Economic governance reforms and Eurozone consolidation has significant institutional and political consequences: a multiple-tier integration is ever more realistic. „Out” countries seek to mitigate the negative impact of these developments. In this respect V4 – Visegrad countries differ a lot: Slovakia, a relative latecomer in economic reforms is part of the currency union. Poland, Hungary and the Czech Republic are not Euro-members.
But even this sub-group is divided: Poland intends to join whenever requirements are fulfilled while the Hungarian and the Czech governments are cool on accession. At the same time, further economic federalisation in the Eurozone is to come. Against this background, the question whether a long-term “great divide” among V4 group countries in relation to their EU policies and consequently their future situation in the rapidly altering EU will be maintained, is of key importance.
European economic integration in political perspective
Economy and politics walk hand in hand in the process of European integration. This has been clearly seen during the years of the euro crisis. During the worst crisis ever experienced by the EU as from 2008, the euro was not seen as the solution, rather than the source of the problem. But in fact, the true lesson from the recent malaise is that the institutions and policies behind the common currency need significant reinforcement.
The euro is one of the most sophisticated results of the process of modern European integration. It is also a symbol of peaceful collaboration between European countries, which has been accompanied by, or has resulted in, unprecedented levels of peace, stability and prosperity in Europe.
In order to restore confidence in the single currency zone, a more coherent fiscal union must be created, which will require further measures of economic integration in the long run, such as the creation of a European finance minister, a larger EU budget, and a fully operational banking union. Tax and even social policy coordination will also be on the to do list. Obviously not all members will be able or willing to go that far. EU members states are destined to go at different paces maybe even in different directions. A two-speed Europe has already come into existence in reality which was reinforced with the UK’s decision to stand aside. The dynamics of integration is uncertain. This is partly because the alliance between the 18 current members of the euro zone is not a stable formation per se; for many of them, the bar will be set too high, and they will not be able to accept the degree of harmonisation needed. An additional factor is that integration is to proceed on an intergovernmental – rather than supranational – basis, and there will be a need to clarify the roles of the EU bodies, in particular that of the European Commission. These developments have consequences for the V4 Group as well in the medium term.
One has to be aware of the fact that despite its undoubted successes, modern European integration – in historical terms – is a fragile construct. The main reason for this is the absence of a precise self-definition. Europe seems still to be a nascent formation, consisting of political compromises, a common system of law, a common economic zone, and a collection of political and institutional responses to crises. Although the peoples of Europe have lived side by side for thousands of years, they do not share traditions, living myths, a common identity or language; nor do they project a single image towards the outside world. The political class and the intellectual elite are just as divided: some want more Europe, while others think that even the present level of cooperation is far greater than desirable. The underlying reason is that no one has a clear picture of the function, goal and future development of the EU; there is no agreed vision.
The federalist school holds that the time has come to establish a political union, or the alternative is a collapse of the integration project brought about by the euro crisis. Others claim that political union is not only unnecessary but also impossible in Europe. Many member states, much of public opinion and of the European cultural elite reject the idea of a political union. In addition, Europe is not yet prepared mentally for such a union. There are three reasons for this. First, the lack of common European traditions, identity and language. Second, the member states having extremely divergent visions for the European Union and holding a variety of opinions on what is the ideal economic and social model. Third, it is a physical impossibility to create a unified political union out of a Europe that has 28 members and is expected to expand continuously. Consequently, the result is a multi-speed Europe.
The UK is distancing itself from integration, thereby creating a good reason for the German-French duo to press on with moving towards Core Europe while avoiding the EU-28 setup as it is today. For eurozone key countries surrendering more of their sovereignty will be far less painful than a euro meltdown. Chancellor Merkel seriously believes that the demise of the euro would be the downfall of the EU.
By creating the euro (which was in many – especially in economic – respects either an irresponsible enterprise or a visionary act, depending on one’s perspective), Europe crossed the Rubicon: it pushed integration to a point of no return where it either presses on with a fiscal and economic union or must bear the dire economic and social consequences of a break-up of the common currency. As Ottmar Issing puts it: Der Euro “is still an experiment whose outcome seems likely to remain uncertain for a considerable time to come.”
Euro-related challenges are not the only factors: Europe at the beginning of the 21st century is facing not only a financial crisis but also a political crisis (caused in part by the economic crisis). It is a political crisis in the sense that the political institutions established after World War II, including those of the EU, have lost the confidence of the electorate. Society and the economy are undergoing rapid change. For many, such change is an opportunity, but for even more people it is a threat. This undermines society’s confidence and leads to the chronic rejection of political institutions and a widening of the chasm between the elite and the man in the street. The welfare model that was designed to prevent a repetition of the disastrous social problems of the interwar period is now in a crisis, thereby jeopardising the social peace that was based on keeping the middle-classes satisfied. This in turn has added to economic and social tensions caused by immigration and to a hysterical fear of globalisation. In the view of many, globalisation – or as the anti-globalists call it: the unbridled competition of dog-eat-dog capitalism – finds embodiment in the European Union. It is therefore not accidental that there is a growing rejection of European integration, accompanied by a general rejection of the political mainstream.
