Tuesday, May 10, 2005

Social Democracy in Central Europe

Today at the Financial Times there is some very revealing comment in the article -

Turbulent times for Social Democrats in Central Europe

The FT writes that:

Entry to the European Union should have stabilised the political scene in central Europe and bolstered the region's ruling Social Democrats, but instead prime ministers are resigning across the new member states, with opinion polls predicting defeat for their governments.

The disintegration of the centre-left is blocking crucial decisions about economic reform and ratification of the European constitution, and risks bringing to power populist rightwing governments that could take a much more confrontational stance towards Brussels. So far, however, financial markets have shrugged off the political turbulence because they see greater chance of fundamental economic reform once the Social Democrats are ousted.
I suspect the markets are correct.

“Populist rightwing government” The horror! The horror! Social Democrats, as anyone with even a rudimentary knowledge of contemporary German politics will know, are no strangers to populism and the breed of “social democrat” in Central Europe is no different. Let’s not forget that it was the Socialist party in Hungary that offered many public sector employees a 50% pay rise in the run up to the elections in 2002 – populism or bribery, take your pick. A point the FT also conveniently omits is that many of the so-called “social democrats” in central Europe are former members of the Communist Party and their credentials as "Social Democrats" are at best suspect. There is also the fact that people in Central Europe are sufficiently suspicious of all politicians, who all seem to be unusually wealthy, to want to change their governments at every opportunity just to make sure they still can; given past history, not to mention endemic corruption which more often than not goes to the highest political office, that suspicion is not without some justification.

The FT continues that:
The political turbulence in eastern Europe is partly a reflection of the fact that democracy was only established 15 years ago. With the exception of Hungary the new European members use proportional representation electoral systems that encourage power sharing and a multitude of parliamentary parties.
Power sharing and a plethora of parties is surely a healthy sign – far better than the opposite. What is preferable, power sharing, or, that a party that polls only 36% of the vote gets over half the available seats? The latter may pass for “representative” democracy in the UK but it wouldn’t work in too many other places in EUrope! Also Hungary has a mix of “first past the post” and proportional representation – a candidate must gain over 50% of the vote to be directly elected to parliament, how many candidates in the recent UK elections would pass that test? Not many!

The FT whilst lamenting the fate of Social Democrats does at least admit the fact that they have broken their promises and are embarking on programmes of unpopular reform.
Yet the political problems mainly reflect a crisis within the region's dominant Social Democratic parties, which promised to ease the pain of the economic transition to membership of the eurozone when they came to power at the start of the decade.

This autumn Polish elections are forecast to mark the start of a regional swing back to the right, with Hungary and the Czech Republic set to follow in 2006. Social Democrats are being punished for breaking their promises to their voters and honouring those made to the EU. Economic reforms, budget cuts and modernisation of the welfare state - however tentative - have antagonised voters and important lobby groups.

Disillusioned Social Democrat voters have defected to extremist parties of the left, as in the Czech Republic, or the right, as in Poland. "Social Democrats lost a lot of their identity in the eyes of their potential voters by doing things Social Democrats were not meant to do," says Jiri Pehe, a Czech political analyst. "People were prepared to put up with tough reforms as long as they were on the road to joining the EU. People now think: 'We're in, don't we have the right to take a break?'
Why are they embarking on programmes of unpopular reform and cutting back on public spending at a time when it is urgently needed? The reason is simple - qualifying for the Eurozone membership. Most of Central Europe’s economies are running budget deficits that are way in excess of the ERM2 limits - either they reform or they miss the target dates and find themselves punished by the financial markets. Only the other day the Governor of the National Bank of Hungary was quoted as saying:
“Hungary needs fundamental economic reforms in order to be ready for euro zone entry by 2010 as planned, MTI quoted central bank (NBH) Governor Zsigmond Járai as saying.

Járai said on Wednesday he expected the current account deficit to reach 8-9% of GDP in 2005, attributing this performance to the high budget deficit.

“Reducing the size of the public sector and of public spending is of special importance for meeting the Maastricht criteria, he said, adding that the central bank doubted the government statistics showing that the budget deficit as a percentage of GDP was in line with the criteria.

He also said the high public sector deficit and the ongoing reluctance of the government to tame spending would constrain the NBH's room to ease monetary policy in the short term

FromJárai urges sweeping reforms @ Portfolio.hu
Public spending cuts are going to be unpopular in Hungary for example, because some 20% of the working population are employed in the public sector so any reform of this bloated soviet legacy bureaucracy is going to cost votes. Then there is the poor state of public hospitals some of which cannot even supply their patients with cutlery, let alone the fact that standards of treatment are falling as many of the best Doctors have been quite deliberately recruited by “western” EU states where the pay and benefits are literally 10 times better. The roads are a hazard for anything but a tractor they are in such a poor state of repair. 30% of the buildings in downtown Budapest were recently described by the city council as dangerous. Approximately 50% of Budapest’s sewage goes into the Danube untreated. The railway network, like the road network needs considerable money spent on it to even make it saleable ...... there is a veneer of prosperity, but it is just that, a veneer.

It was all supposed to better after joining the EU – at least that was the message given by the ruling Social Democrats. The problem for these people, many of whom are ex Communist party members, is that there is more transparency today and the truth tends to get out in a way it didn't prior to 1989 – people are not surprisingly becoming somewhat disillusioned with the EU; they were led to believe it was something which it isn’t!