Central Europe Activ

This is a probably better formed version of my previous post and a rough translation of my Hungarian article on komment.hu which received more than than 50.000 readers in Hungarian today.

It seems that the world economic crisis takes its highest toll on the weakest performing economic zone of the world economy, namely the European Union. Not long after the glorious European reunification the informal crisis summit has divided the Union to a Western and an Eastern bloc. None of the Eastern demands that were presented by the Hungarian premiere, Mr: Gyurcsány were met. Instead of giving financial relief or more realistic terms for eurozone entry the summit has resulted in bailing out French carmakers with German money.

The Central European countries’ quest for the membership from 1991 and the accession has really meant an economic and political reunification. The EU membership has meant the promise of peace, freedoms and prosperity in the East as well as fifty years earlier on the two sides of the former Western Front. During the pursuit of EU membership these countries have fundamentally changed the structure of their economies, rewritten their law books in line with the aquis communitaire and made military and political alliances with the West. However, with the exception of Slovenia and Slovakia none of them was able to finish their convergence and meet the criteria to enter the Economic and Monetary Union, or the eurzone.

Both the West and the East has some truth in the current debate. The Eastern states must acknowledge the accusations that their irresponsible economic policies have dug to hole their economy sunk deeper, and it is understandable that the Western states do not want to pay up for these mistakes. However, the Eastern states can rightly point to Lithuania’s failed attempt to enter the eurozone back in 2006 and point out to the fact that the Maastricht criteria cannot be met with a strong real convergence and a very strong macroeconomic performance. (Lithuania fulfilled three Maastricht criteria in 2006, had much higher growth than the EU average and probably due to this fact it had 0.1 higher inflation than the three lowest inflation countries. It was regarded as a threat and not as a positive opportunity in the eurozone). And of course one can point out to the economic law of higher risk – higher return. However, measuring responsibility in retrospect is a fruitless exercise, because t does not really matter from the solution’s point of view.

The EU is in fact is a political and economic unity, the Western and Eastern states are bound together through foul and fair in the Union. The lack of a single financial and monetary system behind the Single Market (which indeed completed), the lack of a globally competitive single Eurobond market, the possible harm of Eastern defaults on the financial stability of the Western economies are hurting all member states, Western and Eastern alike. If Europe will let the high-growth, competitive Eastern companies fail in the financial crisis, it will have a deeply negative effect on the real economy of the whole Union. The benefactors of the credit-hungriness of the high-growth East were Western banks and companies that have found new and profitable, albeit risky markets in the Eastern states. In case of an Eastern economic or political disintegration they will suffer from the loss of these investments and revenue sources.

The Western bloc could reject the demands of the Eastern bloc on the informal 1 March economic emergency summit because the East was in itself divided. Polish prime minister Donald Tusk had recognized earlier that the East must show some unity when he invited the leaders of the Baltic States, Romania and Bulgaria to a pre-summit on the pretext of the largely defunct Visegrad Group meeting, which consists of Poland, Hungary and the Czech and Slovak Republics. This was not an act without precedent: these countries formed a coalition on the issue of climate change before, they have a stronger military relationship with the USA than most European countries, they are (to their disliking) bound to America by bilateral treaties and are getting more used to run for cover to Washington instead of Brussels when the world keeps going around.

Unfortunately for the East, some Eastern states that are still doing somewhat better than their region tried to lure Western treasury bond buyers and investors into their countries by highlighting their differences, in the case of Slovakia pointing out the successful eurozone entry and in the case of Estonia with a claim of higher financial stability. When the Hungarian prime minister has given voice to Eastern demands, a large scale bail-out plan endorsed also by the World Bank and to an easier entry to the eurozone, he was also speaking from a divided house. The deadly race between Mr Gyurcsány’s Socialist Party and Mr. Orbán’s Fidesz and the hostility of the two leaders towards each other also prevent Hungary to have a national recovery plan. While Angela Merkel speaks as a head of a grand coalition, and Austria, the most exposed Western state to East is also lead by a grand coalition, the Hungarians have not reached a consensus among each other.

The greatest American federalist, Abraham Lincoln has invoked Matthew 12:25 in his famous acceptance speech on the decades long deadlock between Northern and Southern states.

“A house divided against itself cannot stand.” I believe this government cannot endure, permanently, half slave and half free. I do not expect the Union to be dissolved — I do not expect the house to fall — but I do expect it will cease to be divided.

The Springfield speech had become a prophecy when it became reality after a civil war with wounds that hurt after 150 years on. I also believe that the European Union is divided. It will not disintegrate nor go into civil war, but the unsuccessful EU-summit left a gloomy prospect for the short-term. The EU has run into the current world economic crisis with rigid political institutions and lack of a clear decision-making capability due to the failure of the Constitution and the ratification of the Lisbon Treaty; it has a diminishing competitiveness on in the world economy and it had the lowest growth rate among the great regions of the World in this decade. The manifest Western-Eastern division will suck up a lot of political, diplomatic and economic effort in the worst economic condition.

I believe that Hungary needs to adopt a new , bipartisan economic policy and a strategy for its 2011 EU presidency and declare the aim to renew the rules of the EMU for a possible integration of the Eastern member states. The Hungarian diplomacy should try to win the support of all Eastern states, than those Western states which are exposed to the Baltic or the Central European region, namely Austria, Sweden, Finland, and than it has to create a new majority within the Union. It is not the interest of the Eastern states to draw different scenarios for their creditors, investors and political allies. If the Visegrad Group is a useful vehicle for this, it should be used, or even expanded, if not, it should be abandoned. The Eastern states have nothing to loose: the current recession will be the deepest in a century and they will be hurt the most in the world.

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