

Eastern Europe’s economies

Some calm amid storms

The EU’s newer members are not its most troubled—but they have problems

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@ wszycho:
'Sad thing about Poland is that those politicians who rule are backward people who either never saw how better organized countries could be organized...'
I am quite sure that most of them do not have any interest to make Poland a better organized country... juts imagine that would mean less corruption so their candy box would be closed.

At least that is what we experience in Hungary a 'new' government (with the same old players) who managed to get more than 2/3 of the votes in last years election. They promised to change basically everything and after one year all they managed to do is to rename most of the ministries, some city squares and transform the law in favor of their control over various areas.

I think we need to accept that any significant change in the way of politics in Eastern Europe is unlikely to happen in the near future. Lets hope it's only a typical 'eastern' pessimist opinion.


They have it explained somewhere how they are coming by all those GDP, PPP, etc. figures for each country, yet these numbers are difficult to compare, each country is different system and so on.


Those young people who emigrated from CEE countries in my humble opinion won't come back to their countries of origin, they will simply travel after work from country to country, should it happen to be some bloody good business for them to return home they will return home, yet this last scenario is highly improbable. I know of such people from Poland, life is simply more comfortable in some other, better organized countries in EU. They just wouldn't like to have to look at their compatriots' poverty in their home country. Something must be done with these selfish, conservative and devoid of any empathy towards its own people elites in e.g. Poland. Sad thing about Poland is that those politicians who rule are backward people who either never saw how better organized countries could be organized because they never had such experience of living abroad, or they know the reality of modern, developed state from study books and lecture halls - in both cases they wouldn't listen to those who could come up with the best solutions for their countries' problems, because they once were the immigrants themselves.

Tomas Marny

@The North Pole

I have not defended emigration but pointed out that even such a generally negative process like the brain-drain of young people can be transformed to an advantage later when the country is ready to absorb the work force back (when suitable conditions – both legal / administrative and technological – for expanding economic activities are met, for example thanks to the EU regional development co-funding).

CEE countries have millions of people who represent potentially allocable work-force deployed in WE countries. An interesting topic for discussion that I tried to turn attention to in my last post is models of behaviour of this workforce in individual scenarios of development in Eurozone.

In particular in case of the black scenario of EZ break-up or reduction, do you think that they would return from e.g. Ireland back to their countries of origin in large numbers or that they would go to other countries (like Germany that has opened job markets recently) or that they would stay there despite the uncertainties of future development? And what impact would it have on the region?

As for the efficiency of institutions – I agree that the processing matters should be harmonized on the EU level to grant basic law enforcements standards for all EU citizens (in fact, I know of cases where European courts adjudged compensations to citizens in case legal proceeding at national courts took too long).

But I still think that the legal system is theoretically composed quite well but the major issue lies directly in the people – judges, clerical staff and also business environment itself as the mentality of the business participants ignore long term benefit and fair play aspects of their actions more frequently than in traditional market economies. But it will take at least a generation to change (again, maybe young people with experience from WE will introduce the needed improvement).


yes, just looked at the article again, and 6,700 euros for Estonia. this is quite strange. this really is way out. surely.
i'm guessing this isn't a mistake by the Economist so what's the explanation?


what is the difference between GDP per capita (PPP) which according the CIA world factbook for Estonia is $19,100 for 2010 and your GDP per capita. there's quite a bit of a difference there. i now can't see the article but it was well under 10,000. the figures on the Economist graph seem way, way, way out of whack.
so what is it not understanding. 'cause i've been checking the CIA world factbook for a few years. the above figure is right in line, the $19,100 with what you'd expect. the articles figures seem bizarre. this income is on a level with an African country. Eastern Europe is hardly that.
so what am i missing?


