September 26, 2006 7:19 pm

Why reform fatigue has hit the east

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Once, the sight of tens of thousands of east Europeans demonstrating against their governments would spark waves of hope and joy in the west.

Not any more. Riots in Hungary – the first since the overthrow of communism – are prompting doubt and concern about the region’s future. Demonstrators stormed the state television station in scenes reminiscent of the developing world, not of the well-heeled centre of Budapest.

While only in Hungary have people lately resorted to violence, there are also signs of instability elsewhere among the states that joined the European Union in 2004.

In Poland, voters could soon go to the polls for the second time in a year following the collapse of an unruly coalition. The Czech Republic has had no effective government since a June general election produced a hung parliament. In Slovakia, Robert Fico, the populist prime minister, holds power with the backing of Vladimir Meciar, an authoritarian predecessor, and Jan Slota, leader of the radical Slovak Nationalist party. Ferenc Gyurcsany, the Hungarian prime minister, says: “There is real rivalry in these countries between nationalist radicals and

The dangers should not be exaggerated. Central Europe is not in crisis. Economic growth is 2–3 percentage points faster than in western Europe. Hostility to reforms may be no worse than in Germany, France or Italy. More than 15 years of economic progress, EU and Nato membership and foreign investment act as stabilising forces.

But prolonged instability would cause real harm. Mainstream parties are courting popularity by postponing painful reforms needed to complete post-Communist modernisation. While living standards are nearly 40 per cent higher than in 1989, they remain 45 per cent below west European levels. Dissatisfaction is opening doors to populists with sometimes limited allegiance to EU principles such as fiscal rectitude, market-based economic policies and respect for minority rights.

Trouble in central Europe could also undermine efforts to revive support for the EU’s further enlargement. While the European Commission on Tuesday gave conditional approval for Romania and Bulgaria to join next year, there is considerable uncertainty about future applicants, notably Turkey.

The origins of the turmoil lie in reform fatigue. Some 17 years after communism fell, central Europeans have had enough of restructuring. The benefits of change have been unevenly spread, leaving the low-paid, the unemployed and pensioners feeling abandoned and abused by corruption.

These sentiments were kept in check before EU accession, as few politicians wanted to risk losing membership through political or fiscal indiscipline. But since joining the EU in May 2004, central European politicians no longer feel the need to be on best behaviour.

In addition, with the need to maintain consensus gone, politicians are free to resume old quarrels, including disputes between ex-Communists and former anti-Communists that have resurfaced in Hungary and Poland and ethnic rows in Slovakia. Alek­sander Smolar of the Stefan Batory Foundation, a Warsaw think-tank, says: “I think we are seeing a delayed reaction to the whole very costly and very painful process of European integration.”

These effects differ between countries. In Hungary, where the communist regime was relatively liberal, the post-communist transition has been fairly smooth. Both the ex-communist Socialists and the conservative Fidesz have shamelessly courted voters through fiscal hand-outs, which have stretched public resources to the limit.

Mr Gyurcsany, the Socialist prime minister who won re-election this spring, has pledged to break with the past and introduce fiscal discipline. But he queered his pitch with an admission to party colleagues that he won the election by lying to the public about the government’s finances (see below).

Despite the street protests, Mr Gyurcsany has held his ground, saying his words were a call to action. While the demonstrations have eased since the weekend, the prime minister faces a key test in local elections on Sunday.

Like Hungary, the Czech Republic has recently followed a fairly smooth economic course, allowing governments of both the leftist Social Democrats and the conservative ODS to dodge painful restructuring, notably in healthcare and pensions. With economic growth strong, business people are unconcerned that the country was without a government for three months and that Miroslav Topolanek, the newly appointed ODS prime minister, is unlikely to last more than a few months. There seems little to drive Czechs to political radicalism, but the lack of a stable government may yet prove unsettling.


By contrast, Slovaks have lived through turbulent times. After escaping from Mr Meciar’s grip in 1998, the country embarked on liberal reforms and leapt from laggard to leader in post-Communist transition and attracted big foreign investors, headed by motor manufacturers. But with unemployment stubbornly high, voters lost patience and this summer elected Mr Fico on an anti-reform ticket. Despite warnings from EU partners, Mr Fico’s Smer party allied itself with Mr Meciar and Mr Slota’s nationalists.

Pavol Demes, head of central and eastern Europe at the German Marshall Fund, a US public policy institution, says the worst fears about the Fico government have not been realised. However, Slovakia’s Hungarian minority is worried about Mr Slota, business people are concerned about how electoral promises will be reconciled with commitments to fiscal discipline and the Europe-wide Party of European Socialists is preparing to suspend Smer over its ties with the nationalists.

In Poland, a difficult post-Communist transition, involving a sweeping economic overhaul, has left voters particularly disenchanted with political elites. As a result, the conservative PiS last year won parliamentary elections by promising to clean up politics. Voters expected PiS to form a coalition with the liberal Civic Platform. But the putative partners fell out, leaving PiS to cobble together a government with support from the leftist populists of Self-Defence and the rightwing League of Polish Families.

