A New Iron Curtain?
Did it ever vanish in the first place?
It’s perhaps more than a little ironic that exactly twenty years since the walls between east and west supposedly tumbled down that there are voices claiming that a new rift has developed within Europe. Among these voices is no other than Ferenc Gyurcsany, the Prime Minister of Hungary, who begged EU leaders at an emergency summit over the weekend not to let a new “financial Iron Curtain” divide the continent between rich and poor.
Gyurcsany was referring to the failure of EU leaders to support his plan for an economic bailout package for the former communist countries of Central and Eastern Europe. His plan called for an EU fund of almost 200 billion euro (approximately $240 billion USD) to help restore trust and solvency in the former East Bloc. Although the Prime Minister of Hungary made it sound as if he was trying to put forward a comprehensive plan for all countries within the region, the truth of the matter is that he was primarily looking out for Hungary’s own self-interest.
As with many companies throughout the word which have swallowed billions in government aid, namely banks and auto companies, the emergency funds Hungary already received from the IMF and the EU have likewise simply disappeared into a black hole. Rebuffed earlier in the week by the European Commission president Jose Manuel Barosso, Gyurcsany sought to once again secure some form of access to much needed capital through his dire warning that unless Western Europe comes to the aid of Eastern Europe, the region will be in danger of massive financial contractions. He also added that this, in turn, would trigger political unrest and a rise in populist sentiment coupled with xenophobia.
Apparently such forecasts of doom and gloom weren’t taken very seriously by the EU which decided against a financial bailout for the region as a whole. For Hungary this failure was reflected in the currency market the next day, which saw the forint weaken considerably against other currencies.
The main opposition to Hungary’s bid for help came from Germany and The Netherlands. Both were also against calls to ease strict rules where countries must stay within the ERM-2 exchange rate mechanism and tie their currencies to the single currency within a 15 percent plus or minus corridor for at least two years. Yet differences of opinion of how to tackle the financial crisis weren’t only apparent between east and west. Although the leaders of former East Bloc countries forged a common stand to pressure richer members in the 27-nation bloc to back up vague pledges of support with action, not all of them were in agreement of what should be done.
Hungary is obviously interested in a quick cash injection. Gyurcsany, who had amassed a personal fortune in the years following the regime change in 1989 through dubious circumstances and his connections to the former communist aristocracy, has shown himself to be totally incapable (some would even argue incompetent) of handling the present financial crisis. With an election looming early next year, he is obviously desperate for some form of help so as to stave a massive electoral defeat.
Opposition within the region against a Central and Eastern European economic aid package
Poland, on the other hand, which is currently in talks with the European Central Bank on entering ERM-2 sometime this summer, wants to ensure that its timetable for adopting the euro won’t be upset by the ongoing financial crisis. Yet the main opposition party in Poland, Law and Justice, and the Euro-skeptic President Lech Kaczynski, together with many leading economists throughout Europe, feel that the move is too risky in current economic conditions.
The Czech Republic and others, meanwhile, are more concerned with making sure that EU rules and regulations apply equally to all. In particular, they are worried about rising protectionism in the larger economies of the EU, most notably France and Germany. The 27 member state bloc has, in principle, rejected the notion of protectionism; even so it was the need to reassert this principle which prompted the current Czech presidency to call for the emergency summit in the first place.
To this extent, the Czechs and many others within the region rejected the Hungarian position for a Central and Eastern European economic aid package. Indeed, many feel that Gyurcsany’s idea actually jeopardizes the region’s stability and solidarity by taking others hostage in his desperate search of help. In other words, although the Hungarian Prime Minister warned against a new “economic iron curtain”, many within the region are of the view that he is the one who is actually promoting such a curtain by asking the EU to help all post-communist states.
The opposition to the Hungarian position is quite understandable. “The sober and vigilant will pay for those who failed to keep in control of their debts,” writes Lenka Zlamalova in the Czech daily Hospodarske noviny. She goes on to add that the EU should support those in real trouble, such as Latvia, but it should not support Budapest's idea of a fund to save the finances of all Central and Eastern Europe. “Hungary should be told that it would be a mistake to allow the EU's division, as it would bring about a decline of the solidarity of the strong with the weak,” asserts Zlamalova.
