October 21, 2021

Europe

CEE: Economic and political challenges resurface with pandemic resurgence

BY Andrius Tursa

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( 4 mins)
  • Countries in Central and Eastern Europe (CEE) are struggling to cope with the resurging pandemic amid low vaccination rates and widespread prevalence of the Delta strain.
  • The inevitable return of tough restrictions will hamper economic recovery and could delay fiscal consolidation plans.
  • Pandemic management will require unpopular political decisions, which could heighten social tensions and weaken governments across the region.

Daily Covid-19 infections and deaths have already reached all-time highs in Romania, Russia, and Ukraine. The epidemiological situation is heading in the same direction in Bulgaria, Croatia, Estonia, Lithuania, Latvia, Serbia, Slovakia, and Slovenia, among others. So far, the fourth wave of the pandemic has been less pronounced in the Czech Republic, Hungary, and Poland, but the latest data from these countries are now raising concerns as well.

The resurgence of the pandemic in CEE is not surprising given low vaccination rates in Ukraine (16% of population), Bulgaria (20%), Romania (30%), or Russia (33%). However, even countries with much higher vaccination rates, such as Lithuania (59%) or Latvia (50%), were not able to prevent soaring hospitalizations and deaths. This could be linked to the prevalence of the more dangerous Delta variant and few restrictions on social interactions until now.

Heightened pressures on healthcare systems have left governments with little choice but to reimpose tough restrictions: Latvia is entering a three-week lockdown today, 21 October; Russia announced a “non-working week” starting 30 October, with Moscow going a step further and entering a partial lockdown until 7 November; Romania is closing down schools and plans additional restrictions by Monday, 25 October; in Ukraine, around one-fifth of the country’s regions have been declared as “red zones”, where the most stringent restrictions apply. Other CEE countries – including Bulgaria, the Czech Republic, Lithuania, and Serbia – are expanding the use of immunity certificates/tests to access various services and venues. However, this may prove insufficient to avoid lockdowns, particularly in areas where vaccination levels are low.

On a brighter note, the rapidly deteriorating epidemiological situation is reinvigorating vaccination campaigns. For instance, the total number of administered vaccinations has quadrupled in Romania and trebled in Latvia since mid-September. A similar trend has been observed in Ukraine. Vaccination rates are also rising in Russia, where a growing number of regions have opted for mandatory vaccination schemes for various population groups. However, even if this accelerated pace were to be maintained, it would take months to get the pandemic back under control.

The return of tough restrictions will hamper economic recovery and may prompt new and extended economic support measures, potentially weighing on fiscal consolidation plans for 2022. Latvia’s government has already announced plans to reintroduce a furlough scheme for vaccinated employees and grants for the affected businesses, estimated to cost the budget around EUR 150-200mn (0.5-0.6% of GDP), until mid-November. Meanwhile, the Romanian government chose to shut schools entirely – instead of opting for remote education – which precludes payments to parents staying with children at home.

On the political front, the resurging pandemic will likely heighten social tensions and weaken the incumbents, who bear political responsibility for inadequate vaccination efforts over the summer, and who will be forced to take unpopular decisions to help manage the pandemic. In Latvia, the opposition is already considering a vote of no confidence in the Krisjanis Karins government. Meanwhile, the expanded use of immunity certificates is reinvigorating anti-vaxxer groups and triggering protests in several CEE countries.

Over the past 12 months, pandemic management was an important factor contributing to government changes in countries like Bulgaria, the Czech Republic, Slovakia, or Lithuania. Looking ahead, it will remain an important factor shaping the outcome of expectedly competitive general elections scheduled over the next 7-8 months in Bulgaria, Hungary, and Slovenia.

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