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Daily Memo: Poland’s Defiance, China’s Finance

All the news worth knowing today.

|July 5, 2018

By GPF Staff

Poland’s judicial reforms, which the European Union has criticized, are causing problems at home too. Poland got rare front-page treatment in Western media on Wednesday when the head of Poland’s supreme court showed up to work even though controversial new judicial laws prohibited her from doing so. On Wednesday, she said she would go on vacation and left a hand-picked successor in charge. On Thursday, the situation remained unclear. The government insists its reforms are now in effect, while the Polish Bar Council said the justice in question will remain in her position until 2020 and Constitutional Tribunal judges, meanwhile, complain they have been kept from handling cases. It’s an embarrassing moment for Poland’s government, which continues to fight the EU over the domestic reforms, but the real question is whether there is enough backlash at home to force the government to reverse course.

Russia’s economic woes continue. President Vladimir Putin’s spokesman took to the airwaves again on Thursday to distance the Kremlin from a government proposal to raise the pension age, which has sparked opposition throughout the country. Putin will reportedly convene a meeting on economic issues on Friday, during which pension reform will not be discussed – but a potential 2 percent increase in the VAT might be. In addition, Russia’s State Duma passed a new bill which will change the tax structure of the country’s oil industry. According to local media reports, oil companies will no longer pay a mineral extraction tax and will instead be taxed 50 percent on excess profits. Amid all this, the latest data from Russia’s state statistics service showed that Russia’s population decreased by nearly 150,000 in the first five months of 2018. Putin’s team has much to discuss Friday.

To the south, China is struggling with economic issues of its own. The headline worry is the increase in China’s corporate-bond faults, which have hit 16.5 billion yuan ($2.5 billion) this year already. You can look at this one of two ways: either as an ominous sign of a much deeper malaise within the Chinese economy that is just emerging, or as a sign that the government is confident enough in the economy to follow through on plans to reduce liquidity. Either way, Chinese companies are in trouble (to say nothing of the U.S. tariffs that are set to go into effect on Friday). President Xi Jinping knows what’s at stake. The latest stop in his recent public relations campaign was a national conference on organization work in which he noted just how much of a challenge transforming the economy would be.

The U.S. and North Korea continue to try to improve relations. U.S. Secretary of State Mike Pompeo is in North Korea for negotiations, the first time the two sides have had contact since the Trump-Kim summit. In the intervening weeks, leaks to the media have suggested that North Korea has continued to develop its nuclear weapons program and has asked that China withdraw some of the tougher sanctions and economic measures it has imposed on Pyongyang. The key to Pompeo’s visit will be whether he leaves North Korea with concrete agreements. Trump and Kim’s meeting was symbolic, and while, yes, the U.S. has postponed military exercises with South Korea, there is a limit to how much Washington can concede here without securing specific concessions in return.

Albania and Montenegro are joined at the hip – or, more precisely, at the Cabinet. The governments of both countries held a joint Cabinet session Tuesday, where they agreed to cooperate on issues related to migration and security. It’s interesting how assertive Albania has been lately. It has pushed for resolution of the Greece-Macedonia name dispute. It has offered support to Kosovo in its long-running negotiations with Serbia. And it has enhanced relations with Montenegro. Albania is a member of NATO, it wants to join the European Union, and it wants the rest of the Western Balkans to integrate more with the West too. Its activities, of course, have rattled Serbia. So while the joint Cabinet meeting is not in itself so important, the political machinations of a highly volatile region are.

Honorable mentions

  • The U.N. has said that ethnic violence has displaced some 800,000 residents in southern Ethiopia since June (and 1.2 million since April).
  • The European Court of Justice fined Slovakia 1 million euros ($1.7 million) and imposed additional penalties of 5,000 euros per day for not following EU rules on landfills. This is a less glamorous spat than the Poland-EU rift. Will Slovakia pay up?
  • The government of Tajikistan has decided to regulate the prices for 16 classes of essential products, an exhaustive list that runs the gamut from flour to baby food.
  • India is trying to deepen its footprint in Central Asia. Its foreign minister will visit Kazakhstan, Uzbekistan and Kyrgyzstan, while local media in India suggest that Central Asian officials are soliciting Indian support as a counterweight to China.