How to benefit from the EU in the future and how to catch up with the Western zone of prosperity?
No serious politician from the V4 would question the importance of belonging to the EU. But it is worth to explore how to benefit from the EU in the future and how to catch up with the Western zone of prosperity?
This article is part of a V4-Germany analytical series initiated after a conference ‘Visegrad Group and the future of European Union’ organised by the Visegrad Insight and the Foundation for Polish-German Cooperation, that took place in Warsaw on 15-16th March, 2017.
It is quite fashionable to talk about the Visegrad countries as the growth engine of the EU. In times when the South European EU members still struggle with recession and low growth, and even the average growth rate of the EU is under 2 percent, this region seems to be the eminent student: with the exception of Hungary, all three countries could boast with considerably higher growth rates. Unemployment, being an unsolved problem in the South has almost disappeared from the region (with the exception of Slovakia). Czech unemployment data (3,4%) is in fact the best in the whole EU, and Hungary is also starting to experience labour shortages. Inflation is down and the V4 follows disciplined fiscal policies, making them valuable partners and allies for Germany in shaping a new economic order in Europe. Or so it seemed before the election of French President Emmanuel Macron.
The importance of Germany for the V4 is unquestionable and it is still an open question how the relationship will be affected by the strengthening of a new French-German axis. Berlin is by far the most important trading partner for the V4 countries, its ratio in overall trade ranging from 22 to 27 percent, respectively. Although the countries of the V4 do not figure in the first five trade partners for Germany, but if taken as one region, they would be the largest suppliers and the biggest market for German goods, overtaking the US, China or France.
But let’s look at the less rosy side of the picture. The V4 accounts only for 5,3 percent of the EU’s total GDP, somewhat less than the Netherlands. Productivity is still below EU average. So far, only the Czech Republic has made the jump and is getting closer to the EU average, with 87 percent of GDP/capita. Slovakia is faring well (77%) but Poland and especially Hungary still stand at two-thirds of the EU average. The slow pace of catching-up is leading to frustration by many citizens and abused by populists pinpointing to the Brussels to bear the blame for the relatively poor results. Just to add, these results have been achieved with the massive support of EU funds – in the case of Hungary reaching 6 percent of the GDP last year – which will be gradually phased out from 2020. Low productivity, the so-called low-wage trap, an unbalanced economic structure (overdependence of car-manufacturing in the case of Slovakia and Hungary) and an alarming brain drain coupled with a shrinking population could all endanger the region’s future of prosperity. A delicate balance has to be found because it is neither the interest of the V4 nor of Germany or the EU to cement these countries as some kind of a periphery.
Edit Inotai – Senior Fellow at Centre for Euro-Atlantic Integration and Democracy (CEID), Budapest