Crises are inherent to capitalism, but the crisis that began in 2008 has several unique features. The first is its rapid spread in the financial sectors of the developed world, which was due to the unprecedented interconnectedness of the world’s financial markets. Many have drawn comparisons between the current crisis and that of 1929. True, at that time too, an irresponsible deluge of credit had caused economic bubbles, but the crisis was one of over-production. In other words, the problems of the 1930s originated in production, i.e. the real economy. In contrast, the crisis of 2008 originated in the financial sector. There were no problems with the foundations of the real economy until they were rocked by the financial meltdown. But the most important feature of this crisis is that – contrary to previous ones in the second half of the 20th century – it is a crisis of the West.
The scenario is not that of a collapsing emerging economy (Argentina, Mexico, Russia, East Asia) that has proved itself incapable of implementing the operating principles of Western liberal capitalism. On the contrary, the rest of the world remains relatively stable while the economy of the West (USA and EU) seems to be cracking. Ground zero of the financial crisis was in the United States, the key archetypal capitalist actor. However, by 2011, the eurozone had become the real focus of the crisis. China, Japan, and the United States are keeping a watchful eye on the success (or failure) of Europe’s crisis management, while drawing up various strategic scenarios. Thus the crisis has crossed the Atlantic, and made the leap from the financial sector to the real economy, affecting in particular national budgets. Act two of the current crisis centres on unsustainable national budgets. This explains why, in Europe, a rescue is needed not only for the banks but also for the member states.
Clearly, the present crisis is one of the most serious ones in the history of European integration. It is fundamentally a political crisis rather than a purely economic one. It is the consequence of a downward spiral of political and economic problems that mutually reinforce each other. At its centre lies a weakness of political vision in the EU and in the eurozone. In economic terms, Europe is better placed than the USA (when one considers the level of national debt or fiscal deficit); yet it is the eurozone that has become the epicentre of the crisis. History teaches us that monetary unions are unsustainable without political coordination and a fiscal union: a major economic crisis has now made this painfully clear to the eurozone too.
In the history of European integration, crises have acted as the triggers of major political and institutional changes. Europe and the EU face many external and internal challenges, the scale of which has grown in recent decades (greater international competition, a whole series of demographic, social and budgetary problems). Member states have often made feeble and belated responses to such challenges with delayed reforms and poor management of immigration and demographic trends. At the same time the European Union has not been more robust either (see weak and eventually failed policy visions as the Lisbon programme, diplomatic and geopolitical difficulties due to the lack of a common EU position, years of impasse after the failed European constitutional project, etc.)
The question is whether the present crisis, which threatens the existence of the most important achievement of European integration – the common currency – will lead to a ‘quantum leap’ towards closer political integration and a multi-speed Europe. It may indeed result in any of the two.
In the medium term, the whole of Europe must prepare itself for a decade of sluggish economic growth. The gap in economic, social and political development within the eurozone will only widen unless there is a major change of direction in the integration process. In the long term, the European welfare state is unsustainable in its present form (cf. ageing and shrinking populations, budgetary over-extension, an increasing competitive disadvantage vis-à-vis Asia). For this reason alone, it would seem sensible to pool European resources and to aim for a common European political and geopolitical agenda. But that will be the result of economic necessity rather than rationality.
In this socio-economic context a lot of discussion is taking place about European political union. But one thing has to be clear: not any form European political union should or could mean the formation of a regional world government or the elimination of Europe’s nation states. The nation state is a European invention, and Europe’s nations will never be dissolved into an all-embracing pan-European political unity – if for no other reason than because for Europeans a sense of European identity barely exists, and Europe does not have a common language like the United States does. Political union could mean closer political integration, a real common foreign policy, a real European (or Eurozone) president, real European parliamentary elections, a real (perhaps eurozone) budget, and a truly common economic policy. It could also mean unified European representation (a single seat and a single voice) in international organisations as well as stronger pan-European symbolism in daily life. The euro would still not be backed by a real country, but there would be regional integration with a far stronger political profile.
Currently, the key question concerning the future of European integration is whether or not a currency without a country is viable. The European Union has tried to establish a monetary union without a political union, but it has become increasingly clear that both are needed – or neither. Some thought that this ambiguous situation would lead to a great crisis, forcing the EU to establish closer political integration. That is to say, what cannot be achieved through nice words, will happen under pressure – as has been the case so many times before. Angela Merkel has a point saying that if the present crisis leads to the end of the euro, this would result in the collapse of European integration as a whole, at least in its present form.
Not only is the common currency without a country; it also has no backing in the form of political institutions or even the basic foundations of economic integration. The EU barely has a budget: in a modern market economy, the budget amounts to 40-50 percent of GDP, while the EU budget amounts to just one percent of European GDP. Moreover, money is not spent on things that a “normal” budget would target, but for very different purposes, such as farm subsidies – which still account for almost every second euro spent. These factors add up to a budget ill equipped to make significant transfers between eurozone members at different levels of development and in different stages of the economic cycle. An even more important deficiency of the eurozone is its lack of a common economic policy and the cumbersome decision-making with unanimity required, for instance, to adopt common fiscal rules.
