NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE Characteristics of Centrum – Periphery of the EU...

NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE

Characteristics of Centrum – Periphery of the EU

Tibor PalánkaiEmeritus Professor

Corvinus University of BudapestMaster Course

2014

Prof. Palánkai Tibor

Centrum of the EU

Centrum of the European Union:

1. Northern „Core”: North Western EU (Austria, Belgium,

Germany, Netherlands, Luxemburg, + Switzerland.

Scandinavian EU (Denmark, Finland, Sweden + Norway.

2. South Western Europe (Franc, Ireland, Italy and The United Kingdom.

Peripheries of the EU

1.Southern EU: Greece, Spain, Portugal, Cyprus and Malta;

2.New Eastern Members: Eastern Central Europe: (Czech Republic,

Hungary, Poland, Slovakia, Slovenia + Croatia; Baltic Countries: (Estonia, Latvia, Lithuania); Eastern Balkan: (Bulgaria and Romania).

3. Western Balkan (Candidates): Albania, Bosnia-Herzegovina, FYR, Montenegro, Serbia.

Central Europe

The six Eastern Central European countries, which are

distinguished from Western Central Europe: Austria, Italy (Veneto and Lombardy) or Germany (Bavaria and Baden Württemberg) or even Switzerland.

ECE joined EU in the first round from 2004, except Croatia, which entered the Union in 2013.

Romania and Bulgaria often claim to be Central European (joined in 2007).

Dimensions of Analysis

1. Integration intensity and interconnectedness;

2. Post-industrial structures (about 2/3 -1/4 services and 20-25% manufacturing);

3. Ranking: Global Competitiveness Index (GCI), Per Capita GDP and KOF index.

4. Macro-economic Performance (Debt Crisis);

5. Trade balances.

6. Financial Performance.

Per Capita GDP - Centrum

North Western European Countries: EU27=100

Luxemburg 263%

Austria 130%

Netherlands 128%

Germany 123%

Belgium 120%

Switzerland 160%

Per Capita GDP - Centrum

South Western European Countries: EU27=100

Ireland 129%

France 109%

UK 106%

Italy 101%

Scandinavian EU:

Denmark 126%

Sweden 126%

Finland 115% Norway 195%

Per Capita GDP - Peripheries

Southern EU: EU27=100%

Spain 96%

Cyprus 92%

Malta 86%

Portugal 76%

Greece 75%


Eastern Central Europe: EU27=100%

Slovenia 84%

Czech Republic 81%

Slovakia 76%

Hungary 67%

Poland 67%

Croatia 62%


Eastern Balkan: EU27=100%

Romania 50%

Bulgaria 47%

Baltic Countries:

Lithuania 72%

Estonia 71%

Latvia 64%

Differences in Levels Development 2012

The population of West-Balkan candidates is only about 17 million, absorption possible easily.

But high differences in level of development.

Macedonia (FYROM) 35% (EU 27=100)

Serbia 35%

Montenegro 43%

Bosnia-Herzegovina 28%

Albania 30%

Measuring Intensity of Integration

We use the following main parameters for measuring intensity of integration:

• Trade integration: flows, stocks, intensities;• Structure of trade relations; • Sub-regional concentration and

interconnectedness;• Factor integration: flows, stocks, intensities;

Measuring Trade Intensity

Proposed scaling intensity of trade:

Trade of goods or services in GDP (%), and intra-trade:

Bellow 10%: Marginal (no) intensity;

Between 10-30%: Low intensity;

Between: 30-50% Medium intensity;

Between: 50-70% High intensity;

Above 70% Very (extremely) high intensity.

Trade Intensities

Total export of goods in GDP:

1. Very high: BE and SK.

2. High intensity: HU (3. 68.3%), CZ, NL, SL, EE.

3. Medium: GE, IR, AT, DK, FL, SE, MT, LT, PL, BG.

4. Low: FR, IT, UK, ES, PT, LV, RO.

5. Marginal intensity: EL (8.8%) and CY (7.7%).

Trade Intensities

Summary conclusions:

1.HU among the 5 most intensively integrated.

2.Benelux and C.E. + EE, IE are highly integrated.

