The Economist USA - 26.10.2019

The EconomistOctober 26th 2019 47

1

F

ifteen yearsafter they joined the eu,

the four “Visegrad” states of central Eu-

rope (the v4)can be prouder of their eco-

nomic achievements than of their patchy

record on political reform. The Czech Re-

public, Hungary, Poland and Slovakia have

increased their levels of gdpper head dra-

matically, and are converging with their

mighty neighbour Germany. The Czechs

are the richest, with agdpper head that is

73% of Germany’s, followed by Slovakia

with 63% and Hungary and Poland with

around 57% each—and the gap continues

to close, as their growth outpaces that of

the behemoth (see chart on next page).

Four main external forces have driven

the remarkable successes of the four ex-

tremely open v4 economies. The first is

their access to generous subsidies from the

eu, which make up a sizeable chunk of

their respective national incomes. Second

is the munificent flow of remittances from

millions of expat v4citizens who now live

and work in the eu, especially in Germany,

Austria or Britain. A benevolent recent eco-

nomic environment has also helped, espe-

cially the success of the German economy,

by far their most important trading partner

and the biggest or second-biggest investor

in each country. And lastly, the four all

started from a low base, enabling them to

serve as cheap workshops for more devel-

oped economies. The danger is that all four

of these factors are now petering out.

A great boon of eumembership is the

v4’s access to substantial “cohesion”

funds, which are financing colossal up-

grades of public infrastructure in the re-

gion. Hungary in particular has loaded up

on eucash, pocketing €3bn ($3.3bn) a year,

some 2.5% of its gdp. The bonanza will not

last. The v4 stand to lose up to 25% of their

eufunds in the next seven-year budget

starting in 2021 (see Charlemagne). The un-

ion is peeved by the populist governments

in the region, and funds will be redirected

away from the comparatively booming

central Europeans. Moreover, the euis los-

ing one of its biggest net contributors be-

cause of Brexit.

The most popular destination of emi-

grants from Hungary, Poland and the Czech

Republic has generally been Germany in

recent years (for Slovaks, it is the Czech Re-

public). Eleven percent of Poles and 9% of

Czech citizens live abroad. But remittances

from the diaspora may now face decline.

Germany’s economic golden age seems to

be coming to an end amid uncertainty over

global trade. In the second quarter of this

year its economy contracted by 0.1%, and is

unlikely to have fared much better in the

third quarter. In August its central bank

warned that the German economy could

slip into recession (usually defined as two

consecutive quarters of negative growth).

Businesses are losing heart. The Munich-

based Ifo institute revealed that business

confidence fell during August to its lowest

level since November 2012.

Germany’s economic woes will hit the

v4countries directly too, and harder than

other eu countries. Slovakia and Hungary

are the most dependent on German trade,

and investment in their factories. A single

plant in the north-west Hungarian city of

Visegrad economies

Along the beautiful blue Danube

PRAGUE AND BUDAPEST

Central Europe has boomed; but as Germany weakens, will the four Visegrad

economies slow down too?

Europe

48 North Macedonia rejected

49 Dutch environmentalism

49 Digging up Franco

Also in this section

50 Charlemagne: Fighting over the bill