Political Risk in Eastern Europe
The transition of power from one regime to the next has traditionally been less than seamless. And all too often, this can lead to civil unrest in the streets to go along with the political conflict in the cabinet.
—Jared Wade
The decision of whether or not to invest in emerging markets should include an assessment of the political environment. Political discontinuities create a level of uncertainty for companies and individuals because they can lead to significant shifts in policies, regulations, governmental administration, and other potential risk factors that are not typically associated with advanced economies. Political instability can lead to restrictions on products, technology, and labor and even lead to practices of discrimination against foreign firms. This chapter will survey the impact of a series of political and economic risk assessments that include factors such as economic growth, labor unrest, social unrest, armed conflict, and how those elements interact with local investments and foreign direct investment (FDI).
Table 6.1 provides data across a series of government indicators. Table 6.2 follows these indicators with a set of rankings of political risk for Central and Eastern Europe (CEE) countries and nearby states in the region based on Freedom House indices. Countries are rated on a scale of 1 to 7, with 1 representing the highest and 7 the lowest level of democratic progress. The average rating across the categories of “Electoral Process,” “Civil Society,” “Independent Media,” “National Democratic Governance,” “Local Democratic Governance,” “Judicial Framework and Independence,” and “Corruption” is average to create the overall country score. Each ranking is calculated using a series of variables derived from the most recent political data available (as of December 2014).
Table 6.1 Country comparisons of select government indicators
Country |
Total tax rate (% of commercial profits) |
Proportion of seats held by women in national parliaments (%) |
Population growth (annual %) |
Public spending on education, total (% of GDP) |
Literacy rate, (% of people ages 15 and above) |
Bosnia and Herzegovina |
23.3 |
21.4 |
–0.12 |
- |
98.153 |
Bulgaria |
27.0 |
24.6 |
–0.56 |
4.097 |
98.352 |
Croatia |
18.8 |
23.8 |
–0.349 |
4.308 |
99.125 |
Czech Republic |
48.5 |
19.5 |
0.102 |
4.507 |
- |
Estonia |
49.3 |
19.0 |
–0.03 |
5.152 |
99.863 |
Hungary |
48.0 |
9.3 |
–0.233 |
4.712 |
99.374 |
Latvia |
35.0 |
25.0 |
–1.034 |
4.935 |
99.896 |
Lithuania |
42.6 |
24.1 |
–1.065 |
5.198 |
99.816 |
Montenegro |
22.3 |
14.8 |
0.049 |
- |
98.442 |
Poland |
38.7 |
34.3 |
–0.013 |
5.171 |
99.748 |
Romania |
43.2 |
13.5 |
–0.565 |
3.073 |
98.604 |
Slovakia |
48.6 |
18.7 |
0.12 |
4.057 |
- |
Slovenia |
32.0 |
33.3 |
0.162 |
5.681 |
99.701 |
United States |
43.8 |
18.3 |
0.716 |
5.42 |
- |
China |
64.6 |
23.4 |
0.494 |
1.907 |
95.124 |
Source: World Bank API.
Table 6.2 Country ranking by political risk
Country |
Score |
Slovenia |
1.93 |
Estonia |
1.96 |
Latvia |
2.07 |
Poland |
2.21 |
Czech Republic |
2.21 |
Lithuania |
2.36 |
Slovakia |
2.64 |
Hungary |
3.18 |
Bulgaria |
3.29 |
Romania |
3.46 |
Serbia |
3.68 |
Croatia |
3.68 |
Montenegro |
3.89 |
Macedonia |
4.07 |
Albania |
4.14 |
Bosnia and Herzegovina |
4.46 |
Kosovo |
5.14 |
Note: The democracy scores and regime ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The 2015 ratings reflect the period January 1 through December 31, 2014.1
The reader might wonder why assess democratic governance in relation to political risk. A new field in political science has emerged, which attempts to explore greater connections between these two phenomena. There is a renewed interest in the how political risk affects multinational corporations operating in emerging markets, and much of the research has focused on the relationship between democratic institutions and the flow of FDI. Nathan Jensen finds, for example, the democratic regimes reduce risks for multinational investors, specifically through increasing constraints on the executive.2
These relationships, and the variables noted in the Freedom House rankings, will be explored in more detail in country-specific case studies in this chapter. Finally, the chapter will conclude with a discussion on the merits and challenges of attempting to quantify and index political risk.
The next section of this chapter will provide broader analysis and context for the results assigned to each state, including an update on consequential political events from 2015.
