The findings, interpretations and conclusions are those of the authors and do not necessarily reflect the views of the European Investment Bank

You can download the essay here


The trajectories of the countries and regions of Central and Eastern Europe (CEE) during the last hundred years do prove that almost everything is possible. In this relatively short period these countries have regained independence, have suffered during World War Two, have gone through totalitarian and authoritarian communist regimes and lastly they have rejoined Europe, moving from the second to the “first periphery” of the developed world. Although at the start of their EU membership the “end of history” may have appeared as a plausible way to look to the future of CEE, recently unexpected phenomena have questioned these hopes and placed several new challenges before the new Member States.

©igorstevanovic/Shutterstock

After the initial period of institutional convergence, a few years ago a stream of right-wing populism movements emerged and spread in most of the CEE countries, and the European values of deliberative democracy and the rule of law have come to be replaced by growing centralisation.

Two of these challenges seem the most important: the political and the economic. After the initial period of institutional convergence, a few years ago a stream of right-wing populism movements emerged and spread in most of the CEE countries, and the European values of deliberative democracy and the rule of law have come to be replaced by growing centralisation, breaking constitutional orders and even introducing some manifestations of authoritarian rule. The migration crisis of 2015-2016 aggravated these processes, since all CEE countries disagreed with the EU’s stance on this issue. Thus, at this moment, the rationale of Eastern enlargement, although not yet questioned openly, has become a less obvious geopolitical decision than it appeared a decade ago.

The most recent coronavirus pandemic has posed additional, economic challenges. It has to be remembered that the economic success of CEE was, to a great extent, the result of the incorporation of these countries into global value chains and the relocation of many industries from the West to the East of Europe. Foreign direct investment (FDI) was the main channel for innovation and technology transfers to the CEE countries. Global recession caused by the pandemic has seriously jeopardised the supply networks, on which the economies of the CEE countries strongly depend. The broad tourist sector has become another field in which the CEE economies have suffered because of the pandemic.

MARCH 2020, THE 55TH KARLOVY VARY INTERNATIONAL FILM FESTIVAL, ONE OF THE OLDEST FILM FESTIVALS IN THE WORLD, WAS CANCELLED DUE TO THE CORONAVIRUS PANDEMIC. ©Gabriel Kuchta / Stringer/Getty Images

These two challenges have a clear regional manifestation. The political changes clearly negatively affect local and regional governments, which in some CEE countries have already acquired a strong position in the institutional order of public management. The economic crisis may affect the metropolitan cores of the CEE countries which since the post-socialist transition have become the main engines of transformation, attracting FDI into the modern value and knowledge-intensive services. The switch to teleworking and telecommuting may negatively influence metropolitan employment in CEE and leave many new offices idle, as well as hotels, apartments and tourist services in the largest cities of CEE. By the same token, weakening of industrial networks may jeopardise the development of several industrial regions in CEE which have gone through successful industrial restructuring, to a large extent due to the involvement of western European capital (now under protectionist pressure of several EU governments).

Should one be pessimistic? Probably not, since the CEE countries have proved – over the last century – that they are able to overcome even the most severe difficulties, and nowadays they may enjoy encouragement, shelter and assistance from the European Union, so widely appreciated by the societies of CEE, even if some political elites of these countries may sound Eurosceptical (but not when financial transfers are involved).

The post-socialist transformation of CEE can be considered to be as one of the greatest developments in modern history.

A bumpy transition

The post-socialist transformation of CEE can be considered to be one of the greatest developments in modern history. Unexpectedly, a group of countries emerged from an autocratic political system and centrally planned economy and within the space of a single generation was able to build pluralistic democracies and open market economies. Economic development proceeded quickly1.

Of course, this process was not smooth. Several obstacles, upheavals and tensions occurred during all stages of the transition, and particularly during the global financial crisis that began in 2008-2009. However, already at the beginning of the 2000s most of the CEE countries  were  able to meet the fundamental standards set by the European Union and started achieving clear convergence with the western European countries in both economic and institutional terms.

STATUE OF ROMAN EMPEROR ANTONINUS PIUS (86-161 AD), SAALBURG, FRANKFURT, GERMANY ©Ralph Haeussler/Shutterstock
>@Gorzelak, Smetkowski
Fig.1. Dynamic of GDP growth, 1989=100, constant prices. *Estimate. Various sources, prepared jointly with M. Smętkowski. ©Gorzelak, Smetkowski

The issue of convergence is2 especially important since the CEE countries have for centuries been less developed than their western counterparts. This was due to long historical processes (what F. Braudel called the longue durée3) whose foundations were laid by the Roman Empire (many of the present CEE countries were located beyond its boundaries, i.e. beyond the limes). This situation was further reinforced by the division of Europe into its more developed western part which, from the 16th century onwards, moved from agriculture to industry and from feudalism to capitalism, and its eastern part, which remained feudal for a long time (until the 19th century), and whose economy was based on agriculture. More recently, the East-West division of Europe by the Iron Curtain after the Second World War aggravated the backwardness of Central and Eastern Europe4. The last 30 years have not closed this structural gap, but have reduced it to a large extent. To use Wallerstein’s5 terminology, Central and Eastern Europe has begun its journey from the second to the first periphery of Europe, bringing most of its regions closer to the centres of capital, technology and democracy.