A closer union in fiscal and economic policy terms – a European finance minister, eurobonds, common financial supervision, a closely coordinated economic policy – seems inevitable, as does, in certain respects, a political union. All this will require a new treaty, an amended ECB statute, and above all political will. Closer integration may certainly be envisaged in the form of a multi-speed union. A radically different European space is appearing before our very eyes. And in this new space the role of Europe’s major powers will change, and there will also be a shift in the relative clout of countries. Germany may be the greatest beneficiary of the reshuffle with its new-found regional primacy. German political elite supports closer integration, which will help mitigate fears of German hegemony, but the German-French tandem is no longer regarded as a partnership of equals. History (and necessity) has made the economy – and the common currency – the driving force of federalism, rather than political institutional development or the construction of a European cultural identity, which would have favoured the French. The French wanted the euro – and the whole process of integration – as a means of keeping the Germans in check, but in reality the opposite happened. The principles of France’s European policy – the multiplication of French power and capacities at the European and global level coupled with categorical inter-governmentalism – have been sorely wounded.
Historically speaking, hostility, rivalries and war are the norm on the European continent; periods of peaceful co-existence are the exception. Or, as prof. Anis Bajrektarevic rightfully questions our deceiving wonderworld: “Was and will our history ever be on holiday? From 9/11 (09th November 1989 in Berlin)… to the Euro-zone drama, MENA or ongoing Ukrainian crisis, Europe didn’t change. It only became more itself – a conglomerate of five different Europes”. Also, in historical terms, modern European integration (voluntary cooperation between sovereign states, based on the respect for common laws, and which was launched after World War II with a strengthening of economic and commercial relations but with the primary purpose of pacifying Germany) is a vulnerable formation. As a consequence, peace and solidarity on the European continent may soon be replaced by growing hostility – if the economic situation deteriorates and becomes crisis-ridden in a geopolitical milieu that is increasingly unstable. The fate of the boldest achievement and symbol of EU integration – the common currency – is intertwined with the fate of integration as a whole: an anarchic collapse of the euro would be accompanied by the break-up of the EU and political paralysis in Europe. The euro is fundamentally a political and symbolic creation; in its present form, it does not have firm economic foundations. In light of the above it is in the interest of the EU to save the euro by establishing a strong economic union.
With its present architecture, rules and stakeholders (whether they are the EU-28, the EU-26 or the EU-18), the European Union is incapable of moving forward at the right speed and depth. In addition, European public opinion gives a cool reception to any initiative coming from above, from Brussels. The European Union – it seems – faces two possible scenarios in the long term. Under the first scenario, it passively allows the centrifugal forces (markets, member-state sabotage, public disinterest) to break it up or it ceases to exist in its present form, with the unplanned termination of the euro. All of this would be temporarily accompanied by an extremely grave crisis. Under the second scenario, in the extended lands of Charlemagne a new intergovernmental treaty may be adopted, resulting in strong economic policy integration and preserving the euro. The second and third groups of countries could join later based on new conditions (which would be far stricter than they are today). The historical and European lesson is that regional integration projects are far from everlasting, and often the temporary break-up of a poorly designed form of integration is the key to a restructured formation that guarantees long-term survival.
Historical experience shows that monetary unions are successful when they have among their members at least one economic power-house acting as the engine. Central institutions are also needed to control and enforce the rules. The most successful ones are preceded by a political union, as in the case of the USA, the UK or Germany. Price and wage flexibility is a fundamental criterion, so that wages can be limited in poorly performing regions, just as inter-regional transfers can be useful. Fixing and applying criteria on economic convergence also prove to be necessary. In the eurozone, we can hardly talk about real flexibility of labour markets, just as we cannot talk about a political union either. The EU budget is not designed for major income transfers either, as it only disposes of 1% of GDP. The US federal budget is around EUR 3.3 trillion, compared with the EU “federal” budget of roughly 140 billion euros, a good part of which is transferred to non-eurozone countries. The difference between the internal transfer capabilities of the two monetary unions is obvious. In any case, the euro was created by politics. Politics must also help preserve it. As André Sapir and Jean Pisani-Ferry put it: the euro area needs fewer routine procedures and more ability to act in times of real crises.
This is the economic and political framework in which V4 countries (Hungary, Poland, Slovakia, Czech Republic), deeply integrated in the EU’s internal market and in the case of Slovakia as member of the Eurozone, should navigate.
The case of the V4
The close link between economy and politics has been clearly demonstrated during the years of the euro crisis when the euro was often not seen as the solution, rather than the source of the problem. But in fact, the lesson from the recent malaise is that the policy system behind the common currency needs significant reinforcement. The way V4 countries approach the Euro accession and crisis management is also a mix of economic and political features.
Firstly, a few remarks on the V4 Group itself. The loose alliance of the four central European EU member states, namely Hungary, Poland, Czech Republic, Slovakia until introduction of the “double majority” voting in the EU in late 2014 had equal number of weighted votes with Germany and France put together. If counted as a single nation state, V4 with its sixty four million inhabitants would rank 22nd in the world and 3th in Europe. Moreover it is the seventh largest economy in Europe and the 15th globally. The Group had a significant blocking, therefore policy-shaping power in the EU. The V4 Group functions as a leverage of influence for their members not only in Council voting but also in diplomatic dealings. Chinese, Turkish, or Indian political leaders have been much more open to contact the Group as opposed to deal with members individually. V4 has also gained a certain appeal in the eyes of other countries in the region, but the alliance wanted to keep its doors closed until now.