Bosnia and Herzegovina
In 1995, the presidents of Bosnia, Croatia, and Serbia signed a General Framework Agreement for Peace to end the war in Bosnia. Also known as the “Dayton Accords,” the treaty preserved Bosnia as a single state made up of two parts, the Bosniak-Croat federation and the Bosnian Serb Republic, with Sarajevo remaining as the undivided capital city. The Bosnian administration split into two distinct entities: the Bosnia-Herzegovina federation, composed of 10 cantons, and the Bosnian-Serb Republic. The complexity of this structure weakens the central executive power, led by the Prime Minister Vjekoslav Bevanda, a Bosnian Croat. The rotating presidency chaired between the three representatives of the Bosnian Muslim, Croatian catholic, and Serbian orthodox communities maintains political inertia and struggles to transcend the ethnic divisions.3
In this context, widespread frustration has increased, culminating in February 2014, in an unprecedented outbreak of violence since peace was restored in 1995.4 Exasperated by the negligent attitudes of privatized companies and unpaid for several months, workers initiated protests and demonstrations. Although most social classes and ethnic groups joined the protest, the movement was strongest within the Bosnia-Herzegovina federation, where nearly half of the prime ministers resigned. This situation highlights the deep unease caused by widespread corruption in a country that had demonstrated the struggle of undertaking reforms. Compounded by widespread flooding that directly affected around one-quarter of the country’s population, the lack of coordination and a late response increased frustration against the ruling political class as a whole.5
The country held legislative and presidential elections in October 2014, which focused mainly on economic and social issues: allegedly corrupt politics, stagnation, and high unemployment. At the time of the elections, the unemployment rate in Bosnia was roughly 27.5 percent, consistently among the highest in the Balkans. Two in three young people reported being jobless. Meanwhile, the salary of lawmakers was six times the country’s average wage, making Bosnia’s members of parliament among the richest in Europe.6
Voter turnout, however, suggests that citizens did not view the elections as an opportunity to change the country’s fortunes. The National Democratic Institute reported that more than 90 percent of citizens surveyed believed the country was moving in the wrong direction and 75 percent were dissatisfied with the performance of governing institutions. Those who did vote supported traditionally “national” parties—SDA (The Party of Democratic Action, Bosnika), HDZ BiH (The Croatian Democratic Union of Bosnia and Herzegovina, Croat), and SNSD (Alliance of Independent Social Democrats, Serb). Thus, ethnic identity continued to be the main driver of politics.7
Meanwhile, in February 2014 the European Commission announced the end of negotiations regarding European Union (EU) membership, after 7 years of discussions, given the lack of reforms undertaken by the authorities. All levels of government are going to be faced with a dire economic situation. Following the census in spring 2015, the first since the Dayton Accords, political analysts expect to see ethnicity continue to frame political negotiations and the work of government. Finally, the business environment is hampered by corruption, inefficiency in the administrative, and judicial systems, as well as the size of the informal sector.
Table 6.3 displays a series of ratings across various government indicators for Bosnia and Herzegovina.
Table 6.3 Bosnia and Herzegovina—Nations in Transition Scores (2014)
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Electoral Process |
3.25 |
3.00 |
3.00 |
3.00 |
3.00 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
Civil Society |
3.75 |
3.75 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
Independent Media |
4.00 |
4.00 |
4.00 |
4.25 |
4.50 |
4.75 |
4.75 |
4.75 |
4.75 |
4.76 |
National Democratic Governance |
4.75 |
4.75 |
4.75 |
5.00 |
5.00 |
5.25 |
5.25 |
5.50 |
5.50 |
5.75 |
Local Democratic Governance |
4.75 |
4.75 |
4.75 |
4.75 |
4.75 |
4.75 |
4.75 |
4.75 |
4.75 |
4.75 |
Judicial Framework and Independence |
4.25 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.25 |
4.25 |
4.25 |
4.25 |
Corruption |
4.50 |
4.25 |
4.25 |
4.25 |
4.50 |
4.50 |
4.50 |
4.50 |
4.75 |
4.75 |
Democracy Score |
4.18 |
4.07 |
4.04 |
4.11 |
4.18 |
4.25 |
4.32 |
4.36 |
4.39 |
4.43 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2014.
Bulgaria
As a post-communist state, Bulgaria has developed a system of democratic governance, joined North Atlantic Treaty Organization (NATO) in 2004 and the EU in 2007. The government has held a number of free and fair general, presidential, and local elections.
Over the last few years, however, the country has showed signs of increasing political instability in key democratic institutions. Since 2012, Bulgaria has had three governments, and inefficiency and graft within the political system, including the judiciary, are considered major obstacles to fighting high-level corruption and organized crime.8 In 2014, an alleged personal conflict between Deylan Peevski, media mogul and politician, and Tsvetan Vassilev, the owner of Corporate Commercial Bank (KTB), led to a banking crisis, a government bailout, and numerous arrests.9
Further, the most recent parliament, elected in October 2014, became the most fragmented in Bulgaria’s democratic history. With eight parties and alliances winning seats, the number of parties doubled compared to the previous parliament.10 The Citizens for European Development of Bulgaria (GERB) emerged as the strongest party, returning to power after being ousted in February 2013.
The next challenge to Bulgaria’s political system, as depicted in Table 6.4, will come in 2015, when the coalition government will work to preserve its majority in the parliament and simultaneously implement unpopular reforms. Local elections will be held in October and the coalition government will certainly be watching the returns.
Croatia
Croatia has been unable to gain momentum in implementing reforms as part of membership in the EU. Economic indicators show that the economy contracted for 12 successive quarters as the Social Democratic Party of Croatia (SDP) and its opposition, Croatian Democratic Union (HDZ), continued their political battles over the legacy of Yugoslav communism and privatization efforts in the 1990s. The inability to provide effective political and economic leadership has led decreasing citizen confidence in government and the emergence of a third party, Croatian Sustainable Development (ORaH).
Table 6.4 Bulgaria—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
2.00 |
2.00 |
2.25 |
2.25 |
Civil Society |
2.75 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.25 |
2.25 |
Independent Media |
3.25 |
3.50 |
3.50 |
3.75 |
3.75 |
3.75 |
3.75 |
4.00 |
4.00 |
4.00 |
National Democratic Governance |
3.00 |
3.00 |
3.00 |
3.25 |
3.25 |
3.50 |
3.50 |
3.50 |
3.75 |
3.75 |
Local Democratic Governance |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
Judicial Framework and Independence |
3.00 |
2.75 |
2.75 |
3.00 |
3.00 |
3.00 |
3.25 |
3.25 |
3.25 |
3.50 |
Corruption |
3.75 |
3.75 |
3.50 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.25 |
4.25 |
Democracy Score |
2.93 |
2.89 |
2.86 |
3.04 |
3.04 |
3.07 |
3.14 |
3.18 |
3.25 |
3.29 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
In the context of an open, transparent society, the relationship between business interests and government officials is unhealthy. In November 2012, former Prime Minister Ivo Sanader was convicted on charges of bribery and kickbacks involving nearly 13 million euros in the biggest corruption trial in Croatia’s history. In a prebankruptcy settlement, the government also forgave taxes owed by media conglomerate Europapress Holding (EPH), leading to criticisms of lack of transparency and favorable treatment in return for positive media coverage. There is widespread concern that other interests groups are using the referendum process to circumvent the legislature, some attempting to address economic concerns and others targeted at restricting the rights of minorities.