@The North Pole

Actually I also had some mixed feelings writing about Jews and Gross, I was afraid that it doesn't have anything to do with a purely economy topic. Yet this is the fundamental and basic truth from which all the other Polish problems arose after WW2, it is the very core of this "toxic legacy of communism" in Poland, which is constantly being denied in the media discourse in Poland. Polish historians never have even the slightest chance to reach this moment when they could use this argument which you mentioned about Jews dominating Stalinist repression system for the simple reason that the whole issue of holocaust was constantly absent in the communist era, there was no such term as holocaust in the Polish encyclopedia published in 1986 (sic). Today everyone can see how Mr Gross is treated by Polish media elite. Polish-Jewish relations are extremely complex ones, and I believe that what you wrote is also true, i.e. that Jews themselves frequently prosecuted their Jewish compatriots (equally noone in Poland bothers about how it all came about, i.e. the fact that they were driven out by Czarist Russia in 19th century to our part of Europe and were not welcome guests in the eyes of Catholic church, most priests hated Jews even as late as in 1980s, not to mention the whole totalitarian era of Hitler and Stalin, only now they seem to have been reprimanded a little by Wojtyła who taught that "Anti-Semitism is a sin", but they treat it rather perfunctorily), yet the whole history about it is a taboo subject in Poland and I believe it shouldn't, because such approach is bound to lead us to intolerance and xenophobia and we will finally end up exterminating some other ethnic minorities again in 21st century if we can't cope with the problem of anti-Semitism and holocaust during WW2. Poland has already a very poor record when it comes to granting equal treatment to such minorities as Roma; Roma people can prove that they are discriminated against with regard to such matters as employment for instance ("they can't find job because they don't have willingness to work", and such simplistic cliche is meant to explain why Gypsy people occupy the lowest and worst paid positions and why the unemployment rate is much higher among Roma population than among Poles). Only last week Poles living close to the Lituanian border destroyed all the inscriptions in the Lituanian language in their village. Both these examples are just alarming signs of the latent xenophobia ever-present in Polish society, and this xenophobia can explode any moment. Things are not that rosy in Poland as they are being painted by some wishful thinking journalists. If this social problem doesn't transmit into the economy of the country, then I was just talking nonsense and my apologies for this.


I would be curious to see the Economist's methodology for GDP per person. The numbers seem to be "a bit" on the low side.


The current Hungarian government (unlike former government) prefer to cut expenditure rather than increase the indebtedness. So Hungary doesn’t need outside support again in the immediate future.

The North Pole

@Tomas Marny
Unfortunately, bad administration in Poland was not changed by EU accession. Appealing to European court is possible, but the time means any harmed company went already bankrupt.

The situation might be changed if - theoretically - EU introduced standards of maximum time of administrative decisions, legal proceedings, clarity of administrative procedures etc. Which would clarify murk in Eastern Europe as well in economies of Southern Italy, Greece etc. Unfortunately this is not realistic.

The North Pole

I don't understand completely your comment about Gross.

Just to make sure: Jews were dominating Stalinist repression system. This was one of reasons why Nazi Germans were sometimes succesful in plotting Poles against Jews, after Nazi Germany took over Polish lands earlier occupied by stalinist Soviet Union. To stop accusations of anti-Semitism: this minority of Jews who got into stalinist repression system frequently prosecuted their Jewish compatriots, too.

The North Pole

@Chris France, Thomas Marny
Emigration of up to 5m young, energetic people from Poland is good thing? On top of several millions who escaped during communism by different ways?

I rarely read such nonsense. You could just as well argue that riots in London were good thing because the empty space appeared to rebuild something better.

The North Pole

Growth in Poland will slow or halt soon. Poland's economy is based on educated workforce plus low wages. This nourished export - everything sold if produced four times cheaper than in Germany, from strawberries to scissors. Now this model ended. Workforce emigrated, costs risen.

Poland should, in theory, change to high-value economy. It fails and continues to fail. Reason is combination of poor infrastructure, changing regulations and non-existing business justice system, which kill high-end bussiness. All above come from dysfunctional administration working to benefit postcommunist cronies. This has not improved - de facto worsened - in 20 years. Monuments were overturned and erected, but regulations are still the minefield supporting selected well-connected bussinessmen.

So extrapolating that Poland's growth will continue is wrong. Other contributing problems include, already mentioned, public debt, ageing population, mediocre universities, shamefully low R&D investment in Polish firms, bossiness of Western corporations etc.


Economic migration may be beneficial to some parts of the economic scene, but there is little information about how individual migrants have fared over the long term. My own OK situation as one of them, (1960) is apparently unusual. Family breakdowns, drugs, alchoholism, early mortality, were the lot of contemporaires known to me.
It would be nice to see studies on North Africans in France, Turks in Germany, Irish West Indians and Pakistanis in Britain etc.
Also, how many vote in their new or old countries?
It is not always El Dorado.

Tomas Marny


The Eurostat figures mean absolute population increase / decrease in 2010 so obviously 33.000 more people were born in / immigrated to Poland than died / emigrated which represents numbers like if a new town has been built in a year.

Countries that had previously suffered large emigration and brain-drain have, on the other hand, created great opportunities for the future – which can be triggered very soon, as the situation in typical target countries of CEE emigration is getting worse: Britain is becoming overcrowded and British infrastructure (including social and healthcare services) is not ready to handle this situation. If economic difficulties of Ireland, Portugal, Spain, etc. get from worse to worst, it will be stimulus for many of the CEE citizens working there to get back because the countries will either close their job markets (like in case of Spain recently) or will become unattractive.

