After Romania, emerging Europe faces several elections in 2010 that could preoccupy investors and endanger International Monetary Fund deals, with Ukraine's polls the biggest threat to wider European markets. Romanian President Traian Basescu claimed victory by a very narrow margin in Sunday's election, but political uncertainty that has already temporarily blocked a 20 billion euro IMF-led bailout looks set to continue with the opposition alleging fraud. Ukraine, Hungary, Latvia, the Czech Republic, Slovakia and Poland also have elections coming up in 2010, putting political risk centre stage in a region seen as probably the most exposed to the global financial crisis and in need of structural reforms. “Some of these countries are under great economic strain and that has made them more politically unstable,” said Joanna Gorska, deputy head of the Eurasia desk for London-based consultancy Exclusive Analysis. “Now we have elections, and the political problems make it more difficult to address the crisis.” Nowhere is this more true than Ukraine, mainland Europe's most troubled economy and priced as having the riskiest sovereign debt in the world in the credit default swaps market. A sovereign default would send ripples throughout global markets. Ukraine holds presidential elections on Jan 17. Pre-vote politicking has already paralyzed parliament, as in Romania delaying the arrival of a new tranche of IMF aid. “Ukraine is by far the most risky for the wider region,” said Gorska. “Any serious problem in Ukraine could affect investor sentiment much more widely.” Ukrainian state gas and rail companies have defaulted on their quasi sovereign debt, although Ukraine had been keen to stress it intends to honor its true sovereign obligations such as Eurobond coupon payments. Nevertheless, Ukraine's ability to service its debt will come under greater pressure if it cannot get its IMF deal back on track – and that would depend on getting a budget through parliament to rein in the deficit. Opinion polls suggest President Viktor Yushchenko has little chance of winning, with the fight between Prime Minister Yulia Tymoshenko and rival Viktor Yanukovich. Political calm, reforms and the IMF deal could potentially be restored within weeks if whoever wins it has an alliance with the other side – or further parliamentary elections could be called, extending the political hiatus until September. The risks of sovereign default or outright national bankruptcy are seen as being much less for the European Union's eastern members – but still, elections could further complicate economic recovery and spark sell-offs in currencies, bonds and credit default swaps. Poland potentially positive Latvia, the EU's hardest-hit economy, has forcefully defended the peg of its lat currency against the euro even as inter-coalition squabbles imperilled the budget. Latvia's fractious ruling coalition finally pushed a 2010 crisis budget of tax rises and spending cuts through parliament last week, but strains are seen likely to grow ahead of polls to be held before October and local media suggest the coalition could break up. Half the electorate has yet to make up their minds who to vote for. That could make policymaking and any further reforms demanded by the IMF difficult, undermine investor confidence and again pressure the currency peg, the failure of which would likely prompt a sell-off of other nearby currencies. Hungary's election result in April or May is seen as largely a foregone conclusion, with the ruling Socialists expected to suffer a massive defeat at the hands of opposition party Fidesz on a manifesto to cut taxes and renegotiate an existing IMF deal. Analysts doubt the IMF or EU would accept the surge in the deficit proposed by Fidesz, meaning Hungary too could find its multilateral aid withdrawn, pressuring probably both its own currency and those of its neighbors. Investors are relatively less concerned over parliamentary elections in the Czech Republic and Slovakia in May and June respectively, although both will likely have some market and investment impact. In the Czech Republic, a left leaning government would be seen likely to tax and spend more liberally than a more right wing outcome, while in Slovakia the main focus will be on the wider ruling coalition and the presence of Slovak nationalist parties who could impact relations with Hungary. The one election foreign investors are looking to with enthusiasm is Poland's presidential vote, which should take place some time before October. Most analysts expect Prime Minister Donald Tusk – whose government has been praised for helping the country avoid recession – to oust conservative incumbent Lech Kaczynski. “Poland is the one result that I think will be positive for markets,” said Nomura political analyst Alastair Newton.
