Central Europe's Catch-22
Last week's election results in Slovakia are a case in point. The social democratic Smer party won, but with just 29 percent of the vote it will have to rely on a coalition with one of its conservative opposition parties. Compromise is inevitable, and Smer will no doubt have to ditch many of its populist proposals to cement power.
When in Rome...
Smer's leader, Robert Fico, may have watched recent elections in other countries in the region before making his electoral pitch. He capitalized on voter fatigue for economic reform, and promised a package of increased wages and pensions for the poor. Although his proposals are likely to be diluted once in power, they could still annul advances made under his predecessor.
The previous Slovakian government of Mikulas Dzurinda introduced a raft of economic reforms, including relaxed labor laws and a flat tax that led to booming foreign investment, and paved the way for rapid euro adoption in 2009. This made the country the darling of pro-enlargement lobbyists in Europe, but tested the electorate's stomach at home and cost his party the election.
This is a familiar story across the region. The ruling parties in Poland rallied their bases with populist slogans and attacked the reforms of previous administrations, particularly those spearheaded in the early 1990s by the current central bank governor, Leszek Balcerowicz. It's been a struggle for Law and Justice to finally form a ruling coalition since it took just 27 percent of the vote in last September's election, and now it appears to have achieved a degree of stability. The same period of political wrangling lies in store for the citizens of Slovakia, and the Czech Republic.
In Prague, coalition deputies are scratching their heads on how to put together a program that will pass muster in the parliament. A center-right tripartite coalition is putting the finishing touches to its joint draft program, but their combined representation in the Czech parliament comes to 200 of the 400 seats in the lower house. After the wheeling and dealing for ministries is concluded, the result, as in Poland and Slovakia, will be a euro-skeptic coalition with populist promises to keep.
Keep it coming
Political turmoil is not the only common denominator in the region. Despite the governmental musical chairs, growing GDP and strong economies are the hallmarks of the region. In Poland, economic indications are good, and while the ruling coalition is quick to take the plaudits, the spring in Poland's step is coming from the private sector. Wages in Poland grew by five percent last month, industrial output rose 19 percent, inflation is barely a percent, and unemployment is receding, albeit at a sluggish pace.
The same is true across the region, and investors are the ones to thank. Despite the shifting political winds, money is still flowing into the region's economies. Investors are proving they will deal with whoever is holding all the chips, regardless of political ideology. In the modern European business environment, where geographic borders are becoming increasingly irrelevant, profits will always win out over politics when it comes to deciding on an investment location.
Love-hate relationship
The euro-skepticism of the new coalitions, however, presents a thorny issue for the EU. Poland has consistently ruffled feathers in Brussels with its cherry-picking approach to the benefits and burdens of EU membership. Coalition partner Self-defense got into power by promising to renegotiate Poland's membership of the bloc, and the government refuses to reveal a timetable for eurozone entry, which, it must be remembered, is an obligation, not an option, for new EU members. Slovakia is poised to roll back its steps towards joining the single currency, the new Czech government is not a fan of Brussels, and support for the EU is slumping in Hungary.
The benefits of EU membership are far-reaching, but member states will have to bide their time before reaping the rewards. Development doesn't happen overnight, and the true impact of membership will only be seen in four to five years' time, at the earliest. However, this has not stopped citizens in new member states from demanding instant benefits.
The EU is still a tough sell to the citizens of the new member states and, despite the positive economic figures, the reality on the ground is still harsh, with Poland, Lithuania and Latvia still the EU's poorest nations. But the new coalitions would be foolhardy to rally against the bloc just to score political points at home.
