unlikely to deliver on its threats to close its western borders or redirect cargo traffic from the Baltic ports, at least in the near term. The Czech Republic is set to hold elections to the regional councils and the upper house of parliament on 2-3 October despite the precarious epidemiological situation. The crisis in Poland‘s United Right coalition government appears to be contained, and the reshuffled cabinet’s contours are emerging. The resurgent Covid-19 pandemic in Russia is prompting new restrictions and discussions on new/extended economic support measures.

Belarus

Yesterday, 29 September, Belarus announced the imposition of symmetric reciprocal sanctions on the three Baltic States that had expanded their list of sanctioned persons connected to the disputed President Alexander Lukashenko regime last week. However, Lukashenko has not delivered on his threats to redirect cargo traffic from the Klaipeda port (Lithuania) or close the country’s western borders. While such a move would disrupt regional transit routes, including the flow of goods from China to Europe via Belarus, Lukashenko is unlikely to undertake such drastic measures, since these would cause greater damage to the Belarusian economy than to its western neighbors.

Czech Republic

The elections to the regional councils (except the capital Prague) remain scheduled for 2-3 October despite the worsening epidemiological situation. The election of one-third (27/81) of deputies in the upper house of parliament will be held simultaneously. The ruling Action of Dissatisfied Citizens (ANO) is a clear favorite in the regional polls. However, the resurgence of Covid-19 and an expectedly low turnout may lead to worse-than-expected results for the ruling party. Meanwhile, the opposition Mayors and Independents (STAN) and the conservative Civic Democratic Party (ODS) are expected to win the most seats in the senate. While these elections have limited significance for policymaking at the national level, the vote may solidify political alliances ahead of the next parliamentary elections in the autumn of 2021.

Meanwhile, the seven-day rolling average of new cases and deaths from Covid-19 adjusted for the population from Covid-19 in the Czech Republic remains among the highest across Europe when adjusted for population. Today, the government announced the re-introduction of the state of emergency starting on Monday, 5 October, which will result in school closures in high-risk areas, and a greater limit on public gatherings and events. Finally, the parliament is expected to introduce the “Kurzarbeit” scheme from 1 November, which will subsidize 70% of furloughed employees’ salaries for up to a year.

Poland

After signing a new coalition agreement with the Agreement and Solidarity party last weekend, today, 30 September, Prime Minister Mateusz Morawiecki (Law and Justice, PiS) revealed that his reshuffled cabinet would have 14 instead of 20 portfolios, as some ministries are being merged. Each of the junior coalition partners will have only one member in the government. As expected, PiS leader Jaroslaw Kaczynski will serve as a deputy prime minister overseeing justice, defense, and interior affairs. However, his most important role will be to moderate tensions between Morawiecki and Justice Minister Zbigniew Ziobro (Solidarity), who are competing for power. The reshuffled cabinet is expected to continue its previous policy agenda, potentially including a fresh push to reform the judiciary, “polonize” the domestic media landscape, and introduce a retail tax on large retailers.

Russia

The number of new daily Covid-19 cases has risen to the highest level since mid-June, with Moscow accounting for around a quarter of all new infections. The hospitalization rate is also on the rise. Moscow mayor Sergei Sobyanin has called for major enterprises to switch back to remote work and strongly recommended at-risk groups to stay home at least until 28 October. Schools in Moscow will take a two-week break during 5-18 October. A similar approach will likely be mirrored by other country’s regions experiencing an uptick in infections. In general, the government’s rhetoric is shifting from “ruling out” the possibility of another lockdown to statements from President Vladimir Putin that he “would not like” to see the return of the restrictive measures used in spring.

Last week, the government approved a final version of the three-stage national economic recovery plan to 2024, the draft of which was introduced back in early June. The plan entails over 500 measures worth around RUB 5tn (USD 64bn) to cut unemployment, raise disposable incomes, and lift GDP growth above 3% per annum to 2024. According to the plan, Russia should be entering the economic recovery stage as of October. However, a resurgent wave of Covid-19 infections is shifting political debates back from recovery to crisis response measures, such as extending the credit repayment or the tax holidays for businesses.

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