FEATURE-Pain, defiance in East Europe as strong euro takes toll

From mortgage holders to travel agents, many East Europeans are feeling poorer this winter after their local currencies lost up to a quarter of their value against the euro over the past six months.

The ex-communist region's once booming economies are now taking a nasty and unexpected further knock as the bitter row between Russia and Ukraine seriously disrupts gas supplies at a time of subzero temperatures.

Yet the mood among shoppers flocking to January sales in Warsaw, Prague and elsewhere remains surprisingly resilient and upbeat. Many say they have yet to feel the impact of the currency losses -- or of the global credit crunch that triggered them -- in their own daily lives.

"Personally I don't see any difference and customers don't seem to care whether the zloty is strong or not," said Katarzyna Pietkowska, 19, a Polish student selling souvenirs in a glitzy new Warsaw shopping mall.

"As a country, we survived Hitler and Stalin, so what's a little financial crisis," she said, expressing an optimism still prevalent among consumers in Poland, largest of the ex-communist nations to have joined the European Union since 2004.

Poland's economy is expected to have grown by more than 5 percent in 2008, though it is now slowing fast.

The zloty has lost 24 percent against the euro since last July as investors have fled a region seen as too risky at a time of global economic crisis. Hungary's forint has shed 16 percent, Romania's leu 15 percent and the Czech crown 12 percent.

Despite a brief New Year bounce, the currencies are expected to stay under pressure in the coming months as foreign investment continues to dry up and exports wither in the face of recession in western Europe, the region's main trade partner.
Some cast an envious glance at tiny Slovakia, which on January 1 became the first ex-Soviet bloc country to adopt the euro and thus escape the region's wild currency gyrations.

FEAR

East Europeans who took out mortgages and other loans in euros or Swiss francs because of lower interest rates than those offered at home are among those hardest hit.

Romanian magazine designer Dan Ivanescu, 35, said monthly instalments on a euro-denominated loan he took out have leapt by 50 percent since September.

"I used to pay 1,000 lei in the summer and now because of the level of the euro I am paying about 1,500 lei. Because of this I was forced to scrap other expenses like clothing and household appliances," he told Reuters in Bucharest.

"I also had a loan to buy a plot of land to build a house on it later. But because of this crisis I got scared and decided to pay it back to the bank."

A weaker local currency also translates into higher prices of imported goods including fuel for countries of the region.

Companies as well as individuals are suffering.
"Retail companies have foreign currency loans like everybody else and their financing costs have increased," said Gyorgy Vamos, head of Hungary's National Alliance of Commerce.

"People will also buy less as access to foreign currency loans shrinks. The import costs of producers also rise, though those who also have exports find some compensation."

The travel industry is bracing for chilly times after a huge post-communist expansion in the number of Poles, Czechs and others buying exotic holidays in the sun.

"Foreign tours are going to get about 12 or so percent more expensive this year (because of the fall in the zloty)," said Jacek Dabrowski, spokesman of the Triada travel agent network.

GLOOM IN COUNTRYSIDE

The mood darkens noticeably away from the buzz and bright lights of the region's affluent capital cities.

"People in Budapest talk easily, almost all of them have a job. In the country it is harder," said Tibor Lovas, 48, a building worker in Hosszuheteny, a village in southern Hungary.

"The New Year festivities were much more subdued here than in previous years. The bars are empty. People buy ridiculous amounts of wood or coal for heating too, like 300 kg at a time."
Hungary needed an emergency IMF bailout last autumn to avert economic meltdown. Though Budapest shoppers also turned out in force for the sales, the tone is more cautious than in Warsaw or Prague whose economies are still relatively buoyant.

"Generally, individuals do not suffer from the crisis yet, but the bad things are yet to come, including unemployment and other negative developments caused by the financial crisis," said Budapest lawyer Joszef Heffentreger, 65.

Poles, by contrast, remain among the most optimistic in Europe about the economic situation and are continuing to spend their zlotys even as the clouds darken, surveys show.

"I buy whatever I want, just as before... Maybe things are a bit more expensive, but I don't need to count every zloty," said one Warsaw restaurant owner, 57, who declined to give his name.

"But I'm sure the crisis will affect me some day," he added.
Source: uk.reuters.com