From November 2014 though, the double majority replaced the current weighted voting system. According to the new rule the support of 55% of the Member States representing 65 % of the overall population of the European Union will be required. The new system significantly modifies the power distribution by strengthening the influence of big Member States – with a population of 60 million; Spain and Poland will lose their big Member State status and medium-sized countries’ – between 2 and 11 million inhabitants – voting power will be reduced dramatically. Germany and France will gain increased blocking capacities but V4 countries will not be able to form any blocking coalition any longer. Even the new Member States joined in 2004 and 2007 will not be able to block decisions under the new system. So with the new voting rules, plus and more importantly the largely diverging visions on decisive European issues, and with some of the states in some out of the Eurozone, and especially with Poland with way more significant geopolitical ambitions and Hungary’s political isolation (more on these issues later) the V4 cooperation will probably get less and less relevant.
As a start it is obvious that these countries are integral part of the European economy with Germany playing a key role as export and import market.
Table 1.: Share of EU in V4 countries’ export and import
The above table clearly shows the deep integration of the V4 countries in the EU market, especially on the export front. As far as import is concerned one has to bear in mind the fact, that these countries are dependent to a great extent on Russian energy sources which shows in the overall geographical distribution of imports
Differences: great divides to stay?
But homogeneity seems to stop here, since the success rate of the V4 countries harnessing the benefits of EU membership differs a lot. Some of the new members were more successful than others in using EU-accession as an economic and modernisation leverage by halving the number of people living in poverty and raising the per capita GDP by almost fifty percent. Bratislava, and Prague is richer than Vienna and Budapest also comes close. This is in itself a spectacular development. At the same closing the wealth gap and decreasing internal territorial wealth gaps in individual V4 countries is much less of a success story in the case of Hungary and to a lesser extent in all the four new member states, although there are major differences in this respect.
Different development paths walk hand in hand with different policies, which indicates that economic success and political decisions are interlinked to a great extent in the region. This linkage seems even more pronounced than in the case of old member states. This stems from the fact that politics in general and the direction in which the political class wants to direct the country is more important in this region in terms of end results both in political and economic terms. A new government in the V4 countries can have dramatic impact on the geopolitical, EU-political and economic policy path the country takes. Long-term political stability is still in nascent form, or in a more pessimistic tone: is a rarity in the region. This is due to lack of self-conscious civil society, stable institutions and as a result: a hyperpuissance of the political classes.
There is obviously a clear difference in the group when euro-status is considered. When it comes to EMU issues, the four countries are in different position and have differing views. But this is only partly justified by economic factors or by the fact that being in or out makes a significant difference. It is also stemming to a great extent from political considerations.
When considering the most important economic trends and features of the first decade of EU-membership of the V4 countries, growth, competitiveness, per capita GDP and obviously the Maastricht-related indicators are worth being analysed. Although one can draw remarkable conclusions from this analysis related to the specificities of the economic development of the four countries in question, the key finding is that Euro-accession is a function of the combination of the existence of the fulfilment of the nominal (Maastricht) criteria, and political determination. They are interlinked and none of the two in itself suffices. Also these two factors will explain the attitude of these countries towards the ongoing and future EU and Eurozone-level EMU reform measures.
In the following section a series of comparative economic data is provided to assess the first ten years of EU membership of the V4 countries.
Table 2.: Growth rate of V4 countries between 2004-2014
To close the development gap vis-à-vis “old member states” a much stronger economic growth performance is needed over the long run in the V4. The above table shows that basically Slovakia and Poland were able to pull out that performance during the first decade of EU-membership.
The below table somewhat in contradiction to the first one indicates that as regards international competitiveness the V4 countries (including Slovakia) except for Poland are true underperformers
Table 3.: Competitiveness ranking 2003-2014.
Table 4.: Employment level 2004-2013
As far as employment level is concerned, where even the EU – including Western European countries – in an underperformer, V4 countries except for the Czech Republic could not even reach the unsatisfactory EU-average.
Table 5.: Inflation 2004-2014
In keeping inflation under control which is one of the Maastricht criteria the Czech Republic’s and especially Hungary’s 10 year performance proved to be especially poor. Hungary’s performance in relation to the long-term interest rate (another Maastricht criteria for euro introduction) was again the most humble (see below). Not surprising that Hungary is the country that spent the longest period (9 years, between 2004 and 2013) under the excessive deficit procedure.
Table 6.: Long-term interest rates
Table 7.: Debt 2004-2014.
The EU as a whole and even more so, the Eurozone was heavily hit by the sovereign debt crisis, which resulted in way above the mark national debt to GDP ratios. In the light of this, V4 countries’ performance in controlling the national debt was a relative success, although in absolute terms all of them experienced a rising debt. Here again, Hungary is a relative underperformer with a debt hovering around 80 percent of GDP (although this is lower than the EU average).
Finally, looking at the most important Maastricht criteria, one sees, that the EU28 average’s and V4 countries’ deficit developed in a correlated way, with a slight disadvantage at the V4 camp. Two outliers stand out: positive balances for Hungary and Poland. But one has to be very cautious with these peaks: they are the results of the nationalisation of the private pension fund assets that later on have been evaporated without either supporting growth or reducing national debt. More importantly the cost of annulling the private pension wealth will be payed dearly by future generation.
Table 8.: Budgetary balance 2004-2014
In contrast to the nineties and early two thousands when Euro-Atlantic accession was the unquestionable central theme of politics, the V4 countries have started to get separated not only in terms of their economic performance but – and mainly – in terms of their overall EU policies.
