Bridging The Divide of East and West Europe – Government Essay
The intention of this presentation is to highlight the rise of East and Central European economies in the last 15 years, analyse the causes and to see if their growth is sustainable. The countries the have come the longest
way to “close the gap” are the eight new members of the
European Union (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) and Croatia. They have an advantage over the rest of the Balkan states and the Ex-Soviet states as they are more open to foreign trade, have a supply of educated manpower and huge capital inflow of foreign direct investments (FDI). For this region the numbers of FDI is measured to $37 billion USD, which is making them second after China. Low wages and attractive corporate tax structure is a catalyst for this. What is important to mention here is that this high growth rate is witnessed mostly in the private sector. The public sector is still suffering from the rigid way of thinking from the communist time.
For the new EU members the partnership has proved to be more beneficial than harmful. It has promoted international trade by making cross-border transactions much easier within the region. This trade is important to stimulate growth. They have become more visible to the outside world and investor confidence has improved consider. The national financial institutions (National Bank, government administration) have also been strengthened and helped to make capitalism work. Now it is more difficult for cartels to thrive and corrupt officials to go unpunished.
But not everything is as rosy as it looks. These economies still have a shortage of valuable management skills and the countries meet new boundaries in form of EU trade laws, tariffs and a new type of bureaucracy. Infrastructure also has to be improved to gain further development. The countries have also a great challenge to reform and improve their national health and education system.
The Ex Soviet states are also growing fast. This is partially explained by the rise in commodity and energy prices, but also that poorer countries tend to grow faster during the initial phase. However they are still a long way behind their central European counterparts. Their main problem is probably the lack of jobs. It is showed best by comparing the number of persons working in agriculture. When for instance Czech Republic went from 10% to 5% since 1990, Kirgizistan experienced an increase from 35% to 55%.
To conclude it is our opinion that while the Central European and the Baltics are on a good way to catch up with the rest of Europe, the path ahead for the Balkans and the Ex-Soviet states will be more of a struggle.
1. “East, west and the gap between”, The Economist, Nov 24, 2005.
2. Business Week, December 12/19, 2005
3. Mankiw N.G., (2004), Principles of Economics, Thomson South-Western, USA.