HARVEST, VLADIMIR DONATOVIC ORLOVSKIJ (1842 - 1914) © DEA / A. DAGLI ORTI/Getty Images

The Central and Eastern European countries are internally differentiated, and the national processes assumed varied forms and shapes in their particular territorial entities. Also, a number of the challenges the CEE countries faced have a clear regional dimension.

The CEE countries have benefited from the EU Cohesion Policy and Common Agricultural Policy, two major priorities of the European Union. The current political climates in certain CEE countries may pose some of the most difficult challenges for the future of European integration and continued cohesion with the West.

The Central and Eastern European regions after socialism

The CEE countries entered the challenging phase of transformation (the majority in 1990, although the Baltic Republics reached this point slightly later with the collapse of the Soviet Union) with strongly polarised regional structures and deep spatial inequalities, a number of over-industrialised cities, underdeveloped infrastructure, a polluted environment and limited private ownership of agricultural land. All of them had to struggle with a deep recession that consumed as much as 20 % of their GDP (see Figure 1). The collapse of several industrial plants – mostly caused by their lack of competitiveness in a new, open economy – radical changes in the agricultural ownership structure, and unprecedented unemployment with growing niches of poverty, shaped the socio-economic reality of these countries at the beginning of the post-socialist transition.

IN 1989 TWO MILLION PEOPLE JOINED HANDS TO FORM A HUMAN CHAIN ACROSS THE THREE BALTIC STATES. ©aquatarkus/Shutterstock

The CEE countries entered the challenging phase of transformation with strongly polarised regional structures and deep spatial inequalities, some over-industrialised cities, underdeveloped infrastructure, polluted environment, limited private ownership of agricultural land.

During the first phase of the post-socialist transformation, the regional patterns showed a strong differentiation. Few types of regional reactions to transformation can be identified.

 

 

Regional reaction to transformation

positive

negative

 

 

 

 

Position of the regions

in the socialist economy

 

 

 

strong

LEADERS

positive continuity

Capital and large cities

 

Diversified economy, skilled labour, good infrastructure and rich institutions

LOSERS

negative discontinuity

Industrial regions

 

Specialised industry, derelict land, biased qualifications

 

weak

WINNERS

positive discontinuity

Tourist & re-industrialised regions

 

External demand for their potentials

LAGGARDS

negative continuity

Rural, peripheral

 

Poorly accessible, obsolete structures, low qualifications, outmigration

Table 1. Regional reactions to the post-socialist transformation. Source: Gorzelak G., “Regional development in Central and Eastern Europe”, in: Blokker P. and Dalago B. (eds.): Regional Diversity and Local Development in New Member States, New York, Palgrave Macmillan, 2009.

