Historic floods have dragged down the economy in Central Europe.

Now, that small victory is under threat as the Czech Republic and Poland, the countries hardest hit by the floods, are calculating the damage from the worst flooding to hit the region in at least two decades.

Based on estimates from local officials, infrastructure damage could total $10 billion in these two countries alone. The Polish finance minister said that $5.6 billion allocated from EU funds would cover some of the flood recovery costs.

The Oder River in Wroclaw, Poland, on September 19. Photo: Reuters

Economic losses are increasing pressure on state finances in a region still reeling from the COVID-19 pandemic and soaring inflation following the Russia-Ukraine conflict in 2022.

Since the pandemic began, when EU member states disregarded the bloc's requirement to maintain annual deficits at 3% of GDP, budget deficits in the region have soared to 9% of GDP in Romania and 7% in Poland and Hungary.

Inflation and elections in Poland, Hungary, and Romania are further hindering deficit reductions. Higher military spending, inflationary pension spending, and rising debt servicing costs are also straining budgets.

On September 19, the Czech Ministry of Finance announced it would allocate 30 billion crowns (US$1.3 billion), equivalent to 0.4% of GDP, to address flood damage in the revised 2024 budget.

This could push the Czech deficit closer to the EU-mandated 3%, up from the initial target of 2.5%, with next year's deficit now also projected higher than previous plans.

Steffen Dyck, senior vice president at Moody's Ratings, said that while Central Europe appears better prepared than before to respond to flooding, it still faces these events and their economic impacts more frequently.

The unexpected pressure on the Czech Republic's finances highlights the scale of the challenge facing the rest of the Eastern EU member states, which are still grappling with larger deficits, ranging from nearly 7% in Romania to over 5% in Poland and Hungary.

Ngoc Anh (according to Reuters)

Source: https://www.congluan.vn/lu-lut-lich-su-keo-tut-nen-kinh-te-o-trung-au-post313309.html