The recent declaration by the Friends of Cohesion puts the group on a direct collision course with more frugal member states of the European Union over the next Multiannual Financial Framework. Find below this and other news highlights from the week as well as stories that will be developing in the near future.

 

Slowdown sooner than expected?

In last week’s V/I news roundup, I already mentioned the impact of an economic downturn in Germany for the Visegrad countries (V4). This week, further reports have emerged that question the region’s capacity to cope with a further deterioration of the global economy.

An economic forecast of the Vienna Institute of International Economic Studies confirms that a slowdown is likely, given the V4’s high reliance on exports and its close integration with Germany. Recent Purchasing Managers’ Index (PMI) data for the region signals a future contract is likely, with Poland (45,60), Czechia (45) clearly below the 50 mark while Hungary (51,90) remains just above (ed. no actual data available for Slovakia). However, the Vienna Institute expects a “soft landing” rather than an outright collapse of the economy.

In its economic outlook, the International Monetary Fund (IMF) has drawn similar conclusions with regard to the region. The IMF sees risks tied to a weakening of European trade and industry, which are following global trends. Yet, it remains upbeat about the capacity of emerging European countries to withstand the pressure.

The slowdown in trade and manufacturing may spill over into investment but should be offset in part by the services sector and private consumption.

A report of the Dutch ING bank has noted that a large part of the region still runs above potential, aided by recent investments and a competitive labour force. Contrary to the conclusions of the Vienna Institute, ING considers that the diversification of the V4 economies towards the services sector has made them less dependent on the German manufacturing sector.

Given the discrepant signals in recent economic reporting, much will depend on how governments will respond to further events related to the global economy, such as escalating tariff wars, or within the EU, related to the post-Brexit impact on the budget.

More bad news for Babiš

The spectre of fraud continues to haunt the Czech Prime Minister. In a report published by the newspaper Deník N today, it is alleged that Prime Minister Babiš used his relatives to acquire state-owned land that his businesses would otherwise not have been eligible for. This comes on top of earlier reporting concerning the “Stork’s Nest” farm, where a similar family-construction was relied upon to access subsidies.

In September, a Czech state attorney dropped another fraud case against the Prime Minister, relating to the use of an EU development subsidy to build a conference centre.

Gender pay gap

While equal payday took place on 2 April earlier this year, last Saturday was marked as the day when female employees across Europe stopped earning money, relative to their male counterparts. On average in the EU28, women earn 16 per cent less, with major discrepancies between member states.

Czechia has the second-worst performance in the EU with a 21.1 per cent pay gap, a couple of points behind Estonia. Slovakia hard performs better, with 19.8 per cent while Hungary is close to the EU28 average with 14.2 per cent. On the other side of the spectrum, Poland does relatively well with a 7.2 per cent discrepancy in earnings between men and women.

In response to the latest attempts to raise awareness, the Czech Ministry of Labour and Social Affairs has launched an initiative to close the gender pay gap. An online platform named 22% Equality will make it easier to keep track of discrepancies in wages and earnings across sectors and positions.

Friends of fair cohesion

On Tuesday leaders from sixteen EU member states gathered in Prague under the auspices of the Friends of Cohesion Group, an informal gathering of countries that wish to keep the present form of cohesion funding intact.

In a joint declaration after the meeting, the group stated that the funding of the European Union’s cohesion policy should be safeguarded in the next Multiannual Financial Framework (MFF), while the withdrawal of the United Kingdom offers an opportunity to remove existing rebates and other corrections to the budget.

These declarations were reinforced at the margin of the meeting. Hungarian Prime Minister Viktor Orbán said that rebates should be scrapped because this way much of the funding received by Central Europe goes back to the older member states. Echoing his Hungarian counterpart, Polish Prime Minister Mateusz Morawiecki asked for a “fair” EU budget, that enables the construction of roads, railways, bridges and equal farm subsidies, for the development of the community.

The Friends of Cohesion Group comprises Visegrad Four countries as well as Estonia, Croatia, Malta, Slovenia, Bulgaria, Cyprus, Lithuania, Latvia, Romania, Italy, Portugal and Greece.

The group’s insistence on a similar level of spending under the EU budget but with more flexibility for states in deciding how they use it is likely to face criticism from big net contributors and more frugal members.

Net contributors such as Germany have complained about significant increases in payments under a draft plan for the next MFF, although the European Commission has questioned some of their accounting methods used to calculate the so-called net contributions. The Commission has stressed the overall benefit the budget brings to all economies of the single market.

Countries favouring a more prudent approach to the next MFF, such as the Netherlands, Denmark and Sweden, have asked for a limited budget – no more than one per cent of gross national income – that would see sizeable cuts in cohesion spending as well as agriculture subsidies. Earlier attempts under the Finnish presidency to find a compromise have backfired, thereby endangering a successful conclusion before the end of 2020.

Dr Quincy R. Cloet is Deputy Managing Editor of Visegrad Insight


Scenarios for cohesive growth

As of 2019 the negotiations about the next Multiannual Financial Framework (MFF) will enter a critical moment. In the face of an imminent Brexit and the fallout from global turmoil, the EU has to reflect on its guiding principles and take decisions to fulfil the promise of a united Europe.

Download the report in PDF

The Visegrad/Insight is the main platform of debate and analysis on Central Europe. This report has been developed in cooperation with the Centre for European Policy Studies (CEPS).

Launched on 1 October 2019 at the European #Futures Forum in Brussels.