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Central and Eastern European Update - July 14, 2006

Core Content Overview

This summary presents key developments in Central, Eastern, and Southeast European countries as of July 14, 2006, focusing on political, economic, and defense-related news. It highlights actions by governments, international cooperation, and strategic investments in the region.

Czech Republic

• Political Stalemate: President Vaclav Klaus announced readiness to intervene in resolving the post-election political deadlock, which has lasted five weeks. He planned to meet with party leaders to encourage compromise, while Jiri Paroubek remained in the role of Prime Minister.
• Missile Defense: The Czech Ministry of Defense invited U.S. experts to assess three potential military sites for future missile-defense bases as part of a global defense network.
• Energy Sector: The European Commission approved EON's acquisition of the Czech gas distribution and supply company Praska Plynarenka, enhancing EON's position in the Czech gas market.

Hungary

• Budget Deficit Reduction: Prime Minister Ferenc Gyurcsány implemented a series of tax hikes under the New Equilibrium program to reduce the country's budget deficit. Key changes include increasing VAT and EVA rates to 20%, introducing a 4% solidarity tax, and a new 20% tax on interest and exchange rate gains.
• Economic Response: Despite social protests and opposition from the banking sector, the austerity measures were positively received by financial markets, with the forint reaching a two-week high.
• Convergence Council: A new "Convergence Council" was established to advise on Hungary's future convergence program, to be submitted to Brussels by September 1.

Poland

• Government Change: President Lech Kaczynski appointed his twin brother Jaroslaw Kaczynski as Prime Minister, leading to the resignation of outgoing Prime Minister Kazimierz Marcinkiewicz.
• International Cooperation: Polish and foreign emergency teams participated in joint rescue exercises in the Klomino range, involving 500 rescuers from eight countries.
• Economic Development: Dell Corporation is considering building a production plant in Lodz, Poland, which would create 2,500 jobs and invest at least EUR 100 million.

Slovakia

• Euro Adoption: Despite earlier statements about possible delays, Finance Minister Jan Pociatek confirmed Slovakia's commitment to meeting the Maastricht criteria for euro adoption by 2009.
• Currency Devaluation: Conflicting statements from government officials regarding the euro have raised concerns about investor confidence and contributed to the Slovak crown's devaluation.
• Foreign Policy: The first official visit of new Foreign Minister Jan Kubis eased concerns in Budapest about the pro-Hungarian stance of the new government, which includes the Slovak National Party.

Baltic States Update

Lithuania

• Airspace Violations: The Lithuanian Air Force investigated a suspected airspace violation by a Belarusian Mi-24 helicopter, though the Belarusian Defense Ministry denied the claim.
• Government Formation: President Valdas Adamkus signed a decree approving a new government, which will have a minority in parliament and be led by Prime Minister Gediminas Kirkilas.

Latvia

• NATO and EU Cooperation: President Vaira Vike-Freiberga met with British Prime Minister Tony Blair to discuss NATO reforms and EU cooperation. This is a significant year for Latvia due to the upcoming NATO summit in Riga and Queen Elizabeth II's planned visit.
• EU Membership: A Eurobarometer poll showed that 64% of Latvians associate the EU with travel, jobs, and studies, while 22% associate it with peace.
• Financial Restrictions: The U.S. Treasury barred American financial institutions from doing business with Latvia's VEF Banka, citing money laundering suspicions, but lifted restrictions on Multibanka.

Estonia

• Schengen Compliance: The EU initiated a three-day evaluation mission to assess Estonia's compliance with Schengen air border requirements, following a June inspection of the sea border.
• Monetary Policy: The Bank of Estonia planned to increase the reserve requirement for commercial banks from 13% to 15% in September to curb loan demand and prevent economic overheating.

Southeast European Update

Bulgaria

• Infrastructure Investment: Bulgaria announced a USD 6 billion investment in infrastructure over three years, with a focus on roads, railways, and environmental projects. Additional USD 9.5 billion is planned for 2009-2015.
• Training Agreement: Bulgaria, Greece, and Iraq signed an agreement to train Iraqi security forces, with 30 troops participating in a two-week program in Bulgaria.
• Bridge Construction: A USD 300 million bridge over the Danube, connecting Bulgaria and Romania, is under tender, with USD 9 million allocated for project supervision.

Croatia

• Trade and Investment: Croatia signed a joint agreement with Kazakhstan for oil transportation and support for its WTO accession. The World Bank praised Croatia's integration into the global trade system.
• Public Spending: The government is advised to limit public spending to ensure sustainable economic growth.

Romania

• Hydro Power Plant: Romania plans to build a USD 71.5 million hydro power plant on the Siret River in Iasi, aimed at providing electricity, creating jobs, and reducing flood risks.
• Danube Delta Dispute: Romania received UN support in its dispute with Ukraine over the construction of a ship canal in the Danube delta, citing environmental concerns.
• Renault Investment: Renault will invest USD 228 million in the Pitesti area to upgrade its Dacia plant, ensuring compliance with EU anti-pollution standards.

Slovenia

• Economic Progress: The IMF recognized Slovenia's successful economic transformation, which supports its path to euro zone membership. The country has achieved solid growth, low inflation, and manageable public debt.
• Legislative Debate: A new bill aimed at improving Roma community organization faced criticism from the Roma Association, with threats of protest marches.
• International Relations: Prime Minister Janez Jansa met with U.S. President George W. Bush to discuss strategic planning in the Balkans, Iraq, and Afghanistan, highlighting Slovenia's contributions to these regions.

About the Select Briefing

• Project: Produced by the CSIS New European Democracies Project, it monitors developments in Central, Eastern, and Southeast Europe.
• Focus: Highlights news in current and future EU member states.
• Team: Includes Janusz Bugajski (Director), Ilona Teleki (Deputy Director), Milena Staneva (Research Associate and Editor), and research interns.

© 2006 by the Center for Strategic and International Studies.