3.Large countries (FR, IT, UK)+ ES, PT, RO, LV are lowly integrated.

4. Marginally integrated (total goods): EL and CY.

5. Others either medium or low (South EU-low).

Flows of Capital - EU Integration (2009)

Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%)

Belgium 200 188 94

Ireland 111 130 116

Netherlands 81 120 149

Sweden 82 87 106

Finland 36 54 150

Denmark 50 64 128

Flows of Capital - EU Integration (2009)

Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%)

Spain 43 43 100

Portugal 49 29 59

Austria 45 43 95

Italy 17 23 135

Greece 13 12 93

Flows of Capital – EU Integration (2009)

Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%)Hungary 78 16 21Czech R. 64 8 12Slovakia 60 4 7Poland 43 7 16Estonia 84 33 40Slovenia 31 19 60Romania 35 1 2Bulgaria 63 1 1.5

Summary of Capital Integration

• High proportion of FDIs in GDP (50-70%) – indication of intensity of global integration.

• Developed countries are characterised by net capital exporter position (Cx is about 40-50% over Cm).

• This is an important parameter of level and balancedness of integration.

• NMCs gradually capital exporters, but only beginning (Cx is only about 10-40% of Cm).

Sub-regional Interconnectedness

Relations are sub-regionally concentrated.

It can be measured by comparing the shares of internal trade (export) and the population in total.

Xia/Xt × 100/Pa/Pt ×100

Xia – internal export of A country or region;

Xt – total export of the EU;

Pa – population of A country or region;

Pt – population of the Union.


Region Xia/xt×100 Pa/Pt×100 QuotientW-E 74.8 60.1 1.25Scand. EU 6.0 5.0 1.20 East-CE 10.5 10.3 1.02Baltics 0.7 0.8 0.93 South EU 6.6 13.8 0.47 Latin EU* 23.9 36.2 0.66EU27 100 100 1* Latin EU – FR, IT, ES, PT


There is a high concentration of the trade to the Centrum (80%);

East Central Europe is closely connected to the Centrum, mainly through of West Central E.;

Baltics close to average intensity and they connect to the Centrum through Scandinavia (SE, FL);

The connectedness of the South is lower, even through „Latin” countries.

„Strategic Partnerships”

There are „Strategic Partnerships” – if share of the relation are more than 10% with a partner.

The share of the EU15 in the trade of Eastern New Members is about 60%. But the share of ENMs in the trade of EU15’s is around 11-13%. Asymmetries, but they are strategic partners, they are relatively interdependent.

Germany’s share is about 1/3 in CEE”s trade, but CEE is strategic partner of Germany with its 16% share.

„Strategic Partnerships”

DE as „inner centrum” of the EU. It gives 23.2% of EU total trade. Its share is 43% in case of AT and 11.4% of IE.

It is number one partner for 21 countries 2. for CY, LT, PT and ES; 3. for LV and 4. for EE.

The three large members, each (FR, IT, UK + NL) have more than 10% share in trade of DE, but AT and BE (7-8%), and PL (6%) are close to that.

Centrum – relatively balanced interdependence.

Trade Structures (Internal export) (%)

Country Agr. R.M. Ener. Manuf. OtherEU27 9.7 3.6 6.8 51.3 28.6Germany 6.9 2.7 2.8 49.0 28.6 Sweden 5.9 7.9 8.3 44.5 33.3Hungary 7.3 2.8 2.5 67.6 19.9Czech R. 4.0 3.4 4.3 59.7 38.6Slovakia 4.2 3.2 5.6 55.9 31.1Portugal 10.4 5.9 3.8 36.4 43.5Greece 25.6 5.2 7.1 27.3 34.8

Trade Structures (Internal export) (%)

Pattern of structural changes:

1. C. E. converged with developed EU.

2. High industrialisation of C.E.

3. Differences arise in terms of „others”.

4. Southern EU – high agriculture and lower industrialisation (even in case of ES).

Trade Balances

Countries Int. trade Ext. trade. Trade with GE

BE. NL. IE, + + +

HU. CZ, SK, + + +

PL, + - -

SL, - + +

FR, UK, IT, AT - - -

PT, ES, EL - - -

EE, LT,LV, - - -

BG,RO. - - -

Summary of Real-integration

• Extremely highly integrated countries: BE, NL, IR AT, LU, DK - Core of the Centrum;

• HU, CZ, SK and PL – Eastern Central Europe.• Highly integrated countries: DE, FR, UK, IT, ES,

FL, PT, SE, EE and SL. (large developed countries +)

• Medium level integrated countries: EL, CY, ML, LT, LV, BG and RO.

