Report Contents

November 25, 2020

Europe

EUROPE: CEE PULSE

BY Andrius Tursa

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( 4 mins)

A “soft lockdown” in Bulgaria could trigger new public protests and weaken the ruling party ahead of the March 2021 parliamentary elections. Hungary and Poland are aligning their positions ahead of tough negotiations with the EU over linking the bloc’s funding to rule of law observance. Lithuania has a new Prime Minister, but a Covid-19 outbreak in parliament could complicate the final approval of the new cabinet and its program. Lastly, Russia’s parliament is in the final stages of adopting the 2021-2023 budget.

Bulgaria

The highest death rate from Covid-19 per 1mn residents in the EU as well as the soaring share of positive Covid-19 tests is forcing the government to introduce a so-called “soft lockdown” between 27 November and 21 December. This includes the closure of non-essential retail stores, shopping centers, entertainment, sports, and some other facilities. The government’s decision could trigger a considerable public backlash as only about 30% of citizens support tighter restrictions, according to recent polls. Slow progress in rolling out economic support measures for the affected businesses/individuals will only heighten tensions and could further weaken the ruling Citizens for European Development of Bulgaria (GERB) party ahead of the March 2021 parliamentary elections. Meanwhile, Prime Minister Boyko Borisov’s earlier initiative of calling the Grand National Assembly to advance constitutional changes did not receive the necessary backing in parliament and will be dropped.

Hungary/Poland

Tomorrow, 26 November, the Prime Ministers of Hungary and Poland will meet in Budapest to align their positions in the ongoing negotiations with the EU on the bloc’s new budget and recovery package. Both countries are likely to maintain a tough stance in the near term to extract maximum possible concessions on the rule of law mechanism. However, Budapest and Warsaw understand that a protracted blockage of the EU financial package – possibly extending into 2021 – would be counterproductive from the political and fiscal perspectives, as both countries are among the greatest net recipients of EU funds. This makes an eventual compromise as the most likely outcome. The next EU summit is scheduled for 10-11 December.

Lithuania

Today, 25 November, President Gitanas Nauseda (independent) appointed Ingrida Simonyte (independent, nominated by TS-LKD) as the new Prime Minister, who will now have 15 days to form the cabinet and present the government program for parliament’s approval. Simonyte has already announced a preliminary list of cabinet members, which could be considered as a mixed bag of political heavyweights and novices. It is likely that the proposed list will still be amended by Nauseda, with the most contentious portfolios being finance, justice and health care. While the TS-LKD-led coalition holds 74 out of 141 seats in parliament, the government’s final approval might be delayed by the Covid-19 outbreak in parliament, which is forcing groups of deputies to self-isolate.

Despite the quarantine – which entails the closure of bars, restaurants, gyms, most cultural and entertainment facilities – being in place for the past two weeks, the epidemiological situation is continuing to deteriorate. Lithuania is becoming one of the leaders in the EU in terms of new Covid-19 cases per 1mn residents. As a result, another round of tightening could be expected in the near term. However, due to the ongoing government transition, new economic support measures – as well as the rollout for the National economic recovery and resilience plan – will likely be postponed to the first quarter of 2021.

Russia

The lower house of parliament (State Duma) is set to approve the 2021-2023 budget in the final third reading tomorrow, 26 November. The draft budget for 2021 foresees a deficit of 2.4% of GDP to be financed mostly through borrowing on the domestic market. The budget is based on the assumptions of 3.3% GDP growth and an oil (Urals) price of USD 45.3 in 2021. Measures proposed in the national economic recovery plan, including preferential credit schemes for affected businesses, as well as subsidized mortgage rates for new buildings (valid until 1 July 2021), will be allocated RUB 639bn (around USD 8.4bn) in 2021. National air transport and railway companies are set to receive higher subsidies as well. Spending on the revamped National Projects scheme is set to rise gradually from RUB 2.1tn in 2021 to RUB 2.8tn in 2023, accounting for around 11-12% of total budgetary expenditure.

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