Although the Hungarian proposal and its rejection appeared to take center stage at the summit, there were plenty of other issues which put member states at odds with one another. Support for the auto industry was high on the agenda with some EU members, like Sweden, wanting to coordinate a Europe-wide bailout plan for car producers. Others, mostly from Central and Eastern Europe, are wary of such moves. In fact, the Czech Republic accused France of trying to protect its local car plants at the expense of foreign subsidiaries in Central and Eastern Europe.
Crisis of confidence in the EU
While it might appear that the conflicts within the Europe are foremost between east and west, it’s clear that the problems facing the EU are not so simple or straightforward. Ireland, Greece, Portugal and probably also Italy in the foreseeable future are all seriously threatened with state bankruptcies. Any bankruptcy would be a hard blow to the euro, therefore other euro zone countries, with Germany at the head, will not allow it in order to save the common currency. On the other hand, Germany has already rejected earlier calls to help bail out the economies of Ireland, Greece and Portugal. The problem is that there appears to be more and more countries in dire need of help, with fewer and fewer able to provide assistance.
Perhaps no country within the EU is more emblematic of the present financial crisis than Ireland. Since 1995, Ireland's economy had grown at an exceptional rate by the standards of other advanced economies. Thanks to high levels of foreign investment by multinational companies as well as pro-enterprise taxation, education and industrial relations, Ireland moved into the new millennium as a “Celtic Tiger” and one of the world's most competitive economies. In 2004, the country's GDP grew by 5.5%, the second highest rate among the OECD countries, compared to average growth in the euro area and the OECD area in 2004 of 1.8% and 3.4% respectively.
Since then, however, this once economic tiger of Europe has turned into nothing more than a tame and toothless tabby. There is even a joke now in Ireland that the only difference between them and Iceland is one letter and six months.
The fate of countries such as Ireland is quite ironic for many within Central and Eastern Europe. Prior to enlargement and shortly after, Ireland (and to a lesser extent Portugal) was held up as an example of a country which had profited enormously from EU membership. In Hungary people were persuaded to believe that their future would be as bright as the Irish and that good times were in store if the country joined the EU.
Indubitably few remember or even care to remember such glowing promises. For euro-skeptics, on the other hand, all this merely reinforces the sham of EU accession. With support for the EU is already weak in some countries such as Hungary, it can only be expected that the longer the financial crisis lasts the more skeptical people will become of the EU and its institutions.
This crisis of confidence in the EU is further compounded as member states grapple with the worsening recession. The credit crunch has left many EU countries looking more inward so as to protect jobs and companies. These inward-looking policies are now threatening to undermine the cornerstone on which the EU is founded. Paradoxically, as people the world over talk of a crisis of capitalism, the Czech Presidency is of the opinion that many of the problems the EU faces actually stem from an incomplete liberalization of the common market. This criticism is foremost aimed at Western European countries which had forced Eastern European countries to open their markets as a precondition for membership while they continued to keep their own closed.
Euro-skepticism is on the rise within the region
In many ways, some are questioning to what extent was the Iron Curtain really lifted after the regime changes of 1989. For more than a decade the countries of Central and Eastern Europe were kept waiting and fed promises of eventual membership. When patience within the former communist bloc began to wear thin accession suddenly appeared rushed as all ten applicant countries were let in as one group. Later applicants (Romania and Bulgaria) were then allowed to join only a few years later without having to go through the same lengthy procedure or rigor, and thus were not in the same state of preparedness as the other new member states were. This seeming double standard merely further raised questions as to the ways and means of the EU accession.
Even after EU accession many within the countries within Central and Eastern Europe felt as if they were being treated as second class citizens. The reluctance of Western European countries to allow citizens from the new member states to work in their countries is a case in point. Many within the former East Bloc began to feel as if they were mere colonies at the service of Western Europe, providing older member states with cheap labor and new markets close to home as well as a place where to dump their garbage – literally.
For this reason, it should come as no surprise that euro-skepticism is on the rise within the region, as evidenced by the fact that the presidents of both Poland and the Czech Republic are highly critical of the EU. In spite of all this, Central and Eastern European leaders at the summit over the weekend tried to put a brave face on it all. Some even claimed that the summit was a success, despite the region not getting much of what it wanted.
Without a doubt, the differences which have emerged cast a shadow on the emergency anti-crisis summit in Brussels and have sorely tested the solidarity among EU member states. Even so, as one observer from the Czech Republic noted, “the times when the EU discussed energy-saving bulbs and the length of working hours are gone. The EU's genuine role will surface only now.”