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3/30/06

FT.com - Central Europe feels chill wind from global investment climate by Stefan Wagstyl

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Central Europe feels chill wind from global investment climate by Stefan Wagstyl

Hungarians would prefer to ignore the financial turmoil that has hit Iceland. But there are concerns that the same chill winds blowing around Reykjavik could be felt in Budapest and, possibly, other central European capitals. Rising global interest rates are pushing down currencies in Poland, the Czech Republic, Slovakia and Hungary. There is no sign of imminent financial upheaval. But fund managers are concerned that an adverse change in the global investment climate has coincided with a bout of political uncertainty - with Hungary, the Czech Republic and Slovakia facing parliamentary elections and Poland beset by reports that a fragile government may be forced to go to the polls.

Governments have pressed ahead with EU-linked reforms. But unlike the Baltic states, central European countries have recently balked at serious fiscal restructuring. Except for Slovakia, they have declined to cut welfare budgets which swell their fiscal deficits. Voters, buffeted by change since the fall of Communism, have grown weary of reform and populists have gained ground by promising to ease transition through increased social spending.

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