The great French historian Fernand Braudel taught us to look for the underappreciated long waves (longue duree) in history. In the context of the past 30 years, one such wave is the widening economic gap between the Central and Eastern European countries that joined the EU and those that have not.
The former are gradually catching up with the other EU member states, with growth rates nearly twice as high as their eastern neighbors. The latter are stuck between the EU and Russia.
The divergence between Poland and Ukraine illustrates the trend. According to Soviet statistics, Ukraine was slightly wealthier in per capita terms than Russia and Poland in 1989, just before the revolutions that toppled communism across Central and Eastern Europe. Back then, both countries had similar cultures and industrial structures.
Today, per capita GDP (in US dollars) is almost five times higher in Poland than in Ukraine. Even in 2013, the year before Russia launched its war against Ukraine, Poland’s GDP per capita was 3.4 times higher.
Ukraine is not alone. The Belarusian and Russian economies have been stagnant since 2012 and 2014 respectively. Blaming Russia’s plight on falling oil prices does not explain why Ukraine and Belarus have followed a similar pattern. Russia, of course, has also been squeezed by Western sanctions following its illegal annexation of Crimea in 2014.
By the same token, Ukraine lost 17 percent of its GDP as a result of Russia’s military aggression, although it did manage to register modest annual growth of 3 percent from 2016 to 2019.
Meanwhile, the EU’s Eastern and Central European countries have been surging ahead on the back of domestic entrepreneurship and foreign direct investment (FDI). During the 2014-2019 boom, their economies grew by 4 to 5 percent per year, on average, whereas Russia’s per capita GDP fell below that of Romania and even non-EU member Turkey.
Among the 27 EU member states, only Bulgaria is poorer than Russia in per capita GDP terms, whether measured in US dollars or purchasing power parities.
One reason the ex-Soviet states are doing so poorly while Central and Eastern Europeans are doing so well is that the latter countries successfully concluded association agreements with the EU in the early 1990s. With excellent access to the EU market, by the mid-1990s they had shifted two-thirds of their trade from the former Soviet Union to the EU, and by tapping into European supply chains, they were able to emerge as the main European auto producers.
However, the key factor in these countries’ successes has been the improved quality of economic governance.
To qualify for EU membership, Eastern and Central European countries were compelled to adopt the body of EU law. After a long and grinding bureaucratic process, these countries adopted the legal and regulatory frameworks necessary to provide for the functioning of an open-market economy.
In Transparency International’s Corruption Perceptions Index, Poland, the Czech Republic, Slovakia and Hungary rank 45th, 49th, 60th and 69th respectively, while Ukraine and Russia rank 117th and 129th.
Although the former group’s rankings are not stellar, they have proven sufficient to attract FDI. Investors know that if something bad happens, they can seek recourse through the EU, and eventually through the European Court of Justice. Unlike in the former Soviet Union, property rights in Central and Eastern Europe are secure.
The dirty secret is that 3 to 4 percent of Central and Eastern European countries’ annual GDP is coming from EU grants, which are a mixed blessing. On one hand, EU structural funds are why all the capitals of the newer member states have beautiful new airports and highways. On the other hand, such projects are typically more vulnerable to corruption — hence the dubiously acquired wealth of many Hungarian business leaders who are close to Hungarian Prime Minister Viktor Orban.
The question is whether Central and Eastern European economies can be expected to maintain their progress. Before their accession, EU watchdogs worried that these countries would improve their governance only up until they joined the EU.
The reality is more complicated. All of the new EU members continued to strengthen their governance for many years, attracting ever more FDI. A few countries are still improving. Estonia and Lithuania are now the least corrupt former communist countries.
However, some of the leading transition countries are undergoing a sharp deterioration in governance, according to Transparency International. Poland’s score peaked in 2015, followed a year later by Slovakia and by the Czech Republic in 2018. Hungary peaked in 2012 and has steadily declined since, such that it ranks alongside Romania and Bulgaria, which were previously considered the most corrupt EU countries. Foreign and domestic investors are paying close attention to Hungary’s weakening adherence to international law, increasingly shaky property rights and embrace of discriminatory taxation.
For the EU, this retreat from good governance could become an existential issue, because democracy and the rule of law go together. Even though Hungary and Poland have run afoul of essential EU democratic criteria, they remain the beneficiaries of massive EU funding. While the EU did impose special conditions on Romania and Bulgaria, these measures did not go far enough.
According to Freedom House, democracy has been declining around the world since 2005. Now more than ever, the EU must not allow backsliding on the issue of governance.
Fortunately, the bloc has become more intent on imposing harder conditions, primarily through the 750 billion euro (US$914 billion) Next Generation EU recovery plan for Europe. The trajectory of the ex-Soviet states is a sad reminder of why the EU must stand up for democracy and the rule of law at home and abroad.
Anders Aslund is a senior fellow at the Atlantic Council in Washington.
Copyright: Project Syndicate
As I write this in mid-June, Chinese strongman Xi Jinping (習近平) seems to be at it again, pressuring and bullying Taiwan both rhetorically and militarily. Chinese war planes have been circling Taiwan in an overtly menacing manner, the rhetoric in state-run media has been shrill and threatening, and in general the one party dictatorship on the mainland has been showing its fear and loathing of the democratic republic 90 miles east of the “People’s” Republic. This at a time when the economy on the mainland continues to be in a slump connected to the global economic decline, though there is
On Tuesday, a total of 28 People’s Liberation Army (PLA) aircraft intruded into southwestern, southern and eastern areas of Taiwan’s air defense identification zone (ADIZ), a record number since the Ministry of National Defense began publishing PLA aircraft movements last year. Taking off from air bases on China’s east coast, 10 Shenyang J-16 multirole strike fighters, six Shenyang J-11 fighter jets and two Shaanxi KJ-500 airborne early warning and control aircraft flew on a course adjacent to the Taiwan-controlled Pratas Islands (Dongsha Islands, 東沙群島) before turning back. In a separate formation, an assortment of aircraft, including heavy bombers, more J-16s, electronic warfare
NATO leaders in a communique on Monday described China as a threat to the “rules-based international order and to areas relevant to alliance security,” marking a major change of focus for the organization. They said that China “is rapidly expanding its nuclear arsenal,” is “opaque” about its military modernization and is “cooperating militarily with Russia.” Following the NATO meeting in Brussels, US President Joe Biden assured the alliance that the US would honor its NATO commitments, and said that China and Russia were attempting to drive a wedge between the Washington and European allies. “I want all Europe to know that the United
At their meeting in Geneva, Switzerland, last week, US President Joe Biden and Russian President Vladimir Putin agreed to once again exchange ambassadors, continue arms reductions and avoid nuclear war, but they continue to wrangle over cyberattacks and human rights issues. Since Biden took office, he has had only one unofficial telephone conversation with Chinese President Xi Jinping (習近平), but he hurried to hold a summit meeting with Putin just after the G7 meeting. Biden’s reasons for these decisions invite speculation. Russia used to be a member of the G8 industrialized countries, but its membership was revoked after it instigated a referendum