  • The leadersthe metropolitan regions. In the socialist economy heavily industrialised, large cities were the strongest nodes of the territorial systems of Central and Eastern Europe. After the fall of the Soviet Union, those regions went through the process of restructuring, the main phenomenon of which was deindustrialisation. However, due to their diversified socio-economic structures and good connectivity, they were able to offer the best location conditions for the most dynamic sectors – internationally connected knowledge-intensive services (financial, managerial, tourist, scientific, etc.), high-quality commerce – the so-called metropolitan functions6. Moreover, their suburban rings have been growing even faster due to the rapid and, in most cases, uncontrolled suburbanisation of the residential areas of the middle and upper classes. All capital cities of the CEE countries and large (over half a million inhabitants) cities in Poland are examples of regional leaders.
  • The losers were the old industrial regions, which had played an important role in the socialist economy, attracting migrants from the countryside and offering relatively highly paid jobs. However, their economies were not diversified, living conditions were relatively poor due to delayed urbanisation (or under-urbanisation, as I. Szelenyi labelled it7, the qualifications of the labour force were relatively low and narrowly specialised, and the natural environment deteriorated over time. As a result, their restructuring was long and painful, and some of these industrial cities and regions have only recently been able to re-enter on a new line and develop modern industrial sectors and certain metropolitan functions. The coal and steel region of Upper Silesia, the cities with shipyards along the Baltic Sea, the textile industry regions like Łódź and its surroundings in Poland, the region of Maribor in Slovenia are some examples of industrial regions that had to go through difficult restructuring, in several cases with high social costs.
PRAGUE IS AN EXAMPLE OF A REGIONAL LEADER ©Pauline Lewis/Getty Images
  • The winners tourist and re-industralised regions. These were several regions that had possessed potentials which were overlooked in the socialist, industrial pattern of development, but which were given an opportunity to respond to emerging demand in the open, competitive economy, e.g. the tourist regions. A number of other regions in which re-industrialisation occurred (often due to foreign investment that brought new technologies, new products and opened new markets) have also been doing rather well. Special Economic Zones, located in previously problematic areas, spurred economic revival. The Rzeszów region in south-east Poland is an excellent example of a region whose industry was reborn after receiving foreign investment, mostly in the high-tech sector; the Budapest-Gyor road corridor, extending to Vienna, became a business cluster after the borders were opened; north-west Romanian regions also accelerated their growth due to their location (shorter distance to the core of Europe) and tourist potential.
  • In most countries, the laggards were the eastern regions. This structural underdevelopment has to be attributed to the processes of Braudelian longue durée, since the late medieval modernisation divided  the CEE countries along the line Gdańsk – Vistula river – Pest – Pécs – Ragusa (nowadays Dubrovnik) line: technological (mostly agricultural) and institutional innovations (from towns under Magdeburg and Lübeck laws, cloisters and universities) spreading from Western Europe to the East lost their momentum at that point, thus causing most of the eastern regions to lag behind their western counterparts. Also, several border regions, located on the eastern edge of EU-15, such as the Sudeten region of Czechia, near the German border, or the northern regions of Bulgaria along the border with Romania, as well as the southern Bulgarian regions bordering Greece, have stagnated. In the Baltic States the regions bordering Belarus and Russia have also suffered most (the capital city region of Vilnius is an exception). These areas are less developed and lack major urban centres, as well as major modern transport infrastructure. The majority of these regions are losing population due to outmigration to larger cities and abroad. Most of them are not attractive for foreign capital, and domestic capital is scarce.
OLD COAL POWER PLANT IN CHORZOW, IN UPPER SILESIA. THE HISTORICAL REGION OF UPPER SILESIA IS LOCATED MOSTLY IN POLAND, WITH SMALL PARTS IN THE CZECH REPUBLIC. © picture alliance/Getty Images

Early 1990s: first democratic elections

The institutional reforms, aiming at building the democratic system, also embraced territorial public management and politics. The restoration of local and regional government8 was an important part of building democratic institutions. This was an intellectual and political revolution, as well as a change in the mechanisms of economic development.

In all countries at the beginning of democratisation the regional authorities were weak, and full reforms of regional governments were not undertaken at that time. The regions were not strong enough partners for national governments.

The very first fully democratic election in CEE took place in Poland on 27 May 1990 – and this was the local election. A few months later, democratic elections for the restored local governments were also held in Czechia, Hungary and Slovakia, soon to be followed by other CEE countries. Several reforms followed in these countries, and supra-local tiers were established in several countries. At present, the territorial structures of the CEE countries are composed of three tiers of territorial public administration (Poland), two tiers (Croatia, Czechia, Hungary, Romania and Slovakia) or just one tier in the case of the smaller Baltic States of Lithuania, Latvia and Estonia.

However, in all countries at the beginning of democratisation the regional authorities were weak, and the full reform of regional (supra-local) governments was not undertaken at that time. The regions were not strong enough partners for national governments.

THOUSAND OF POLES GATHERED TO HEAR LECH WALESA’S SPEECH IN THE RUN-UP TO THE POLISH PRESIDENTIAL ELECTIONS IN 1990. ©Bernard Bisson/Getty Images

After the collapse of the centralised system, a comprehensive regional policy was not formulated in any of the CEE countries and the regional aspects of social or economic policies were almost non-existent9. In fact, the governments of all these countries left "regional problems" to so-called market forces, allowing the new economic patterns in their countries to be reshaped by sectoral processes. Employment/unemployment policies became the main field of government interventions, which have had some spatial/regional dimensions in terms of the application of certain economic instruments (investment incentives, extended unemployment benefits, etc.) in regions affected by exceptionally high unemployment10. Regional policies slowly developed, and accession to the EU forced the preparation of national development strategies and their spatial/regional components. Also, the regions of the CEE countries were obliged to draw up their own strategic documents.

KOPER HARBOUR, SLOVENIA. ©Madrugada Verde/Shutterstock

Slovenia and Czechia are currently the most developed countries and at the same time the least regionally differentiated. Bulgaria and Romania are the least developed countries, and their internal differentiation is greater.

