Things are not better in the economy either. This is felt most acutely in Hungary, where the budget deficit will reach 10% of GDP this year. Active and educated young people are leaving to work in Western Europe. Those who stay at home are increasingly drawn into nationalist movements.
So what is happening in Eastern Europe? The current series of crises contrasts so sharply with the rosy picture of previous years that today some experts are inclined to suggest that pro-American "color revolutions" are being deliberately instigated in the region to split Eastern Europe from Western Europe. But, of course, the political fever shaking the region is exclusively of local origin. The general political crisis in Eastern Europe is the convulsions of countries that had great ambitions but never managed to become true nation-states.
Renunciation of the Old World
Three years ago, when eight former Soviet bloc countries were completing their accession to the EU, no one could have imagined the coming crisis. Prosperous and promising Eastern Europe was preparing to achieve simply unprecedented results. Economic growth of nearly 5% per year, low business taxes, and a skilled workforce were supposed to attract huge investments from Western companies. Not to mention the official financial assistance from the European Union. The governments of Eastern European countries, which came to power on the slogan of joining the EU, radiated optimism and confidence in the future. By joining the common European family, Eastern Europe was finally supposed to rid itself of Russia's pernicious influence and the status of "non-Europe," while local residents were to improve their well-being and gain the opportunity to live and work anywhere in the EU. This was the universal set of benefits that governments used to lure their citizens into supporting EU membership.
To tell the truth, convincing Eastern Europeans of the benefits of joining the EU turned out to be not so easy. A large part of the population, having just gotten rid of one "big brother" – the Soviet Union – was very cautious about the idea of immediately falling into the arms of another. Pro-European politicians placed special emphasis on the need to escape the Russian threat. They were helped by the intensifying nationalist movements – Czechs, Slovaks, Poles, and Hungarians suddenly realized that only the Soviet Union had hindered their emergence as great nations. As Valerie Bunce, an American political scientist studying Eastern Europe, told Expert, the sharp rejection of Russia and accession to the EU would have been simply impossible if nationalist political movements had not been activated in the region.
However, flirting with nationalist sentiments led to governments having to promise too much to their citizens – to convince nationalists to cede sovereignty in favor of the EU. For example, the rural-popular League of Polish Families strongly opposed EU membership until they were promised generous agricultural subsidies for Polish farmers. The policy of promises created a firm belief among Eastern Europeans that the mere fact of joining the EU guaranteed economic prosperity.
The Miracle Did Not Happen
Despite seemingly decent macroeconomic indicators, Eastern Europeans did not feel real dividends from joining the European Union. Poland, as a country with the highest unemployment rate in Europe and the most inefficient agriculture, remains so (16% of Poland's working-age population produces less than 3% of GDP in the agricultural sector; in France, the same 3% of GDP in agriculture is produced by 4% of the working-age population). Hungary is effectively on the verge of bankruptcy. To avoid it, the government is raising taxes and cutting social spending, and Hungarians are beginning to return to reality – the country is already in the EU, but its standard of living still has not come close to that of Italy or Spain.
The countries of Western Europe are absorbed in their own economic and political problems and are not at all eager to raise living standards in the East. Especially after Eastern Europe hastily and unconditionally supported the American invasion of Iraq. Eastern Europeans can now travel freely within the EU, but they can live in the "old" EU countries for no more than three months, and most of their work is illegal – they still have to apply for permission for official work.
It is difficult to clearly determine the benefit of such migration for the Western labor market, but Eastern Europe itself clearly does not gain from it. Instead of developing their national economies, the most active and skilled part of the population leaves the country. According to unofficial data, about 2 million young people have left Poland alone, and only half of them work legally.
Could it have been otherwise? Historically, Eastern Europe has never been the birthplace of an economic miracle. To reverse this trend and move to a qualitatively different state, each Eastern European country needed to develop its own development strategy, find competitive advantages, and bet on them. As Spain once did, for example. Or as Turkey is doing today. At that moment, Eastern Europeans had an excellent chance to achieve something: the countries were swept by a national upsurge and were not yet tied hand and foot by EU rules. Creating and implementing such a strategy is a very difficult task; it requires a strong leader and a strong team.
