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News
War Economy Reshuffles in Russia and Europe
13 May 2024
EU dynamics shifted with the election of a pro-EU government in Poland. Despite Hungary’s expected isolation in the EU, PM Orban is a high-risk factor in supporting Ukraine.
EXECUTIVE SUMMARY
- The EU must be able to match declarations of support for Ukraine with actual delivery, especially in the face of a weakening U.S. resolve. The EU must move fast to revamp its arms industry to support Ukraine and build its own resilience to a belligerent Russia and China.
- Internally, the EU faces a discussion on tying further enlargement to treaty changes. Poland’s new PM Donald Tusk poured cold water on such conditionality.
- The EU Commission proposed a Democracy Defence Package on 12 December, the main plank of which is a “foreign interference” law. The package also includes legislative proposals on media freedom and civic involvement in policy-making.
- The proposals have come under criticism from NGOs as too restrictive, while apparently serving Hungary’s ruling Fidesz as an excuse to adopt a draconian “sovereign protection” for muzzling political dissent.
- The EU must find ways to prevent Hungary’s Viktor Orban from sabotaging the strategic security objective of bringing a well-armed and prosperous democratic Ukraine into the bloc. It also faces a prospect of transactional Slovak PM Fico.
- Democratic security resilience will be severely tested not just by Orban, but also the resurging far-right across the EU, Poland’s case becoming an outlier.
- Before the EP elections 2024, EU citizens need reassurances on the EU’s ability to control irregular migration as well as ensuring just energy transition if they are to discard anti-establishment parties. The EU institutions agreed on tighter asylum rules in December.
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INTRODUCTION
The following overview of specific areas has been prepared on the basis of our weekly outlooks that monitors democratic security developments in the CEE and a survey by a panel of experts – Visegrad Insight fellows from CEE countries.
Ukraine is the prism through which key EU policies need to be considered
As initial optimism that Ukraine’s summer offensive could turn the tide of the war dissipated in the fourth quarter of 2023, the EU struggled to maintain coherence in delivering support for Kiyv.
While the December summit opened membership negotiations with Ukraine and Moldova, Hungarian PM Orban blocked the 50 billion euro aid package for Kyiv, manifesting his fundamental hostility to its membership. Outrage over Orban’s ability to hijack the EU’s agenda and get away with it has revived calls for the EU to deprive the country of its voting rights.
The summit granted Georgia the candidate status and confirmed readiness to open negotiations with Bosnia and Herzegovina, calling EU enlargement a strategic necessity and a way to boost peace and prosperity on the continent.
EU leaders said internal EU reforms, aiming to increase majority voting, would have to run parallel with negotiations to take in new members. The question of internal reform as well as the Hungarian blockade will hang over accession negotiations with Kyiv.
The prospect of a weaker U.S. resolve to support Ukraine with arms and money, has resulted in growing awareness in EU capitals that Europe needs to advance faster with strategic capabilities in defence industries.
While 2023 was the year of alignment of European and NATO threat analysis versus Russia, the presidential election in the United States can fray transatlantic unity.
Tackling migration will remain a key challenge. The war in Gaza is not just testing the EU’s Middle Eastern policy, but adds urgency to the implementation of the new migration pact.
The EU is also facing the need to maintain coherence on sanctions on Russia and decoupling from its energy supplies, while avoiding becoming overdependent on China for its renewables push.
“The strategic use of energy dependence that we’ve seen from Russia over the past 30 years is coming to an end very, very rapidly,” observed Breugel’s Heather Grabbe during a Visegrad Insight’s debate in Brussels on the future of Europe in November.
“It is disruptive in many respects, but it’s really important, and it’s especially important for energy solidarity, both within the union and also with Ukraine, Moldova, and indeed, reduces Russia’s role in the Baltic in the Balkans countries too.”
POLITICS
Between European Unity and Disunity
The clear victory of pro-Europe coalition led by Donald Tusk over nationalist Law and Justice in Poland’s October elections changed the political balance in the V4 countries.
Tusk’s declaration that Ukraine is a top EU priority and stress on defence cooperation with the Nordic and Baltic countries leaves Viktor Orban more isolated than ever.
Still, Orban seems determined to wield his veto in the EU council to jeopardise Ukraine’s progress towards membership, seeing it as an existential threat to his regime.
The EU will test its capability to deal with Orban’s threats at the special February summit devoted to EU finances and aid to Ukraine.
The EU also needs to keep an eye on Slovakia, where the new government of PM Robert Fico is following Orban’s attempts to buy immunity for corrupt practices in return for not blocking Ukraine’s aid.
Fico’s position is not as strong as that of Orban, however, because his control over Slovak parliament is wafer thin. Attempts to abolish the special prosecutors’ office resulted in street protests across Slovakia in December.
The junior coalition partner of Fico’s Smer party, the leftist Hlas, is seen as less willing to confront the EU over the rule of law and civil society liberties.
