The euro crisis: Central European lessons

I discovered a useful European resource -eurozine.com. It has some superb articles/literature on Europe.

This article by Jacques Rupnik summarises how East Europe fared in the Eurozone crisis. As expected, each country fared and responded differently to the crisis. The best part of the article is its political economy framework showing how and why economic decisions were because of political reasons.

The summary is:

The economic and financial crisis that began in 2008 has demonstrated that the countries of central Europe do not have a common response. The euro crisis, with its explicit political stakes for the construction Europe in the future, reveals contrasting perceptions that are related to different ways of thinking about the nation-state and the European project. Responses to the crisis have revealed profound divisions internally and also certain differences between new EU members, marked by a split between two political cultures: a “sovereignist” pole and a “pro-European” pole. Slovakia is part of the eurozone and seems to regret it, but is compelled to follow suit. Viktor Orbán’s Hungary is not part of the eurozone and is determined to “regain sovereignty” – only to quickly realize its limitations. 

However, the most striking contrast is between the Czech Republic and Poland as regards the European core taking shape around the eurozone: the former is visibly relieved not to be part of it, even at the risk of missing the boat of the next big step in European integration and finding itself relegated to an outer circle of the EU. Poland, by contrast, even though it is strongly attached to its sovereignty for historical reasons, and even though it is not a member of the eurozone, behaves as if it were, urging a “great leap forward” into federalism. Poland has understood that it is in the best interests of central Europe to do everything it can to save the European project. That implies behaving not as a peripheral state and mere spectator of the crisis, but as an actor belonging to the core engaged in building a new Europe.

The author has case study on each country.  It is interesting to note that Slovakia despite  had to contribute to the bailout of Greece on just joining the Union:

It is an irony of history that Slovakia, a country that fewer than twenty years ago mutually dissolved its common currency with the Czechs, joined the European monetary union in January 2008, just before the outbreak of the euro crisis. This occurred under the first government of Robert Fico and his leftwing Smer party. The Greek crisis coincided with elections in Slovakia in the spring of 2010 and the rise to power of a liberal-conservative coalition, whose leaders had promised not to bail out bankrupt countries with Slovak taxpayers’ money. Iveta Radicova, who became prime minister in the summer of 2010, argued that not only was Slovakia poorer than Greece – the average salary in Slovakia (780 euros) is equivalent to the Greek minimum wage – but also that, over the last decade, Slovakia had implemented a series of unpopular public spending reforms (labour market, pensions and healthcare) required by the criteria for euro entry. No sooner had it done this, the agreement of 21 July 2011 obliged it to contribute considerable sums (equivalent to half of its budget) to rescuing a country that for the last thirty years had been a large recipient of European funds. 

It is not difficult to guess that this led to a political crisis in Slovakia. The ruling party was voted out in a confidence vote. The bit on Slovakia vs Greece is interesting:

The Radicova government was one of the numerous political casualties of the euro crisis. This was an eye-opener: Greece had been admitted to the eurozone for political reasons (mainly French advocacy) without being economically, financially and institutionally ready. Slovakia, on the other hand, had shown that it was prepared economically and financially, however unprepared politically.

Similarly interesting cases on Czech, Poland and Hungary etc.

The more and more you read on Eurozone and its politics, the more you wonder why the essence of the project. The haste in bringing so many members on board which were just not prepared has led to so many complicated problems..

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2 Responses to “The euro crisis: Central European lessons”

  1. bart Says:

    We don’t say E Europe any more. It come up as very offensive and relegating when applied to countries in Central Europe. It’s a bit of a faux pas :) Now we say Central Europe or Central and E Europe, but the first one is much better. However, I think sub-dividing Europe into artificial regions makes little sense, me personally. I think country by country study must be done because all are sooo different. Take Poland and the Czech Republic. One is very religious and the other is one of the most atheist countries in the world and so on

  2. bart Says:

    besides, these countries are no new Europe. They were in Europe all the time, just had an alternative political and economic system for 45 years with implications. That’s it.

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