Rankings of the Core Countries

GC. Index KOF Index Per capita GDP Lisbon Score-

(2012) (2013) EU27=100 (2012) card (2009)AT 18. 4. 1. 130% 2.BE 16. 1. 8. 120% 12.DK 8. 6. 4. 126% 3.FL 4. 16. 9. 115% 5.DE 6. 22. 7. 123% 6.NL 7. 3. 2. 128% 4.SE 3. 7. 4. 126% 1.

Per capita GDP: Switzerland: 160%; Norway: 195%.GCI – USA – 5.

Measurement of Financial Performance

Parameters 2012:

Debt Servicing (D. S.): Good 2.23 % > (EU27 Av.)

Medium (2.23-5%) Poor 5%<

Yields of Gov.Bonds (B. Y.): Good >3.74% (Av.)

Medium (3.74-5%), Poor 5-10%, Crisis 10%<

Risk premiums (R. P.): Good >1%, Medium 1-3%,

Poor 3-5%, Crisis level: 5%<.

Credit Rating (C. R.) 2013 (S&P)

Macro-Performance of „ the Core”

Country Inflation Budget Deficit Public Debt

2004 2009 2013 2004 2009 2013 2004 2009 2013

BE 1.9 0 1.2 0.1 5.6 4.0 94 96 100

NL 1.4 1 2.6 1.7 5.6 4.1 52 61 71

DE 1.8 0.2 1.6 3.8 3.1 0.0 66 75 81

AT 2.0 0.4 2.1 4.4 4.1 2.5 65 69 74

LU 1.3 2.2 2.6 1.1 0.8 0.6 6 15 21

DK 0.9 1.1 0.5 +2.1 2.7 4.1 45 41 45

FL 0.1 1.6 2.2 +2.5 2.5 2.0 44 44 57

SE 1.0 1.9 0.4 +0.6 0.7 0.2 50 43 38

Macro-Performance of „ the Core”

Country Economic growth (annual in%) Unemployment

1995-2008 2009-2013 2004 2013

BE 2.3 0.3 8.4 8.4

NL 2.6 -0.1 4.6 6.7

DE 1.7 0.8 9.8 5.3

AT 2.4 0.8 4.9 9.4

DK 1.7 -0.6 5.5 7.0

FL 3.4 -0.8 8.8 8.2

SE 2.6 1.5 7.4 8.0

EU27 3.6 -0.6 9.1 10.9

Financial Performance of the Core 2012

Cs D. S. B. Y. R. P. C. R. AT G. G. G. AA+BE M. G. G. AA DK G. G. G. AAA FL G. G. G. AAADE G. G. G. AAA NL G. G. G. AA+SE G. G. G. AAA

Trade Balances of the Core


BE. NL. DE. +HS +HS + (DE n. a.)

AT. +HD -LD -

FL. SE . -LD +LS -

LU +LS -HD -

HS – High Surplus < 3% of GDP, LS – Low Surplus 0-3% of GDP, HD –High deficit< 3%,

LD –Low Deficit 0-3% of GDP

Rankings of South-Western Europe

GC. Index KOF Index Per capita GDP Lisbon Score- (2012) (2013) EU27=100 (2012) card (2009)

FR 18. 18. 109%. 10.

IT 43. 23. 101%. 24.

UK 10. 12. 106% 8.

IE 29. 2. 129% 7.

