Raiffeisen sees an economic success story, but political problems were sometimes underestimated
The symbolic opening of a border fence near Sopron on June 27, 1989 by Foreign Ministers Alois Mock (Austria) and Gyula Horn (Hungary) is still considered the first “official” opening of the Iron Curtain, which separated the socialist Eastern bloc from the capitalist West during the Cold War. But first that EU eastward expansion in 2004 brought the complete integration of eight countries in Central and Eastern Europe (Poland, Czech Republic, Slovakia, Hungary, Slovenia, Latvia, Estonia, Lithuania) into legal frameworks such as the internal market of the European Union. Romania and Bulgaria and most recently Croatia followed in 2007 and 2013.
Raiffeisen took the approaching May 1st, the 20th anniversary of the first eastward expansion, as an opportunity to once again report on the economic success story – alongside all the political problems with the right-wing populist to right-wing extremist parties in the East.
Die Economic performance of the Central European countries Czech Republic, Slovakia, Poland, Hungary and Slovenia have increased continuously since they joined the EU. Together they now generate around 8.7 percent of the EU’s gross domestic product (GDP), and their economic power significantly exceeds that of the Netherlands. “A lot of progress has been made economically,” says Raiffeisen chief analyst Gunther Deuber.
Trade between each other increases
Over the past 20 years, the economic integration of the CEE countries has also increased. “Trade in the region is becoming increasingly important,” said Deuber. Foreign trade is central to the region: since the EU’s eastern expansion, foreign trade in Poland has increased by around 743 percent, and even in Hungary the increase was 391 percent. “The economic integration, the competitiveness in foreign trade, all in all a success story,” explained the economist.
Also at GDP per capita Raiffeisen Research sees a sustainable increase in prosperity in the CEE countries. There is loud potential for catching up Deuber in the banking sector. Here, the rapprochement with the EU was bumpier and also more different depending on the country than at the macroeconomic level. While bank loans in the Czech Republic and Slovakia have steadily increased compared to the Eurozone average over the past 20 years, loans in Hungary, Slovenia and Poland have barely increased. “There are very differentiated developments in the banking sector where we need to take a closer look,” says Deuber. Overall, the Czech Republic and Slovakia benefited most from the EU’s eastward expansion.
Austria’s banks are well positioned in the region. The market share of the major domestic banks in the Central Europe region in general and in the Czech Republic specifically is 25 percent, and in Slovakia it is almost 40 percent.
Nevertheless, some challenges at the political level were underestimated during the EU’s eastward enlargement. “At that time, the focus was purely on the internal market. At the time, people were much less aware that the EU’s eastward expansion also had a geopolitical component,” said Deuber.
Vladimir Vanochief economist at the Slovakian think tank Globsec, sees increasing skepticism towards the EU in the region and the associated rise of right-wing extremist parties. While joining the EU brought some advantages for many, especially young and educated, citizens of Central European countries, such as more rule of law, stability and better personal and professional opportunities, there were also clear losers in the transformation process. Vano includes older people who are no longer employed, but also former civil servants whose profession has lost its reputation as a result of joining the EU.
From the experts’ point of view, it is therefore necessary to give greater consideration to geopolitical and social components in future EU enlargements.