Page 44 - bne monthly magazine October 2022

44 I Central Europe bne October 2022
Eastern EU governments under pressure to act on rising living costs
bne IntelliNews
Central and Southeast Europe are suffering the highest inflation
in the EU, pumped up by soaring food and energy prices, with the rise in consumer prices reaching an incredible 25% year on year in Estonia in August.
Even in the richer countries of the eastern EU, people are feeling the pinch as inflation accelerated this year, after starting its rise amid the global recovery from the coronacrisis in 2021.
Wages are not keeping up, with workers in all countries with the exception of Hungary suffering falls in real wages (Hungary’s is expected to turn negative soon, according to an ING research note last month).
Central banks have reacted to the soar- ing inflation by hiking interest rates, which is predicted eventually to press inflation down again but also will push Central and Southeast Europe into recession, as well as hitting borrowers with higher mortgage payments.
In a region where consumption has been an important driver for growth, households are cutting back. People interviewed by bne IntelliNews reporters say they are shifting to cheaper brands and discount retailers, as well as putting off major purchases.
This bad economic news comes as the region is still emerging from the down- turn caused by the coronavirus (COVID- 19) pandemic. It also comes on top of lingering discontent with the region’s slowness in catching up with Western living standards since the transition from Communism.
Some low-income groups – notably pensioners, rural dwellers, those with less education and skills – already feel they have not benefited from the transition. The risk is that they are becoming disaf-
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fected with democracy and will vote for populist parties, which are already in power in Hungary and Poland, and are leading the opposition in Slovakia and Czechia.
This growing disgruntlement could also spill over into the international sphere, because patience is running thin with the cost of imposing sanctions on Russia in terms of higher energy prices, as well as the burden of looking after thousands of Ukrainian refugees. At a demonstration in Prague on Saturday, 70,000 protested against the govern- ment, but speakers also railed against sanctions, refugees, the EU and Nato.
Across the region opposition parties are calling for governments to do more, at a time when budgets are already stretched from dealing with the pandemic, putting currencies and asset prices under pressure. Populist govern- ments, such as Poland and Hungary, have tended to be more interventionist, imposing price caps or even forcing
banks to make mortgage payment holidays.
The challenge of helping citizens cope with the cost of living crisis is also accentuating tensions in the ruling coalitions, with the Estonian govern- ment collapsing in June and the Slovak coalition breaking up this week over increasing welfare payments.
Below, bne IntelliNews reporters look at how the governments in their countries are handling the cost of living crisis and whether it is likely to spark domestic unrest.
Poland targets heating energy costs
The main thrust of the Polish govern- ment’s effort to stop Poles’ wallets from thinning fast has gone into easing the cost of heating energy for households during the upcoming cold season.
The government also made a one-off payment of PLN3,000 ($648) to house- holds to help cover the rising cost of coal, and has cut taxes on energy, petrol and basic food items.
Core inflation forecasts for the Visegrad Four countries and Romania.
Source: Oxford Economics / Haver Analytics