Macro-Performance of South-Western Europe


2004 2009 2013 2004 2009 2013 2004 2009 2013

FR 2.3 0.1 1.0 3.6 3.5 4.8 65 79 90

IT 2.3 0.8 1.3 3.5 3.5 3.0 104 116 133

UK 1.3 2.2 2.6 3.5 11.5 6.1 41 68 89

IE 2.3 -1.7 0.5 +1.4 13.9 8.2 30 66 117

Macro-Performance of South-Western Europe


1995-2008 2009-2013 2004 2013

FR 1.8 0.2 9.3 10.8

IT 1.3 0.2 8.0 12.2

UK 2.8 0.2 4.7 7.2

IE 6.1 -0.7 4.5 13.1

Financial Performance of South-Western Europe

Cs D. S. B. Y. R. P. C. R.

FR M. G. G. AA

IT M. P. P. BBB

UK M. G. G. AAA

IE M. P. P. BBB+

Trade Balances of South-Western Europe


1. FR - HD - LD -

2. IT - LD - LD -

3. UK - LD - HD -

4. IE + HS - HS +

Rankings of Southern EU


EL 90. 24. 75% 22.

ES 36. 17. 96% 19.

PT 45. 8. 76% 20.

CY 47. 11. 92% 14.

ML 51. 31. 99% 27.

Macro-Performance of Southern EU


2004 2009 2013 2004 2009 2013 2004 2009 2013

EL 3.0 1.3 -0.9 7.5 15.6 9.0 99 130 157

ES 3.1 -0.2 1.5 0.1 11.2 10.6 46 54 86

PT 2.5 -0.9 0.4 4.0 10.2 6.4 62 84 124

CY 1.9 0.2 0.4 4.1 6.1 5.2 71 58 87

MT 2.7 1.8 1.0 4.6 3.7 3.3 70 66 71

Macro-Performance of Southern EU


1995-2008 2009-2013 2004 2013

EL 3.6 -5.1 10.5 27.3

ES 3.4 -1.1 10.6 26.4

PT 2.1 -1.4 6.7 16.5

CY 3.6 -1.6 4.7 16.0

MT 2.9 1.1 7.4 6.5

Financial Performance of Southern EU

Cs D. S. B. Y. R. P. C. R.

Greece P. C. C. B-

Spain M. P. M. BBB-

Portugal M. C. P. BB

Cyprus - P. C. B-

Malta - M. M. BBB+

Trade Balances of Southern EU (2009)


Greece - HD - HD -

Spain - LD - HD -

Portugal - HD - HD -

Cyprus - HD - HD -

Malta - HD - HD -

Rankings of Eastern Central Europe


CZ 38. 15. 81% 10.

HU 48. 9. 67% 23.

PL 41. 26. 67% 21.

SK 69. 19. 76% 18.

SL 57. 30. 84% 11.

CR 76. 33. 62% -

Macro-Performance of East-Central Europe


2004 2009 2013 2004 2009 2013 2004 2009 2013

CZ 2.6 0.6 1.4 2.8 5.8 4.4 29 34 46

HU 6.8 4.0 1.7 6.5 4.6 2.0 60 80 80

SK 7.5 0.9 1.5 2.4 8.0 4.5 42 37 54

PL 3.6 4.0 0.8 5.4 7.4 3.9 46 51 56

SL 3.7 0.9 1.9 2.3 6.2 3.8 27 35 54

Macro-Performance of East-Central Europe


1995-2008 2009-2013 2004 2013

CZ 3.7 -0.5 8.3 7.0

HU 3.1 -0.9 6.1 10.2

SK 5.1 1.1 18.2 14.2

PL 4.4 2.7 19.0 10.3

SL 4.1 -1.9 6.3 10.2

Financial Performance of Eastern Central Europe

Cs D. S. B. Y. R. P. C. R.

CZ G. G. M. AA

HU M. P. P. BB

PL M. M. M. A

SK G. M. M. A

SL G. P. P. A

Trade Balances of Eastern Central Europe


CZ +HS +HS +

HU +HS +HS +

PL +LS -LD -

SK +HS +LS +

SL -LD +LS +

Rankings of Baltic Countries


EE 33. 25. 71% 15.

LV 64. 44. 64% 17.

LT 44. 36. 72% 16.

Financial Performance of Baltic Countries

Cs D. S. B. Y. R. P. C. R.

