With Hungary's Parliamentary elections just weeks away and Poland's own Presidential race gaining steam what are the key lessons to be drawn from Central Europe's current political climate?
First, local politics truly do matter. Specifically, strong institutions, a well-functioning democracy, accountability and transparency play as integral a part in a country's political development as its economic development. This was lacking among Hungary's officials and within its institutions during the peak of the crisis, which eventually manifested into protests on the streets of Budapest.
High unemployment, government incompetence and a severe economic recession triggered public outrage and increased the popularity of nationalist parties like Jobbik, which garnered 15 percent of the vote, and sent three representatives to the European Parliament in 2009. Some polls predict Jobbik may win up to 20 percent of the votes in the upcoming Parliamentary election, attracting voters from both sides of the political spectrum who continue to be disillusioned with Hungary's political mainstream and sluggish recovery.
Second, the ability to maintain relatively low macroeconomic imbalances enabled Poland to take advantage of preferential lending mechanisms and financial aid, including access to a $20.5 billion IMF flexible credit line (FCL). Not only did this help Poland avoid additional economic shocks and enable greater policy flexibility, but it also empowered the ruling PO party, while marginalizing the fringes. That was not the case in Hungary where years of political infighting and a badly mismanaged economy (on the Socialist MSZP's watch) forced Hungary into international bankruptcy.
While it is possible that Fidesz (National Conservatives) may win a constitutional two-thirds majority, the more important question is whether they will form a coalition or at the very least coalesce with Jobbik. If so, this could pose serious obstacles to an already demoralized EU (think Greece), stall further integration and damage the gains of post-communist transition.
The past week has proven eventful for Poland. By ratifying the Lisbon Treaty, the Polish government not only became an official signatory to one of the EU’s most monumental transformations, but additionally quelled any remaining doubts over its long-term commitment to the European project. It also demonstrated Poland’s desire to improve its standing within the EU, boost its credibility on the international stage and gain legitimacy as an emerging mid-size European power.
In recent years Poles have sought recognition and respect from the international community for its decisive role in bringing about the end of communism, its successful accession to the EU and NATO and for having one of Central Europe’s most robust and stable economies.
Prudent policies prior to and during the global financial crisis showcase Poland’s potential for leadership and regional crisis management. Poland has recently demonstrated this by lending over $200 (zł.570) million to Iceland’s ailing banking sector as well as joining a consortium of donors to provide financial aid to Latvia.
During this weekend’s annual World Bank-IMF meetings in Istanbul, Poland’s delegation confirmed its interest in continuing to access broad-range lending, analytic and advisory services. Whether they are giving Poland a $20 (zł.57) billion flexible credit line, granting credits for Polish SMEs or lending to Poland for infrastructure development, the World Bank and IMF have re-emerged as important partners for Poland's economic growth and sustainability.
At the same time, Poland is seeking to increase both its financial (via increased donor contributions) and physical presence (increasing staff quotas) within the international financial institution. As leaders from emerging and developing economies call on the World Bank-IMF to redistribute voting and decision-making power, Poland (with the 18th highest nominal GDP) stands to benefit and should push to be at the front of the receiving line.
