EU and Central and Eastern Europe: The catching up process

Any reason to be optimistic?

Question:

Is it realistic to expect that the CEE region will catch up with the Western Europe in the next decades in terms of economic and social development or not, and why?

Answers:

Marcin Dąbrowski, Postdoctoral Researcher, Institute for European Integration Research, Austrian Academy of Sciences

- The catching up process will certainly take decades, even if some aspects this process seems quite rapid. For example, according to Eurostat average brutto salary in Poland in 2011 was 800 euros, which was 33% higher than in 2005. That said, EU27 average is still substantially higher: 2177 euros. If this pace is kept, Poland will catch up with the EU average in 65 years… and with the Eurozone in 85 years. One should bear in mind however, that this gap is much smaller if one considers the lower cost of living in Poland as compared to EU15 countries. http://wyborcza.biz/biznes/1,100969,11464148,_DGP___Scigamy_Unie__W_placach_dogonimy_ja_za_65_lat.html

- There are some common problems which hamper catching up – low innovation potential, weakness in research and development. The CEECs remain ‘moderate’ or ‘modest innovators’: http://ec.europa.eu/enterprise/policies/innovation/files/ius-2011_en.pdf

- Another barrier to economic and social development is the overall low quality of institutions (quality of government, administrative capacity) which hampers effectiveness of investment in regional development. That said, a lot of progress has been made in this respect since the accession to the EU – there was a tremendous learning process within the administrations involved in management of the Structural Funds.

- The accession to the EU and the inflow of the Structural Funds play a major role in stimulating economic development in CEECs. It is, for instance, widely acknowledged that it is to a large extent thanks to the Structural Funds that Poland avoided recession as a result of the ongoing global economic crisis. It is simply unprecedented money made available for a wide array of developmental projects: road and environmental infrastructure, energy infrastructure, R&D, development of human resources, etc. Unfortunately, not enough of this money is spent on project which really do drive economic development. More emphasis is required on investment in human resources, innovation and research, in compliment to the development of infrastructure.

- Further new development – in the context of the crisis one could observe that many of the CEECs actually do have sound economic and fiscal policies, as illustrated by the continued growth in Poland throughout the crisis and relatively moderate impact on the economy in Czech Republic, Slovakia. Hungary, Latvia, Lithuania are a different story, though.

- You may want to have a look at EUROSTAT’s data on the evolution of GDP per capita in member states as percentage of EU average: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tec00114

You will notice quite a spectacular catching up in countries such as Slovakia or Poland. Then, the pace of change is slower is other countries, such as Czech Republic or Hungary. This reflects the differentiated economic characteristics of CEECs – you can hardly put them into one basket anymore in economic terms.

Vihar Georgiev, PhD student, European Studies Department, Sofia University St. Kliment Ohridski

Long-term economic development is a very tough topic, and I am not an economist. However, it is quite obvious that countries in Central and Eastern Europe (CEE) are already suffering from demographic decline. The underlying reasons are clear – too few babies due to economic uncertainty and high net emigration. The viable path forward for CEE countries is to attract immigrants; their own demographic resources are too weak. That is why I am quite optimistic about some CEE countries – the Czech Republic, Hungary and to a lesser extent Poland. These countries are already attracting immigration flows, although not as much as in Western Europe. Most other CEE countries, including Slovakia, will have to cope with dwindling populations and the ensuing economic and fiscal challenges. The urgent task is to reform the pension systems – otherwise the downward economic pressure will be overwhelming.

Marjan Svetličič, Professor of International Economic Relations and Negotiations, University of Ljubljana

First; yes if next decades means 20 or 30 years and No if it only 10 years. But the picture is very diffrent by countries since CEEs are very heterogeneous in terms of pc GDP and any other criteria. We can distinguish many groups of countries not only by EU (€ zone) membership but also in terms of economic structures (manufacturing exporters, resource rich etc.) or by starting base.

Secondly, much is EU membership (of candidates) contingent.

Thirdly, it depends on the realization of structural reforms which are lagging behind in almost all countries. First wave of transformation has not brought about automatic restructuring what was naive thought in many of the countries.

Lastly, picture seems to be quite optimistic in terms of Atlas of Economic Complexity, placing many of these economies quite high in the rankings and also in foreseeing their potential GDP and GDP pc growt

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