Even with the high-profile arrest of Zagreb Mayor Milan Bandic in October 2014 on suspicion of corruption and abuse of office, public distrust in government still remains high. Thus, Croatia’s governing parties are preparing for confrontational campaigns in 2015. Table 6.5 provides the country’s scores.
Czech Republic
The Czech Republic has established stable, democratic institutions and a vibrant civil society (see Table 6.6 below). In 2013, the country experienced a handful of national politics scandals, most notably the spying scandal and resignation of former Prime Minister Petr Nečas.11 Centering on his alleged love affair with his chief of staff, the abuse of secret services, and alleged corruption, the center-right prime minister and his cabinet were forced out of office nearly a year before elections were scheduled.
While the new government formed under Prime Minister Bohuslav Sobotka places significant emphasis on fighting corruption, most analysts view the passage of the Law on Civil Service and other reforms as modest.12 The government maintained high approval ratings throughout the year, with around 40 to50 percent of respondents expressing trust in the coalition.13
Table 6.5 Croatia—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
Civil Society |
2.75 |
2.75 |
2.75 |
2.75 |
2.75 |
2.50 |
2.50 |
2.50 |
2.75 |
2.75 |
Independent Media |
3.75 |
4.00 |
3.75 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
National Democratic Governance |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
Local Democratic Governance |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
Judicial Framework and Independence |
4.25 |
4.25 |
4.25 |
4.25 |
4.25 |
4.25 |
4.25 |
4.25 |
4.50 |
4.50 |
Corruption |
4.75 |
4.75 |
4.50 |
4.50 |
4.50 |
4.25 |
4.00 |
4.00 |
4.00 |
4.00 |
Democracy Score |
3.71 |
3.75 |
3.64 |
3.71 |
3.71 |
3.64 |
3.61 |
3.61 |
3.68 |
3.68 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Table 6.6 Czech Republic—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
2.00 |
1.75 |
1.75 |
1.50 |
1.50 |
1.25 |
1.25 |
1.25 |
1.25 |
1.25 |
Civil Society |
1.50 |
1.50 |
1.25 |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Independent Media |
2.00 |
2.25 |
2.25 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.75 |
2.75 |
National Democratic Governance |
2.50 |
3.00 |
2.75 |
2.75 |
2.75 |
2.75 |
2.75 |
2.75 |
3.00 |
2.75 |
Local Democratic Governance |
2.00 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Judicial Framework and Independence |
2.25 |
2.00 |
2.00 |
2.25 |
2.00 |
2.00 |
2.00 |
1.75 |
1.75 |
1.75 |
Corruption |
3.50 |
3.50 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.50 |
3.50 |
Democracy Score |
2.25 |
2.25 |
2.14 |
2.18 |
2.21 |
2.18 |
2.18 |
2.14 |
2.15 |
2.21 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Former Prime Minister Milos Zeman won the first direct Czech presidential election in January 2013, beating conservative Foreign Minister Karel Schwarzenberg by a margin of 55 percent to 45 percent. Unlike his predecessor, the notoriously euro-sceptic Vaclav Klaus, President Zeman describes himself as a euro-federalist and has advocated closer European integration, though he believes that the Czech Republic should take its time over joining the euro.14 Other statements from the president defending authoritarian regimes around the world, including China, questioning Western involvement in Ukraine, and xenophobic anti-Islamic speeches have drawn severe criticism from the population. By the end of 2014, the president’s approval ratings had significantly dropped.15
The government has been eager to support exports, including signing a joint declaration with China in April 2014. Economic cooperation will also be supported by new direct flight connections, operational in October 2015, from Prague to Beijing with Hainan Airlines (and planned route from Prague to Shanghai). These projects are strongly supported by the Czech government, in addition to a plan to create economic and technological zones for Chinese investors in the Moravia-Silesia region. The agreement did draw criticism from the Czech public because of a clause noting that Tibet is Chinese territory, but the biggest challenge facing the government is the Czech deficit in the bilateral trade. The imports from China to the Czech Republic reached 359 billion Kč and Czech exports to China remained at 42 billion Kč in 2014, creating a deficit of 317 billion Kč.16
The coalition government will need to continue to work together to maintain stability and achieve successful legislative reform, and with no elections scheduled for 2015, there is reason to be optimistic. The government should also benefit from continuing improvement in the economy, without much danger of slipping back into recession.
Estonia
In early 2014, the Estonian government formed a new cabinet following the resignation of veteran Prime Minister Andrus Ansip after 9 years, who accepted a new position in the European Commission. The country held elections in 2015 and re-elected the governing Reform Party, led by Prime Minister Taavi Roivas. The youngest prime minister in Europe, Roivas called for an “Estonian-minded government” in the weeks leading up the election.
Perhaps reflecting the most significant issue facing Estonia today is public-political debate on economic issues and fears over defense due to Russia’s actions in Ukraine. Estonia has seen a number of airspace violations by Russia, and last year a security official was detained on accusations of spying by Russian security agencies. Prime Minister Roivas voiced concerns that Russia could seek to destabilize other former Soviet states following the conflict in Ukraine, while the Centre Party leader, Edgar Saavisar, favors a friendlier approach to Moscow, and has previously suggested that Russia’s annexation of Crimea could be legitimate. Savisar’s position reflects nearly one-quarter of Estonia’s 1.3 million population who identify themselves as ethnic Russians, and many of who are Centre Party supporters.17 Savisar lost some political momentum for his case, however, when he was arrested on charges of bribery in September 2015.
