The name of the rally said it all: "The Czech Republic first." For three hours over the weekend, 70,000 people shouted their anger at high energy prices and against the Ukraine policy on Prague's Wenceslas Square.

The immediate resignation of the government was demanded.

The five-party coalition had just survived a vote of no confidence after 22 hours of parliamentary debate.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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Prague's popular anger highlights growing instability in central and south-eastern Europe, with its weak coalition governments, rising inflation as economic growth slows, rising pro-Russian sentiment and heavy reliance on Russian energy supplies.

There's no need to talk about the small Republic of Moldova, which is 100 percent dependent on Gazprom for gas and has been asking for payment delays from time to time.

In October, the Bulgarians will elect their parliament for the fourth time in two years, and the interim government is bringing Gazprom back into play as a gas supplier.

In Slovakia, Prime Minister Eduard Heger deals with the survival of his coalition almost every day.

In Montenegro, the government fell in mid-August.

In Poland, those in government are trying to keep the mood from changing before the 2023 elections with subsidies for heating coal, which has become expensive.

Even in Hungary, which was ruled with an iron hand, where Prime Minister Viktor Orbán was able to confirm his position in the spring elections, there were protests against the government due to the tense economic situation.

It is already positively registered that Croatia, which intends to join the European Monetary Union in January, is showing an excellent tourism season and good growth prospects.

Gas supply “has become even more critical”

Rating agency Fitch has recently emphasized the region's great dependence on Russian energy supplies.

With the exception of Romania, which is largely self-sufficient, the situation has "become even more critical" everywhere.

All states tried to find alternative suppliers.

However, the Fitch experts write: "For Slovakia, the Czech Republic and Hungary, we still see significant uncertainties about long-term alternatives, including the potential costs of additional infrastructure and sources of financing."

Although the growth data for the first half of the year in Central and Southeastern Europe was mostly positive, most professional observers expect falling gross domestic product (GDP) values ​​in the coming quarters.

That's called a technical recession.

By far the largest economy between the Baltic Sea and the Black Sea, Poland, is “the negative outlier in the region”, as the economists at Raiffeisenbank International write.

In the second quarter, GDP was still 5.5 percent above the same quarter of the previous year, but 2.3 percent below the value for January to March 2022.

State aid prohibitively expensive in the long run

The inflation rate came as a negative surprise last week at 16.1 percent.

The ING-Bank analyzes that the peak of inflation is still to come in Poland and expects just under 20 percent at the beginning of 2023. The government is preparing compensatory measures against the energy price shock, but: “Maintaining them may be prohibitively expensive.” The budget deficit is likely reach 4.4 percent.

Hungary is also struggling with high compensation costs.

Before the election, the government had increased pensions, decreed price caps on fuel and mortgage interest, and subsidized food.

First until October.

Taxes on small and medium-sized businesses were raised soon after the election to finance them, sparking protests.

Economics Minister Martin Nagy has now announced further inconveniences: "Sooner or later, upper price limits will have to expire, since these are not market-friendly but anti-market steps." The only question is "how quickly and how market prices can be reintroduced".

In addition, the growth prospects are clouding over at 13.7 percent inflation.

"The recession is knocking at the door," writes Erste Bank from Vienna.

The central banks are in a quandary: curb the downturn with falling interest rates or fight inflation with rising interest rates?

After the last sharp increase in key interest rates, the Hungarians "left no doubt that additional steps would follow," writes the DZ-Bank.

Even the Polish central bank, which is being driven by concerns about the economy, "should not be able to avoid tightening the monetary policy reins further in the short term in view of the massive price pressure".

The Bank Council meets in Warsaw on Wednesday.

In Prague, on the other hand, most observers expect that interest rate hikes under the new, “dovish” central bank leadership are over.

The protests against the economic misery are not over.

The demonstrators on Prague's Wenceslas Square have reported back for September 28th.