Poland clearly aims for a regional power status in the EU and in the Eastern Neighbourhood context, wanting to punch over its weight with the help of a historical reconciliation with Germany and in the absence of France as a capable partner for Germany to shape the future of the integration and with the UK withdrawing itself from the European political mainstream. In this light it is not surprising that Poland is doing everything to be in the potential future core, which necessitates a eurozone membership.
By contrast, Hungary that has manoeuvred itself to a quasi pariah status, with its political freedom fight against the EU and with its clumsy geopolitical rapprochement with Russia, clearly turned its back on the EU, shunning eurozone accession for an undefined period. This rather difficult explain from any economic point of view. Hungary is one of the biggest net beneficiaries of the EU budget, although this country has become a clear underperformer in harnessing the economic benefits of membership. Nor is the anti-EU stance explicable from a reasonable geopolitical point of view since it has resulted in international isolation.
Slovakia the only, member of the Eurozone, experienced a major per capita GDP increase, nevertheless still suffering from territorial inequalities, regularly voiced its discontent with EU and Eurozone (see the issue of the contribution to the Greek bailout) policies and measures, but generally follows the political directions coming from Brussels and Berlin.
The Czech Republic is a cautious EU-partner. Like Hungary it is selective in accepting EU reforms and reluctant to join the common currency. Parts of the political elite voice harsh anti-EU and pro-Russian views. Although the mainstream political discourse is not as militant vis-à-vis ”Brussels” as in Hungary.
What seems to be obvious from the comparative economic analysis is that Slovakia as the only eurozone member does not stand out from the general V4 performance level in a striking way )in fact Poland can be singled out as a success story). This reinforces the fact that Eurozone membership is a function of multiple factors, including political decisions and geopolitical benefits.
In 2014 the V4 group is divided not only by its status (Slovakia in, Poland, Hungary, Czech Republic out) but by its political drive as well (Poland: determined to join, Czech Republic being much cooler, Hungary being even hostile to the idea). This situation also determines these countries political stance related to political decisions relevant to EMU reforms. And – as we saw it earlier – EMU reforms will probably have significant impact on the way the European Union is going to develop not only from an economic but also from a political and institutional point of view. With the reinforcement of Eurozone institutions a deeper divide is expected between the EU18 and the rest. This may be an annoyance to Hungary and the Czech Republic but can be a serious geopolitical concern for Poland that wants to get into the inner circle of the EU to enhance its political and geopolitical clout.
The Stability Pact and the Euro-Plus Pact was not signed by the Czech Republic. The Euro Plus Pact which envisages coordination in areas such as taxation was not signed by Hungary either. A clear political divide is visible here. Is the current political situation a long-term “great divide” in the V4 group? As Hungary and the Czech Republic – without a clear indication of an entry date – leaves the timing of Euro membership hovering somewhere around the beginning of the next decade, this divide seems to be stuck and it will probably deepen as the EU18 will push ahead.
A long-term non-membership has significant economic and political consequences. In exchange of an (often sceptically received) higher level of economic autonomy, out countries lack the firepower of ESM, and ECB in crisis situations. Moreover it is obvious that saving a eurozone country is much higher on the agenda of Brussels and Berlin than otherwise. EMU membership is obviously not only an economic but also a geopolitical or even a security issue especially in Eastern Europe and in the Baltics. Individual countries ponder these factors in a different way. Contrary to the facts that the crisis has tarnished the image of the common currency and that eurozone accession has become a more difficult exercise because of economic tensions and a higher level of suspicion in Brussels and Berlin after Greece had lied itself into the elite club, the eurozone is still desirable place to join. Not only – maybe even not primarily – for economic, but for geopolitical reasons. One of the main drives for EMU membership in the Baltic states is security policy which has gained further relevance since the Russian aggression in Ukraine.
The political manoeuvring of the V4 countries does and will take place in the broader context of how the Europe of 28 will react to the pressing economic and political issues ahead. Member states and EU institutions will have to agree on how to guarantee the long-term sustainability of the common currency, and how take the European citizens on board for this, especially because most of the steps need to be taken will have significant consequences on national sovereignty. The grand design of an institutionalized two-speed Europe that makes room for the UK, and maybe Turkey and Ukraine will also be on the menu. All in all the economic, political and geographical setup of the EU will have to be rearranged and the relevance of being a new or old member state will eventually fade away. But at the same time, the differences between individual V4 countries’ EU policies will remain significant, due to mainly national politics and choices of the political class.
From the above analysis it seems obvious that the choices of the political class in some cases – mainly in Hungary – cannot be based either on proper geopolitical, or on economic considerations. Therefore the research analysis of the V4 countries’ economic policies and general EU-policies should have a strong political economy element. A purely economic policy approach in the research of this topic has clearly reached its limits. A political science and political economy approach should follow up.
– European Commission: Five years of an enlarged EU – Economic achievements and challenges. COM(2009) 79/3, Brussels, 2009. http://ec.europa.eu/economy_finance/publications/publication14091_en.pdf
– Marján, Attila: Europe’s Destiny, Johns Hopkins University Press, 2010, USA
– Central Europe fit for the future: 10 years after EU accession – Milan Nic, Pawel Swieboda (ed.). 2014. január 21.CE Policy.org; http://www.cepolicy.org/publications/central-europe-fit-future-10-years-after-eu-accession
– Bajrektarevic, A. (2014), Europe of Sarajevo 100 Years Later, Routledge – London, UK
– Krulis, Krytof: Enlargement Ten Years on: New Europe’s Contribution to Single Market. Association for International Affairs. Research Paper 1/2014. Prague, February 2014.