Estonia G. - M. AA

Latvia G. M. M. BBB+

Lithuania G. M. M. BBB

Macro-Performance of Baltic Countries


2004 2009 2013 2004 2009 2013 2004 2009 2013

EE 3.0 0.2 3.2 +1.6 2.0 0.2 5 7 10

LV 6.2 3.3 0.0 1.0 9.8 1.3 15 37 41

LT 1.2 4.2 1.2 1.5 9.4 3.2 19 29 41

Macro-Performance of Baltic Countries


1995-2008 2009-2013 2004 2013

EE 6.3 0.3 9.7 8.7

LV 6.2 -0.7 10.4 11.9

LT 6.5 -0.1 11.4 11.8

Trade Balances of Baltic Countries


Estonia - HD - HD -

Latvia - HD - HD -

Lithuania - LD - HD -

Rankings of Balkan Countries


Eastern Balkan: BG 74. 40. 47% 25.RO 77. 38. 50% 26.Western Balkan:AL 78. 78. 30% - BH - 61. 28% -MC 78. 70. 35% - MN 60. 45. 35% -SR 95. 53. 43% -

Macro-Performance of Eastern Balkan


2004 2009 2013 2004 2009 2013 2004 2009 2013

BG 11.9 2.5 0.4 +1.9 4.3 1.8 37 15 18

RO 6.1 5.6 3.2 1.2 9.0 3.0 19 24 38

Macro-Performance of Eastern Balkan


1995-2008 2009-2013 2004 2013

BG 4.0 -0.3 12.1 12.9

RO 4.1 -0.7 8.1 7.3

Financial Performance of Eastern Balkan

Cs D. S. B. Y. R. P. C. R.

Bulgaria G. M. M. BBB

Romania G. P. P. BB+

Trade Balances of Eastern Balkan


Bulgaria - HD - HD -

Romania - HD - HD -

Convergence

Convergence is a necessary condition of efficient and successful integration.

Equalized levels are not demanded, but in the case of large differences the benefits may be unequally distributed.

In case, compensation with trade concessions and financial and technical aid.

Convergence as indicator of integration success.

Convergence

Equalisation of levels of development:

Measuring in per capita GDP, Complex convergence indices, Price equalisation (goods and equities), Convergence of incomes, Convergence of real consumption. Cyclical synchronisation.

Development and Convergence

In the last hundred year due to growth of productivity: Increase of real incomes;

Halving of working life in developed countries:

From 72h/week×50 weeks×40 years = 140.000h

To 40h/week×46 weeks×40 years = cca. 70.000h;

Global integration: growing and drastic increase in nominal income inequities;

European integration: convergence (EU- cohesion and solidarity).

Per Capita GDP EU27 - 100

Country 1960 1973 1990 2004 2012Greece 44 71 88 94 75Portugal 41 59 62 77 76Ireland 63 61 74 142 129Spain 59 77 76 101 96 Hungary 60+ - 41 63 67Finland 111 115 118 116 115Austria - - 117 127 131Germany - - 115 117 121

+European average

Per Capita GDP of ENMs EU27 - 100

Country 1990 2000 2004 2012Hungary 41 56 63 67Czech Republic 61 69 75 81Slovakia 61 - 57 75 Slovenia - 79 85 84Poland 33 43 46 67Estonia 31 40 52 71Latvia 15 - 47 64Lithuania 18 - 52 72Bulgaria 12 - 35 47Romania 25 23 31 50

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Convergence

1. Spectacular integration of Scandinavia (early 20. century Finland and Norway poor countries) into the Centrum, the same with IE from mid-1900s;

Integration plays major role, but special factors: SE – avoiding war damages due to neutrality or Norwegian oil.

2. Southern EU : Contradictory convergence, particularly that of Greece (1-2% growth surplus over that of Centrum countries). Transfer of structural funds play important role, particularly in infrastructure.

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Convergence

Convergence pattern of Eastern New Members:

Disappointing divergence in 20 years between early 1970s and mid 1990s (fall of HU from 60 to 40% of European average) due to failure of Soviet system.