Estonia is consistently acknowledged as one of the least corrupt countries in the EU, according to most recent 2014 and 2015 indices. Key anticorruption measures adopted in 2013 established a framework for enhancing accountability in the civil sector. Although some scandals involving bribery and political influence led to public discussions about lobbying practices, the country remains highly rated in terms of transparency.18
Table 6.7 Estonia—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.50 |
1.50 |
1.50 |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Civil Society |
2.00 |
2.00 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Independent Media |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
National Democratic Governance |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
Local Democratic Governance |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
Judicial Framework and Independence |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
Corruption |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.25 |
2.25 |
2.50 |
2.50 |
2.50 |
Democracy Score |
1.96 |
1.96 |
1.93 |
1.93 |
1.96 |
1.93 |
1.93 |
1.96 |
1.96 |
1.96 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Hungary
The government of Prime Minister Viktor Orbán consisting of the rightwing Young Democrats’ Alliance-Hungary Civic Union (Fidesz) and the Christian Democratic People’s Party (KDNP) was elected to a second four year term in 2014, winning a two-third majority in the parliament. Those assessing democratic governance, transparency, and judicial independence in Hungary have good reasons to be concerned (see Table 6.8 below). In a July 2014 speech, Orbán openly discussed his plans to construct an “illiberal democracy.”
The Fidesz-controlled legislature passed a law in 2010 that established a body, appointed by the parliament—and thus by Fidesz—to regulate the media. The law made it a crime, punishable by fines of up to $900,000, to publish “imbalanced news coverage” or material deemed “insulting” to a group or “the majority” or that insulted “public morality.”
In 2011, parliament passed a law on the “Right of Freedom of Conscience and Religion,” which bore the same relation to freedom of conscience that the media law did to freedom of speech. The law required religious organizations to gain official approval through a two-third vote of parliament, thus creating separate classes of favored and nonfavored faiths.
Peter Kreko, Director of the Political Capital Institute, a think tank in Budapest, admits that he is alarmed by the racial rhetoric Orbán has employed since the refugee crisis began because he is worried that it is effective in engendering support for Orbán’s misguided policies. “At bottom,” he says, “the real source of Orbán’s power is the popularity of his ideas.” In that sense, the problem lies with the Hungarian people. As James Staub and other political analysts note, not long ago Hungary was widely considered the most progressive of the ex-Soviet states. Growing disillusionment with democracy and the free market over the last decade might make Hungarians receptive to ideas they once would have rejected.
These circumstances are further complicated by close ties between political and economic elites, which remain a major source of corruption for the state. Despite several corruption scandals surfacing in Hungarian media, whistleblowers and the U.S. State Department allege that numerous cases have gone uninvestigated by the government.19 Hungary’s corruption rating remains unchanged for the current year, despite ratings declining in nearly every other category for the Nations in Transit scores.
Table 6.8 Hungary—Nations in Transit Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.25 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
2.25 |
2.25 |
2.25 |
2.75 |
Civil Society |
1.25 |
1.50 |
1.50 |
1.75 |
1.75 |
2.00 |
2.00 |
2.25 |
2.25 |
2.50 |
Independent Media |
2.50 |
2.50 |
2.50 |
2.50 |
2.75 |
3.25 |
3.50 |
3.50 |
3.50 |
3.75 |
National Democratic Governance |
2.00 |
2.25 |
2.25 |
2.50 |
2.50 |
3.00 |
3.50 |
3.50 |
3.75 |
3.75 |
Local Democratic Governance |
2.25 |
2.25 |
2.25 |
2.50 |
2.50 |
2.50 |
2.50 |
2.75 |
2.75 |
3.00 |
Judicial Framework and Independence |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
2.00 |
2.25 |
2.75 |
2.50 |
2.75 |
Corruption |
3.00 |
3.00 |
3.00 |
3.25 |
3.50 |
3.50 |
3.50 |
3.50 |
3.75 |
3.75 |
Democracy Score |
2.00 |
2.14 |
2.14 |
2.29 |
2.39 |
2.61 |
2.86 |
2.89 |
2.96 |
3.18 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Latvia
In January 2014, Laimdota Straujuma, an economist and member of the center-right Unity Party, was sworn in as Latvia’s first female prime minister. Her term was short-lived, however, as she resigned in December 2015 amid political infighting within her three-way ruling coalition, leaving the small Baltic nation bereft of a government at a time of growing tension with neighboring Russia.20
Despite these setbacks in national democratic governance (see Table 6.9 below), Latvia continues to craft a new national vision for the state. It successfully administered European Parliament and Saeima elections in 2014 and assumed the presidency of the Council of the EU in 2015.
