FACTBOX-Key mid-2010 risks to watch in emerging Europe

LONDON, July 1 (Reuters) - The impact of the euro zone crisis and of central and eastern Europe's own financial problems dominate political risks to watch in emerging Europe, with Turkey and Russia both potentially at their own crossroads.

Find below the key political risks to watch in emerging Europe for financial markets.

For the original 2010 risks to watch in emerging Europe from January, click here [ID:nLDE5BL0J0]

RISKS FROM THE WEST

Six months ago, investors were still focused on the risk of emerging European banking and economic problems -- particularly in Ukraine, Latvia and Hungary -- spilling over into western Europe. Now, the euro zone debt crisis means that dynamic has been largely reversed.

In January, the credit default swaps market priced Ukraine as the region's riskiest debt by a long way. But Kiev is seen as having put its house somewhat in order since the presidential election, while Greece is now priced as riskiest.

The victory of pro-Russian President Viktor Yanukovich ended political paralysis in Ukraine and opened the door to greater financial support from Moscow. Investors hope a blocked IMF loan programme will also resume, with negotiations underway.

Amid worries that fiscal problems on the euro zone's fringes and austerity measures across western Europe could prompt a double dip recession in some countries, the way events play out in the West could prove more important for emerging European asset prices than developments in local politics.

For the latest news on the euro zone crisis, click here [ID:nTOPNOW2]

What to watch:

-- Can Greece, Spain and other fringe euro zone countries push through austerity measures? Do international lenders price Greece out of international markets? How much more support will Germany and the central euro zone provide?

-- Do emerging European policymakers still see euro membership as a desirable goal? Do they delay plans to join?

EASTERN EUROPE POLITICS, IMF DEALS

As in western Europe, the key issue has been whether countries will be able to push through painful reforms to satisfy the International Monetary Fund (IMF) and retain crucial EU-IMF financial support.

Ukraine is holding discussions with the IMF on a $12-19 billion loan package after its previous deal was suspended in November when political infighting blocked the budget, although disagreements remain on tackling the deficit.

Hungary's new centre-right Fidesz government initially wanted to renegotiate elements of its deal with the IMF and EU to run a larger deficit. Hungarian policymakers startled markets by comparing their country's finances with those of Greece but since then have tried to placate investors buying putting forward a plan to curb the deficit faster after all. The next IMF review is due in July.

Romania has announced plans to raise value added tax by 5 percentage points to 24 percent after the Constitutional Court ruled its planned pension cuts were illegal, flustering markets and undermining the government's authority. The IMF board will discuss Bucharest's 20 billion euro aid package on July 2 and should release the next tranche within days. [ID:nLDE65R02C]

Latvia has so far successfully pushed through some of the toughest austerity measures in Europe and held both its ruling coalition and IMF deal together, but risks of a coalition collapse increase in the run-up to elections later this year.

Slovakia and the Czech Republic are still forming governments after their elections, while Poland faces a second round run-off in its presidential election on July 4. All three countries have weathered the crisis reasonably well.

What to watch:

-- Failure of any IMF deal would likely have a regional knock-on effect, as investors once again worry about default risk and the prospect of wider banking damage. Romania currently looks the most vulnerable followed by Hungary, while most expect Ukraine to put its program back on track this month.

-- Who wins Poland's presidential vote? Markets would prefer a victory for Prime Minister Donald Tusk's centre-right favoured candidate Bronislaw Komorowski over conservative Jaroslaw Kaczynski, brother of the former president killed in an air crash. Poland's finance minister accuses Kaczynski of planning to block government efforts to reform the economy if he wins.

EXTREMISM, RISE IN UNREST

After the initial crash in 2008 sparked banking and economic crises across the region, some worried that a rise in unrest and instability could imperil reform. Street violence and protests have generally proved limited, however.

Angry crowds briefly rioted in Latvia when austerity measures were initially imposed, but since then some of Europe's toughest austerity measures have been pushed through with little trouble.

As elsewhere in Europe, trade unions are keen to push back against austerity measures and some believe the threat of violent demonstrations has not gone away. That might alarm investors because of a risk that reforms might be put back and governments may struggle to push through policies.

What to watch:

-- Multi-day strike action or violent protests could raise concerns about the region as well as the country in which any disturbances occurred. Any greater signs of Europe-wide union coordination beyond demonstrations due in September. Russia has seen very occasional street unrest in the last two years and any may face more if oil and gas prices fall further (see below).

-- Any rise in xenophobic attacks or shift to far right parties. Far-right Hungarian party Jobbik performed well in elections this year but so far experts say there has been little wider shift to extremism and it is too early to say if violent crimes on migrants have increased.

RUSSIA -- OIL AND LEADERSHIP

With a price of $75 per barrel figured into the budget, and deficits of over 5 percent this year and 4 percent next, Russia has left itself vulnerable to even a moderate drop in energy prices and may need to resort to borrowing again.

Serious economic troubles could undermine the popularity of Prime Minister Vladimir Putin, widely considered to be in charge despite steering his protege Dmitry Medvedev into the presidency in 2008.

Putin presided over an economic boom fuelled by high energy prices during his 2000-2008 presidency, and as prime minister he is in charge of the economy.

Both men have suggested that one of them will run for president in 2012, and that they will agree in advance which one it will be. But despite their close ties, they appear to be jostling for popularity through orchestrated media appearances. Some believe this could be theatre, others reality.

The stakes are higher than ever because future presidential terms will be six years instead of four, meaning that the next president could serve until 2024.

What to watch:

-- A sharp decline in oil prices would limit the Kremlin's ability to raise pensions and state wages and keep unprofitable Soviet-era enterprises running, laying the groundwork for potential public discontent.

-- Clarity from Putin and Medvedev on their presidential election plans would cheer investors and could spark a rally in Russian assets, while signs of growing discord would cause jitters.

-- Signs of a purge of Putin loyalists in the Kremlin could suggest a shift to Medvedev. Medvedev has said he favours cautious reforms to improve democracy and the rule of law, but has so far had little effect.

-- The second trial of imprisoned former YUKOS oil company chief Mikhail Khodorkovsky is seen as a bellwether of Russian policy; a not-guilty verdict or decision to drop the case could be a sign of liberalisation.