Our Opinion: 2014
Europe : Power moving East
I travelled to Warsaw during the Communist era and returned soon after the regime fell, visiting Bratislava and Prague at the same time. You could not fly to Bratislava in 1990, other than by internal flight from Prague. The entry point was Vienna –a world away from the greyness of Bratislava in those days, although a short drive.
Vienna is a good benchmark when looking at Eastern Europe. It is a traditionally wealthy European capital, which always had close ties to Eastern Europe by way of its geography.
It is extraordinary to hear this week that the Brussels think tank, Bruegel, has declared that Warsaw, Prague and Braislava are now wealthier than Vienna.
25 years ago, the Berlin Wall came down liberating Eastern Europe from Russian domination. All of Eastern Europe was significantly poorer a decade ago, when most of these countries joined the European Union. Now, the former Soviet bloc is steadily catching up with the rest of Europe and may soon overtake it. Indeed, it is not only Poland, Slovakia and the Czech Republic with fast growing economies. Budapest in Hungary is catching up, as are all of the former Eastern European capitals – except the Slovenian capital, Ljubljana, that made the mistake of joining the Euro.
Major cities are always the first to get rich in any developing market, but the rest of the countries are doing well too. The Hungarians are now up to about 60% of the Austrian living, as their economies are modernized. According to European commission forecasts, the fastest growing EU economies this year will be Latvia, Lithuania and Poland.
Eastern European capitals have not only overtaken Vienna but have soared past their southern peers too. Madrid, Rome and Lisbon are not now only poorer, but they are getting relatively poorer each year, compared to Prague, Bratislava and Warsaw. Most eastern European countries are outside the Euro zone, and the inflexible single currency may have locked most of Western Europe into permanent low growth.
When Eastern European countries joined the EU, there was significant migration to the west in search of jobs and money. This will reduce as these countries become wealthier, harming countries like the UK, who have benefited from such immigration. Skilled workers, trained in places like the UK, will return home too, boosting local economies. Financial success is usually followed by power and influence. As the economies in countries like Italy and Spain stagnate, their influence will diminish. Even Germany and France will not be the powers they once were. Increasingly, it is the voices of Poles and Hungarians that will count.
Increased investment in these countries will follow. So far, multinationals have seen them as purely manufacturing bases. They will now be seen as consumer markets too.
We are used to the idea that economic power moves east. In the last few decades, it has been South East Asia that has provided turbo-charged growth. They easily out-stripped the sluggish Western economies, helped by low debt and modest government spending.
That patten is repeating itself. The divide across Europe – drawn after World War Two – is ending.