In general, the regional typology described above (leaders, losers, winners, laggards) has persisted for the entire post-1990 period. The regional values of GDP per capita (PPP) reflect these processes (Figures 2 and 3).

Slovenia and Czechia are currently the most developed countries and at the same time the least regionally differentiated11. Bulgaria and Romania are the least developed countries, and their internal differentiation is greater (Figures 4 and 5).

>@Gorzelak G. and Smętkowski M
©Gorzelak G. and Smętkowski M
BULGARIA’S PRODUCTION OF ROSE OIL AMOUNTS TO 45% OF THE WORLD’S PRODUCTION. © NurPhoto/Getty Images

All NUTS3 regions in Eastern Europe11 with big cities present higher GDP values per inhabitant. According to the ranking based on business connections12, Warsaw is included among the Alpha cities, Prague and Budapest are in the group Alpha minus, Bucharest in Beta plus, Sofia and Zagreb in Beta, Bratislava in Beta minus, Riga in Gamma +, Ljubljana, Tallinn and Vilnius in Gamma. These cities are visible on the maps of global business, which allows them to develop their modern economies based on knowledge-intensive services. Conversely, several eastern, peripheral regions – such as the south-eastern region of Latvia, and eastern regions of Poland, Hungary, Slovakia, Czechia, Hungary and Romania – still have the lowest GDP values per person. This is largely because the industry there is mostly agricultural. But it is also caused by poor accessibility, the relatively low level of skills and qualifications, and outmigration. These areas are of little interest to foreign investors. All these factors have led to their economic stagnation.

Generally speaking, since the 1990s regional divergence has clearly been the predominant trend in the CEE macroregion, caused both by metropolisation and by stagnation in the weakest, peripheral regions – the factors most responsible for this process. However, in the aftermath of the financial crisis of 2008-2010, some signs of reversal of this pattern could be observed (Figure 4). In most of the CEE countries – excluding Romania and Bulgaria – the regional differentiation of GDP per inhabitant unexpectedly came to a halt, and in some CEE countries even reversed.

THE SKYTOWER IS THE TALLEST OFFICE BUILDING IN BUCHAREST AND IN ALL OF ROMANIA. ©Cristina Jurca/Shutterstock

There are a few hypotheses explaining this fact. In between the extremes of ‘"leaders’ and ‘laggards", which remain in the highest and the lowest positions on the GDP per person rankings, considerable changes took place among the group of regions whose rates of development depended on the progress of restructuring processes and diversification of local economic structures. Firstly, several industrial regions (but rarely those dominated by traditional industries) have undergone successful restructuring, thus moving up in the regional GDP per person rankings (e.g. the above-mentioned Rzeszów region, but also the Debrecen and Miskolc regions, and a number of Slovak regions). Secondly, most of the "winners" that used to be relatively less developed, developed fast, and advanced in these rankings. Thirdly, the initially spatially limited diffusion of growth from the metropolitan cores has begun to reach greater distances. Additionally, outmigration from the less developed, peripheral eastern regions has led to the simple statistical effect of increased GDP values per person there. Finally, the impact of EU policies (Cohesion Policy and Common Agricultural Policy) can perhaps be observed, since per capita outlays of Cohesion Policy are greater in the less developed regions of the CEE countries, and Common Agricultural Policy spending in absolute terms obviously favours less developed territories in which agriculture plays a relatively more important role than in urbanised areas, thus assisting these regions in their economic development.

>@Gorzelak G. and Smętkowski M
©Gorzelak G. and Smętkowski M

A clear convergence of GDP per inhabitant between the set of NUTS314 regions of Central and Eastern Europe can be observed (Figure 5). This is the combined result of convergence between the Central and Eastern European countries, and regional convergence within them.

>@Gorzelak G., Smętkowski M., 2020, op. cit.
©Gorzelak G., Smętkowski M., 2020, op. cit.

Until 2010-2012, the convergence effect observed for all regions of CEE was mainly due to convergence between countries that had been regionally diverging, and since the between-country convergence was stronger than within-country regional divergence, the overall result was general regional convergence. However, later convergence occurred at both these levels (this has also been demonstrated by the ex post evaluation of the Cohesion Policy 2007-2013)13. This process possibly confirms the so-called Williamson’s hypothesis14, according to which the relationship between levels of development of a given country and its internal territorial differentiation assumes the shape of an inverted U: in the first stages of development the differences grow, but after reaching a certain level they begin to decline15. This may mean that the CEE countries have reached "maturity" in terms of level and regional structure of development.

©hobbit/Shutterstock

The CEE countries are losing their population, and this loss is greatest in the least-developed regions.

