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October 2009

Eastern-Europe - Monthly political report

October was an important and lively month in the Eastern European region. Important agreements were signed: the Turkish-Armenian protocols on the opening of the border, the arbitration agreement about the Croatian-Slovenian border dispute, the border agreement between Kosovo and Macedonia, as well as the Lisbon Treaty, the ratification of which was finally signed by the Czech President, Václav Klaus. Romanian politicians failed to form a new government and the Moldovan parliament failed to elect the country's new president. Local elections were held in Estonia and in Russia, with important consequences in both countries. In Bosnia and Herzegovina Butmir reform talks failed. IMF signed an agreement with Serbia, and pressed the Latvian government to adopt more austerity measures. In Croatia, presidential elections were called for. Ukraine is struck by a large-scale flu epidemic. Azerbaijan, in response to the Armenian protocols, may cross the EU's Nabucco plans.

Local elections in Russia were not much of a surprise: in the majority of the regions, the ruling party, United Russia scored a sweeping victory. However, in Moscow as well as in some other regions the government was accused of large-scale cheating by the ‘phoney' opposition, followed by a walk-out from the parliament. The background of these events may be the struggle between two powerful clans, the siloviki and the civiliki. We cannot rule out further personal changes or even the extensive liberalisation of the Russian economy in the course of the fight. During October, the President announced that he would fight against large, insufficient state-owned corporations, and that next year would see the privatisation of a large number of state-owned enterprises. Russia made important steps in the field of energy exports too, and the government took the EU's report on the South Ossetian war as a justification of its steps. Local elections were held in the neighbouring Estonia as well, here too, as it had been expected, the opposition Centrists won. The mayor of the capital, Edgar Savisaar sealed a coalition deal with the Social Democrats after the vote, a step which precludes a similar left-wing cooperation at the 2011 parliamentary elections, in opposition to the Prime Minister Andrus Ansip. The two parties suggested cooperation with the Greens and the agrarian National Union, which may result in problems for the government at the vote on next year's budget. The Lithuanian government faces similar problems, having only a very slight majority in the legislature after the breakup of the Party of National Revival. To be able to adopt the budget (and thus guarantee the survival of the government), the Prime Minister would need an additional party in the coalition. Andrius Kubilius made an offer to the now acceptable Labour Party, but this is contested by the junior governing Liberals, not to mention that the Prime Minister would have to sacrifice too much to seal the deal anyway. According to the national agreement, signed by social partners, most of the state salaries will be lower by 10%, the contributions to the national welfare fund will be higher by 2 percentage points, and the enterprise tax will be lowered to 15%. The deficit would thus stand at 9,5% of the GDP. The Slovenian government also managed to seal an agreement with trade unions, after weeks of having been trying to convince them to postpone the public sector wage reform. At the end, a compromise, similar to the one concerning the pension system was reached. The government has not ruled out the reform of the tax system and the introduction of a green tax. A small turmoil in the junior governing Pensioners' Democratic Party was caused by the party chairman Karl Erjavec's choosing a candidate on his own to the position of minister of local administration. A deputy was expelled from the party. In the course of the month, the debate with Croatia on the resolution of the border dispute was solved, although the parliament still has to ratify the treaty inviting international arbitration. The same applies to Croatia, where the left-wing took sides against the agreement - what is more, the Croatian parliament will have to ratify the treaty with a two-thirds majority. The Prime Minister Jadranka Kosor, meanwhile, is trying to strengthen her position within the senior governing Democratic Union. In October, due to excessive accusations of corruption, surrounding the Podravka company, the minister of economy, one of the strongmen of the party, Damir Polancec resigned from his position. Tensions are high within the opposition Social Democratic Party as well: the mayor of Zagreb, Milan Bandic finally announced that he would run for presidency in December, and he also suspended his membership in the party. Bandic will most probably face the party's official candidate in the runoff of the presidential election. This incited the chairmanship of the party against the party chairman Zoran Milanovic. The parliament was debating the constitutional amendments necessary for the country's EU accession.

