The COVID-19 pandemic may actually strengthen Central and Eastern Europe in relative economic terms, and Poland in particular, argue Marek Belka and Piroska Nagy-Mohacsi (LSE). Politicians in the region should not waste this opportunity by turning away from the EU

Belka, Marek

Nagy-Mohacsi, Piroska

English

LSE Research Online

COVID-19	may	strengthen	Central-Eastern	Europe	–will	it	embrace	the	EU	or	nationalism?The	COVID-19	pandemic	may	actually	strengthen	Central	and	Eastern	Europe	in	relative	economic	terms,	andPoland	in	particular,	argue	Marek	Belka	and	Piroska	Nagy-Mohacsi	(LSE).	Politicians	in	the	region	should	notwaste	this	opportunity	by	turning	away	from	the	EU.Poland,	and	the	region	of	Central-Eastern	Europe	(CEE)	in	general,	has	managed	to	contain	the	COVID-19pandemic	relatively	well	so	far.	Similar	crises	in	the	past	generally	tended	to	accelerate	closing	the	gap	between	theWest	and	East	of	Europe	–	between	“us”	and	“them”,	as	many	still	see	the	post-communist	divide	in	the	region.	TheCOVID-19	pandemic	may	too	actually	help	Poland	and	the	surrounding	CEE	countries	to	boost	their	relativeposition	in	Europe,	at	least	in	economic	terms.Since	the	last	great	upheaval	in	the	world’s	economic	affairs	over	a	decade	ago,	Poland	has	been	a	clearbeneficiary	of	the	changes	that	ensued	after	each	subsequent	crisis.	The	2008	Global	Financial	Crisis	broughtabout	a	stark	recession	in	Europe’s	more	advanced	economies.	Poland	weathered	the	storm,	earning	for	itself	theglorious	“green	island”	nickname.	The	immigration	crisis	of	2015-16	shook	Mediterranean	Europe	politically	andeconomically,	but	the	spillover	into	the	CEE	region	was	only	political	–	deplorable	as	it	was	–	and	not	economic.	Tothe	contrary,	notwithstanding	the	anti-immigration	rhetoric	of	the	Polish	far-right	government,	in	fact	it	has	allowedfor	a	massive	inflow	of	seasonal	(and	not	that	seasonal)	workers	from	Ukraine	and	other	emerging	economies	inthe	face	of	emerging	labour	shortages	in	Poland.	Hungary	too	has	welcomed	guest	workers	while	maintaining	anti-migrant	rhetoric.	But	migration-related	social	tensions	in	Poland	are	almost	nonexistent,	while	the	economicadvantage	is	enormous.	The	demographic	misery	of	the	region	(an	unprecedently	low	birthrate	compounded	bylabour	emigration)	has	been,	at	least	temporarily,	attenuated.	Overall,	Central-Eastern	Europe,	though	on	thedownside	of	the	business	cycle,	was	booming	before	COVID-19,	and	GDP	growth	in	2019	exceeded	4	per	cent	inPoland,	Hungary	and	some	other	CEE	countries.LSE Covid 19 Blog: COVID-19 may strengthen Central-Eastern Europe – will it embrace the EU or nationalism? Page 1 of 3		Date originally posted: 2020-06-15Permalink: https://blogs.lse.ac.uk/covid19/2020/06/15/covid-19-may-strengthen-central-eastern-europe-will-it-embrace-the-eu-or-nationalism/Blog homepage: https://blogs.lse.ac.uk/covid19/LSE Covid 19 Blog: COVID-19 may strengthen Central-Eastern Europe – will it embrace the EU or nationalism? Page 2 of 3		Date originally posted: 2020-06-15Permalink: https://blogs.lse.ac.uk/covid19/2020/06/15/covid-19-may-strengthen-central-eastern-europe-will-it-embrace-the-eu-or-nationalism/Blog homepage: https://blogs.lse.ac.uk/covid19/The	global	pandemic	hit	Europe	in	March,	but	the	CEE	region	so	far	seems	to	be	weathering	it	better	than	much	ofEurope.	The	number	of	infections	and	deaths	seems	disproportionately	lower	than	in	many	European	countries.	Itis,	however,	too	early	to	say	why.	Maybe	it	is	the	way	deaths	are	reported,	maybe	it	is	the	lower	number	of	testsperformed,	or	maybe	the	peoples	of	the	region	underwent	obligatory	immunisation	in	the	communist	past,	whichresulted	in	lower	vulnerability	to	infectious	diseases	–		although	a	recent	CEPR	paper	by	Bluhm	and	Pinkovskiyseriously	questions	this	hypothesis.	