Challenges: innovation, demographic growth and climate change

There are several challenges facing the CEE countries and their regions, in particular the ability of their economies to compete on the global markets. As analyses show16, relatively poor technological advancement is their common deficiency. Progress in this field has mainly been achieved by importing technologies from the West, while the domestic potential for creating and diffusing innovation is still weak and is concentrated in the biggest cities of CEE. Peripheral regions suffer from very weak innovation potential and the efforts made so far cannot be considered satisfactory.

However, there are also challenges specific to particular regions of CEE. The demographic one seems to be most important. The CEE countries are losing their population, and this loss is greatest in the least-developed regions (the "laggards") already mentioned several times.

These losses are mainly due to two factors: outmigration and a low fertility rate, the latter being to a large extent the outcome of the former. The fertility rate (number of children born per woman) should be not lower than 2.1 if the population – caeteris paribus – is to grow. The low fertility rate of 1.25 (the value for the whole CEE) would have been higher if there had not been a tendency to postpone the birth of the first child from the age of around 23 to around 28 over the last 30 years. In the peripheral regions the relatively higher birth rate is overshadowed by extensive outmigration, and these regions are in a relatively worse demographic situation than the urban ones enjoying the inflow of a relatively younger population, which further reduces the chances of development of the less developed regions.

>@Fihel A. and Okólski M
©Fihel A. and Okólski M

The environmental situation in the CEE countries is also a concern. In spite of considerable progress in energy production and consumption, as well as in environmental protection, in several regions and localities of CEE the air quality is very poor (Figures 8 and 9). Dependence on individual heating systems running on poor quality coal is still a problem in several countries (mostly Poland, a country reluctant to switch to other sources of energy), resulting in heavily polluted air during the heating season.

>@Air quality in Europe
©Air quality in Europe

General dependence on coal, the most severe pollutant, is still high in some CEE countries: in Poland slightly less than 80 %, in Bulgaria and Czechia around 40-50 %. In the Baltic States, however, coal dependency is equal to zero in Lithuania and Latvia, and close to zero in Estonia. In most CEE countries coal dependency is decreasing.

In 2020, Poland was the only country that did not support the 2019 EU goal of making the European Union climate neutral by 2050. Moving to a green economy mostly depending on renewable energy will require time, effort and investment in the majority of the CEE countries. It can be expected, however, that efforts will be made to secure cleaner sources of energy, and technological progress in producing and using energy (for example by replacing old stoves in private houses by modern ones, and shifting to gas and renewable energy) will continue to support these positive changes.

© Erfan Farshchi/Getty Images

In January 2020 the European Commission announced the establishment of a Just Transition Mechanism, part of the Green Deal and the Sustainable Europe Investment Plan. As declared by the Commission, the Just Transition Mechanism will provide tailored financial (at least €100 billion) and practical support for the necessary investments in regions most affected by the transition.17

The transition towards a more sustainable economic model is not impossible. Some regions and cities, like Katowice in Silesia, have already gone through a process of renewal and regeneration. The city centre of Katowice, once an industrial town, has been completely revamped in the last ten years and now hosts the Museum of Silesia, the Polish National Radio Symphony Orchestra and the Congress Centre. Investments in cultural upgrading and urban development have had a positive impact on the local economy and on the city itself, which is now considered to be an emerging metropolis18. In the Czech Karlove Vary region, cooperation between the spa resort and industrial tourism has been established. The Hungarian VisitFactories initiative aims to develop post-industrial cities, and several initiatives in Romania demonstrate how industrial sites can take on a new role as assets promoting material culture19.

SOLAR FARM, KAUNAS, LITHUANIA ©Getty Images

Cohesion policy in CEE: role and achievements

From the very beginning of modern regional policies, most of their patterns were subject to the principle of "equity", and very few followed "efficiency" goals. Moreover, the regional policy of the European Union has tended to prioritise equalising the level of regional development rather than stimulating the growth of particular Member States or the EU as a whole, although in recent periods new goals, such as promoting competitiveness and the efficiency of invested resources, have supplemented the "traditional" equalisation approach.

©symbiot/Shutterstock

The accession of the CEE countries to the European Union brought a new dimension to their regional development and regional policies.

The accession of the CEE countries to the European Union (EstoniaLatviaLithuaniaCzech RepublicSlovakiaPolandHungary, and Slovenia in 2004; Romania and Bulgaria in 2007; and Croatia in 2013) brought a new dimension to their regional development and regional policies. These policies became almost totally subordinated, in both financial and substantive terms, to the Cohesion Policy, of which the New Member States (NMS) became the largest beneficiaries. However, in spite of the dominant general principle of this policy, according to which the least-developed regions should receive the most funds, the proportions of allocations were, to a large extent, similar to the population proportions in these areas – the deviations were rare and small and tended to favour remote, less-developed regions20. Thus, the aim of diminishing interregional disparities with the help of Structural and Cohesion Funds was not always achieved because the absorption capacity of relatively less-developed regions was smaller than that of urban centres. During the first phase of membership, absorption was considered to be the main focus of the managing authorities in dealing with the inflow of funds from the European Union, but later the rationale of spending – i.e. the efficient use of resources according to their purpose – gained in importance.

