Europe: Witnessing an unprecedented downturn with Germany leading the way.
It has really been a long time since Central Europe has started to boom and flourish, under the major economic achievements of the "Visegrad States", known also as "V4", which are Slovakia, Hungary, Poland and the Chech Republic.
Those economies 15 only years after their biggest boom of economic growth, became extremely open economies, but ofcourse there have been specific and dynamic external forces, which led to this success. Access to generous subsidies from the EU, remittances from millions of expats who live and work abroad in EU countries and especially to Germany and Britain, the prosperous economic environment of Germany that is by far the most important trading partner for those countries and finally the fact that the Visegrad economies used to play the role of cheap workshops for the already developed economies of the EU, were key factors to that success.
But what about the current situation? All those key factors responsible for this previous economic growth seem they have been importantly diminished.
Until today, Hungary, the Chech Republic, Slovakia and Poland were highly dependent on "cohesion" funds, which were responsible for huge upgrades of public infrastructure in the Visegrad region. Now that starts to change...
According to discussions taking place in Brussels and elsewhere, the Visegrad region is about to lose a 25% of the EU funding only in the next seven-year budget which will be starting in 2021.
Another important issue, is the fact that the EU shows a dislike concerning the populist governments who seem to thrive in the Visegrad region and that means that EU funds are considered in the next period to be moved away from the already booming economies of the Central Europe. But there is also a bigger headache concerning the formulation of the new european fund budget, which is the forthcoming loss of one of the biggest net contributors of the EU, due to Brexit, and that is Great Britain of course.
There is also another decisive factor, for this upcoming decline we are about to observe in the Visegrad region in the forthcoming years, and that is the "downfall" of the German economy, which has been the "machine" responsible for the growth in the V4 countries of Central Europe.
The most popular destination of emigrants from Hungary, Chech Republic, Slovakia and Poland, as mentioned before is Germany. Expats who live there were responsible for the remittance of huge amounts back to their own countries. More than 9% of Chech citizens live abroad and more than 11% of Poles. But the remittance numbers will now face a serious decline.
The main reason for that is the fact that Germany's golden ages seem to reach to an end, while global trade goes through a period of uncertainty. So consequently to those factors, the economic crisis will hit firstly the Visegrad economies and then the rest of the EU.
According to statistics, exports of goods and services amount to 97% of Slovakia's GDP, 86% of Hungary, 78% of the Chech Republic and 55% of Poland's. A huge amount of these goods goes to Germany, and that ofcourse is indicative of the arising problem.
The most frequent problem in these economies of Central Europe is also labour shortage. That is good on one hand as wages get high, but on the other hand it leads foreign investments away, as investors seek for a financial environment that remains cheap.
Increasing fertility rates policy, by providing incentives seems to be not a very constructive or effective policy, as it didn't bring any spectacular results.
In this way, we come down only to one conclusion. The golden era of Europe and the EU, seems to reach to an end. Or maybe, it apperas the need for a whole new plan that will formulate Europe and lead the continent to renewed and effective policies. But how easy would that be, amidst burning issues like migration and a diminishing budget? And the question is who is going to take the place of this for so many decades balancing power in the globe?
The answet to this question is really challenging, at the moment when migration issue seems to be a major problem of priorities all across the universe, when huge Asian markets are becoming decisive actors of economics and the US faces unprecedented challenges, with a clear inability to handle a balance in the international political arena...
written by Themis Panagiotopoulou, PhD in Political Science