Katinka Barysch from the Centre for European Reform presents the report: “New Europe and the Economic Crisis”, detailing the influence of the economic crisis on new EU member states in Central and Eastern Europe.
The main findings of the report are:
• The EU’s new member-states have been severely hit by the credit crunch and collapsing export markets. Many had left themselves vulnerable through fiscal profligacy, lending booms and gaping external deficits.
• Most rich countries in the EU are boosting fiscal spending to mitigate the downturn. But some of the new members are being forced to cut budgets by IMF emergency programmes. In the others, higher public spending cannot make up for falling export demand.
• The immediate feeling of helplessness of the Central and East Europeans is compounded by a more profound sense that their post-Cold War growth model is broken. The ingredients of past success – opening up to trade and investment and selling local banks to West European ones – has left these countries vulnerable. The EU, which acted as an anchor for reforms in the past, has lost clout and credibility.
• The new member-states have no time for procrastination or recrimination. Faced with the near-term challenges of ageing populations, fierce global competition and tougher green targets, they need to improve, not discard, their economic model of liberalisation and integration. But they will need the EU’s help.
In a concurring line of thought, Christoph Leitl, president of the Austrian Federal Economic Chamber claims that EU must quadruple its financial assistance for Eastern European countries to balance the long-term influence of Russia in the region. According to him, a major package of aid is required to help Eastern European countries – both within the EU and beyond its eastern frontier – and thus safeguard the strategic interests of Europe.
The Austrian Federal Economic Chamber and the Polish Chamber of Commerce have launched a proposed recovery plan for Eastern Europe.
The specific measures are:
• Increased balance of payments assistance from €25 billion to €100 billion. The money could be raised on international financial markets and then lent to Central and Eastern European countries.
• €50 billion of this should be put at the disposal of pre-accession and European Neighbourhood countries.
• The funds should be used to set up financial rescue packages and economic recovery plans.
• EU structural funds should temporarily raise the co-financing rate from 80% to 100% for infrastructure projects to speed up investments and to help member states with budgetary problems.