The dependency of public investment on Cohesion support has been high – in some periods it reached as much as 90% (in Portugal and Greece) – and in several NMS is was maintained at a level of between 30 (Slovenia) and 60 (Croatia) % of total public investment.

Accession to the European Union has brought obvious benefits to both the economic and institutional structures of the CEE countries21. Their overall economic growth has, without doubt, accelerated and helped to achieve convergence with the western European countries. However, this could have been primarily the effect of injecting additional resources into the economies of these countries (the so-called demand effect). The durable economic effects relying on a steady increase in the overall economic efficiency of their economies (i.e. the "supply effect") are still to be proven. Nevertheless, the civilisational effects – i.e. improvements in infrastructure, quality of environment and other dimensions of quality of life – are evident, and this applies to the vast majority (if not all) of the towns and villages in the New Member States.

Membership of the European Union has also had an impact on a few systemic features that shape the regional policies of the CEE countries. The clearly positive aspects are:

  • increased importance of strategic thinking at all territorial levels: national, regional and local – a necessary development for implementing the "‘programming" principle of the Cohesion Policy;
  • introduction of evaluation as a routine activity in programming, implementing and assessing the effects of the projects co-financed by the EU, and constant progress in building an "evaluation culture" that is also spreading to other public policies, not necessarily connected to the EU programmes;
  • widespread introduction of transparent tendering rules and compliance with competition principles has reduced (but not totally eradicated) the extent of corruption in the public sector;
  • strengthening the capabilities of territorial administrations, which enabled decentralisation reforms to be undertaken in the New Member States;
  • spreading knowledge of Cohesion Policy principles, regulations and requirements, with respect not only to procedures, but also to the goals and limitations of regional policies.
THE “STATUE OF LIBERTY” OUTSIDE THE PARLIAMENT BUILDING IN BRATISLAVA ©Ventura/Shutterstock

However, some negative effects have also occurred:

  •  subordination of national preferences to the requirements of the European institutions, in terms of both the priorities selected for intervention and the resources assigned in the form of national funds supplementing the EU funds in order to satisfy the "additionality" principle, i.e. securing (public and private) funding that is additional to the funds assigned by the EU;
  • fixation on "absorption" and ‘regularity’ as the main criteria for assessing the quality of implementation of the projects co-financed by the EU:  most progress in capacity-building has been made in terms of strengthening the ability to strictly obey formal procedural or operational compliance with EU regulations and requirements, especially regarding financial management and control, sometimes at the expense of the rationale and purpose of spending the EU funds22.

Research has indicated23 that the institutional reforms have not yet been fully completed and that the CEE countries still lag behind Western Europe with respect to the level of governance. Recent recentralisation processes, seen mostly in Hungary and Poland, but also visible in Czechia and Slovakia, may challenge the efficiency of preparing and implementing innovative strategies for regional development. In a centralised institutional setting it would be difficult (if not impossible) to (re)build regional and local government structures as credible, capable entities able to prepare and implement strategies tailored to the needs and potentials of the respective regions.

Regional development: what’s next?

The future of regional development and regional policies in the CEE countries is still uncertain. The peak of funding through the EU Cohesion Policy has come to an end for most CEE Member States, and it appears that the European Union is determined to prioritise other spending goals (such as innovation development, tackling climate change, coping with migration pressures, strengthening  integration within the eurozone) through the EU budget, over those which used to be the most important for the New Member States (support for the less-developed regions, building basic infrastructure, improving the environment). This is due to the reforms of the Cohesion Policy, which have dominated the national regional policies of the New Member States, and to a large extent have shaped the processes of regional and local development.

VANSU BRIDGE, RIGA. THE CAPITAL OF LATVIA CAN RELY ON MODERN TRANSPORT INFRASTRUCTURE AND GENERATES MORE THAN 50% OF THE COUNTRY’S GDP. ©Petr Kovalenkov/Shutterstock

The recent discussions seemed to indicate that the traditional support for less-developed regions may be curbed, and that the shares of the total Cohesion Policy budget dedicated to innovation, research and development, small and medium-sized enterprises, competitiveness, climate action, development of sustainable sources of energy and social inclusion and poverty relief measures may be significantly increased. Also cuts in the CAP may be harmful to the less-developed regions, in which agriculture plays a relatively important role. This may place the strongest urban centres of the CEE countries, which are best prepared for developing knowledge-intensive services, even in an even more favourable position, and thus reverse the new trend of regional equalisation. Also, this evolution of EU priorities may pose a difficult task for some of the CEE countries that have not yet been able to develop a sound and solid R&D base and strong capabilities for creating their own innovations, and thus would not be able to attract a large share of funds towards these targets.

