The Economist USA - 26.10.2019

48 Europe The EconomistOctober 26th 2019

2 Gyor belonging to Audi, a German carmak-

er, accounts for 9% of Hungarian exports.

Alarm bells started ringing when Handels-

blatt, a German daily, reported recently that

two other big carmakers, bmwand Daim-

ler, are putting investments in Hungary on

ice.bmw has since confirmed that it re-

mains committed to building a new factory

in Debrecen, in eastern Hungary, but Daim-

ler has postponed plans to expand its com-

pact-car plant in Kecskemet in the centre of

the country. Exports of goods and services

amount to 97% of Slovakia’s gdp, 86% of

that of Hungary, 78% of the Czech Repub-

lic’s and 55% of Poland’s. A good chunk of

all these goes to Germany.

Finally, the catch-up effect may also be

withering. Poor countries tend to grow

faster than rich ones, largely because imi-

tation is easier than invention. Yet once

they reach a certain stage of economic de-

velopment, they tend to get stuck—in the

notorious “middle-income trap”. This may

become the fate of some of the v4econo-

mies. They sorely lack innovative compa-

nies; Hungary and Poland in particular

spend only 1% of their gdp on research and

development, much less than the eu aver-

age. Richard Grieveson at the Vienna Insti-

tute for International Economic Studies

(wiiw) is pessimistic about all of the v4

economies’ ability to escape the middle-in-

come trap. It is, admittedly, hard to do. Ac-

cording to the World Bank, among 101 mid-

dle-income economies in 1960 only 13 had

become high-income ones by 2008.

But perhaps the biggest catch-up-relat-

ed headache for thev4 economies is labour

shortages. These have a positive effect as

they are driving up wages, which in turn

raises consumption; but they may also lead

foreign investors to outsource to other

countries where labour remains cheap. In

January the 13,000 workers at Audi’s Gyor

plant received an 18% pay rise, thought to

be the highest raise ever negotiated by

Hungarian unions. Most countries in the

region will reach a tipping-point at which

the lack of workers will start to limit eco-

nomic growth within the next five years,

according to a recent study by thewiiw. It

could happen within the next two years in

Poland and the Czech Republic. Some in-

dustries, such as construction, might have

already reached it.

Visegrad policymakers have come up

with several policies to address the labour

shortage. One is to increase fertility rates

with financial incentives, a policy pursued

at great cost but with little effect in Poland

and Hungary. Another is to make it easier

for women to participate in the workforce,

by offering them free or highly subsidised

child care. Poland and Slovakia are trying

that one, though with only limited success.

Immigration would be the quickest way of

easing the problem; but the nativist gov-

ernments that run thev4countries are

wary of that. Indeed, Poland’s Ukrainian

workers, who find it hard to get citizenship,

are increasingly turning their eyes to Ger-

many, which is more welcoming. For the

v4,the next 15 years could be a lot tougher

than the last 15. 7

A bit of a drag

Source: Haver Analytics

GDP, % change on previous quarter

2016 17 18 19

-1.0

-0.5

0

0.5

1.0

1.5

2.0

2.5

Czech Republic

Hungary

Poland

Slovakia

Germany

N

ot even the bleariest-eyed of early-

morning travellers can fail to notice

the memorial at Sarajevo airport. It recalls

eight French soldiers who died during the

Bosnian war. When the war ended, in 1995,

the American-designed peace deal was

signed in Paris. Ever since then, European

policy has been clear: to avoid the mistakes

of the past, the western Balkan states must

be anchored in the eu. But at a summit on

October 18th, to the horror of Balkan lead-

ers and most of his eucolleagues, Emman-

uel Macron, France’s president, seemed to

kick the legs out from under that policy.

Mr Macron argued that the eu’s enlarge-

ment strategy was “bizarre”, and that the eu

needed reform before enlargement. France

blocked the opening of accession negotia-

tions for North Macedonia; along with

Denmark and the Netherlands, it did so for

Albania, too. Overshadowed by Brexit, the

veto was barely reported in France, but it

sent shock-waves through the Balkans. Ser-

bia and Montenegro are already negotiat-

ing membership, and Kosovo and Bosnia

would like to start as well. Although Mr

Macron says that euenlargement is not

dead, he is unclear about what should hap-

pen next.

Mr Macron is surely right that the eu’s

enlargement policy needs reform, but for

now it ensures that the six aspirants plod

along, slowly adopting eu-compliant legis-

lation. It could easily be a decade before

any of them is ready to join, and the process

gives the eu leverage. An eu-mandated

mission is overseeing the vetting of Alba-

nia’s judiciary for corruption, for instance.

In May policemen from eucountries de-

ployed to Albania to help stem the flow of

migrants north from Greece. North Mac-

edonia has done even more. For years its

progress towards membership was

blocked by a dispute over its name with

Greece. This year it changed it. “We pushed

them to do it and then we showed them the

finger,” says one diplomat reflecting wide-

spread anger among France’s partners.

The consequences of the change in poli-

cy have already been nasty. North Macedo-

nia’s government collapsed following the

veto. An election could see the return of na-

tionalists who opposed the deal with

Greece over the new name; the new prime

minister of Greece never liked it.

Is Mr Macron a Balkan-blocker because

he does not want to give ammunition to

France’s anti-immigrant and anti-Muslim

far right? Probably not, says Loïc Trégourès,

a Balkan specialist at Lille’s Catholic Uni-

versity. France has no special political in-

terest in the region, he says, but it has be-

come collateral damage in Mr Macron’s

disputes with Angela Merkel, the German

chancellor, who has rebuffed his ideas of

eureform. “If Germany wants its sphere of

influence,” Mr Trégourès says, “they must

give something back.”

As the eu retreats, others advance.

North Macedonia, Serbia and Albania

pledged on October 10th to work towards a

free-movement zone. On October 25th Ser-

bia is expected to sign a free-trade agree-

ment with the Russia-dominated Eurasian

Economic Union. Russia is giving arms to

Serbia. China and Turkey are expanding

their influence. Blocking the Balkans is “a

grave historic mistake,” said Jean-Claude

Juncker, the European Commission presi-

dent. “If we want to be respected, we have

to keep our promises.” 7

SARAJEVO

At French insistence, the North

Macedonians are left out in the cold

North Macedonia

A kick in the teeth

SERBIA

NORTH

MACEDONIA

BOSNIA

ALBANIA

GREECE

KOSOVO

MONTE-

NEGRO

HUNGARY

ROMANIA

AUSTRIA

ITALY

SLOVENIA

CROATIA

Ad

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Se

a

Skopje

Belgrade

Podgorica

Sarajevo

Pristina

Tirana

BU

LG

AR

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EU members

Potential

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Candidates:

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