The security crisis in eastern Ukraine remains a significant concern for Latvian domestic and foreign policy, as in Estonia and other border states. Russian warships and military planes operated very closely to Latvian waters and airspace throughout 2014, prompting widespread fears that Latvia’s Russian minority might be the next to be “liberated” by Moscow.21 According to Freedom House and other reports, the Latvian government leadership “maintained a united position on the need to protect Latvia from potential Russian military aggression and lobbied hard to increase the presence of NATO troops in Latvia.”22
Public opinion polls from March 2014 indicate that an increased NATO presence was supported by 50 percent of respondents.23 By year’s end, Latvia—together with its Baltic neighbors, Estonia and Lithuania— had received commitments of military solidarity from NATO as a whole and several individual member states, including the United Kingdom, the United States, Germany, and Norway. Latvia also pledged to increase military spending to 2 percent of gross domestic product (GDP) by the year 2020, with special emphasis on improved weaponry and airspace defense.24
Table 6.9 Latvia—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.75 |
2.00 |
2.00 |
2.00 |
2.00 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Civil Society |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Independent Media |
1.50 |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
2.00 |
2.00 |
National Democratic Governance |
2.00 |
2.00 |
2.00 |
2.50 |
2.50 |
2.25 |
2.25 |
2.25 |
2.00 |
2.00 |
Local Democratic Governance |
2.50 |
2.50 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
Judicial Framework and Independence |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Corruption |
3.25 |
3.00 |
3.00 |
3.25 |
3.25 |
3.50 |
3.25 |
3.00 |
3.00 |
3.00 |
Democracy Score |
2.07 |
2.07 |
2.07 |
2.18 |
2.18 |
2.14 |
2.11 |
2.07 |
2.07 |
2.07 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Lithuania
In May 2014, incumbent President Dalia Grybauskaitė won the presidential run-off against Zigmantas Balčytis, a member of the LSDP (Social Democratic Party of Lithuania). Popular among Lithuanians, Grybauskaitė became the first Lithuanian president elected to two consecutive terms. Lithuanian politics are composed of shifting coalitions among several different parties. The two largest minority groups, Polish (6.6 percent of the population) and Russian (5.8 percent), are represented by the LLRA (Electoral Action of Poles in Lithuania) and the Russian Alliance parties who plan to form a coalition for local elections in 2015.25
While corruption remains an issue in Lithuania, Freedom House and other sources note that progress has been achieved (see Table 6.10 below). Lithuania ranked 39 out of 175 countries and territories in Transparency International’s 2014 Corruption Perceptions Index.26 The EU has noted Lithuania’s strong commitment to fighting corruption and venerable anticorruption legal framework. However, the EU also noted room for improvement; Lithuania has the highest percentage in the EU of people who have been asked or were expected to pay a bribe: 29 percent.27
In 2014, Grybauskaitė declared that she would not approve ministers whose deputies were included on a so-called “blacklist” created by the Secret Investigation Service (STT). The blacklist contained eight vice-ministers who were allegedly involved in corruption cases. All eight vice-ministers rapidly resigned, including one from the ministry of justice, one from the ministry of agriculture, three from the ministry of environment, and three from the ministry of transport and communications.28
Table 6.10 Lithuania—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
2.00 |
2.00 |
2.00 |
Civil Society |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Independent Media |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
2.00 |
2.00 |
2.25 |
2.25 |
National Democratic Governance |
2.50 |
2.50 |
2.50 |
2.75 |
2.75 |
2.75 |
2.75 |
2.75 |
2.75 |
2.75 |
Local Democratic Governance |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
Judicial Framework and Independence |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Corruption |
4.00 |
4.00 |
3.75 |
3.75 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
Democracy Score |
2.21 |
2.29 |
2.25 |
2.29 |
2.25 |
2.25 |
2.29 |
2.32 |
2.36 |
2.36 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
After completing its 6-month presidency at the council of the EU, Lithuania prepared for the introduction of the euro despite public ambivalence.29 In January of 2015, the council recognized Lithuania’s accession to the eurozone and the country became its 19th member. Lithuania actively pushed for membership in the Organization for Economic Cooperation and Development (OECD), and in October 2015, the OECD outlined a plan for Lithuanian accession.30 The Heritage Foundation increased the economic freedom score for Lithuania in 2015, raising to the 15th freest in the world.31 Lithuania also improved on the World Economic Forum’s Global Competitiveness Report in 2015, moving up to 5 spots to 36th place. This is the 2nd year in a row that Lithuania has seen a significant rankings increase in both sets of reports.32
Poland
Although recent articles have praised central and eastern Europe as a “tranquil port in emerging market storm,” there are still reasons to be cautious.33 Poland, central Europe’s biggest economy and “anchor” of stability, will hold parliamentary elections in October that may bring a change of government. In Poland, central and eastern Europe’s biggest economy, the prime minister has the most powers, but the president wields clout as head of the armed forces, has a say in foreign policy and the power to veto legislation.
In this context, Reuters reports that the presidential election has become a dress rehearsal for the parliamentary vote, when Prime Minister Ewa Kopacz’s center-right Civic Platform party will face a strong challenge from the euro-sceptic Law and Justice Party (PiS), a significant front-runner in the polls.34
Although the government has a strong record on the economy and Poland was the only EU country to avoid recession after the 2008 financial crash (see Chapter 6), it is still struggling to counter a sense among voters that they want to see some fresh faces in power (see Table 6.11 below). The government also lost its strongest political asset last year when Donald Tusk left his position as prime minister to take a senior EU post in Brussels. In an interview in 2014, Rafal Pankowski, an expert on Poland’s political rights, expressed concerns about the impact of Tusks’s departure: “Without him it is difficult to imagine how the party will survive and maintain the same level of support,” he commented. “There is no successor who has the same track record as he does. He holds the party together.”35
In May 2015, Polish President Bronsilaw Komorowski campaigned on a platform that he is a “safe pair of hands” on national security. That message appealed to voters worried that after Russia’s intervention in Ukraine, Poland could become the next target. Andrzej Duda, the conservative challenger, campaigned on a promise to lower the retirement age and warned that if Poland adopts the euro currency, which Komorowski has said he wants eventually to happen, the prices of goods will go up. On May 24, 2015, Global Press reported that Komorowski conceded defeat to conservative challenger Duda, a result that set off alarms across the government, which faces its own election race later this year. The victory for 43-year-old Duda marks the first major electoral wins in almost a decade for his party, the opposition Law and Justice Party. It is close to the Catholic Church, socially conservative, and markets see it as less business-friendly than the governing Civic Platform. These concerns were further indicated when Poland’s zloty currency fell 1 percent against the euro after the election exit poll was released, a sign that some investors are already expecting a change in government.36
Table 6.11 Poland—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.75 |
2.00 |
2.00 |
2.00 |
1.75 |
1.50 |
1.25 |
1.25 |
1.25 |
1.50 |
Civil Society |
1.25 |
1.50 |
1.25 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
Independent Media |
1.75 |
2.25 |
2.25 |
2.00 |
2.25 |
2.25 |
2.25 |
2.50 |
2.50 |
2.50 |
National Democratic Governance |
2.75 |
3.25 |
3.50 |
3.25 |
3.25 |
2.75 |
32.50 |
2.50 |
2.50 |
2.50 |
Local Democratic Governance |
2.00 |
2.25 |
2.25 |
2.00 |
1.75 |
1.75 |
1.75 |
1.75 |
1.50 |
1.50 |
Judicial Framework and Independence |
2.25 |
2.25 |
2.50 |
2.25 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
Corruption |
3.25 |
3.00 |
3.00 |
2.75 |
3.25 |
3.25 |
3.25 |
3.25 |
3.50 |
3.50 |
Democracy Score |
2.14 |
2.36 |
2.39 |
2.25 |
2.32 |
2.21 |
2.14 |
2.18 |
2.18 |
2.21 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Romania
Many political analysts were surprised by the 2014 election of Klaus Iohannis, former mayor of Sibiu and an ethnic German, as the next president of Romania. He achieved a record number of votes from nearly 400,000 Romanians living abroad, and with nearly 1.5 million Facebook followers, he has more digital “fans” than most European politicians. His victory over the political machine of Victor Ponta, the Prime Minister, is regarded as a strong commitment among Romanians for cleaner, more transparent politics (see Table 6.12 below).
