The Economist - UK (2022-05-07)

32 Europe TheEconomistMay7th 2022

officeoftheBostonConsultingGroup.The

tiesthatUkrainianmigrantsandrefugees

areformingwillalsobringeconomicbene­

fitsdowntheline,arguesMrKopczuk.

Theresponses ofcentral andeastern

EuropeanstatestotheUkrainecrisis“will

define theregionfor decades to come,”

saysSonaMuzikarovaofGlobsec,a think­

tankinBratislava.Undeterredbytheeco­

nomicpainofthewar,theyareshowingby

examplethatRussianaggressionmustbe

firmlyresisted.n

Good neighbours

Ukrainian refugee arrivals*

February 24th-May 3rd 2022, m

Source: UNHCR

*Includes people crossing the

Romania-Moldova border

2

Slovakia

Moldova

Hungary

Romania

Poland

0 1 2 3

Rising in the East

Consumer prices, % increase on a year earlier

April 2022 or latest available

Source:Eurostat

1

Euroarea

Hungary

Romania

Poland

Bulgaria

Slovakia

Czech Rep.

Latvia

Lithuania

Estonia

20151050

fidence, that could spell a “perfect storm”,

says  Adam  Czerniak,  head  of  research  at

Polityka  Insight,  a  think­tank  in  Warsaw.

Higher interest rates and weakening econ­

omies  mean  that  rising  government  debt

will become more expensive to service, es­

pecially  in  countries  such  as  Hungary

where debt is already high. 

Spending on refugees will further spur

inflation.  Take  housing.  In  Warsaw  rents

have  jumped  by  more  than  30%  since  the

end of February. Strains on public services

are similar. Refugees have swelled Poland’s

population by almost 8% since the war in

Ukraine started in late February. That puts

pressure  on  health  care  and  education,

which were already in poor shape. This will

be  partially  offset,  however,  by  the  new­

comers  joining  the  local  labour  forces.  In

Slovakia  and  Hungary,  the  dedication  of

ngos and private citizens has compensat­

ed for a lack of public services for refugees.

The war’s economic costs to eastern Eu­

rope look formidable. But that seems not to

have softened countries’ resolve. The eco­

nomic hit is seen as manageable. Poland’s

economy,  which  remains  strong,  had  not

seen  a  recession  in  almost  three  decades

until  the  covid­19  pandemic,  notes  Woj­

ciech Kopczuk of Columbia University. The

Baltic countries suffered much worse dur­

ing the financial crisis, adds Morten Han­

sen of the Stockholm School of Economics

in  Riga.  Citizens  absorbed  that  suffering

because it was needed to join the euro, part

of the countries’ strategic drive to integrate

into the West. As in the current crisis, they

were willing to undergo economic pain to

safeguard their independence.

The  war  and  its  aftermath  will  have

some  economic  benefits  for  eastern  Eu­

rope.  Bulgaria  aims  to  become  a  regional

energy hub. Poland in particular stands to

gain  from  Ukraine’s  post­war  reconstruc­

tion and its increasing integration into the

eu. “No Western country has as close inter­

governmental  ties  with  Ukraine  as  Po­

land,”  says  Oktawian  Zajac  of  the  Warsaw

AustriaandRussia

Blowingbridges

VIENNA

Austriaisatlastrethinkingitscosy

tieswithRussia

“D

espite beinga neutral country, Aus­

tria  positioned  itself  very  clearly,”

says Karl Nehammer, Austria’s chancellor.

Sitting  in  his  offices  at  Vienna’s  baroque

Ballhausplatz, he says that Austria’s imme­

diate backing of eusanctions against Rus­

sia  surprised  many.  Austria  gave  €60m

($64m) to ngos to help Ukraine and donat­

ed  helmets,  protective  vests  and  fuel.  The

small  country  has  taken  in  66,000  Ukrai­

nian refugees. Mr Nehammer sees his visit

to Vladimir Putin on April 11th to appeal for

a ceasefire as part of that support.