“Pressure should be put by the Socialists and Democrats (in the European Parliament) on Hlas. Does the S&D group really want to have one of its member parties implement those kinds of restrictions? This is a question for the S&D group and although Smer is pretty much irredeemable, Hlas probably isn’t,” Garvan Walshe of the European Policy Centre, said.
While Poland and Czechia seem to be moving in the opposite direction to Hungary and Slovakia, the popularity of the government in Prague has plunged midway in its term. Trust in the centre-right cabinet of Petr Fiala dropped to 17%.
“From a security or democratic press perspectives, this (low popularity of the government) is a kind of a warning,” Visegrad Fellow Martin Ehl said. “But in general, you find in GLOBSEC trends this year that the Czech Republic is considered to be the most democratic and most pro-Western among our (V4) societies.”
New survey Democratic Trends in Central Europe also gives a glipse of hope showing that Hungarians’ preference for democratic rather than autocratic type of government is even stronger than in Czech Republic.
Snap parliamentary and municipal elections in Serbia returned the Progressive Party allied with President Aleksandar Vucic to hold on to power, including in Belgrade. The pro-EU opposition cried foul over reported irregularities, and protests erupted in the capital.
SECURITY
Collective Defence or Unilateral Action
The European Commission made a renewed push for better coordination of the EU defence industry and supply chains. The failure to deliver enough basic artillery ammunition to Ukraine has highlighted the fragmentatyion and underinvestment of the EU’s defence industry.
Political commitment increases against an opposite trend in the societies – “even the Latvian society, which is one of the most supportive societies towards Ukraine, 50% of people say that they are tired of news of war”, said Sigita Struberga of the Latvian Transatlantic Organisation.
The EU is also becoming increasingly concerned with China’s investments in key trading and military ports on the continent, including Poland’s Gdynia, Greece’s Piraeus or Germany’s Hamburg.
The growing scrutiny of Chinese control of port infrastructure is set to increase questions over the Hungarian government’s planned investment in the facilities in Trieste, an Adriatic port that is a gateway to Western and Central Europe.
Hungary continued to block the ratification of Sweden’s NATO accession.
The new Slovak government cancelled a military aid package to Ukraine worth 40 million euros, prepared by its predecessors, at a cabinet meeting. At the same time, the government signalled it would allow Slovakia-based arms manufacturers to sell their products to Kyiv. This dichotomy is emblematic of PM Fico’s political style of playing symbolic nationalism to the domestic constituency, while behaving pragmatically in relations with international partners.
Poland’s new government vowed to maintain arms contracts with U.S. and Korean suppliers although it also said it would review them for any sign of irregularities.
Just after losing the election, the outgoing government announced it was purchasing $5 billion worth of an advanced anti-aircraft defence system from Britain.
INTERNATIONAL RELATIONS
Enlarged EU or the Ivory-Tower
Both Hungary and Slovakia seem ready to maintain cordial ties with China, with Slovak PM Fico declaring he would go on a visit to Beijing in the new year. Orban and Fico see Chinese investments in battery and electric vehicles as key drivers of economic growth.
Poland’s new government has yet to announce its China policy, but is generally expected to take a more cautious and EU-aligned approach than the outgoing administration.
V4 countries are demonstrating diverging views on the outcome of the U.S. elections, with Orban openly courting Donald Trump and radicals in the Republican party, while the Czech Republic and Poland view a potential change at the helm of their main NATO ally as a security risk.
Hungary threatened to join Austria in blocking Bulgaria’s Schengen area access after Sofia moved ahead with plans to impose a tax on Russian gas transit. In the end, Sofia scrapped the plan.
At a summit of Balkan and EU leaders in Albania, the EU promised candidate countries from the region access to the single market and a $6 billion investment package if they implemented a series of reforms bringing them closer to membership.
ENERGY
Between Dependence and Interdependence
With the EU’s dependency on Russian fossil fuels radically reduced, the bloc continues to push for a greater role of renewables and nuclear in the power mix. Although that raises concerns about becoming overdependent on China when it comes to renewable technologies, as outlined in a recent Visegrad Insight brief, the risks seem to be mitigated by a more competitive market structure compared to Russia’s monopolistic approach, argued Heather Grabbe.
“Yes, we can argue about how much of our renewables technology we’ll need to import from China, but this is from a variety of Chinese firms. It’s not one monopoly supplier, which is completely in the control of the government. And it’s also purchases by a huge variety of entities on the EU side,” she said.
Alternative gas supplies from the U.S. as well as Azerbaijan also increase EU diversification. Several EU member states, incluidng France and Sweden, show renewed interest in nuclear energy.
The European Parliament supported the development of small nuclear reactors as part of efforts to diversify from fossil fuels.
Poland’s new government has vowed to speed up the deployment of renewables, while sticking to plans to build a nuclear plant.
