Central Europe is back in the news. When 8 former communist countries of the region joined the European Union in 2004, followed by Bulgaria and Romania in 2007, it seemed that their path toward stability and prosperity was on a rather straightforward upward trajectory. Enter the world financial crisis. Hungary and Latvia stumble badly and ask for IMF help; Romania follows; capital flight and speculative attacks rock the value of the local currencies; unemployment rises and so does debt, especially in foreign currencies.
The picture is bleak but not uniformed. Poland, the region’s largest economy big enough not to depend excessively on declining exports, is doing relatively well. The Czech Republic, the second-largest economy, as well as Slovakia and Slovenia – the region’s two countries that have already joined the Eurozone – are also far from a meltdown. But the question on everybody’s mind is whether the economic turmoil will affect the political sphere if the crisis continues.
Edward Lucas, Central Europe Correspondent for the Economist, recently said on NPR that the great danger of the current trouble is that it’s not only a financial crisis but it translates into social and political one as well, as the region’s still relatively new democratic systems are coming under considerable strain. But the Economist also highlights some reasons for (qualified) optimism:
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So far, the economic crisis has not translated into populist or protectionist politics. It is the east European countries that have been demanding that the rest of the EU stick by the rules of the single market. Their development over the past decades has been thanks to the free movement of capital, goods and labour. They would like a lot more of it: in a contest to subsidise industries, rich countries always win. But that stance will not hold indefinitely if things get worse.
Published Date: March 05, 2009