In Eastern Europe, at the time of joining the EU, the people in power were obedient to Brussels, whose main task was not national development but the implementation of countless European Commission regulations. They fervently convinced their voters that the main thing for the country was accession, and then under the guidance of wise Brussels everything would work out by itself. Former Polish Economy Minister Jerzy Hausner, two years ago in response to Expert's question about what secret development plan they intended to apply to achieve stated goals, replied with dignity: plans in Poland ended together with the Soviet system, now they have a market economy that develops spontaneously without any plan. The entire national uplift went into a shout: "Hurray, we are in Europe!".
Without the Will for a Feat
In fact, those unpopular economic reforms with which Hungarian Prime Minister Gyurcsány is now trying to save the country should have been carried out three years earlier. Moreover, the population itself should have been ready to work hard for the sake of the desired national greatness. However, the mood in Eastern European society was completely opposite. Governments found themselves squeezed between obligations to Brussels and big business on the one hand and the need to appease the electorate so that it would not oppose the "European choice" on the other.
It is worth recalling that the closer the referendum dates approached, the greater the public skepticism. In a number of countries (Poland included) citizens almost said "no" to the European Union in referendums. Unsurprisingly, no Eastern European government could honestly tell its citizens that improving living standards—and in the fairly distant future—would require hard work from them. Instead, governments told their electorate that the economic situation was good, and after joining the EU it would get even better. This, in fact, is the very lie about which Ferenc Gyurcsány said so expressively: "We screwed up. Not slightly - big time. No European country before us has acted as stupidly as we did. I nearly died when for a year and a half we had to pretend we were governing. Instead, we lied - in the mornings, in the evenings, and at nights."
He wasn't the only one lying; everyone lied, he was just the one who admitted it. In order to maintain the public's feeling of growing prosperity, the government had to lower taxes and increase budget spending. It was this practice that led the Hungarian government to huge state debt and budget deficit.
The hopes for increased foreign investment and the arrival of Western capital did not materialize. Capital did come, bought everything that interested it, but did not create anything new or large. Investments were mainly made in the form of purchases of privatized enterprises, and the governments mostly spent the proceeds on patching budget holes. Expectations for the relocation of production from Western Europe to Eastern Europe turned out to be greatly overestimated. Many Western enterprises wanted to do so but never decided. So in Germany, a powerful union movement against relocating production unfolded. German workers agreed to work longer for less money just to keep factories from moving to Eastern Europe. Those who did decide to relocate part of their production built in China, not Eastern Europe - it is still much cheaper (on the wave of EU accession, wages and prices in Eastern Europe rose), and the Chinese market is larger and growing faster.
"When our governments reported growth in foreign investment, the population expected to see sharp positive dynamics after some time - increases in the number of jobs, growth in the money supply circulating in the economy, and consequently, a rise in living standards. However, none of this happened. It's great, of course, that we can travel around Europe, but that also requires money. Many of my smart and bright friends simply left to work in London. And for those who don't want to leave, life at home is not easy. The most unpleasant thing is the lack of growth prospects, because you want to hope that tomorrow will be better than today," an analyst from a Western bank's branch in Budapest, who asked not to be named, told Expert.
Welcome to the Periphery
Many still cannot grasp how excellent economic indicators in Eastern European countries' reports can be combined with such a deplorable real situation in the region. There is an opinion that the newcomers took a "creative" approach to compiling statistics, just as Greece once did to join the eurozone. Isn't that evidenced by the comment of European Commissioner Joaquín Almunia, who recently "rejected" Hungary's financial reports, noting their high content of fiction?
Indeed, it is hard to imagine that the EU did not see this practice. Rather, the EU wanted so badly to annex Eastern Europe that had fallen away from Russia that it took some countries without looking, planning to sort them out later. The best example of this is Poland, whose accession was passionately desired by Germany. At the time of joining the EU, more than 30% of the country's population was engaged in farming, and unemployment was about 20%. Signs of economic growth, so attractive on paper, were very difficult to find in the country itself. An atmosphere of poverty and desolation was clearly felt even in Warsaw itself. Today, Poland's economy is in roughly the same state: about the same 20% unemployed, the same poor rural residents who have little to sell on the European market - there are enough French and Spanish producers - the same lack of money and still the absence of any plan.