In a recent survey, over 90 percent of Romanians expressed beliefs that graft is endemic among their political and economic elites. Freedom House and other corruption indices noted that 2014 was the most successful year so far for the National Anticorruption Directorate (DNA). Prosecutors working with the organization secured important convictions in both the public and private sector, including exposing a serious corruption scandal that operated under four successive government administrations. All told, DNA prosecutors won more than 1,000 convictions and indicted more than 1,100 suspects in 2014; more than 90 percent of those indicted were convicted.
Additionally, President Iohannis faces the difficult balance in foreign policy between positive relations with Russia and the EU. In the fall of 2015, he affirmed Romania’s commitment to EU sanctions imposed on Russia for its actions in Ukraine and welcomed NATO’s increasing presence in an increasingly insecure border region.37
Serbia
On the promise of economic revitalization and a commitment to anticorruption, the Serbian Progressive Party (SNS) won nearly two-third of the seats in parliament in the 2014 elections. This mandate allowed the party to adopt new legislation enabling future EU membership and efforts to normalize relations with Kosovo, which marks a sharp departure from the ultra-nationalism espoused by the state for decades following the break-up of Yugoslavia.38
Table 6.12 Romania—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
2.75 |
2.75 |
2.75 |
2.50 |
2.75 |
2.75 |
3.00 |
3.00 |
3.00 |
3.25 |
Civil Society |
2.25 |
2.25 |
2.25 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
Independent Media |
4.00 |
3.75 |
3.75 |
3.75 |
4.00 |
4.00 |
4.00 |
4.25 |
4.25 |
4.25 |
National Democratic Governance |
3.50 |
3.50 |
3.75 |
3.75 |
4.00 |
3.75 |
3.75 |
4.00 |
3.75 |
3.75 |
Local Democratic Governance |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
3.00 |
Judicial Framework and Independence |
4.00 |
3.75 |
4.00 |
4.00 |
4.00 |
4.00 |
3.75 |
3.75 |
3.75 |
3.75 |
Corruption |
4.25 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
3.75 |
Democracy Score |
3.39 |
3.29 |
3.36 |
3.36 |
3.46 |
3.43 |
3.43 |
3.50 |
3.46 |
3.46 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
The government, under the leadership of Prime Minister Aleksandar Vucic, is attempting to attract foreign investors and improve the environment for doing business in Serbia. Traditionally a strong ally of the Russian government, Vucic has signaled a strong desire to align Serbia with the United States and EU.39 Jose Manuel Barroso, then European Commission president, hailed accession negotiations as “an entirely new chapter in our relations and a major success.”40 EU officials, however, recently emphasized that no new members would be taken before 2020. For Serbia, the key will be the implementation of the 2013 Kosovo agreement, improvement in the efficiency of its judicial processes, and the SNS Party’s ability to make good on its anticorruption promises (see Table 6.13 below).
Slovakia
The 2014 elections marked a historic shift in Slovak electoral politics. In a surprise upset, Robert Fico, Slovakia’s prime minister, lost the presidential run-off election to Andrej Kiska, a businessman and philanthropist. Prior to the March election, Fico dominated domestic politics in Slovakia for most of the last decade.41 This was followed by the equally surprising resignation of Pavol Paška, then fellow Smer Party speaker of parliament, following a corruption scandal.42 These political shifts highlight the unfortunate lack of transparency, as well as continuing clientelism and corrupt practices that persist across the country. No prosecutions moved forward against prominent officials, including Paška in 2014.