Another border debate was solved in October: Macedonia and Kosovo signed an agreement about their common border. This meant another obstacle less in front of Macedonia's EU-accession (which the European Commission had also recommended to start in its report), but still no steps ahead were made in the name debate with Greece, despite the formation of a new government in Greece. The Macedonian Prime Minister, Nikola Gruevski, in addition, would like to hold a referendum about a potential compromise, in spite of the fact that his coalition partner and also the EU urge for a quick solution. The finance ministry announced, that state salaries will be frozen next year and drafted a new austerity package, containing cuts of 3,2% overall. On the other side of the border, in Kosovo, the country was preparing to hold local elections, which may even compromise the unity of the governing broad coalition. A very important agreement was sealed however with Albania about the possibility to use a seaport. The EU appointed its new envoy to Northern Kosovo, Michel Giffoni, whose main task will be to mitigate clashes between the Serb and the Albanian communities. The government announced the creation of a ministry for EU affairs. The Commission's report on Kosovo also enumerated some positive changes, but did not find the governance efficient. As for Bosnia and Herzegovina, however, no positive developments can be spoken about. The country is on the verge of collapse, as the Butmir reform talks, initiated by the US and the EU, failed. The Serb-dominated entity, Republika Srpska would rather retreat from the Confederation than to engage in further centralisation of powers. Thus, the Peace Implementation Council will not be able to close down the Office of the High Representative, the deputy of whom was marred by accusations of libel against Muslim officials. The growing ethnic tension is tangible in everyday politics as well, and all this was made worse by the release of the war criminal Biljana Plavsic from a Swedish prison. The Parliament of the Federation, meanwhile, gave in to the demands of veterans and cancelled cuts in their benefits. The Prime Minister, Mustafa Mujezinovic announced that the government would not implement the measure because of the disapproval of the IMF. The European Parliament suggested the Commission to adopt visa-free regime for Bosnia and Albania within short time. In Albania, the boycott of the opposition Socialist Party is still on, despite the disapproval of the EU. The boycott is opposed also by adversaries of the party chairman Edi Rama within the party. One deputy even quit the party to set up a new one, Justice and Unity. The senior governing Democratic Party will, on its November congress, decide whether to separate party and governmental functions. The IMF, meanwhile, expressed its dissatisfaction with the government's plans to raise the expenses of next year's budget. The Latvian government was also 'advised' by international lenders. Although the Prime Minister had managed to push through the government a draft budget with cuts lower than expected, he did not succeed in doing the same with lenders. As a result, the deficit will have to be cut by 500 million lats, which will require further measures, possibly even the introduction of a progressive income tax. The government still wants to increase the property tax, despite the criticisms addressed to the finance minister Einars Repse from the People's Party, which is trying to find itself again after the return of the former Prime Minister Andris Skele. We cannot rule out that after the adoption of next year's budget, the coalition will split. Ainars Slesers has meanwhile become the sole leader of the opposition liberal Latvian Way/Latvia's First Party, marking the closeness of next year's election.

The IMF could seal a deal with Serbia also after lengthy talks. The deficit will stay at 4%, and severe restrictions will be applied in the state sector. The draft of a law significantly lowering the number of public servants, leading to the layoff of thousands of workers by the end of the year is on the agenda of the parliament. The Russian president visited Serbia in October, strengthening bilateral relations and promising a loan as well as a privileged position in the new European security system to the country. From the national minorities' point of view an important step was the creation of the National Minority Council and that the new statute of Voivodina is drafted in the parliament, extending significantly the rights of the autonomous region. Minority representation was one of the main issues in Montenegro as well, where the parliament's working group is drafting a law on deputies - although the deadline for its adoption was extended because of debates surrounding it. The opposition parties were unable to agree on whether to participate in local elections in Kotor, Cetinje and Mojkovac, because of the conflict between the Socialist People's Party and the Movement for Changes. The government announced new austerity measures, and cuts in public spending. In the parliament, the opposition questioned the government about irregularities of the discharge report of last year's budget. The opposition is not united in Georgia either. In October various, irrelevant proposals were made from their side about the reform of the state security and the management of the Russian question (several Georgian citizens were taken hostage at the South Ossetian 'border'). On the other hand, the only relevant opponent of the President Mikheil Saakashvili, Irakli Alasania was able to absorb the former ombudsman Sozar Subari into his party. The local authority reform continued, extending the rights of local self-governments. The budget, drafted in October will not raise social spending. The opposition could not agree on a strategy for the local elections in the neighbouring Azerbaijan either, although contestants from opposition parties will be seldom. A much more important issue for Azerbaijan was however the signing of the Armenian-Turkish protocols on the border opening. The Azerbaijani government took the step as an act of betrayal from the EU's part, and turned to Gazprom, offering it a part of the Azerbaijani gas. Nothing important happened between the Azerbaijani and the Armenian Presidents at the CIS-summit in Chisinau either, but a considerable pressure to resolve the Karabakh conflict can be felt on both sides. The parliament is debating on next year's budget, having amended the law on the prosecution earlier, broadening the president's possibilities to present candidates. In Armenia, meanwhile, the protest against the protocols continued, despite the President Serzh Sargsyan's statement about not abandoning the cause of the recognition of the Armenian Genocide. From Armenia's part, gloomy statements were made in relation to the settlement of the Karabakh conflict, but at the same time, surrealistic propositions were made to settle the dispute between the two countries. Next year's budget will be 10% lower than this year's, but the government is expecting a GDP growth of 1,2% for 2010. Gas prices will be lower for Armenia next year. Belarus wanted to reach the same as well, after the President Aleksandr Lukashenka's having signed the agreement on the CSTO rapid reaction troops, but Gazprom won't amend the contract signed with Belarus. The government would like to receive a further 500 million dollar in loans, but the Russian government is likely to decline on this as well. There will be Russian funding however for the new nuclear power plant of Belarus and talks on a customs union with Russia are being continued as well. The government is working on the budget, and a new opposition bloc was created under the leadership of the well-known opposition figure, Aleksandr Milinkievich.

