Eastern Europe

Eastern Europe Struggles to Recover


You could take it as an original formulation for resolving the age-old quarrel over what makes a pessimist and what an optimist: Latvian Prime Minister Valdis Dombrovskis said last month that the figures for GDP growth (or rather its deep decline) "show signs of stabilization." So while in the first quarter GDP fell 18 percent compared with the same period last year, the drop in the second quarter was 19.6 percent. And now the quotation from the official reports that amused me the most (and which probably sent a chill down the spines of state employees, who from this month are receiving essentially subsistence-level wages): "At least the situation isn't as dramatic as some experts forecast—minus 22-28 percent."

The government added that the gray economy contributed to a great extent to that deep decline, indeed, according to the prime minister's office, this is one of the main explanations for such a dramatic economic freefall. Yes, Latvia has been experiencing its worst economic decline since the breakup of the Soviet Union and has been, by far, the worst hit of the three Baltic states—though the others in the meantime have also toppled into the abyss, most surprisingly Lithuania, which, mid-year, had been managing to hang on. In such a situation, the search for any "green shoots" (the metaphor people have begun to adopt for signs of revival), even in the warm Baltic summer when the fields bloom like crazy, looks really difficult and desperate. And Dombrovskis gives the impression that he forgot how to smile once he assumed the prime minister's post in February.

EXERCISING EXTREME CAUTIONOn the other hand, the Poles, like the Czechs, went on for a very long time as though, when it came down to it, the crisis didn't pertain to them. And while in the Czech Republic, Finance Minister Eduard Janota at least presented a proposal for filling the gaps in the state budget, in Poland optimism—at least the official, government version—has kept the flag flying high. One of the latest reports states that Poland will receive a full 20 percent of the EU's budget for regional development between 2007 and 2013, or 67 billion euros. That's the largest aid package any member has been promised from Brussels. The government is calling on businesses to register for operational programs and is trying to lure investors.

Yet, investors are being overly careful, like the Polish banks, which have so far avoided the worldwide wave of bankruptcies. In Poland, too, getting a loan is truly a complicated matter. And, as members of the local administration and small businesspeople in Wroclaw recently told me, foreign investors have already called off new investments and frozen those already promised but not yet under way. The result is lower income for the state coffers.

AUTUMNAL CONFERENCEIn those August weeks when (almost) all Euro-officials had fled Brussels for their holidays, the moderate optimists' reports were rather a reflection of the calm before the storm that is about to hit as budget-writers begin to put together next year's financial plans and as the employees of companies desperately looking for new orders return from their holidays.

I am really very curious to hear the discussions next week at the Economic Forum in the Polish resort of Krynica—a kind of "Eastern Davos." Political and business leaders, mainly Polish, meet there every September to try and catch wind of the trends that will blow in the coming weeks and months. Last year the optimists came out in force and a room full of businesspeople and economists applauded Polish Prime Minister Donald Tusk when he stated the country's intention to adopt the euro in 2012. His government has been backpedaling on that resolve ever since. It looks to be a forum for pessimists this year in Krynica—or for careful optimists worried about pronouncing any clear forecasts, such as renowned economist Witold Orlowski. The chief motto that emerges from his writings over the past few months could be stated like this: Every crisis ends one day and growth will come again.
Martin Ehl is the foreign editor of the Czech daily Hospodarske noviny.

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