Dependence of the least-developed CEE regions on transfers from the European Union (in some less-developed regions as much as over 10% of their yearly GDP) for financing most of their infrastructure may jeopardise the resilience of these regions to the forthcoming reduction of these transfers, and to the demographic crisis which several of these regions are facing. If these regions are to continue their economic growth, the national governments will have to rethink the regional allocations of funds coming from the EU.

JULY 2020, VILNIUS BUSINESS CENTRE DURING THE PANDEMIC. THE CAPITAL OF LITHUANIA IS A TOP DESTINATION FOR FINANCIAL TECHNOLOGIES. ©Tomas Jakubauskas/Shutterstock

The above remarks were made before the recent coronavirus epidemic. The shape of the global economy, and of the situation of the EU as a whole as well as of its Member States cannot be foreseen yet: all scenarios are still possible. No matter which materialises, EU policies will have to be fundamentally reshaped and adapted to the new, perhaps even dramatic challenges and pressing needs of the societies and economies of the EU. In any case, it cannot be expected that the needs and interests of the CEE countries will be prioritised in the same way as during the first period of their membership. Therefore, the reservations formulated concerning the future situation of the countries within the EU should, perhaps, even be strengthened. 

End of history?

In 2004-2007, after the accession of CEE countries to the EU, a conviction of "end of history" emerged. Many people in these countries believed that the path to a mature democracy and efficient market economy was straight and that the New Member States would proceed along this path without major upheavals. This attitude was first undermined by the financial crisis of 2008-2010, which reduced economic output in some CEE countries by as much as 20 %. Then came the migration crisis of 2015-2016, which was used by populist politicians to challenge the principles of European solidarity, and in some countries (especially Hungary and Poland) subsequently served to support the trends of weakening the rule of law and the foundations of deliberative, liberal democracy.

GELLÉRT BATHS, BUDAPEST, HUNGARY ©Konoplytska/Shutterstock

There may be several explanations for these developments. Some relate to global trends and suggest that globalisation has led to feelings of uncertainty, and that simple explanations delivered by populist politicians are more plausible than sophisticated analyses. According to this line of reasoning, the CEE countries are following these global trends, and the weaknesses of their relatively new institutions of democracy mean that they are unable to defend themselves against the pressures of populism. Other explanations24 indicate that the CEE societies have become tired of imitating the West, or that they have begun to doubt that western values are appropriate for Central and Eastern European societies. Although this may not reach the extent of rejecting those values, the CEE societies may have come to the conclusion that they will never meet western standards and are starting to defend themselves by challenging these standards. Frustration and feelings of exploitation and humiliation may create the foundations for approval of authoritarian rule and for agreement to breaching the rules of democracy. Also, resentments could have been triggered by the partial abandonment by political elites of the notion of a "nation" and ‘nation state’, which would be replaced by regionalism and Europeanism25. It should be observed that during the coronavirus crisis the role of the EU is being challenged by some authoritarian regimes of CEE, and claims of reinforcing the nation states are being openly expressed.

Finally, support for populist attitudes may stem from the feelings of rejection and being forgotten that affect the relatively less educated strata of the economically active population, which have become unneeded as a result of the relocation of factories to countries with lower labour costs and also the cutting of jobs due to automation and robotisation26.

The recent trends of territorial convergence, observed in most of the CEE countries may indicate that the ‘forgotten places’ had hoped to find their opportunities.

To some extent this last explanation is – at least partially – proved by regional research.  According to some analysts, the rise of populism is "the revenge of places that don’t matter"27 or a response to "regional resentment"28. Support for right-wing populism is strongest in regions which have undergone deep economic restructuring and also in those which have been left aside by positive trends of transformation. In western Europe it is the urban centres that demonstrate these attitudes to the largest extent. However, in CEE most of the big cities appeared to be the beneficiaries of transformation, and these flourishing cities resist the trends of destroying democracy and introducing a kind of autocratic rule. However, there is another kind of "places that don’t matter"– the peripheral, least-developed regions (the "laggards"), where these tendencies do find the strongest support.

Can regional policy respond to such challenges? The recent trends of territorial convergence, observed in most of the CEE countries may indicate that the "forgotten places" had hoped to find their opportunities. However, as already mentioned earlier, the expected changes in EU policies (also strongly influenced in the future by the recent coronavirus epidemic) may work in the opposite direction. Additionally, connecting the magnitude of support directed to the New Member States with the latter’s fulfilment of the standards of the rule of law and liberal democracy may also lead to cuts in assistance to some countries in Central and Eastern Europe (in spite of the fact that these issues have been suspended for a while in the face of the epidemic), thus limiting the possibilities of accelerating the development of their least-developed, peripheral regions.