Hungary and Romania plan to increase the capacity of their gas interconnector. This will enable Hungary, which has been struggling to diversify its supply, to access more Black Sea gas. They also aim to link their electricity grids, and Romania will keep allowing the transit of fuel rods for Hungary’s Paks nuclear plant.
ECONOMY & TECH
Prosperity for All or the Few
CEE economies are set to see inflation continuing to moderate, while growth is expected to pick up pace, according to the latest European Commission forecasts.
Polish and Slovak truckers have been blocking border crossings into Ukraine since early November, causing delays to crucial Western deliveries for the country.
The protests, which defy EU agreement on allowing Ukrainian drivers unfettered access to the bloc, have disrupted businesses on both sides of the border. The new Polish government has vowed to end the protests but seems to be reluctant to take decisive measures against the protestors, who are actively supported by Russia-friendly, far-right parties.
The EU adopted a law requiring companies to report on how they adhere to Environmental, Social and Governance (ESG) principles in their supply chains. France won a reprieve from the strict reporting rules for banks and nuclear plants.
INFORMATION SOVEREIGNTY
Plurality of Sources
The European Council and the Parliament reached a deal on the Media Freedom Act to protect journalistic freedom and pluralism in the bloc. One of the most contentious issues from the point of view of CEE experice was the issue of state surveillance that targets journalists.The complexity of securing media freedom in some member countries was illustrated by a stand-off over the Polish state broadcasters between the new and old governing majority.
Tusk’s government moved swiftly to replace heads of public radio and television, which had been propaganda mouthpieces for the outgoing nationalists and vilified the opposition during the election campaign. The Law and Justice Party rushed to the defense of the sacked executives and party-affiliated journalists, claiming the new government was subverting plurality.
In principle, the government’s action stands in contrast to the EU Media Freedom Act proposal but was a necessary step to restore both the rule of law and authentic independence of the public broadcasters.
The Czech branch of the International Press Institute called on energy tycoon Daniel Křetínský to observe journalistic standards. Media from the Czech News Centre publishing, controlled by Křetínský and his Slovak business partner Patrik Tkáč have been accused of biassed reporting on the acquisition of Net4Gas pipeline operator by state-owned power grid operator ČEPS.
RULE OF LAW
State Capture or Independence
The EU unblocked 10 billion euros in funds for Hungary before the December summit after Budapest passed legislation theoretically improving judiciary independence. Critics say the EU was taken for a ride by Orban again because in reality not much will change in how his Fidesz party controls the courts and prevents them from ensuring EU funds are not improperly used by Orban’s patronage system.
Poland’s new government took first steps to restore the rule of law. Justice Minister Adam Bodnar, widely respected former ombudsman, issued an instruction to courts to adhere to EU court rulings – a practice which the outgoing government and their captured constitutional tribunal tried to subvert.
The government’s judicial reform plans are hostage, however, to a veto by President Duda, who insists that judges he had appointed on the recommendation of Law and Justice-captured judicial council remain in their posts.
A battle is also looming over the central bank, whose governor, Adam Glapinski, is a Law and Justice stalwart who openly supported the party in the election campaign and berated the EU as a “German” project aiming to subjugate Poland.
The European Anti-Fraud Office (OLAF) and the European Public Prosecutor’s Office (EPPO) have been looking into suspected fraud worth 15 million euros in Romania. 38 house searches were carried out this week following OLAF’s and the EPPO’s investigations. Read more about how corruption affects Romania’s economic outlook
SOCIETY
Polarisation or Cohesion
Poland’s election saw a record high turnout of 74%, reaching over 90% in big cities, in a show of democratic resilience in the biggest V4 nation after 8 years of rule of law and democratic backsliding by Law and Justice.
Hungary’s Fidesz changed the constitution to pass a “sovereignty protection law“, which stipulates draconian penalties and prison terms for civil society organisations or political movements accepting any funding from abroad, including from Western donors trying to keep the Hungarian civil society afloat.
In a language taken straight from Vladimir Putin’s playbook on suppressing civil society, Fidesz argues the bill would “make things harder for those who are selling out our country abroad in exchange for dollars.”
The legislation comes as Fidesz seeks to tilt the playing field in its favour despite waning popularity before twin European and local elections in June.
“There will be absolutely no opposition campaigning for these elections,” Visegrad Insight fellow Dorka Takacsy remarked, saying the law will have a chilling effect on opposition candidates and civil society organisations.
AUTHORS
Adam Jasser
Wojciech Przybylski
PROJECT
Visegrad Insight is the main Central European analysis and media platform. It generates future policy directions for Europe and transatlantic partners. Established in 2012 by the Res Publica Foundation.
Foresight on European Values and Democratic Security (FEVDS). This project engages CEE experts in a foresight-driven debate on the future EU policy development to protect European values and freedoms.
