austerity

Rolling it out or rolling it up?

It is not what you would expect from upwardly-mobile and status-conscious China. But a vogue among Chinese hotels for dropping a star from their hard-won “five star” ratings appears to be catching on.

Xinhuanet, website of China’s official Xinhua news agency, quoted Chen Miaolin, vice president of the China Tourism Association, as saying that 56 five-star hotels pledged to downgrade to a four-star rating last year. In addition, a significant number of newly-built hotels delayed their filings for a five-star rating.

Modesty, it appears, is not the prime motivation for the trend. 

Latvia is a small country perched on the northern fringe of the European Union but its remarkable experience during the economic crisis has made it a favourite talking point among economists. 

By Primož Cencelj of KD Funds, Ljubljana

News clips broadcast around the world in the past fortnight of police and protesters clashing violently on the streets of Slovenia do not fit well with either the image nor the usual reality of this small Alpine state, the only fragment of former Yugoslavia (so far) to become a member of the European Union. 

Romanian President Traian BasescuMost Romanians will be pleased to see the back of 2012, a year that began with a bitter winter of street protests against austerity and government heavy-handedness, then saw the toppling of two prime ministers, the failed impeachment of an unpopular president, and a constitutional crisis that brought international opprobrium.

But the year may have one more drama in store: on Sunday, Romanians vote in a general election. The governing coalition seems certain to win but Romania’s constitutional set-up means a rather different administration could take shape. Whatever government emerges will be under pressure to negotiate a new deal with the International Monetary Fund and restart reforms to trim the public sector. 

The Czechs have become regional specialists in drawn-out and inconclusive political crises, the latest iteration of which saw premier Petr Necas (left) on Wednesday push through a controversial tax increase that was also a vote of confidence in his coalition government. 

Polish President Bronislaw Komorowski (R) with Czech counterpart Vaclav Klaus

If the IMF wants hard proof that its previous focus on austerity was a mistake, all it has to do is take a look at central Europe’s two leading economies – Poland and the Czech Republic. 

Donald Tusk addressed the Polish parliament on Friday morning, promising not blood, sweat and belt-tightening but massive new spending programmes aimed at boosting growth.

Following IMF head Christine Lagarde’s comments in Tokyo on Thursday, Poland is joining a widening global consensus on the damaging impact of focussing too strongly on fiscal austerity. 

The Czech National Bank cut interest rates by a quarter point on Thursday – as widely expected – taking its benchmark rate to an all-time low of 0.25 per cent in a bid to get the country’s moribund economy moving.

The CNB’s move means it has essentially run out of space for conventional monetary policy. 

The Czechs have always been a bit stiffer and more conservative than their sometimes wilder central European neighbours – something being borne out in the increasingly divergent ways in which the Czech and the Poles are dealing with the economic slowdown. 

Miroslav Kalousek, the Czech Republic’s finance minister (pictured), has decided that too much austerity is a bad thing.

The architect of the centre-right coalition’s programme of deep spending cuts and tax hikes has been praised for shrinking the republic’s budget deficit. But he has taken flak even from his own supporters for helping to tip the economy back into contraction in the first quarter. Now he has decided to loosen the purse strings and take advantage of record low borrowing costs to give the economy a boost. 

It used to be that centre-left governments would make a run for growth by ramping up government spending while soaking the rich. But in these straitened times, even the left is keeping commitments to fiscal consolidation, as is happening with Slovakia’s newly elected government

The Latvian government is hell-bent on joining the eurozone by January 2014 even though the move is unpopular among its people. Well, the government will be cheered and the people perhaps dismayed after Standard & Poor’s, the ratings agency, promoted the country to investment grade on Wednesday and applauded the government’s progress.