Between mid-1990s and 2008 (about 15 years) – strong convergence:

East – C. E: about 2% growth surplus

Baltic countries: more than 4-4.5% growth surplus.

Eastern Balkan: 4% growth surplus.

Major role private FDIs and also structural funds.

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Convergence

All the peripheries heavily hit by the post 2008 crisis.

Most shocking divergence of Southern EU, particularly Greece and Spain.

The ENMs suffered heavy drop in growth in 2009, higher than the Centrum countries.

ECE and EB about 5-7% fall in GDP in 2009. They are recovering, but no convergence yet.

Baltics about 15-18% fall of GDP in 2009, but rapid recovery after 2011. Convergence regained.

Future of before 2008 strong convergence in question.

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Convergence

Clearly, per capita GDP is far not satisfactory.

Complex convergence analysis would be needed.

Deutsche Bank Research, convergence web is computed by 5 groups of indicators, based on a composite of 16 variables (calculated only till early 2000s): according to it East Central and Southern EU were in the same category.

Questions about sustainability of catching up in the future.

Progress of European Integration

EU reached in the last decades: Unique high level of institutional integration:

1. Creation single market and currency;

2. Gradually acquired political and institutional identity (polity) with elements of supranationality.

3. Applying principle of cohesion on Union level; High level of intensity of relations,

interconnectedness and interdependence,

General Characteristics of Centrum

All above the average level of EU27s;

High intensity of trade and capital relations;

Most countries net capital exporters (Cx is about 20-30% above Cm);

Close interconnectedness;

Germany with about ¼ of trade is inner Centrum;

Many countries, particularly larger ones strategic partner of DE and the others;

Relatively balanced interdependence.

General Characteristics of „Core”

North W. E. and Scand. EU (7 cs): Level of per capita GDP above by 20% of EU 27 average;

In General Competitiveness Index: among the first 18, but 5 countries among the first 10.

In KOF among the first 22, but five among the first 10 in global economy.

In Credit Rating all in A category, 4 cs in AAA.

In financial performance (debt service, bond yields or risk premiums) all better than average.

General Characteristics of „Core”

Balanced trade (trade surpluses or low deficits);

Good in inflation and budget deficit, bellow the average indebtedness except BE;

Bellow the average of unemployment, but also economic growth (2-2.5% to 3.5% average).

Less hit by financial crisis.

One of the most competitive (but not dynamic) regions of global economy –Lisbon Strategy).

Characteristics of South Western Europe

Four countries (FR,IT, UK, IE):

Per capita GDP 100-110% of EU27 (ex.IE -129%).

Competiveness bellow the Core (ex. UK -10.)

In KOF bellow the Core (ex. IE – in 2013 2.)

In Credit rating IT and IE in B categories (IT –BBB)

Debt service medium, in bond yields and risk premiums IT and IE in poor, FR and UK in good categories.

Characteristics of South Western Europe

Poor in trade balances (surpluses only by IE.);Good in inflation, but above 3% deficits (exc. IT),average indebtedness: FR-UK, high: IT-IE;Above average of unemployment in IT and IE., low

growth exc. IE.Drastic impacts of financial crisis, they are subjects

of sovereign debt crisis (exc. France). South Western EU as certain outskirt of the

Centrum, a transition zone to the Southern European Periphery.

Internalised European Peripheries

My thesis: in the last decades EU peripheries have been internalised into the Centrum. After centuries, historically new situation. Based on:

Increased intensity and interconnectedness of relations – high integratedness;

Acquisition of full EU membership; Growing convergence.So far left out:Western Balkan;Eastern Europe (former Soviet Union countries).

Survival of Peripheral Characteristics

Significant differences in levels of development;

Behind in competitiveness and transnationalisation of local company sector, particularly SMEs;

Dualistic structure of economy: FDI controlled and local economy;

Low local value added, knowledge and high tech contents imported;

Low financial integration and performance;

Strongly hit by financial and sovereign debt crisis.

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Southern EU

• Southern EU - service economies, industrial export capacities limited. High agriculture, low manufacturing.

• In trade integration, ML is in the high, CY moderate intensity category. Others are low intensity countries.

