February 25, 2021

Europe

EUROPE: CEE PULSE

BY Andrius Tursa

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( 4 mins)

Multiple countries in CEE are experiencing a surge in Covid-19 cases, which is mostly associated with the spread of new virus mutations. The Czech Republic is considering a significant tightening of measures, while Bulgaria’s government – likely driven by electoral considerations – is set to reopen restaurants, bars and cafes on 1 March. Romania’s parliament will likely adopt the 2021 budget next week, while Russia is debating potential response to impending Western sanctions.

Bulgaria

While the rolling average of new Covid-19 cases increased by 38% compared to the previous week, the government appears committed to go ahead with the reopening of restaurants, bars and cafes on 1 March. These facilities will be allowed to operate at 50% capacity and will have to comply with sanitary requirements. The official reasoning behind the move is the growing share of residents with immunity from Covid-19. However, figures show that only 5% of the country’s population has been vaccinated or recovered from the disease to date. As a result, it is more likely that Prime Minister Boyko Borisov is seeking to lift unpopular restrictions ahead of the parliamentary election scheduled for 4 April. There is also speculation that a resurgent pandemic might help the government to distract public attention from other problematic issues and result in lower voter turnout, which would be advantageous for the ruling Citizens for European Development of Bulgaria party which has a large and relatively stable electorate.

Czech Republic

Latest health data show a deteriorating epidemiological situation. The number of active Covid-19 cases has reached an all-time high and the health care capacity is approaching its limits. Estimates suggest that the B.1.1.7 variant first identified in the UK now accounts for around 50-75% of all new cases. The government is debating a major tightening of restrictions, which might include movement restrictions within a country, mandatory employee testing in industrial enterprises and a closure of primary schools and nurseries. Yesterday, the authorities tightened the face mask regime and imposed travel bans to countries with high prevalence of the B.1.351 variant first identified in South Africa. On the economic front, the government extended its Antivirus support program – including furlough schemes and wage subsidies – until the end of April.

Romania

Debates over the 2021 budget will likely dominate the political agenda in the coming days. The opposition Social Democratic Party has pledged to propose multiple amendments to the draft budget, which foresees notable spending cuts in the public sector and postpones pension increases. However, additional spending measures are unlikely to be approved as the center-right coalition government led by Florin Citu aims to cap the deficit at 8.2% of GDP based on the ESA methodology. The lower house of parliament is expected to approve the budget bill on Tuesday, 2 March. The vote will be an important test of unity for the ruling parties, as the failure to adopt the legislation would automatically lead to the government’s resignation. However, such a scenario is very unlikely.

Russia

As expected, on Monday, 22 February, foreign ministers of the EU member states agreed to impose sanctions (travel bans and asset freezes) on Russian individuals responsible for the arrest and sentencing of the Kremlin critic Alexey Navalny. In the US, recent statements from the Joe Biden administration are signaling impending sanctions on Russia over the poisoning and jailing of Navalny and recent cyber incidents linked to Russia.

Moscow frames the looming sanctions as meddling in its internal affairs and attempts by the West to constrain Russia. Debates about the potential response to sanctions are starting too. The deputy foreign minister Sergei Ryabkov said that Russia should continue its de-dollarization drive. On this point, the finance ministry on 24 February reduced the share of the US dollar and euro in the structure of the country’s National Wealth Fund in favor of the Chinese yuan and the Japanese yen. There are also discussions about the potential revocation of citizenship from Russians advocating sanctions on their own country. More generally, Russia’s response could range from reciprocal measures to various asymmetric actions, depending on the type and scale of restrictive measures imposed by the West.

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