– Think Visegrad Platform: Between Institutional Engineering and Crisis Management: The Visegrad Voice in the EU Governance Debate;
– Timo Baas and Herbert Brücker: EU Eastern Enlargement: The Benefits from Integration and Free Labour Movement;
 Attila Marján: Europe’s Destiny, Johns Hopkins University Press, 2010, USA
 Ottmar Issing: Europe: Common Money – Political Union? p. 6. European Central Bank, 1999.
Bajrektarevic, A. (2014), Europe of Sarajevo 100 Years Later, Routledge – London, UK (page 143)
Pisani-Ferry, Jean, et al.: Coming of Age: Report on the Euro Area, Bruegel Blueprint 4. p.4. 2008, Brussels
 M. Nic – P. Swieboda (ed): Central Europe fit for the future: 10 years after EU accession 2014. January 21. CE Policy.org; http://www.cepolicy.org/publications/central-europe-fit-future-10-years-after-eu-accession
 Attila Marján: EU rule changes force a Visegrad re-think. Europe’s World No. 26. 2014.
 See more on this in: K. Krulis: Enlargement Ten Years on: New Europe’s Contribution to Single Market. Association for International Affairs. Research Paper 1/2014. February 2014. Prague.
 All data from European Commission, Eurostat
Why German car giant Volkswagen should drop Turkey
War and aggression are not only questions of ethics and humanitarian disaster. They are bad news for business.
The German car giant Volkwagen whose business model is built on consumer appeal had to stop and pause when Turkey attacked the Kurds in Syria. A USD 1.4bln Volkswagen investment in a new plant in Turkey is being put on hold by the management, and rightly so.
Unlike business areas more or less immune from consumer pressure – like some financial sectors, for example – car buying is a people thing. It is done by regular people who follow the news and don’t want to stimulate and associate themselves with crimes against humanity and war crimes through their purchases. Investing in a militarily aggressive country simply is bad for an international brand.
As soon as the news hit that Turkey would be starting their military invasion against the Kurds, questions about plans for genocide appeared in the public discourse space. Investing over a billion in such a political climate does not make sense.
By investing into a new plant next to Turkish city Izmir, Volkswagen is not risking security so much. Izmir itself is far removed from Turkey’s southern border — although terrorist attacks in the current environment are generally not out of the question.
The risk question rather lies elsewhere. Business likes stability and predictability. Aggressive economic sanctions which are likely to be imposed on Turkey by the EU and the US would affect many economic and business aspects which the company has to factor in. Two weeks ago the US House of Representatives already voted to impose sanctions on Turkey, which now leaves the Senate to vote on an identical resolution.
Economic sanctions affect negatively the purchasing power of the population. And Volkswagen’s new business would rely greatly on the Turkish client in a market of over 80mln people.
Sanctions also have a psychological “buckle-up” effect on customers in economies “under siege”, whereby clients are less likely to want to splurge on a new car in strenuous times.
Volkswagen is a German but also a European company. Its decision will signal clearly if it lives by the EU values of support for human rights, or it decides to look the other way and put business first.
But is not only about reputational damage, which Volkswagen seems to be concerned with. There are real business counter-arguments which coincide with anti-war concerns.
Dogus Otomotiv, the Turkish distributor of VW vehicles, fell as much as 6.5% in Istanbul trading after the news for the Turkish offensive.
Apart from their effects on the Turkish consumer, economic sanctions will also likely keep Turkey away from international capital markets.
There is also the question of an EU company investing outside the EU, which has raised eyebrows. It is up to the European Commission now to decide whether the Volkswagen deal in Turkey can go forward after a complaint was filed. Turkey offered the German conglomerate a generous 400mln euro subsidy which is a problem when it comes to the EU rules and regulations on competition.
The Chairman of the EPP Group in the European Parliament, Manfred Weber filed a complaint with the EU competition Commissioner about the deal, on the basis of non-compliance with EU competition rules. Turkey’s plans to subsidize Volkswagen clearly run counter EU rules and the EU Commission can stop the 1bln deal, if it so decides.
In a context where Turkey takes care of 4mln refugees — subject to an agreement with the EU — and often threatens the EU that it would “open the gates”, it is not clear if the Commission would muster the guts to say no, however. In that sense, the German company’s own decision to pull from the deal would be welcome because the Commission itself wouldn’t have to pronounce on the issue and risk angering Turkey.
While some commentators do not believe that Volkswagen would scrap altogether the investment and is only delaying the decision, it is worth remembering that the Syria conflict is a complex, multi-player conflict which has gone on for more than 8 years. Turkey’s entry in Syria is unlikely to end in a month. Erdogan has communicated his intention to stay in Syria until the Kurds back down.
In October it was reported that the Turkish forces are already using chemical weapons on the Kurdish population which potentially makes Turkish President Erdogan a war criminal. For a corporate giant like Volkswagen, giving an economic boost for such a state would mean indirectly supporting war crimes.