In Brussels, however, even today they see no cause for concern and continue to insist that Eastern Europe must continue to "properly" integrate into the existing system, rather than invent its own development plans. The next stage of integration is joining the eurozone. On the one hand, the European Union absolutely needs newcomers to switch to the single currency, and on the other hand, the transition process itself is a good control tool through which the center continues to influence the situation in Eastern Europe.
"If we talk about the economic situation, Poland and the Czech Republic are in a favorable period of impressive economic growth. It is expected that this year the Polish economy will grow by 5.3%, next year by 4.3%, and the Czech economy this year by 6%, and next year by 5%. In Hungary, fiscal problems will slow economic growth to 2%. As for the political situation, I would not characterize it as a crisis, rather it is political uncertainty. Despite all this, all three countries must unequivocally make adopting the euro a political priority, because switching to the euro will reduce transaction costs, reduce currency volatility, further facilitate trade, and all this together will lead to significant economic growth. At the same time, I do not expect these countries to join the eurozone in the current decade, as was planned a few years ago. They all have different reasons for the delay. In the Czech Republic and Poland, it is primarily a lack of political will to prioritize the transition to the euro, in Hungary it is economic unpreparedness. In my scenario, Poland and the Czech Republic will be able to switch to the euro between 2010 and 2012, and Hungary two years later," says Deutsche Bank chief economist Norbert Walter.
Some radical Eastern European political scientists say that governments have practically "sold out" their countries to Brussels. It sounds radical, but there is some truth to it. After all, Eastern Europe was accepted into the European Union in order to conveniently integrate it into its system as a periphery. That is, to leave there the production that the center needs, and to wind down everything else. Thus, in Poland, a large number of metallurgical plants and power plants were closed. At the same time, active and qualified labor resources are pumped to the center. Eastern European countries should gradually turn into subsidiary economic zones, whose standard of living will be several steps lower than in the bustling center.
Sobered up
Now the future of Eastern European countries depends on how adequately they can assess the situation in which they find themselves. Today we can talk about two options for getting out of the current situation.
The first is the Hungarian one. The government finally revealed the truth to the people about the real state of affairs and began tough economic reforms - cutting social spending, raising all possible taxes. The recovery of the Hungarian economy could be seriously hindered by a nationalist populist movement that has strengthened on the wave of multi-day unrest. The dissatisfied are demanding the resignation of Gyurcsány, as well as the cancellation of all his reforms and a return to the previous complacent consumption. For now, the government - supported, by the way, from Brussels - is fighting off the rebels and continues to tighten the screws. But if the unrest does not subside or turns into a bloody phase, the government will surely fall. It will apparently be replaced by the right-wing populists of Fidesz. And then Hungary will follow the second possible path, which Poland has long and confidently been on.
The Polish path is constant political instability heavily mixed with populism, the absence of a strong leader who would have the trust of the population and could carry out painful reforms. The current Polish government with the Kaczyński twins, which came to power thanks to the populist program of the Law and Justice party, promised to make the state cheaper, build more apartments, and fight corruption. By forming a government coalition with the frankly marginal parties Self-Defense and the League of Polish Families, the Polish government has completely tied its hands. There can be no talk of any serious economic reforms - the coalition would immediately fall apart. Poland is sinking deeper into the swamp of demagoguery. Its domestic politics is becoming marginalized. The only slogan that can mobilize Polish society is defense against claims from the former Third Reich and the fight against the legacy of the Soviet Union.
However, until recently many Eastern European countries pursued equally fierce anti-Russian policies. But gradually they became convinced: it is better to be friends with Russia. At least to play the role of a bridge between the strengthening Russia and Western Europe. One of the first to understand this was Hungarian Prime Minister Ferenc Gyurcsány, who stated after a visit to Moscow: "Hungary is now turning towards Russia, and those Eastern European countries that have not yet understood the need for it will get burned badly."
"The wave of Russophobia in Eastern Europe is over," believes Lviv political scientist Igor Tanchin. "Faced with harsh economic reality and disappointed in the EU as a way to solve all problems, Eastern Europeans are now seeking to establish economic contacts with Russia. This is clearly visible in the negotiations that are now actively underway between Hungary and Russia, the Czech Republic and Russia. Even Poland, despite the ongoing anti-Russian rhetoric from the government, at the level of business and ordinary people is increasingly coming to the conclusion that it is more profitable to be friends with Russia."