June 8, 2009
In the imaginary „EU Mapbook for Accession” there must be a roadmap about how the accession tames the unruly East Europeans and teach them the golden rule of fiscal stability, macroeconmic soundness.
This idea was very popular in the ninities which, in hindsight, seems to be the period of a „roaring decade” in comparison with the current crisis. Everything was in place. Fiscal austerity and free market was the rule of the day, flushed by unlimited money. Highly developed countries learned about the merit of international cooperation as opposed to singular country strategies.
They followed a strict rule book in creating entry criterias for the East European countries. They thought that they found the unbreakable laws of the economy.
The current crisis points to a deeper problem in East Europe. When the money market dries up, the developing East-European countries find it extremely hard to finance themselves. On the face of it, they are undisciplined in their state finances. If we look behind the facade we find something else. They are on a difficult grade of development. It is an impossible task that the East European countries are trying to manage. No country in the world was able to develop itself with huge investments while trying to keep their budget balanced.
West –European development happened after the Second World War in a long prosperous period on a much more developed basis than in the East recently. They run huge deficit or were beneficiary of increasing productivity and expanding foreign or domestic markets. They worked in a protectionist world where the state has many opportunities to nurture its domestic companies.
These are lacking today. Foreing debts and unbalanced budgets are the price these countries are paying for their progression towards the euro entry. Social expenditure is also high, but to be correct, we must see that its transformation is very hard. In France, Greece or Germany, reform proposals on pension, social expenses are facing uphill struggles and creating spectacular demonstrations that sometimes evolve into outright chaos. East Europeans were relatively calm in that respect.
The very risk that East Europe poses to the EU is their relatively develpoed status, which they want to protect. Financial markets tremors on this part of the world are just part of the story. What the West is financing by loans in this region is the East Europeans’ smooth and unstoppable progress.Péter Kóczián