When Reform Doesn't Pay the Bills

What's gnawing at Slovakia? Its economy is booming — up 50% in the past four years — and a series of radical free-market measures, including flat taxes, have helped to attract billions of euros in foreign investment. Some salaries have doubled, home mortgages are all the rage and the [an error occurred while processing this directive] country (pop. 5.4 million) will soon become the world's top producer of cars per capita.

Yet when they voted in elections this summer, the Slovaks threw out the government and replaced it with one headed by Robert Fico, a lawyer turned politician who's promising to tax the rich and raise pensions and other benefits. Teacher Jana Huljakova, 25, is one Slovak disillusioned with the belt-tightening reforms of the previous government. Economic reform "was good for the country, but not for the people," she says. "It doesn't matter that the state debt is so and so and the gdp is so and so. We won't buy our food and pay our bills with that."

Call it the accession blues: just as they start to reap the fruit of tough post-communist economic reform, most of the eight countries of Eastern and Central Europe that joined the European Union in 2004 are undergoing a big mood swing. Populist leaders promising to end the pain of tight budgets and spread prosperity are on the rise across the region. Their message goes down well among public-sector workers, the old and those who think they've lost out amid the changes. And it's transforming the political landscape.

In Slovakia's neighbor, the Czech Republic, a fragile minority government formed after June's elections tore up plans for the country to adopt the euro anytime soon, but then itself collapsed last week. It was the fourth government to resign since 2003, prompting President Vaclav Klaus to wonder out loud "what it says about our country." In Poland, a free-spending but fragile coalition headed by Prime Minister Jaroslaw Kaczynski has been feuding with the central bank; its governor, Leszek Balcerowicz, says the government's budget is "irresponsible."

The biggest drama has taken place in Hungary, where a huge increase in government spending has created an ever-widening budget deficit that has now reached precarious levels. Street violence exploded in Budapest last month after Prime Minister Ferenc Gyurcsany admitted lying to Hungarians "morning, noon and night" about tough cutbacks needed to bring spending back into line.