• In capital intensities are on the moderate levels, while EL is close the marginal category. Both ES and EL have close to 100% capital export (to import), but with differing intensities.

Characteristics of Southern EU

Levels of development between 75-99% of EU27s;

In GCI between 45-90., in KOF 8-31. places. ES better ranked than IT or FR.

In credit rating in B, like IT and IE.

In financial performance (debt service, bond yields or risk premiums) most in poor or crisis categories, heavily hit by sovereign debt crisis (very high budget deficits and indebtedness (particularly EL and PT).

Characteristics of Southern EU

Poor in trade balances (high deficits in all dimensions);

Low inflation, but due to recession;

Extremely high unemployment (ES and EL- 27%) and high youth unemployment);

Around average growth, rather divergence;

ES close to the Southern Centrum, same performance as IT.

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Southern EU

In the South the connectedness to the Centre is moderate, and it is low for EL. Strategic partnership with DE, and South Western Europe (FR and IT + UK).

The Southern EU countries are all members of the Euro-zone and Schengen (except Cyprus).

They are fully integrated into the institutional and regulatory systems of the EU.

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Eastern Central Europe

Very high intensities and interconnedness: most closely integrated among the other peripheries;

• In trade intensities all the countries are in the very high category (SL with 68%, close to that), except PL is a moderate intensity country (size).

• In capital intensity (import) HU very high intensity, CZ and SK high, PL, SL in moderate intensity. Capital export to import is 60% for SL, 21% for HU, 16% for PL, 12% for CZ and 7% for SL in 2009. Some local TNCs, but weak SME sector.

Characteristics of East Central Europe

High differences among the countries: Per capita GDP between 62-84% of EU27s. GCI between 38.-76. in KOF 9.-33. places; Credit rating: A (PL, SK, SL), but BBB (HU). In bond yields and risk premiums: poor (HU

and SL) others medium or good.

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• There is a high structural convergence of trade, which we measure mostly in proportion of manufacturing export in the total.

• CZ, HU and SK have trade surpluses (HS) both in their internal (EU) and external export, and also in their trade with DE. (HS exceeding 3% of GDP). PL and SL mixed performance, with LD or LS.

Characteristics of East Central Europe

Low inflation, but due to recession; unemployment

somewhat bellow the EU average exc. SK (14%).

About 2% growth surplus. Convergence between 1994-2008. Uncertain for the future.

Debt except HU (80%) bellow 60%, due to good initial positions. Budget deficit in 2013 around 4% (HU 2%). Sovereign debt crisis avoided.

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The institutional integration contradictory. They fully comply with the single market (derogations mostly have run out), and they joined Schengen. From them only SL and SK introduced the Euro. CZ, HU and PO different positions. They refrained to participate in ERM2, and their joining the Euro-zone uncertain (PL is different) In CZ and HU the question is not on agenda. They do not participate the Euro reforms, and their public opinion is against the introduction of the Euro.

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Baltic countries

In real integration Estonia is close to Eastern Central Europe.

• In trade Estonia belongs the high intensity countries, while Latvia and Lithuania are in the moderate group.

• In capital relations, EE very high intensity, while LV and LT in moderate category. EE relatively high level of capital export (40% in relation to import).

Modest interconnedness with W. E. (DE), rather with Scandinavian EU (SE and FL);

Characteristics of Baltic Countries

In per capita GDP between 64-72% of EU27s. GCI between 33.-64. in KOF 25.-44. places; Good and modest financial market

performance; Poor in trade balances (high deficits) –

weakness in competitiveness; Membership in Euro-Zone and Schengen

(Lithuania may introduce the Euro soon.)

Characteristics of Baltic Countries

Shocking impacts of financial crisis, but through drastic austerity measures all of them stabilised their budgets.

By now, low inflation, and budget deficits, but above average unemployment.

They produced about 4% annual growth surplus. Strong convergence between 1994-2008. In 2009 14-18% drop, but from 2011 rapid growth (4-6%) of GDP again.

Very good debt positions (EE 10%, LV and LT 41% in GDP).