Slovakia does have a progressive institutional framework for fighting graft and improving transparency in the public sphere, but corruption remains a serious problem, most notably in public procurement and the health sector (see Table 6.14).43 The Slovak constitution does include a provision on conflict of interest, barring the president, cabinet members, constitutional court justices, and other top officials from pursuing any business activities, receiving pay for brokering deals between the government and private entities or corporations, or receiving income in excess of the minimum wage generated by a side job.44 However, public officials are not required to give a full public accounting of the sources of their income and there are no laws regulating the private gifts they accept.45
Table 6.13 Serbia—Nations in Transition Scores (2015)
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Electoral Process |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
3.25 |
Civil Society |
2.75 |
2.75 |
2.75 |
2.75 |
2.50 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
Independent Media |
3.25 |
3.50 |
3.75 |
3.75 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.25 |
National Democratic Governance |
4.00 |
3.75 |
4.00 |
4.00 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
3.75 |
Local Democratic Governance |
3.75 |
3.75 |
3.75 |
3.75 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
3.50 |
Judicial Framework and Independence |
4.25 |
4.25 |
4.50 |
4.50 |
4.50 |
4.50 |
4.50 |
4.50 |
4.50 |
4.50 |
Corruption |
4.75 |
4.50 |
4.50 |
4.50 |
4.50 |
4.25 |
4.25 |
4.25 |
4.25 |
4.25 |
Democracy Score |
3.71 |
3.68 |
3.79 |
3.79 |
3.71 |
3.64 |
3.64 |
3.64 |
3.64 |
3.68 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
According to Transparency International’s 2014 Corruption Perceptions Index, one in five households in Slovakia reported paying a bribe for health care every year, and health care was perceived as the sector most affected by corruption. Slovakia’s ranking in the Transparency International study improved in 2014, primarily because of the new law protecting whistleblowers, new legislation for the formation of political parties, and the proposed e-marketplace for public procurement bids (although the report expressed reservations about implementation of new laws).46
As in many of the other CEE states, President Kiska also faces the diplomatic and foreign policy challenges of balancing relations with Russia and the West. In a statement to the NATO 2020 conference, he remarked:
This new situation is not a challenge only for military strategic planners. It is a profound political and psychological challenge. Because the single most important and historically verified purpose of NATO is not only its capacity to defend sovereignty of members states by military force. But it’s also our ability to deter anyone who would like to think about testing their own capacity.47
In a follow-up tweet to the conference, he reinforced his belief that “NATO is not a winter coat” to be put on when cold, but that the alliance requires a more enduring commitment from all parties to be an effective deterrent.
Table 6.14 Slovakia—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.25 |
1.50 |
1.50 |
1.50 |
1.75 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
Civil Society |
1.25 |
1.50 |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Independent Media |
2.25 |
2.25 |
2.50 |
2.75 |
3.00 |
3.00 |
2.75 |
2.75 |
2.75 |
3.00 |
National Democratic Governance |
2.00 |
2.25 |
2.50 |
2.75 |
3.00 |
2.75 |
2.75 |
2.75 |
3.00 |
3.00 |
Local Democratic Governance |
2.00 |
2.00 |
2.25 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
2.50 |
Judicial Framework and Independence |
2.00 |
2.25 |
2.50 |
2.75 |
3.00 |
2.75 |
2.75 |
3.00 |
3.00 |
3.00 |
Corruption |
3.00 |
3.25 |
3.25 |
3.25 |
3.75 |
3.50 |
3.50 |
3.75 |
3.75 |
3.75 |
Democracy Score |
1.96 |
2.14 |
2.29 |
2.46 |
2.68 |
2.54 |
2.50 |
2.57 |
2.61 |
2.64 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Slovenia
Slovenia is one of the most politically and economically integrated countries in the region, joining the United Nations in 1992, the Council of Europe in 1993, and the EU and NATO in 2004 (see scores in Table 6.15 below). The state adopted the euro currency and entered the Schengen Area in 2007, followed by achieving full membership in the OECD in 2010.
As Slovenia’s economy showed strong signs of recovery in 2014, political conflict and instability set in. Prime Minister Alenka Bratusek resigned from her post after serving only 13 months, leaving no clear leadership or mandate for the government. This prompted concerns among political analysts who viewed the instability as a risk to the structural reform agenda for 2014 to 2015, including the privatization of key state-owned enterprises.48 Since that time, Bratusek has been under investigation by Slovenian antigraft authorities on suspicion of abuse of power.49
In August 2014, Dr. Miro Cerar assumed the position of prime minister and emphasized long-term sustainable economic growth as the first priority of his administration. In an initial step, the state adopted the asset management strategy for state-owned enterprises, and this commitment was echoed in his statements at the FDI Summit of 2014. When interviewed by the Slovenia Times, Cerar reiterated that the government has been
preparing and implementing measures to lower the administrative burden, amend labor legislation, and lower labor costs. On the other hand, we are creating better business conditions by building and maintaining the infrastructure, promoting and further developing our educational system and innovation-oriented ecosystems.50
Table 6.15 Slovenia—Nations in Transition Scores (2015)
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Electoral Process |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
Civil Society |
1.75 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
Independent Media |
1.75 |
2.00 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
2.25 |
National Democratic Governance |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
2.00 |
Local Democratic Governance |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
1.50 |
Judicial Framework and Independence |
1.50 |
1.50 |
1.50 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
1.75 |
Corruption |
2.25 |
2.25 |
2.25 |
2.50 |
2.50 |
2.50 |
2.25 |
2.25 |
2.50 |
2.50 |
Democracy Score |
1.75 |
1.82 |
1.86 |
1.93 |
1.93 |
1.93 |
1.89 |
1.89 |
1.93 |
1.93 |
Note: The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The democracy score is an average of ratings for the categories tracked in a given year.
Source: The data above are drawn from The World Bank, World Development Indicators 2015.
Cerar may be able to achieve many of these goals, given the consistent and stable support he receives from the National Assembly.
An ongoing issue that may distract from Cerar’s economic reforms is an open border dispute with Croatia. In 2009, the two former Yugoslav states agreed to a deal wherein the five-member tribunal would reach a binding decision on 5 square miles (13 square kilometers) of mostly uninhabited land and coastline. Both Slovenia and Croatia were asked to propose one member for the panel and a key element of impartiality was that no member discusses the tribunal’s work with their government. Slovenia has only 29 miles (46 kilometers) of coastline and argues that its access to international waters hangs in the balance as Croatia, with its 1,050 miles of coastline, seeks to draw the border right through the middle of the disputed bay.51 Croatia recently withdrew from negotiations, calling them “dead” and accusing Slovenia of compromising the integrity of the panel, and Slovenia continues to have issues finding a satisfactory appointment to represent their interests at arbitration. The panel was scheduled to set an agreement by the end of 2015, but no information has been released to date.