Notes

  1. Convergence happens when the differences between countries or regions decrease, and divergence denotes the opposite process. See https://en.wikipedia.org/wiki/Convergence_(economics).
  2. Braudel F., A History of Civilizations, London, Penguin Books, 1993.
  3. More on historical divisions of CEE in Gorzelak G. and Jałowiecki B., “European Boundaries: Unity or Division of the Continent?”, Regional Studies Vol. 36.4, 2002, pp. 409-419.
  4. Wallerstein I. M., The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century, New York, Academic Press, 1974.
  5.  https://www.lboro.ac.uk/gawc/rb/rb248.html
  6. Szelenyi I., “Urban Development and Regional Management in Eastern Europe”, Theory and Society Vol. 10, No. 2 (March 1981), pp. 169-205
  7. Swianiewicz P., Local Government: Progress in Decentralisation, in: Gorzelak G. (ed.), Social and Economic… op.cit., pp. 54-74.
  8. Gorzelak G., Jałowiecki B., Kukliński A. and Zienkowski L., Eastern and Central Europe 2000 - Final Report. Luxembourg: European Commission, 1994.
  9. Gorzelak G., “Regional Policies in East-Central Europe”, in Fischer M. and Nijkamp P. (eds.) Handbook of Regional Science, 2nd edition, Springer-Verlag Berlin Heidelberg, 2020.
  10. Statistical measures of differentiation depend strongly on delimitation of the territorial units and on measures of differentiation. In general, the more the units, the greater the statistical differences. Also, the existence of city-regions increases the values of differentiation statistics.
  11. The NUTS classification (nomenclature of territorial units for statistics) is a hierarchical system for dividing up the economic territory of the EU. Source: Eurostat: https://ec.europa.eu/eurostat/web/nuts/background
  12. https://www.lboro.ac.uk/gawc/world2018t.html
  13. Applica, Ismeri Europa, Ex post evaluation of Cohesion Policy programmes 2007-2013, focusing on the European Regional Development Fund (ERDF) and the Cohesion Fund (CF). Synthesis report, Brussels, DG Regio, 2016.
  14. Williamson J.G., “Regional inequalities and the process of national development”, Economic Development and Cultural Change, 13: 3-45, 1965.
  15. Capello R., Regional economics, London and New York, Routledge, 2007.
  16. Radosevic R., Yoruk D.E. and Yoruk E.,Technology upgrading and growth in Central and Eastern Europe”, in: G. Gorzelak (ed.), Social and Economic… op.cit. , pp. 178-204.
  17. https://ec.europa.eu/commission/presscorner/detail/en/fs_20_39
  18. Source: EIB, https://www.eib.org/en/press/all/2011-094-poland-eib-supports-redevelopment-of-katowice-city-centre.htm
  19. https://doi.org/10.1016/j.sbspro.2014.01.1320
  20. Applica, Ismeri Europa & WIIW,  Ex Post Evaluation of Cohesion Policy Programmes 2000–2006 Co-Financed by ERDF – Financial Implementation of Structural Funds. Brussels, DG Regio, 2009.
  21. Major infrastructure projects co-financed under the Cohesion Policy in the period 2007-2020 are displayed on a map under the address https://ec.europa.eu/regional_policy/mapapps/major_projects/mpall.html.
  22. Bachtler J., Mendez C. and Wishlade F.,  EU Cohesion Policy and European Integration: The Dynamics of EU Budget and Regional Policy Reform, Ashgate,  Aldershot, 2013.
  23. Bachtler J. and Ferry M., “Cohesion Policy in Central and Eastern Europe. Is it fit for purpose?”. In: Gorzelak G. (ed.), Social and Economic Development… op.cit., pp. 313-344.
  24. Krastev I. and Holmes S., “Explaining Eastern Europe: Imitation and Its Discontents”, Journal of Democracy, July 2018.
  25. Fukuyama F., Identity: The Demand for Dignity and the Politics of Resentment, Farrar, Straus and Giroux, New York, 2018.
  26. Fukuyama F., op.cit.
  27. Rodrígues-Pose A., “The revenge of the places that don’t matter (and what to do about it)”, Cambridge Journal of Regions, Economy and Society, 11(1), pp189-209, 2018.
  28. Spicer J., “Electoral Systems, Regional Resentment and the Surprising Success of Anglo-American Populism”, Cambridge Journal of Regions, Economy and Society, 11(1), pp15-41, 2018.