The Ukrainian President Victor Yushchenko would also re-negotiate the terms of the gas agreement with Russia, being accused by Moscow of deliberately withholding funds to settle the Ukrainian gas bill. These statements could again be taken as Russia's attempt to meddle into the Ukrainian presidential campaign. Conflicts are already so high that it may have harmful effects on the Ukrainian economy too: the President - despite the demand of the Prime Minister and IMF - signed the law on increasing social standards, while the opposition Party of Regions accused the Prime Minister with campaigning from the IMF's loan. Because of a large-scale flu epidemic, the election itself is likely to be postponed. In October the new minister of foreign affairs was appointed: Petro Poroshenko would like to represent a more pragmatic approach towards Russia. The presidential election was a leading issue in the neighbouring Moldova too: the vote, scheduled for 23 October had to be called off, because there was only one candidate. It should be repeated on 10 November. The decision was preceded by a quick 'ordered' visit to Moscow by former President Vladimir Voronin and the presidential candidate Marian Lupu, probably in order to be convinced to reach a compromise. Thus, in November, the new president may be elected. This would speed up the signature of an association agreement with the EU. In October, the Council for the Recovery of the Economy was also set up, with the purpose to lay out proposals for crisis management and structural changes.

In Poland, the presidential election will be held next year, and, as it seems, the popularity of the Prime Minister (and likely presidential candidate) Donald Tusk was not marred by the so-called 'gambling-gate' scandal. The Prime Minister announced that the government would implement draconic measures against the gambling industry in order to recover its public image. This will probably be supported by the opposition too. The government also found a possibility to cover its debts from the pension funds: the system of contributions will be changed, and a special fund, which the government can access will be set up. Holes in the budget constitute a major problem in the neighbouring Slovakia too. The budget's deficit will be record high in the next year. The Prime Minister Robert Fico, however, sticks to optimistic predictions. The government has not been able to reach a compromise on the minimum wage with the social partners, so talks will continue. In October, the opposition filed motions of no confidence against two ministers, but these were unsuccessful. A lot of complaints were made against the judicial system after judges have been reprimanded - in an unjustified way, according to protesters. Pál Csáky was re-elected as the head of the opposition Party of the Hungarian Coalition. Slovakia - similarly to the Czech Republic - wanted to be an exception from the Charter of Fundamental Rights of the recently ratified Lisbon Treaty, but the government later declined on this, as the Czech exception will not be ratified just right now either. This was nevertheless enough for the Czech President Václav Klaus to finally sign the ratification of the treaty, after the positive decision of the Czech Constitutional Court. Negotiations have been going on about the next Czech EU-commissioner. No quick deals can be reached either in this matter or in the question of the new program of Jan Fischer's government. The two main parties have been constantly blaming each other's ministers for pulling the government's policies to the left or to the right. The budget may be seriously amended in its second reading. The adoption of the budget is a problem in Romania too. After the fall of the Boc-government the new cabinet of the appointed Prime Minister Lucian Croitoru, made up from second-line experts and Liberal Democrats was not approved by the parliament. Deputies also refused to endorse the initiative of the President to call a referendum on a smaller parliament. The IMF warned Romania that the condition of the next tranche of the Romanian loan is the adoption of the budget. The now interim Prime Minister Emil Boc promised to do this by 10 December, although the political situation will be clear and visible only after the 22 November presidential election. Maintaining the economic stability is, nevertheless, the interest of all the parties, so the adoption of a solution is almost certain.

In November the Moldovan Parliament and the citizens of Romania will vote for the countries' next presidents. Kosovo and some municipalities of Montenegro and Albania will hold local elections. The campaign will continue in Croatia and Azerbaijan. The Serbian parliament will debate on the statute of Voivodina. The fate of the Lithuanian government will be decided. The Croat and Slovene parliaments will vote to ratify the border arbitration deal. In Ukraine a decision will be taken about the postponement of the presidential election.

10 November: presidential election in Moldova

15 November: local elections in Kosovo

22 November: presidential election in Romania.