Coronavirus is testing EU cohesion nowhere more than in Central and Eastern Europe (CEE)

  • Coronavirus is testing EU cohesion nowhere more than in Central and Eastern Europe (CEE)

    Coronavirus is testing EU cohesion nowhere more than in Central and Eastern Europe (CEE)

    The EU’s tardiness in agreeing pandemic stimulus measures is strengthening the hand of some of CEE’s more nationalist-minded and populist leaders. If Brussels does not get it right, underlying tensions may surface in the region, making it more complicated to do business there.

    The rapid spread of the coronavirus through Europe has highlighted disparities in preparedness, resilience and leadership across the continent. 

    As the countries of Central and Eastern Europe (CEE) have divided into EU and non-EU members, and the former into eurozone and non-euro currencies, the economic impact of coronavirus will be felt differently among the nation states of CEE. Much will depend upon their ability to conduct economic stimulus measures, and CEE’s EU members are in a stronger position than, for example, Ukraine or Belarus to do so. This would appear to be a vote of confidence in the EU’s ability to protect the interests of its CEE members; however, Brussels has been slow to act institutionally, and some of its key members have not always shown the solidarity expected. Indeed, acts of solidarity from Russia, China, and even NATO have occasionally shown the EU in an unfavourable light among its own members.

    Consequently, national governments have initiated much of the planning and resourcing for economic recovery, while urging Brussels to provide more help. Poland has already announced plans for a rescue package of up to €47bn and Czechia has weighed in with €36bn. Croatia, Estonia and Lithuania have announced €4bn, €2bn and €1bn rescue packages respectively, while Bulgaria has earmarked some €2.3bn worth of measures as an initial rescue package, though it recognises that more may be needed. Hungary has set aside a further €1.8bn from a variety of one-off taxes in addition to a recovery fund of €3.63bn.

    At the EU institutional level, the European Central Bank (ECB) announced a somewhat belated quantitative easing programme worth €750bn, strengthening the euro against the US dollar. This is in addition to an earlier announcement of refinancing measures worth €120bn; the ECB is also discussing mechanisms for additional funding to eurozone members, including Slovakia, Slovenia and the Baltic states. The European Investment Bank is in the process of making funding available by repurposing existing funds which have been earmarked but not yet committed to projects. However, EU leaders are unable to agree on the appropriate method of providing assistance to all member states, referring the matter to the Eurogroup of finance ministers and leading to further complaints about lack of solidarity. Burden sharing through the issue of corona bonds does not appear likely at present, but the conditions attached to use of the ESM’s €400bn bailout fund are unattractive to many. The Eurogroup’s initial failure to agree a package on 8 April added to the growing disillusion among some CEE member states, and to concerns about the very future of the union among more established members.

    While the EU has been slow to respond, it has significant resources and is prepared to make them available. Delay, however, has seen national governments act unilaterally, closing borders and in some cases – Poland, Czechia, Slovakia – considering or introducing surveillance measures to enforce quarantine regulations. Budapest has used the crisis to introduce greater government powers, while Poland has taken steps to introduce postal ballots, and in so doing ensure there can be no effective campaigning against the ruling party’s presidential candidate during lock down. As hard borders reappear across Europe, the role of the state has taken on greater significance for the markets, something which will play to the tune of governments in Budapest and in Warsaw. Strong initial market rebounds on the news of unprecedented government interventions (in US, UK, Germany, for example) indicate the faith which markets place in the state at times of crisis.

    In a post-coronavirus world, established ways of thinking about geopolitics and geoeconomics will come under review. 

    It is clear that Europe, particularly its less affluent eastern half, will undergo a severe downturn as a result of the pandemic. This will affect the challenges and opportunities of doing business there and may yet bolster some of the more populist CEE leaders; they can claim credit if their countries emerge with only limited economic damage or blame wider EU failures if not. EU assistance will also be weighed against that from other sources, not least China’s “mask diplomacy” or Russian medical supplies. For some in CEE who are already unenthusiastic about perceived EU constraints, the example of self-reliant Russian or Chinese state capitalism may yet come to be seen as proof of the effectiveness of nation state primacy and the “big state”.

    The degree to which CEE countries are perceived to have benefited from EU aid will determine the bloc’s popular acceptance in the region in the near and medium-term future. The EU has the necessary financial muscle and will doubtless act in due course. For now, however, it is leaving the field open to its critics among its own members. Brussels now needs to have particular regard to the concerns of its CEE members (and their non-EU Eastern neighbours whose economies benefit from the bloc’s European Neighbourhood programme) if it is to avoid exacerbating existing Euroscepticism and ultimately conceding influence to others in the region.

    Decisions made now will have a huge impact on recovery at regional and national levels, as well as for the future of individual businesses. Sustained economic recovery will depend upon those businesses for whom navigating a changing operating environment will require enhanced levels of information and insight, now more than ever.

    Since this article was written, the Eurogroup of Finance Ministers reached an agreement overnight on 9-10 April to provide an economic rescue package of up to €540bn. Details of exactly how the scheme will function look set to provide further debate between those who wish to mutualise debt across the EU (e.g. Italy and Spain), and those who take a more conservative approach (Germany, Netherlands, Finland). In the meantime, the wording of the agreement has enabled each side interpret it in their own favour, so further negotiation/clarification is inevitable.

    The author is a geopolitical risk adviser specializing in the CEE region. An Executive-in-Residence at the Geneva Centre for Security Policy, he is a former financial sector intelligence consultant and an ex-RAF officer.y. He writes here in a personal capacity.  

     

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