Hi, this is Andrea Dudik in Prague. Welcome to our weekly newsletter on what’s shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.

Trump Ally

Czechs start voting in a general election today, and the man looking to return as prime minister is promising they will have more cash to spend, businesses will pay less in tax and spending on infrastructure will increase.

Opinion polls suggest billionaire opposition party leader Andrej Babis is likely to get the first shot at forming the next government. His campaign has channeled Donald Trump, replete with red baseball hats and soundbites about putting Czechs first. He wants the country to remain in the European Union, but make membership work better for the export-oriented economy.  

All well and good, economists and critics say, but his plans need to be financed. Handouts to retirees and young families, for example, go against the current mantra of fiscal conservativism, they say.

The economic plan signals a break with policies that have been so key for incumbent Prime Minister Petr Fiala’s administration. While the Czech budget is now among the healthiest in Europe, the economic recovery since the pandemic has been slow and eaten into the government’s popularity. Babis, 71, and his people have said it’s time for Czechs to stop “fiscal self-flagellation.”

Babis, who made his fortune from the agribusiness he built into one of the biggest private employers in the country, has another pillar of his economic program that will cost money. He wants to trigger a government buyout of 30% of power utility CEZ, as my colleague Peter Laca wrote. The plan sparked a big rally in the company’s shares, making the purchase more expensive (even if CEZ actually pays for it). It would also be a major blow to the Prague Stock Exchange after a string of other de-listings.

In a country grappling with shortages of childcare and retirement homes, no high-speed rail lines and sluggish progress on new houses and highways, the plan to grow the economy more quickly is resonating with voters. What looks sure is that the end of the Czech austerity era may be nigh.  

Is Babis coming back? Photographer: Milan Jaros/Bloomberg

Around the Region

Ukraine: Metinvest, owned by the country’s richest man, is considering extending the maturity of its bond due next year as Russia’s war continues to put a strain on the steel and mining firm. 

Poland: The government in Warsaw approved a plan to increase corporate income taxes on banks to shore up its budget, rebuffing concerns about the levy’s impact on the availability of credit and banking costs.

Moldova: President Maia Sandu secured a mandate to press ahead with her agenda to steer the country into the EU after her party won a parliamentary election, thwarting Russian efforts to alter the course. 

Romania: The government in Bucharest is tapping international markets for a fourth time this year as it seeks to cover a wider-than-expected budget deficit and start pre-funding for next year. 

Hungary and Slovakia: The prime ministers of the two countries expressed defiance over pressure to stop using Russian oil during a joint appearance on their border last weekend. Meanwhile, Hungary signed a long-term deal to purchase liquefied natural gas from France’s Engie to reduce reliance on Russia.

Chart of the Week

European officials say there’s more and more evidence that Russia and its ally Belarus are weaponizing migrants as part of their efforts to undermine NATO allies. Moscow’s campaign also includes cyberattacks, sabotage, misinformation and repeatedly violating airspace. Latvia is among the countries on the front line.

By the Numbers

• Shares in JSW, Poland’s largest coking coal producer, dropped as much as 9.9% after the firm said it may run out of cash in six months without external help and its auditor refused to sign off on its latest results.
• Poland’s public debt is set to breach the key threshold of 55% of gross domestic product in 2028. That would trigger austerity measures, complicating government efforts to ramp up defense spending without unpopular cuts in welfare. 
• Hungary’s statistics office significantly revised one of its poverty indicators after criticism over methodology that showed improved social trends under Prime Minister Viktor Orban.

Things to Watch

• Kosovo’s top court prohibited lawmakers from continuing with parliamentary business, extending a political stalemate that’s left the Balkan nation unable to form a new government seven months after an election. 
• Polish veteran private equity firm Enterprise Investors sees an additional investment opportunity in unmanned aerial vehicles and defenses against them after a series of Russian drone incursions. 
• Central banks in Poland, Romania and Serbia will set interest rates next week.

Final Thought

When the Nord Stream gas pipelines came under attack three years ago, it didn’t take long for the finger pointing to start. There were suggestions that Vladimir Putin was behind the sabotage to cripple the conduit for Russian gas to Germany. As the case unfolded, an arrest warrant was issued for a Ukrainian living in Poland, prompting speculation in Germany that the governments in Kyiv and Warsaw at least knew about it — and a vehement rebuttal from Poland. The German authorities may soon get to know more. Italy arrested a Ukrainian man in August suspected of being part of a group that blew up the pipelines. This week, Poland detained a Ukrainian diving instructor. Extradition proceedings are pending.  

Workers walk pipework in the snow-covered yard at Gazprom’s Slavyanskaya compressor station, the starting point of the Nord Stream 2 gas pipeline, in Ust-Luga, Russia, in January 2021.  Photographer: Andrey Rudakov/Bloomberg

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