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Eastern Balkan

Differing intensities of integration and interconnedness with the EU countries;

• Trade intensity of Bulgaria is high, while that of Romania fall into the moderate category. (Size plays some role.)

• We do not have comparative data on capital intensity, but it is high for Bulgaria and moderate for Romania. Their capital export is marginal.

• Bulgaria is characterised by low and Romania by moderate structural convergence in their export.

Characteristics of Eastern Balkan

In per capita GDP about half of level of EU27s. GCI between 74.-77. in KOF 38-40. places; Poor in trade balances (high deficits) –

weakness in competitiveness and structural change;

In bond yields and risk premiums BG modest, RO poor performance.

Membership in Euro-Zone and Schengen is not yet realised, and there are uncertain prospects.

Characteristics of Eastern Balkan

Low inflation, and budget deficits, but in BG above average unemployment.

The about 4% annual growth (1.5-2% surplus) helped convergence between 1994-2008.

Very good debt positions (BG 18%, RO 38%).Low debt service.

Least integrated region, on the way of internalisation with the Centre.

Summary of Rankings of Centrum and Peripheries

Core SWE SEU ECE B. C. E. B.

GCI (2012) 1.00 1.73 3.20 3.20 3.00 5.00

KOF (2013) 1.17 1.22 1.40 1.50 2.66 3.00

PCG (2012) 1.00 1.00 2.40 3.20 3.00 4.00

LSC (2009) 1.50 2.72 4.20 4.72 4.00 5.00

R. I.+ (2009) 1.58 1.75 3.00 2.00 3.00 2.50

I. I. (2014) 1.00 1.00 1.00 1.60 2.00 3.00

Summary 1.20 1.57 2.53 2.60 2.77 3.75

Summary of Rankings of Centrum and Peripheries

GCI Global Competitiveness Index (2012): 1: 1.-19.;

2: 20.-39.; 3: 40.–59.; 60.-79.; 5: 80<.

KOF Index (2013): same scaling as above.

PCG Per Capita GDP –EU27=100% (2012): 1: 100<; 2: 80-99; 3: 60-79; 4: 40-59; %: 39>.

LSC Lisbon Scorecard (2009): 1: 1.-5.; 2: 6.-10.; 3: 11.-15.;

4: 14.-20.; 5: 21<.

R.I.+ (2009) Real-integration + balance of payment scaling.

I. I. Institutional Integration (2014). Scaling of progress.

Summary: Simple statistical average of the scores.

General Impacts of the crisis

General worsening of macro-economic and financial performance, particularly as peripheries are concerned.

Sovereign debt crisis created an increased division between North and South. Southern EU was particularly hit, but South W.E. was equally affected.

Eastern peripheries could avoid the debt crisis, due to there good initial positions.

Their internalisation and convergence are halted.

Future Development Strategies

All regions of the EU are strategically interested in catching up and full integration of peripheries with the Centrum (desirably with Core).

Three type of crisis call for solution:

1. Financial and debt crisis: reforms of Euro governance (Fiscal and Bank Union) meant important steps. Further are needed: Reform of Union budget. Structural reforms in the member states.


2. Solution of growth crisis. It is a global problem. The rapid growth is catching up growth (mostly in emerging countries), while in the developed countries the monetary tools fail (cheap money and abundance of money supply).

Structural solutions should be sought, most obviously addressing the energy and environmental problems. Counter-interests should be overcome.


3. Addressing the crisis of governance: New institutions and regulatory structures

(break with failed ultra-liberal policies); Handling and solution of social crisis (present

youth unemployment is a social scandal); Solutions on the crisis of democracy and

professional governance (populist voluntarism or corruption are the main present dangers).

Compromise between public and private interests.

Some Important Strategic Tasks

Convergence Strategy is needed, along Lisbon and Europe 2020. Need for sustainable growth, based on competitiveness.

Attracting FDIs, only by quality conditions (low wages are no longer enough),

Strategy for agriculture, large gains and transfers, but crisis persists, external global challenges,

Proper policies for employment, job creation, against low activity rate, hidden and youth unemployment, black employment (threats),

Absorption capacities should be further improved.

END

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NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE Characteristics of Centrum – Periphery of the EU...

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