Report Contents

July 1, 2021

Europe

EUROPE: CEE PULSE

BY Andrius Tursa

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Romania‘s government comfortably survived a motion of no confidence, but slow vaccination and rivalries within the ruling National Liberal Party are pertinent risks going forward. Russia is continuing its efforts to mitigate surging prices of food and various commodities ahead of the State Duma election in September. Progress on reforms in Ukraine bodes well for cooperation with the International Monetary Fund (IMF), although a wave of resignations in the country’s central bank raises new concerns. Divisions within Poland‘s ruling United Right coalition pose a constant threat to government stability.

Poland

Amid swirling rumors of impending changes within the country’s opposition, important shifts are taking place in Poland’s governing coalition as well. Last week the ruling Law and Justice (PiS) party saw the departure of three of its deputies over disagreements on energy policy, which stripped Mateusz Morawiecki’s government of a formal majority in the lower house of parliament. (It now holds 229 of 460 mandates.) While the ruling camp can rely on support from four deputies from Kukiz’15 and some independents, internal divisions remain a constant threat to government stability. One signpost to watch is relations between the PiS and a junior coalition party, Agreement, as both parties appear to be drifting apart. While Jaroslaw Kaczynski will almost certainly be re-elected as the PiS leader during the party’s congress on 3 July, internal fractures within the party have been increasingly evident and further departures cannot be ruled out. Faced with an increasingly uncertain political outlook, PiS will seek to shore up voter support by focusing on its ambitious economic recovery and social support programs.

Romania

As expected, the center-right coalition government led by Prime Minister Florin Citu (National Liberal Party, PNL) comfortably survived a no-confidence vote on 29 June. Despite its strong position in parliament, Citu’s cabinet faces notable challenges associated with slow vaccination and rivalries for the leadership within the ruling PNL party. The country has vaccinated only around a quarter of its population, but its immunization campaign has virtually come to a halt. This is mostly due to poor access of vaccines in rural areas, widespread conspiracy theories and vaccine hesitancy, as well as ineffective communication by authorities. The low vaccination rate makes the country vulnerable to a new Covid-19 outbreak in the coming months, particularly as the Delta variant is rapidly spreading across Europe. A fresh pandemic surge would put pressure on Citu, who is already being challenged by a party fellow and speaker of the lower house of parliament, Ludovic Orban. Rivalry between Citu and Orban will only intensify as the PNL leadership elections approach in September, which may lead to cabinet changes.

Russia

Soaring prices of various food products and other commodities remains a concern for the Russian authorities ahead of the State Duma election in September. During his annual Q&A show on 30 June, President Vladimir Putin admitted that inflation will remain above 5% throughout 2021 but expressed hope that the new harvest will lower prices of fruits and vegetables in the near term. In order to curb price increases, the government has already imposed price caps on staple foods and enacted export restrictions on other commodities such as grain, sugar and timber. This list will be supplemented by new export tariffs on ferrous and non-ferrous metals between 1 August and 31 December. The export duty will consist of a 15% base rate and an additional rate depending on the type of metal, global metal prices and other variables. The projected revenue (around RUB 165bn (USD 2.3bn)) are to be used to compensate for the price increases in various construction projects implemented by the state. Local media reports suggest that the government is developing a more comprehensive longer-term mechanism to shield domestic consumers from global price fluctuations of various commodities.

Ukraine

The country’s parliament has advanced several important bills concerning reforms in the banking sector, judiciary and fight against corruption. On 29 June, lawmakers in the second reading approved a bill giving foreign legal experts a decisive role in approving appointments to the High Qualification Commission of Judges, a judicial body which selects and evaluates judges. On the same day, legislators adopted a law increasing liability for public officials over incorrect asset declarations. On 30 June, parliament approved amendments to corporate governance in the banking sector and expanded the regulatory power of the country’s central bank. On the back of land reforms adopted by President Volodymyr Zelensky administration in March 2020, Ukraine’s agricultural land market officially started functioning today, 1 July. All of these reforms are crucial for Kyiv’s efforts to secure the disbursement of the second tranche under the USD 5bn Stand-by Arrangement with the IMF ahead of a USD 3bn foreign debt repayment facing Ukraine in September. However, these positive developments have been somewhat overshadowed by a recent wave of resignations from the central bank over alleged changes in internal management practices. Zelensky will seek to reassure investors and Western allies about his commitment to reforms – including the independence and sound management of the central bank – during his trip to Washington DC expected later this summer.

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