Dark clouds forming east of Berlin
Germany has sponsored the development of Eastern Europe, but now, with its growing economies and nationalisms, the East is looking to the West but not to the European Union
- Saturday, 14 September 2019
In 2018 the EU's GDP increased overall by 2%. However, in Poland it grew by 5.1%, a little more than Hungary (+4.9%), Latvia (+4.8%) or Slovenia (+4.5%). Slovakia grew by 4.1%, Estonia by 3.9%, Lithuania by 3.5% and the Czech Republic by 3%. A fluke? In 2013 the ratio between the European aggregate and the region stretching from the Balkans to the Carpathians was similar, even though the macro-economic outlook was worse: the EU GDP rose by just 0.3%, but the growth in the three Baltic countries hovered between 2 and 3%, in Budapest it stood at 2.1% and in Warsaw at 1.4%. In 2008, compared to a modest 0.5% on a European level, the Czech economy was growing at five times that rate and the Polish one eight times. Despite the usual accelerations and slow downs, local crises and ephemeral booms, the countries between the Baltic and Mitteleuropa have recorded outstanding rates of growth ever since they entered the EU. A well-rooted success with a few dark areas, and considerable political consequences.
For centuries the Hapsburg Empire stood as a model of good administration, and its positive heritage is felt both in the Lombardy and Veneto regions in Italy as much as it is in the Czech Republic, Croatia, Slovakia, Slovenia and Hungary. One needs only take a stroll along the streets of Prague, Budapest or Bratislava to recognise how much care is taken over the urban environment. Further north, as early as the late Middle Ages the Baltic cities were part of the flourishing Hanseatic League developing trade between Finland and the Channel, in a cooperative and mercantile approach that was respectful of local autonomies that looked after their respective communities.
What have the Hapsburg Empire and the Hanseatic League got to do with the GDP of Central-Eastern Europe in the third millennium? What matters here is the cultural and social base which makes the public administration efficient, the society geared towards structural and long term investments and a community ready to interact with its neighbours – particularly those to the West and the North – and which at the same time guarantees a sense of the state and nation as a collective. Even in countries that for a long time have not been part of an independent state, such as Poland, this structure was so solid that it withstood foreign domination while maintaining fertile ground for the social and economic blossoming of the last twenty years. It's hardly surprising that during the Cold War the reform and protest movements against the Soviet occupation came out of Danzig, Budapest and Prague and not Romania or Bulgaria, which had experienced centuries of Ottoman domination.
Once the Belin Wall come down, two unique and strongly positive dynamics were grafted onto these fertile soils. On the one hand a local leadership determined to become part of the West in every respect, including the market economy, liberal democracy and integration within the EU and NATO, headed these countries during the 90's and 2000's. This leadership produced a great effort to draw closer to continental Europe but even more so to the Anglo-Saxon world, with a significant quota of the new management class travelling to the US, the UK and obviously to Germany and elsewhere in the West, before returning with experience, ideas and a network.
On the other, the firm Western intent to reintegrate its cousins east of the Iron Curtain, restricting the area of Russian influence on a permanent basis. Both the EU and NATO forced the rules and internal practices to rush its expansion eastwards, taking advantage of the temporary weakness of Moscow. This race brought to the new member countries political stability, drastic liberal and democratic reforms, full regulatory alignment with the Community's acquis and access to the rich EU market. A transformation that attracted private foreign investment, with American companies opening technological and logistic hubs – for example in Poland – and the German industrial system delocalising and/or buying up production plants from its eastern neighbours and thus including them in their supply chain, and turning it into the ideal market for its finished products. Even the expansion eastward of the western banking and insurance system was highly positive, particularly the German and Italian ones which helped to provide the cash required for high yield investments. EU membership also allowed the excess workforce to emigrate West – hence the stereotype of the 'Polish plumbers' – who in turn became a source of foreign currency for their countries of origin, and enhanced a tourist flow in the opposite direction, with the region's capitals now accessible through low cost flights. The advantage of joining the EU with a lower wage structure compared to other member states meant strong investment by EU funds, a true growth booster for the many small countries in the area. Since 2004 the Hungarian GDP has grown much more during the central stages of the seven year EU budget, when most European funds are spent and which Budapest greatly benefitted from and slowed at the end of the seven years funding period when these incentives subside before the start of a new funding cycle.
Germany played an important part in all this. For the first time since its Prussian days, Berlin saw the chance of being surrounded exclusively by friendly neighbours, and it pursued this goal with great single-mindedness. From a political and institutional standpoint, with the expansion of NATO and the EU, by closing an eye on any failings of its Eastern cousins. On the economic front, through industrial, financial and market integration. A double embrace that protected growth in central and eastern Europe and bolstered the German economy and security.
But not all that glitters is gold east of Vienna. The economic growth has been partly achieved through social dumping relative to the welfare systems and taxation in Western Europe. The lower labour costs and corporate tax, an aspect that is widespread in the area though with national differences, have certainly attracted investment but have also created social and economic inequalities, and limited the capacity of the public purse to redistribute the wealth produced by helping those left behind. A social and economic context therefore that has many bright spots but also a few dark sides, critical areas and frailties. A situation that has been compounded by a degree of social and cultural bewilderment in the face of the radical changes that have taken place in just a few years, and which for certain social or age classes, and in certain areas, has led to a fear of the future and the wish to receive protection on a national level. Protection that goes hand in hand with the recollection of a strong and well-entrenched state and nation, and of a foreign oppression that no one wants to see reiterated – to an extent that very few in the region wish to join the Euro and thus relinquish their monetary sovereignty.
This highly diverse economic, social and cultural context helps to explain the success of nationalist parties in Poland or Slovakia, and the move to the right of a centre-right political party such as that headed by Viktor Orban that is still a member of the European People's Party. A trend that verges on the absurd now that it is criticizing the EU which has been the cornerstone of the economic development of the entire Central and Eastern Europe over the last 15 years. A trend that has given Berlin plenty of grief. After helping and protecting the economic growth in the region, it now finds the Visegrad group countries busy blocking a number of European dossiers, starting with the relocation of migrants, while the Baltic countries have been turning more towards the Atlantic than the Rhine to seek protection from Russia. Be that as it may, it's a trend that has to be politically addressed. And the showdown after the recent European elections has reduced the representation of that slice of Europe within the EU's governance, seeing as the Pole Donald Tusk has been replaced by the Belgian Charles Michel as president of the European Council, and all the other posts up for grabs have been allocated west of Vienna among Germany, France, Italy and Spain, based on indications provided by the same protective Berlin that is now somewhat infuriated by Visegrad's recent stands. This is a very delicate balance, which will have to be managed carefully if one wishes to redirect the divergent economic and political trajectories within a sufficiently functional and cohesive European context. "United in diversity" is the EU motto, and it could not be otherwise in a continent so full of history, culture and independence, which provide reasons for tensions but also potential for development.
This article is also published in the September/October issue of eastwest.