* Belt-tightening to spark protests, govts may fall in CEE
* Ties to EU will limit extent of upheaval
* Bulgarian government unlikely to survive summer elections
* Hungarian leader may face pressure to step down
* Non-EU states in region face worse prospects
By Michael Winfrey
PRAGUE, March 19 (Reuters) - Economic pain will touch off
protests and may topple governments in central and eastern
Europe this summer, but those inside the EU will fare better
than outsiders like Ukraine, where the crisis is most acute.
Crisis responses have ranged from budget cuts in Latvia and
Hungary, which have turned to the IMF and European Union for
help, to others pumping billions of euros into economies laid
low by investor flight and a collapse in western demand.
The fallout is severe across the region, killing growth in
places that used to boast the fastest rates in Europe, causing
unemployment to spike, putting banks under pressure and forcing
cash-strapped governments to cut state wages and raise taxes.
Analysts say it could force out leaders in new EU members as
elections approach this year and next, while populists may gain
more support in European Parliament elections in June. Non-EU
governments are facing even harder challenges.
For many states with huge external financing shortfalls,
budget cuts are the only way to avoid meltdown, a factor grasped
by electorates accustomed to chaos and shock therapy. That
should prevent unrest from reaching the level of deadly riots
that accompanied the Asian crisis in the late 1990s.
"People are used to fast change. It's not going to plunge
into mayhem," said Katinka Barysch, deputy director at the
Centre for European Reform.
"And the international community has stood ready to help
those countries that are in trouble. It didn't let Latvia go
bankrupt or Romania or Hungary go down the drain."
GOVERNMENTS UNDER THREAT
Ukraine has been hit hard. It clinched an IMF deal following
the collapse of several banks and a steep fall in its currency,
and its economy has been battered by shrinking markets for key
steel and chemicals exports, causing a huge drop in output.
Public anger and fears of job and benefit cuts have led to
some protests. But analysts say bickering between President
Viktor Yuschenko and Prime Minister Yulia Tymoshenko over
IMF-prescribed reforms is a greater risk, as it has blocked the
flow of those funds and could worsen the turmoil.
"They have a real danger of state failure," said Ivan
Krastev, head of the Sofia-based Centre for Liberal Policy
Studies. "You can have the type of crisis that Russia had in
1998. You can have default."
The IMF has already ploughed $40 billion into packages in
Ukraine, in EU states Latvia and Hungary and non-members Belarus
and Serbia. Romania wants a 20 billion euro ($26.98 billion)
EU/IMF deal.
But they come with a price. Latvia's government fell last
month following the most violent unrest there since the fall of
communism in 1991, after officials slashed public sector wages
by 15 percent and raised taxes.
Hungary has frozen public wages and put a limit on customary
year-end public sector bonuses. Trailing the right-of-centre
Fidesz by 16 percent to 43 in a survey by pollster Median this
week, the ruling Socialists face a crushing defeat in European
Parliament elections in June that could heap pressure on the
prime minister to step down before a 2010 general election.
Bulgaria's Socialist government wants to pump billions of
euros into the economy, but it has put on hold a plan to hike
public salaries. And it faces little chance of reversing polls
showing more than three-quarters of voters are dissatisfied.
The centre-right party of bodyguard-turned-politician Boiko
Borisov is expected to win a general election due by July.
Analysts said despite political changes, policy choices are
limited and any new government in the region will probably have
to stick closely to existing austerity measures.
"There are going to be protests in a region that is already
prone to protests. You are going to have several governments
fall," said Peter Zeihan, vice president for analysis at
Stratfor, a global intelligence company.
"But they realise what's at stake if they make the wrong
decisions... This is going to be a rough summer, but they're
going to have to bite the bullet."
FALLING BEHIND
Only a few governments in the EU's newer ex-communist
members have won re-election in the last 20 years, and many
voters are doubtful politicians have answers to the crisis.
"I have a hard time to see which of the two bad options
would be worse -- the current government to stay on, or the
opposition to take over," said Mihaly Szabo, an 18-year-old
student in Budapest.
The IMF has taken what some economists say is a more
pragmatic approach than in past crises and is not pushing for
states it helps to immediately slash spending, although it has
baulked so far at letting Latvia and Ukraine raise deficit
targets.
The danger, apart from political upheaval, is that the
crisis further delays reforms in education, business conditions
and infrastructure projects that have stalled since the bloc
expanded eastward in 2004, analysts said.
"Central and Eastern Europe is much more in the business of
surviving the crisis than of using it," Krastev said. "This is
the major danger. Crises provide opportunities for reforms,
restructuring towards a more competitive economy. I am very much
afraid that this is not what's going to happen."
(Additional reporting by Marton Dunai, editing by Mark
Trevelyan)