As Kurdish forces struck a deal for protection with the Syrian Assad forces, this seems to be anything but a slow-down. Turkey has just thrown a whole lot of wood into the fire.
Volkswagen will find itself “monitoring” the situation for a long time. There is a case for making the sustainable business decision to drop the risky deal altogether, soon.
The future of Brexit: Where will Boris Johnson’s “fatal strategy” lead Britain to?
British Prime Minister Boris Johnson will attempt to negotiate a new deal with the EU on Brexit in the course of early parliamentary elections in the UK scheduled for December 12. If the Conservatives take upper hand, then, according to Johnson, Great Britain will leave the EU no later than January 31.
How will the upcoming elections affect Brexit? How Boris Johnson’s agreement with the European Commission could be assessed? The answers to these questions were provided by the participants in an expert discussion at the Valdai Club.
Stewart Lawson, member of the Board of Directors of the Russian-British Chamber of Commerce, head of UK Business Center in Moscow, Ernst & Young, has said that the current situation in the UK can be described as a scene in a bar where an Englishman, a Scot and an Irishman drink to forget the concept of Brexit “. Lawson made it clear that leaving the European Union without conditions would be a disaster. Nevertheless, the expert said that the UK had managed to avoid a situation in which there would be no deal at all, and also, with the arrival of a new agreement which Boris Johnson has reached with the EU, the situation has improved. “This deal is the best option for now,” – the expert remarked. However, he said, Brexit seems to be a story with no end and what is happening around it now is not even its first chapter yet.
Brexit continues to produce uncertainty, which, Lawson said is a big problem. In his opinion, the persisting uncertainty in connection with the UK leaving the EU affects business. On the one hand, the expert said, although Brexit will set Great Britain free from the US control, on the other hand, it will greatly affect the business climate, which continues to suffer amid the political uncertainty. The expert mentioned Nassim Taleb’s concept of the “black swan” according to which any forecasting may not take into account random, unknown factors. “We live in a world in which there are factors unknown to us. So it is necessary to have sufficiently flexible organizations capable of responding to situations that are in the process of development, ” – Lawson emphasized.
According to Alexander Kramarenko, Director of Development at the Russian International Affairs Council, Boris Johnson’s new agreement on Brexit is a major achievement for the British Prime Minister. Kramarenko attributes the success of Boris Johnson to his choice of a “fatal strategy” which allowed him to keep the stakes high until he won. With the help of this strategy, he managed to “cut open” the agreement on Brexit which had been signed by Theresa May. In addition, the “fatal strategy” has prompted the EU to concede on several issues.
The failure of Theresa May’s strategy is attributed to the fact that the former prime minister was a staunch supporter of a policy which required satisfying both parties, the UK and the EU. It was necessary to look for ways out of the EU instead of trying to stay there. “You cannot leave the EU and at the same time remain in the EU. And her agreement boiled down to just that, ” – Kramarenko said.
According to Theresa May’s agreement, by leaving the EU formally, Great Britain would lose the right to vote. Boris Johnson said that such an agreement perpetuates the “vassal” dependence of Great Britain on the European Union. “For a country with such a history as Great Britain, a position of this kind is not suitable. Either the UK is a member and takes part in all decisions, or it comes out and agrees on something special. As argued by Boris Johnson, this special agreement is a free trade agreement of varying range of coverage, intensity and depth, but it would be an agreement of sovereign Britain, ” – Kramarenko emphasized.
First and foremost, Johnson’s agreement solves the problem of maintaining the status quo on the land border of Northern Ireland and the Republic of Ireland. The fact is that under the agreement, Northern Ireland, as part of the United Kingdom, is to withdraw from the EU, while Ireland remains part of the European Union. Thus, the UK’s withdrawal from the EU and the establishment of a clear-cut border between Northern Ireland and Ireland would jeopardize the Irish peace process. The EU, the UK and the Irish Government pledged to maintain this border under a deal that ended the civil war in Northern Ireland. The EU insisted that Britain remain in the Customs Union until this situation is settled. This would de facto keep Britain within the EU.
Under a new agreement proposed by Boris Johnson on which he secured the approval of the European Union, the UK will have to leave the EU’s Customs Union, and the customs border between Britain and the EU will pass via the Irish Sea. However, this threatens the unity of the country and could be an important step towards unification of Ireland, the expert believes.
Boris Johnson’s strategy has led to serious concessions from the European Union, Kramarenko said. Exiting the Customs Union will also allow the UK to clinch trade agreements with third countries. Moreover, the provision on “equal conditions of competition” will no longer be valid in the future, since it was moved from the text of the agreement to the Political Declaration, which is not binding.
What creates a major obstacle to Brexit is the current state of the British constitutional system of government, the expert said. “The opposition has deprived the government of the majority, thereby stripping it of the opportunity to rule the country or adopt new laws,” – Kramarenko said. Johnson’s achievement is precisely due to the fact that despite the opposition, he was able to cope with the opponents and postpone the date of Britain’s exit from the EU. “Now there is a significant degree of confidence that Brexit will take place and, perhaps, it will come as a gift for the New Year,” – Kramarenko said.
From our partner International Affairs
Bulgarian far-right to shut down largest human rights NGO in Bulgaria
“Why don’t they defend those who get robbed? Why are they only defending those that have trouble with the police? Why are they defending minorities? Do you know how many policemen are being investigated because of them?”
