Companies doing business in Eastern Europe are likely to face an uncertain political climate in the near future. Part of this is the fallout from the Russian Ukraine controversy. Another factor is the residual effects of the 2008 economic collapse and the inability of economies to recover. A third is political growing pains accompanying the conversion from communism to liberal democracy.
In Poland, the effects of turmoil in Ukraine are being felt most dramatically. As Russia’s confrontation with the EU continues to escalate, Poland, a NATO member, is feeling pressure as a front line state. With a long history of conflicts with Russia, the Poles have reason to be wary. In response, they are undertaking a $46 billion military modernization program, which includes a modern short and medium range air defense system.
Croatia is an example of a country still reeling from the 2008 financial crisis. That nation is now in its sixth consecutive year of recession without any end in sight. Their economy was looking for a boost from trade with western Europe, but unfortunately even some western Europeans including nearby Italy are still struggling themselves. Some large Croatia companies are managing to expand, but their growth is coming primarily from outside the country.
On the political front, Hungary’s government is grappling with the question of how democratic and liberal it should be. This issue was starkly raised by Prime Minister Viktor Orban in a recent speech in Romania. Hungary is a member of the EU, and the country’s economic growth depends on how the government resolves this issue. This is because the EU has promised Hungary $20 billion in aid over the next seven years. EU leaders might very well link that aid to political developments within Hungary.
Those companies seeking to do business not merely in Poland, Croatia, and Hungary, but elsewhere in eastern Europe have to weigh carefully the political and economic issues in each country. Turmoil is likely to continue at least in the short term.