But PiS and Self-Defence split this month, leaving PiS to seek new allies in the Peasants party. If it fails, another election is in prospect. However, this instability has not stopped President Lech Kaczynski and his twin brother, Jaroslaw Kaczynski, the prime minister, from pursuing a radical agenda – purging ex-Communists from public life and centralising control of institutions such as the central bank. They have also taken an assertive approach to foreign relations – particularly with regard to Germany and Russia, Poland’s big neighbours, where they have stirred up past enmities.

Business people are concerned about the divisive effects of the anti-
Communist purge. However, they are less worried about macroeconomic policy: growth is strong and the budget is under control, with the planned 2006 and 2007 deficits below 3 per cent of gross domestic product – the ceiling for joining Europe’s monetary union.

Across the region, however, aspirations to membership of the eurozone have been a victim of post-accession politics. Before 2004, governments were pledging early entry – notably in Hungary, which wished to join by this year. But Hungary’s 2006 budget deficit target is a towering 10 per cent of GDP.

Slovakia remains committed to a firm date – 2009 – but there are doubts whether Mr Fico will stick to a time­table set by his predecessor. Some new EU members are well ahead, with Slovenia joining next year and the Baltic states due in 2008. But for the rest in central Europe, the aim is for 2010-14.

Postponing their single-currency ambitions allows governments to delay reforms required to bring deficits down to the euro-entry 3 per cent. Economists warn that central Europe is missing an opportunity to undertake reforms that will be needed later, perhaps in more difficult conditions.

Meanwhile, developments in the region are affecting relations with EU partners. Poland, in particular, is finding it hard to square its new-found assertiveness with the need for EU-wide co-operation, even in energy, where Warsaw wants close ties.

There is little danger that big west European states will turn on central Europe. But if central European countries develop unpredictable reputations they will find it harder to influence their partners. This is particularly important for further enlargement,favoured by most central Europeans.

Central Europe is not doomed to political irrelevance. Given its strong economic record and importance to world business, it will not be ignored. However, the region needs consistent and predictable leadership if it is to make its voice heard at the EU table.

Stefan Wagstyl

Budapest wounds hurt 50 years on

One of Hungary’s most powerful political symbols returned last week to the streets of Budapest: the Magyar tricolour with a ragged hole in its centre. Furious over their prime minister’s admission that he had lied to win April elections, demonstrators took scissors to their own flag.

By this simple act they connected their protest to 1956, when Hungarian freedom fighters cut the Communist hammer and sickle from the national emblem during the ill-fated anti-Soviet revolution.

More than opportunism, this was a potent gesture that taps a deep division in both Hungarian politics and society. Indeed, Hungary’s volatile politics, while a dividing force in itself, is also a reflection of a deeply polarised society. And one of its open wounds is 1956.

Next month’s 50th anniversary of the revolution, far from being a celebration, will be a bitter occasion. The division is not just about 1956, says Ivan Baba, head of Budapest Analyses, a right-of-centre think-tank. It is, he says, about the entire Communist period and Hungary’s failure under democracy to address its injustices.

In the 1990s, there were no trials for former officials who committed grave crimes, no serious efforts at expiation, no full opening of secret police archives. Hungary’s transition to democracy drew special praise for its peaceful and negotiated nature. But the lack of confrontation has had a price. “There is a part of society that feels that something has not been achieved by the transition,” says Mr Baba.

Such are the divisions that Hungarians will hold two official ceremonies on October 23, each unveiling a different monument. Their simultaneous timing will, at least, give less opportunity for the heckling, whistling and spitting that has marked past commemorations.

Ostensibly, the split in ceremonies arose from a disagreement over the postmodern design of the monument that government officials and visiting dignitaries will dedicate. In truth, however, it became inevitable when Hungary’s Socialists won re-election this spring. This meant that the legal successors to Hungary’s Communist party would stage the remembrance of the revolution their political forefathers helped brutally to crush. Many veterans of 1956 refuse to share a platform with politicians they view as traitors and murderers.

But the divide is not as simple as ageing freedom fighters versus their former oppressors. Today’s Socialist party is not only democratic but is also often more committed to the free market than its rivals are. Ferenc Gyurcsany, the Socialist prime minister, was born only in 1961.

Janos Rainer, head of the 1956 Institute, a non-partisan research body, remembers that truly open discussion of the uprising was allowed only in 1989. At the time, he says, Hungarians believed that a certain truth would emerge after more than 30 years of silence.

“We had this illusion that the memory of ’56 wouldn’t be divisive any longer,” he says.

But memories and opinions clashed. New political parties sought legitimacy by competing to identify with the revolution. “After a very short period it was not about ’56 any more. It was about politics,” says Mr Rainer.

On October 23 the arguments will be less subtle and are likely to be streaked with anger, a notion that saddens Imre Mecs, a Socialist member of parliament who fought in 1956 and was initially sentenced to death. “Fifty-six was about unity and not hatred,” he says. “It is very simple. We wanted democracy and independence.”

Christopher Condon

Additional reporting by Robert Anderson, Jan Cienski and Christopher Condon

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