Or would you stay as a foreign work force in, for example, a 4 million country if she had a label of a troubled economy and was forced to re-adapt a national currency with high probability of steep devaluation and / or increased taxes (obviously planned forgiving mortgages to local citizens in Ireland would cost a lot of tax payer’s money)? That’s why I said in my previous post that the further development in CEE countries is dependent on general development in EU / EZ.

And as for the bad administration – it’s a great burden indeed, yet membership in EU can to some extent avoid it. I don’t know how far Polish exceptions from the EU legislation have gone, but in general, EU citizens can appeal to ECHR, entrepreneurs from an EU country can setup companies in arbitrary EU member even when operating purely in the local country, etc. So the situation is not as gloom as in non-EU EE countries where people and companies are left to the arbitrariness of local rulers completely.


Countries of our region "are contributors to the bail-outs, not supplicants" - The Economist is crystal clear in this matter: our region is simply being praised and not reprimanded by them.
Just opening doors (i.e. admitting them to become EU members, as otherwise these countries are happy, because the EU door had already been wide open for skilled people from these countries)to Russia would simply mean letting in Russian modus operandi in business which would simply undermine all the EU efforts to maintain progress in transparency of business procedures, Ukraine must cease to vacillate whether to go East or West, whereas Turkey with its 70 million people would mean breaking the balance in European politics as one could easily imagine the ruling trimvirate Germany-Poland-Turkey (supported by Romania perhaps) constantly outvoting in EU Parliamnet such key European countries like France-Italy-Britain.

@Tomas Marny
Highest population growth in case of Poland can easily be reconciled with even higher emigration from Poland. Simply more people emigrate from badly governed Poland than are born in our country! Many people worldwide are constantly forgetting that Poland is an extremely badly governed country, if there has been some progress since 1989 then this progress took place in Poland in spite of our Polish government rather than thanks to the Polish government. All these twenty years it was as though the Poles were desperately trying to do their utmost to improve things and each government was constantly trying to simply shatter all our efforts, suffice it to mention just two examples of this: breach of law by the then minister of education (in 1990) Anna Radziwiłł, when religion classes were obligatorily imposed on all the Polish schools at the cost of getting rid of mathematics and arbitrarily allocating (2010) to the families of the victims of the presidential plane crash near Smolensk special allowances 16 times larger than those routinely allocated to any other citizens of the Polish Republic (they were 40,000zł whereas normally all citizens get only 2,500zł) upon such tragic occasions. One could go on with the whole long list of other injustices inflicted on Polish society by its conceited elites, but it's enough what The Economist mentions: huge indebtedness and political unpredictability, populism of politicians and their inherent inability to tackle pension and health-care reforms, corruption and weak public administration. There is yet one more fault constantly present in 'modus operandi' of all the Polish governments since 1989 about which The Economist deliberately chooses not to write (as though the problem was a non-existant one), namely the enormous usurpation to claim the right to interfere with every single public issue by the omni-present Roman Catholic Church in Poland, which managed to terrorize all the political parties in Poland - it's them who are supervising the entire Polish economy, politics, education and the entire social life. People will rather continue to flee this medievally governed country, this the region's real heart of darkness.


Maybe this is just ignorance, but I'm not sure what the author means by bailout. In the case of Romania there were contracted from IMF, but these loans were at competitive interest rates and in consequence some standby agreements were not event translated into loans. To my knowledge, and I may just be misinformed, there was no European bailout for Romania (no free money, no loans at below market rates).

If by bailout we mean a loan contracted by a government in order to meet its obligations, then I guess the term is appropriately used for Romania. But isn't the US government being currently in the same situation? Or most European governments? Actually, as a second thought it may be true: the US government is being currently bailed out by the Chinese...

Anyway, the author is correct when he/she points to the demographic problem in Eastern Europe, but this problem is not worse than that in Western populations, if you don't take into consideration the immigrants. If the Eastern countries progress economically, there are millions of potential migrants that could replace the missing workers. How about opening the EU doors to Turkey/Ukraine/Russia? Moreover, given the shorter life expectation of Easterners, their smaller government pensions and their lower expectations for public support, a proportionally smaller influx of workers could lead to a significant beneficial impact on the ability of the Eastern governments to finance (minimalistic, by Western standards) social programs.

Tomas Marny

First, a correction: – S&P raised the long-term foreign currency sovereign credit rating on the Czech Republic to AA- and long-term local currency rating to AA several days ago, so not only Estonia has this rating among CEE countries.