Assessing Political Risk
As barriers to regional and international trade are lowered, investors continue to seek new opportunities in emerging markets around the world. As we have seen in the individual case studies, these markets are vulnerable to a wide range of forces, known as political risk, which are beyond the control of potential investors. These risks might include corruption, unstable government institutions, reforming financial systems, uncertain legal systems or regulatory regimes, and even currency instability.
Techniques for assessing these risks are wide ranging, from traditional methods employing comparative ratings and mapping systems (as illustrated in the case studies of this chapter), to special reports, expert systems, modeling, and logit analysis. No assessment method is perfect, and correlating the individual variables does not often yield accurate measurements of potential loss generated by political risk.
Yet, companies acknowledge that no matter their size, they must consider the political environment when planning to conduct business abroad. As noted in previous publications within this series, “one of the most undeniable and crucial realities of international business is that both host and home government are integral partners.”52
Further, it is important to recognize that political risk is taking new and different forms in both advanced and emerging economies. This includes dealing with real or perceived income inequality, sovereign debt, state actions to promote state-owned companies, erecting of trade barriers—all of which have the potential to pose serious threats to companies.
Businesses increasingly focus their attention on financial, market, and operational forms of risk, particularly in the wake of the 2008 economic crisis. According to a recent Global Risk Management study, most companies neither measure nor manage political risk. Instead, they tend to accept (or ignore) them, or avoid entering situations that post significant risk, even when they might lead to a significant opportunity for growth.53
Conclusion
The level of political risk in CEE states reflects the mixture of economic, political, and social progress in reform across the region. On the one hand, political analysts express concern about the growing authoritarian tendencies of regimes in central Europe and central Asia. Since 2000, Freedom House reports that the number of “consolidated authoritarian regimes” across both regions has more than doubled. While opponents of democracy are far less powerful in central and southeastern Europe, there are notable cases where parties and personalities have emerged with strong antidemocratic rhetoric. This is most evident in Hungary, where media freedom, national democratic governance, and the openness of the electoral process have declined dramatically in the years since Viktor Orbán’s and the Fidesz party came to power, more than in any other country in the same period.
On the other hand, nearly all EU member states in central and eastern Europe have reformed their governing institutions and created significant protection for civil society organizations and media outlets. Analysts rank Slovenia, Estonia, Latvia, Poland, Czech Republic, Lithuania, and Slovakia as “consolidated democracies,” with Hungary, Bulgaria, Romania, Serbia, and Croatia, and Bosnia and Herzegovina making strides toward consolidation. Despite concerns about partisan friction and influence over media, the Czech Republic continued to see stability and improvement in its new government. Romania escalated a high number of corruption cases, while Slovakia took steps to improve transparency in its judiciary.
1 Nations in Transit is the only comprehensive, comparative, and multidimensional study of reform in the former communist states of Europe and Eurasia. Nations in Transit tracks the reform record of 29 countries and administrative areas and provides Freedom House’s most in-depth data about this vast and important region. The 2014 edition covers events from January 1 through December 31, 2013. It is an updated edition of surveys published in 2013, 2012, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2001, 1999–2000, 1998, 1997, and 1995. For information, see www.freedomhouse.org/report-types/nations-transit#.VdSJr86lSLg
3 For more information on the impact of the Dayton Accords, see Gelazis (2005).
4 Dzidic (2014); Bilefsky (2014).
5 Thomas (2014); The Guardian (2014).
6 Nardelli, Dzidic, and Jukic (2014).
7 National Democratic Institute for International Affairs (2014).
8 G.K. (2014); Novinite.com (2015); R.P. (2015).
9 Brunwasser (2013); V.V.B. (2013); Novinite.com (2013).
10 “Bulgaria’s 2014 parliamentary election: CEC announces final results” (2014).
12 Mráz (2015).
14 Czech Republic Profile—Leaders (2015).
15 Czech Republic Profile—Leaders (2015).
16 Gatien Du Bois and Michael Davidova (2015); Czech News Agency (2015).
18 Hinsburg, Matt, and Vinni (2015).
19 Human Rights First (2014); Gulyas (2014); Szakacs (2014).
20 “Apstiprināta jaunā valdība Laimdotas Straujumas vadībā” (2014); Kaza (2015).
21 “Šogad Krievijas bruņoto spēku lidmašīnas un kuģi Latvijai pietuvojušies vairāk nekā 250 reizes” (2014).
22 Bukovskis and Sprūds (2015).
26 www.transparency.org/cpi2014/results
27 European Commission (2015e).
28 “Lithuanian Minister of Interior Resigns” (2015); Jurkynas (2015).
29 “Vyriausybės naujienlaiškis” (2014).
30 “OECD Established Roadmap for Membership with Lithuania” (2015).
31 www.heritage.org/index/ranking
32 http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/
34 Goclowski and Florkiewicz (2015).
36 Sobczak and Barteczko (2015).
37 “Romania Supports Sanctions Against Russia until Full Implementation of Minsk Agreements” (2015).
38 “Serbian Prime Minister Vucic Pledges Millions to Srebrenica” (2015).
40 European Commission (2014).
41 “Fico’s Suprising Defeat” (2014).
46 Transparency International (2014); Radka Minecherová (2014).
48 “Slovenia Prime Minister Alenka Bratusek Resigns” (2014).
49 “Police Search Home of Former Slovenian Premier” (2015).
51 “Croatia to Pull Out of Border Dispute Arbitration with Slovenia” (2015).