Others thought the visit showed ambiv­

alence. Indeed, Mr Nehammer’s backing of

Ukraine  was  not  assured.  Austria,  which

became neutral during the cold war at Sovi­

et insistence, has been notably friendly to

the  Kremlin  in  recent  decades.  Eastern

Europeans  refer  to  it  as  Russia’s  Trojan

horse  in  western  Europe.  After  Mr  Putin

annexed  Crimea  in  2014,  Austria  was  the

first Western country to welcome him for a

visit. The far­right Austrian Freedom Party

(fpö)  frequently  criticised  the  eu’s  sanc­

tions against Russia and praised the coun­

try as a bastion of cultural conservatism. 

The  Austro­Russian  love  affair  peaked

during  the  first  government  of  Sebastian

Kurz,  a  coalition  between  his  övpand  the

fpöfrom 2017 to 2019. Karin Kneissl, then

Mr Kurz’s foreign minister, had Mr Putin to

her  wedding;  images  of  her  curtsying  to

him  after  they  danced  went  viral.  In  2018

Mr Putin and Mr Kurz met four times.

Mr Kurz’s government fell in 2019, after

a  secretly  filmed  video  showed  Heinz­

Christian Strache, then vice chancellor and

leader of the fpö,seeming to accept an of­

fer of financing from a woman pretending

to be the niece of a Russian oligarch. (The

meeting  took  place  at  a  louche  drinking

party in Ibiza; the woman offered to invest

€250m  in  Austria  and  buy  newspapers  to

support the fpö.)Mr Kurz returned to pow­

er  in  2020  with  a  coalition  government

that  included  the  Greens  and  a  foreign

minister, Alexander Schallenberg, who is a

committed  Atlanticist.  The  flirtation  with

Mr  Putin  started  to  cool.  “Austria  vastly

overestimated the geopolitical role it could

play  as  a  bridge­builder  between  Russia

and  the  West,”  says  Gerhard  Mangott  of

Innsbruck University. 

Still,  economic  relations  are  substan­

tial.  Austria  gets  80%  of  its  natural  gas

from Russia. One­quarter of all gas deliver­

ies  from  Russia  to  the  euflow  through  a

hub in Baumgarten, in lower Austria. Rus­

sia is the country’s number­two foreign in­

vestor after Germany, with investments of

€21.4bn  in  2020.  Raiffeisenbank  Interna­

tional,  Austria’s  second­biggest  bank,

made  35%  of  its  profits  in  2021  in  Russia,

where it employs 9,300 workers. 

Cultural  ties  are  close,  too.  Russians

play key roles in Austrian cultural institu­

tions.  Ekaterina  Degot  runs  Steirischer

Herbst, a contemporary­art festival in Styr­

ia;  Anna  Netrebko,  an  opera  singer,  re­

ceived Austrian citizenship in 2006. She is

still scheduled to sing at Vienna’s state op­

era,  whereas  other  houses,  such  as  New

York’s  Metropolitan,  cancelled  her  perfor­

mances. Austrian interest in Russian high

and  popular  culture  is  tremendous.  “We

are fascinated by a culture that seems so fa­

miliar  and  still  remains  so  foreign,”  says

Simon  Mraz,  a  diplomat  who  for  12  years

ran Austria’s cultural centre in Moscow. 

Mr  Nehammer’s  visit  to  Moscow  left

him deeply pessimistic. Mr Putin, he says,

has  completely  adopted  the  logic  of  war.

The  conflict  will  permanently  alter  rela­

tions  with  Russia.  Austria  has  embargoed

Russian oil and is working to diversify its

gas  supplies.  Raiffeisenbank  is  consider­

ing the possibility of pulling out of Russia.

Strabag,  Austria’s  biggest  construction

company, forced Oleg Deripaska, a Russian

oligarch  who  owns  28%  of  its  shares,  to

leave  its  board.  But  opera  andballetfans

hope  the  artistic  relationship will sur­

vive—or be revived, after the war.n