Political Crisis and Defense Costs Strain CEE Budgets
Romania faces a credit downgrade after a no-confidence vote. High defense and energy costs also push deficits toward seven percent in Poland and Hungary.
Romania faces a potential credit downgrade to junk after a no-confidence vote collapsed the government of Prime Minister Ilie Bolojan, whose cabinet had passed painful reforms in March including VAT increases, excise tax increases, and spending cuts to stabilize a 7.9% budget deficit—the highest in the European Union. It is the highest deficit in the European Union and has left the nation struggling to maintain its investment-grade status. Investors are reassessing regional risk as defense spending and energy costs driven primarily by the Iran conflict stretch fiscal limits across Eastern Europe.
