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Zoltán Dujisin

CZECH REPUBLIC AND HUNGARY: Financial Crisis Takes Political Toll

by Zoltán Dujisin

30 March 2009

The weak governments in Hungary and the Czech Republic have fallen, raising questions on the future of liberal economic reform and the influence of the U.S., the European Union and Russia in the region.

Hungarians, as well as Czechs, are now negotiating whether the next government should be political or one of experts. The Czech Republic has decided that elections will take place in October.

On Mar. 21, socialist-liberal prime minister of Hungary Ferenc Gyurcsány resigned after admitting he had become an obstacle to the economic recovery of one of the countries most affected by the economic crisis.

Three days later, Czech prime minister Mirek Topolanek’s government lost a no-confidence vote moved by renegade deputies from his own party, the neo-liberal ODS (Civic Democrats).

Both governments had very weak parliamentary support, with Topolanek’s government also relying on a slim majority and the support of two former left-wing parliamentarians.

The Hungarian socialists and the Czech neo-liberals had pushed forward unpopular reforms over the last year, weakening their strong welfare states and causing dissatisfaction among voters.

The latest events indicate a strong rejection of liberal reforms. Peter Kreko, an analyst for the Budapest-based Political Capital think tank, told IPS the crisis had forced governments to make an impossible choice between investors and voters. "The popular policy is to try to save society from the effects of the crisis; the very unpopular one is to create an efficient crisis management that can calm the markets. They can’t both be done at the same time," he said.

The dependence on foreign capital played a key role in the political elites’ unpopularity. "In this region the governments’ room for manoeuvring is quite narrow, they can’t raise the budget deficit as much as is done in Western Europe and the U.S. because they don’t want to defraud investors," Kreko says.

Pensioners and public sector employees will most likely suffer the most from the International Monetary Fund’s strict conditions for granting Hungary a 20 billion euro lifeline, and the Czech Republic is only now beginning to feel the effects of the crisis.

Ever since the socialist regimes collapsed, Central and Eastern Europeans have seen their dreams of Western lifestyle and wealth gradually vanish. Patience is running out, and more people miss the economic security of the past while expressing outrage at economic inequalities.

"Few governments in the region can save their popularity, like Slovakia and Poland, but we expect that as the economic recession deepens the support for these governments will decrease too, and social tensions in the region will further increase," Kreko said.

Tensions are also palpable in the corridors of the European Commission in Brussels, which worries that the void of power in the Czech Republic will give a prominent role to its President, the leading eurosceptic Vaclav Klaus.

The EU Lisbon Treaty for institutional reform was a major source of disagreement between Klaus and the more pragmatic Topolanek, in a country that is yet to approve the treaty.

The no-confidence vote also caused diplomatic embarrassment for the Czech Republic, which became the first country ever to have a government ousted while holding the EU six-month rotating presidency.

Eastern European officials and commentators have expressed fear that their capacity for leadership in the EU will be questioned in the future, and French calls for a permanent EU leadership are again finding an echo throughout Western Europe.

"It would be a disaster for the EU to continue with its weak presidency," Italian Foreign Minister Franco Frattini told the press.

The cherry on the cake was placed by Topolanek himself who, speaking in the European parliament and representing the EU as the head of a resigning government, called U.S. President Barack Obama’s financial injections to the U.S. economy "a road to hell," causing a diplomatic scandal.

It was just another sign of the end of the Czech love affair with Washington. The outgoing cabinet is more enthusiastic than the current U.S. leadership about building a radar component to the U.S. missile defence system on Czech land.

What seemed sure under former U.S. president George Bush is now much less certain with Obama. The Czechs are expecting to hear some clarification on the radar early April when the U.S. President visits Prague in the framework of the EU-U.S. summit.

The missile system is harshly opposed by Russia, leading Topolanek to affirm that "there were also celebrations at the Kremlin and at the Russian embassy in Prague" following his loss of the no-confidence vote.

Russia also hopes a new government will put fewer brakes on Russian capital in a country where many officials and the media suspect ulterior motives in Russian investment.

Yet not all is good news for Moscow; the Hungarian prime minister was known for his friendly approach to Russia and accommodating attitude towards Russian investments, some of them geopolitically crucial.

Under Gyurcsány, Russia and Hungary agreed last year to a Hungarian section of the Russian-Italian South Stream pipeline project, which would bring Russian gas to Europe bypassing Ukraine.

The project could sabotage the rationale behind the EU-backed Nabucco pipeline, which aims to import gas to Europe from sources other than Russian.

Hungary’s conservative right, which may soon come to power, has in the past criticised Gyurcsány’s closeness to Moscow but it is unclear how much this hostility was just a part of domestic politics.

Published by IPS

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