Q+A: Eurasia Group on risks in Eastern Europe, Russia
09 Mar 2009 18:42:28 GMT Source: Reuters
Q. Could that be a threat to the alliance between Putin and Medvedev? A. So far we have seen scant signs of any destabilizing split between Medvedev and Putin. And within their ostensibly diarchic power arrangement, Putin clearly dominates. That said, it is certainly possible that there is increasing friction between their respective staffs and bureaucracies, but in a political system as weakly institutionalized - and highly personalized - as Russia's this is not wholly out of the ordinary. As far as political power balances go, a dynamic of more immediate concern is the jockeying between the relatively more liberal technocratic faction of the political elite - personified in many ways by Finance Minister Alexei Kudrin - and the hard-line, statist elements of the elite known as the "siloviki" -- from the Russian word for people tied to the security services. In short, the two sides view the financial crisis in starkly different terms -- the liberals, who control the broad strokes of economic policy for the moment, see the crisis as a technocratic policy challenge, and are committed to defending Russias longer term macroeconomic stability and global openness. The hardliners, in turn, have advocated more protectionist and autarchic responses, and many of them are state capitalists eyeing lucrative assets weakened by the financial crisis. Should popular discontent, or silovik power, compel Putin to scapegoat Kudrin or other top liberals, it would be a grim signal about Russia's economic and political future. Q. If the European Union is seen as being unwilling to accept demands from Eastern Europe for a larger financial bailout, what will that mean for European Union stability, relations with the West or potentially relations with Russia from eastern European countries? A. The needs of eastern European countries, their foreign exchange exposure and euro adoption timetable, as well as their economic structure vary tremendously. Given this differentiation, it is very unlikely that a simple east-west split emerges. Some of the recent rhetoric from Hungarian politicians is really aimed at getting support for Hungary, not representative of a broad eastern European view. The Czech Republic, for instance, would be very unlikely to agree to such a plan. There are other strains complicating policy in the EU. For instance, there are areas where fragmented bank regulation and questions over which country would provide support to banks could lead to significant strains between certain countries. Strains are also increasingly acute over the provision of government support to industries. The actions of governments are an increasingly important issue for firms and financial markets. Determining how subsidies are provided and the impact of governmental action is of relatively greater importance. Several firms will benefit from government actions anywhere in the euro zone. Many will also benefit because they have strong political backing, and are located in states with the willingness and financial capacity to provide support. This is the big political question in the EU, and given that government actions continue to grow in importance as a variable affecting the business and financial market environment, these questions are directly relevant to the private sector outlook. Q. Do you see a potential rise in political extremism, xenophobia or nationalism within the region as a result of the crisis? A. Economic pain often exacerbates political division and contemporary Europe is no exception. However, it is critical that extremism and nationalism is not simply ascribed to a reaction to economic developments. One area of particular concern is migration within the EU. This has long been a thorny political subject, driven by a complicated and variable mix of social, cultural and economic factors. It is fair to say that a general sense of aversion to employment of non-nationals is rising; this is consistent with most economic downturns. This could translate into a worsening social environment, compounding migrant decisions to leave on the basis of employment prospects. Periodic episodes of social unrest stemming from discontent at migration, as well as within migrant communities, remain likely. The dynamics are very local, but the prospect of events in one country igniting events in another are likely higher in the current economic and political environment. The countries to which migrants had gone could experience shifts in labor supply and costs. Eastern European countries are at risk of a drop in remittance flows, which are significant sources of foreign currency inflows and consumer purchasing power. However, a return of migrants to eastern Europe could bolster labor cost competitiveness there by easing supply constraints. This would also alleviate long-term aging and dependency ratio issues in eastern Europe, thus minimizing the urgency of opening up to non-European immigration, which is a potentially volatile issue.
People hold placards as they take part in a rally in central Warsaw, March 8, 2009. Several thousand people gathered in Poland capital to mark International Women's Day on Sunday. The ...
