The possibility of the US and EU imposing sanctions on Turkey has increased this week and a further escalation of tensions could undermine the gains from the recent shift to more orthodox economic policymaking. Elsewhere, while the passing of the EU budget has reduced the risk that funds to Poland and Hungary will be withheld in the coming years, tensions are still likely to flare up again. Finally, headline inflation has fallen further in Hungary and the Czech Republic but there is so far little evidence that stubbornly high core price pressures are easing.
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