This is what you hear when the Bulgarian Deputy Prime Minister, Krasimir Karakachanov and others speak about the human rights organisation, The Bulgarian Helsinki Committee. It is the largest and oldest human rights organisation in Bulgaria.
And now it is facing the threat of closure after the deputy prime minister – who is also Bulgaria’s Minister of Defense – called this week for the shutdown of the NGO. Members of his party, the Bulgarian National Movement (IMRO) – a Far-Right party participating in the ruling coalition – have filed a request with the Bulgarian Prosecutor General for a review of the activities of the human rights NGO, asking for it to be closed down.
Make no bones about it. This is an attack on our freedom.
This is why I have notified the relevant authorities at the United Nations about what is taking place in Bulgaria. Activities of this type directed against human rights defenders have no place in a rule of law state, let alone an EU state. As a prominent government official, Krasimir Karakachanov has a particular obligation to respect human rights defenders.
Amnesty International and Human Rights Watch criticised his and his party’s actions this week. Over 70 Bulgarian NGOs stood by the Helsinki Committee, having sent a public letter of support condemning the attack on the NGO.
While my signal to the UN is currently being looked at, it is worth discussing why the deputy prime minister and others have such a huge problem with the Bulgarian Helsinki Committee, and organisations of this type.
The concept of human rights – by its very definition – protects citizens against the State and its organs, including policemen. That is one of the issues for Karakachanov. Well, welcome to the 21st century, Minister.
Policemen being investigated for misconduct is something we have to applaud, not something which shows how far things have gone. Bulgaria, with its post-communist baggage, has had a police system which traditionally has gone over and beyond what is allowed by law. Things of course are changing but you’ll always have policemen who abuse their legal limits. It happens in virtually every country. That’s why we need human rights organisations to watch for these things. And that’s a good thing.
When policemen catch an alleged criminal, they don’t get to beat them up or lock them up indefinitely. Period. These are the kind of cases that human rights NGOs like the Bulgarian Helsinki Committee look into. And they, by definition, will be focused on the actions of policemen and the State. That’s the name of the game; that’s what human rights are about. This is a concept that Karakachanov is not comfortable with; why should anyone be allowed to criticise the police forces? This to him is rather unpatriotic.
“Why don’t they instead look at and help the victims of robbery?” Well, human rights are not about the victims of robbery — if only it was that convenient. They protect citizens from their own state when that state violates their rights. Policemen do not get investigated for no reason, without any evidence of wrongdoing. Defending human rights is a very uncomfortable task because – by definition – the NGO has to go against the State. And for some, like Karakachanov, that shouldn’t be done because it leads to punishments for policemen when they step over.
Working for the UN High Commissioner for Human Rights where I reviewed human rights complaints from around the world, I learnt that every country violates human rights – only the scale and extent differ. This is why it is crucial to have human rights defenders like the Bulgarian Helsinki Committee who can help victims on the ground. Having international organisations like the UN is not enough.
Let us turn now to the request to the Prosecutor General to look into the activities of the human rights NGO, with a view to closing it down for allegedly “interfering in the judicial system.” Interference with the judicial system is what lawyers and prosecutors both do, by definition. By presenting facts to push their own case, the judicial system is a place of interference. Justice is not static. Of course, human rights defenders advocate for, interfere, push for and defend their clients. This is their job. Karakachanov’s Far-Right party is uncomfortable with such a strong voice for human rights in the process. Prosecution is prosecution; human rights defense is, well, interference.
Next, we should discuss the role of the Prosecutor General who would have to opine on the request for the close down of the NGO. Euronews readers should be told at this point that Bulgaria is facing a scandal with the selection of the next Prosecutor General. Ivan Geshev, who is currently the number two in the Prosecutor’s Office, is nominated to become Bulgaria’s next chief prosecutor. The capital Sofia witnessed protests by thousands of people marching on the streets against Geshev’s selection as chief prosecutor, because among other things, he is the only candidate in the process. That is never a good sign. Questions are also raised about which oligarchic power circles Geshev would be serving.
Geshev, the deputy in the Prosecutor’s Office, is important in this case because his attitude towards this human rights NGO is well known. When he receives the annual report about the human rights situation in Bulgaria penned by the Bulgarian Helsinki Committee, he famously sends back literary works about the Bulgarian struggle for independence, in my view trying to educate the NGO about being pro-Bulgarian. Of course, criticising the system does not make an NGO anti-Bulgarian. The job of patriots is not to shut up.
A similar reaction has been noted by the current Prosecutor General who will be looking at the case. When he receives the human rights report about the situation in Bulgaria, he simply sends it back. The message by both is clear: they see no value in a report that reviews the shortcomings of the system. And they are the people who will be deciding whether this human rights organisation is closed or not.
Human rights violations are uncomfortable. They push officials to take a look at themselves and their colleagues, often loudly pointing out the injustices. Human rights are not about robberies; if only it was that convenient. Human rights are about what is wrong with the system. And the current top prosecuting duo are not interested in that.
Living in Bulgaria, I don’t want to see the country follow the example of Hungary where human rights NGOs and universities are pushed so hard by the authorities that they have to close and move. That is not the right path to follow.
The closing down of the Bulgarian Helsinki Committee would be a blow to Bulgarian leadership and its human rights record. This will be not only a test for the Prosecutor’s office, but for Bulgarians and the EU.
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