Although the article tries to point out that the region shares gloomy features, the article correctly ends up with attributing the individual troubles and strengths to individual countries because they are indeed country- and even region-dependent (except the lower GDP that is a consequence of necessary devaluation of local currencies at the beginning of the economic transformation in 1990th).

Yet, the countries ARE PART OF (not close to!) the common EU market and thus developments in all countries are mutually entangled – for example by decrease in demand from some regions or migrating of investors (and work force respectively) from instable regions to the more stable ones – so the complex processes in EU / EZ will be the decisive factor for economies of the new members too.

Also the article’s other points are questionable, for example:

* Interest rates and inflation: the Czech National Bank’s interest rate is 0.75% with annual inflation 1.9% (July 2011) while ECB’s rate is 1.25% and inflation 2.5% (August 2011).

* Remedy by liberalizing markets and strengthening institutions: the markets are fully governed by EU rules (most temporary exceptions have already expired) and institutions are compliant to the EU legislation too. They need to get rid of corruption which does not depend on any reform but rather quality and moral integrity of individual officials and clerical workers.

* Low labour market participation of specific groups of citizens – this is a long term issue which can be partially influenced by setup of social welfare system and labour laws which are very individual in individual EU members. Yet there have been projects for inclusion of handicapped groups initiated both by national and EU levels - so I believe countries are doing their best here.

* Emigration – even famous British foreigner-bashing Daily Mail cites Eurostat statistics that Poland and the Czech Republic belonged to TOP10 EU countries with highest population growths in 2010. Why is TE not able to make this inquiry too?


Toxic legacy of communism (sic!)
Jan T. Gross wrote in his historic depiction of Jedwabne pogrom: why wouldn't the rabble which did the Nazis' dirty work in occupied Poland reappear as the backbone of the Stalinist apparatus of power? In the name of what dearly held principles would they refuse to serve a new master? Why would they go to jail rather than to a police academy? Then Gross goes on to cite one criminal who killed many Jews during WWII (and there were hundreds of thousands such criminals all over Poland in the late forties, i.e. soon after the war): "I believe that on shoulders like mine our workers' regime may rest". In today's Poland there is still a huge problem with persistent denial of mass murders committed by Poles during the war. Even the Reverent Father Isakowicz-Zaleski showed enough audacity to deny this historical fact on Polish TV when he attacked Mr Gross for writing lies in his books, after which this otherwise brave and intelligent priest went on to defend Polish Catholic hierachy, his only argument for defending them being that one cannot accuse the Church and it's the end of discussion. I have an Encyclopedia (pretty heavy book) printed in 1986 and there is no such term there as "holocaust", which is proof enough for me that all the communists' first task was to hide and conceal their mass murders during the war (you can always trust those on whom you have something nad the communists knew it). It was the communist party top secret, probably they themselves were implicated in this mass murder. There are still social circles in Poland which find it simply unpalatable to admit that yes, many Poles were far from being saint during the war, e.g. Church hierarchy which usurps the right to control all political life in Poland today: they simply impose sort of censorship on these events, why? Can there be any social progress and economic growth and so on in the coutry which is xenophobic, intolerant to other cultures and full of complexes about its past?



It is always the best, the youngest and the most gifted people who decide to emigrate. Most of these 2 millions Poles who had to emigrate from Poland meant some huge, huge deterioration rather than amelioration of the Polish economy as such (they largely contribute to Polish GDP though, as the remit their earnings to their families in Poland). I simply pity all those young compatriots about whom not a single democratically elected government since 1989 cared enough to provide some work for them; yeah, they can rightly be called economic migrants, they had to flee unemployment, cronism, corruption and weak public administration in Poland. Ironically enough, it is them, those poor Polish youngsters pushed out from their homeland to seek employment in foreign lands (sic) who are still the breadwinners for the entire families in Poland as they desperately try to send every single penny earned abroad to their families to provide for their parents, children and wives in badly governed Poland.
You sort of contradict yourself when in one sentence you say that "in Poland there is no mass scale social redistribution" and only a few lines later you write: "most farmers live off state and eu subsidies".
Finally you draw a simile to China, i.e. supposedly if only all those over-50s Poles could move to cities and regions in the west they would do so without hesitation. Nothing can be further from the truth! All those over-50s middle-age and old-age pensioners are no longer capable of taking up any work, they are simply excluded from the labour market and they are totally reliant on the welfare state to provide for them. Sorry for being brutal but I don't see any reason to delude myself: unemployed people over 50 years of age won't be fit for any kind of job - such is a price and the cost for the whole transformation after 1989. One has to pay for everything.



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