Perhaps	it	is	because	state	institutions	in	those	countries,	including	healthcare,are	stronger	than	we	thought.	Other	factors	that	may	have	played	a	role	are	the	extra	time	for	response	as	the	viruswas	spreading	from	western	Europe	to	the	CEE,	or	lower	population	density	relative	to	the	rest	of	the	EU.The	policy	response	in	Poland,	and	other	CEE	countries,	has	involved	a	quite	strict	lockdown	around	mid-Marchand	introduction	of	discretionary	fiscal	measures	both	on	the	revenue	side	(easing/delays)	and	spending.	Poland’soverall	stimulus	package	is	very	large	and	stands	at	about	15%	of	GDP	according	to	the	EBRD;	other	countries’packages	are	smaller	but	also	sizeable,	and	the	IMF	warns	such	large	outlays	require	vigilance	over	corruptionrisks.	Central	banks	have	reduced	interest	rates	and,	as	the	BIS	points	out,	are	introducing	variants	of	quantitativeeasing,	some	similar	to	what	advanced	economies’	central	banks	have	been	doing.	Now	the	economies	of	the	CEEare	being	reopened	and	normal	life	is	gradually	being	restored.	Politics	do	matter,	however:	in	Poland,	the	fightagainst	COVID-19	and	its	economic	aftermath	has	been	contaminated	by	the	political	scheming	of	the	government,which	had	pushed	for	a	presidential	election	amid	the	height	of	the	pandemic.	They	expected	to	easily	win	it	due	tonational	mobilisation	around	the	virus.	In	Hungary,	the	government	introduced	a	state	of	emergency	(a	form	ofmartial	law)	in	March,	which	many	observers	consider	a	quasi-authoritarian	power	grab.The	immediate	shock	of	COVID-19	will	no	doubt	be	harsh	and	even	devastating,	but	several	factors	point	to	thepotential	for	a	relatively	speedy	and	sustainable	recovery.	Firstly,	the	CEE	region,	with	its	decent	public	debtsituation,	is	able	to	afford	a	powerful	fiscal	stimulus	which	lessens	the	fear	of	long-term	destabilisation.	Secondly,the	ECB’s	strong	monetary	stimulus	increases	the	monetary	space	the	region’s	central	banks	can	use	withoutimmediate	risks	to	inflation	and	exchange	rate	volatility.	Thirdly,	close	economic	links	to	the	EU’s	economy,Germany,	can	help	when	the	expected	onshoring	of	production	from	China	takes	place.	Indeed,	the	CEE	regionmay	actually	take	over	some	of	the	manufacturing	from	Asian	production	centres	in	the	future.	Lastly,	the	recentlyannounced	EU	recovery	funds,	including	the	Next	Generation	EU,	are	set	to	allocate	large	money	transfers	toleading	CEE	countries,	such	as	Poland	or	Hungary,	equivalent	to	around	10%	of	their	GDP,	even	though	they	havebeen	less	affected	by	the	pandemic	so	far.At	this	point,	most	professional	forecasts	imply	that	a	recession	in	the	CEE	region	will	be	relatively	shallow	and	theforthcoming	recovery	will	be	faster	than	elsewhere	in	Europe.	If	this	is	so,	it	would	be	a	tragic	waste	of	anopportunity	for	Poland,	and	the	CEE	region	in	general,	to	turn	to	more	nationalism	and	deliberately	marginalisethemselves	in	the	European	Union,	instead	of	taking	a	more	prominent	role	in	leading	it.This	post	represents	the	views	of	the	authors	and	not	those	of	the	COVID-19	blog	or	LSE.	Image	by	ElekesAndor,	Creative	Commons	Attribution-Share	Alike	4.0	International	license.LSE Covid 19 Blog: COVID-19 may strengthen Central-Eastern Europe – will it embrace the EU or nationalism? Page 3 of 3		Date originally posted: 2020-06-15Permalink: https://blogs.lse.ac.uk/covid19/2020/06/15/covid-19-may-strengthen-central-eastern-europe-will-it-embrace-the-eu-or-nationalism/Blog homepage: https://blogs.lse.ac.uk/covid19/

COVID-19 may strengthen Central-Eastern Europe – will it embrace the EU or nationalism?

http://eprints.lse.ac.uk/105133/1/covid19_2020_06_15_covid_19_may_strengthen_central_eastern_europe.pdf

COVID-19 may strengthen Central-Eastern Europe – will it embrace the EU or nationalism?

Abstract

Similar works

Full text

Available Versions

LSE Research Online