With Central European governments constantly changing the rules, it has become impossible for families or businesses to plan for the future
A quarter century might seem like a long time, surely time enough to plan to pay off a mortgage or save into private pension account. Not so in post-communist Central European countries, where any change of government could bring a policy shift that makes a mortgage impossible to pay off or wipes out a private pension account.
Just look at the pension reforms in Hungary or Poland or at the constant pressure of the Slovakian leftist-populist government on savers from the second pension pillar – the private funds – to bring their money back into state system, as has already happened in the Czech Republic.
And already infamous loans in Swiss francs in Hungary and Poland are now being converted into local currencies after the huge pressure placed on banks by the national governments. General opinion is these loans were not to be allowed by financial regulators. They might look attractive during boom times but during financial crisis with little support from populist policies and volatile financial markets, they have proved to be an unbearable burden.
While in Hungary the issue of foreign currency loans has already been solved after years of quarreling between the government of Viktor Orban and foreign-owned banks, a similar fight is now going on in Poland, where parliament is working on a similar proposal – to convert any loans in Swiss franc to zlotys.
Since 2010, there have been political changes in Poland, Slovakia, Czech Republic and Hungary, all of which have demonstrated that any long-term planning is tricky. October elections in Poland brought to power a culturally very conservative government that emphasizes a strong state role in the economy. The new government and parliament quickly changed many laws reminiscent of the decisive changes in Hungary after the sweeping Fidesz victory in 2010.
The result: Not only do the victorious political forces quickly put down deep roots but also that changes are unpredictable and their impact is not clear. Now in Poland there are many complaints about new laws, mainly politically motivated. Least often does one hear any critique of the economics, the argument that, for example, with new taxes for retail or new social benefits for children, there were no proper models, no analysis or accounting.
Therefore nobody really knows what the impact would be on the state budget or on family spending. Polish banks are already increasing some fees following a new bank tax recently adopted by Parliament.
Hungarian experience has already shown that quick and constant changes and revisions of ill-prepared laws create uncertainty among local as well as the foreign business community, which then hesitates to make investment or development decisions in Hungary.
Needed: Stable Institutions
A different trend is at work in Slovakia, where the current ruling party Smer is the favorite for elections scheduled for March 5. So we can expect continuity of the hidden deals among party insiders, unpredictable and rotten court decisions and a populist program of free rail pass on national trains for a full half of the population. It is not an environment for predictable long term planning for a family mortgage – even as the rates are at historical lows.
Central Europe is not the only region currently affected by populist policies. But it is clear that if you do not have stable institutions, an efficient and independent judiciary or a professional state administration, it can be quite hard to stabilize the decisions of voters that sometimes go wildly off track following strange promises of even stranger people.
When any election could bring a substantial change of political orientation – or at least the notion of such change which is now the case of Poland – the situation becomes dangerous, especially in the harsh international environment we face now during the EU economic and migrant crisis. Central European societies shaken by the political change twenty-six years ago have not settled down, and have not yet found a stable new foundation.
To go through political, economic and cultural changes all at one time has proved much too demanding, particularly with a financial crisis interrupting this process.
So it looks as though “long term” thinking in Central Europe must be short.