Crisis overshadows celebrations for EU newcomers

1st May 2009, Comments 0 comments

In the midst of the global crisis, "New Europe" is no longer as optimistic about its EU membership, even after five years of rising real estate prices and a massive capital and technology influx that grew salaries and brought unemployment dramatically down.

Budapest -- The 10 countries that joined the European Union on May 1, 2004 are struggling now to find reasons to celebrate the anniversary, following a global economic crisis that has put an abrupt end to their growth.

The Czech Republic, Hungary, Poland, Slovakia, Slovenia in central Europe, the Baltic states of Estonia, Latvia and Lithuania, and Cyprus and Malta in the Mediterranean all saw boom times until the economic crisis hit last year.

"New Europe" saw five years of rising real estate prices and a massive capital and technology influx which all brought unemployment dramatically down and salaries equally spectacularly higher.

The old Skodas, Trabants and Ladas that dominated roads in Eastern Europe have been replaced by smart western and Japanese saloons paid for by salaries that have grown by 35 percent in the Czech Republic and Hungary, 50 percent in Poland and doubled in Latvia and Lithuania.

With the help of EU funds, roads have also greatly improved.

The once high jobless rates in Eastern Europe fell at an impressive rate. In Poland the unemployment rate dropped from 19 percent to 9.5 percent, in Lithuania from 11.4 to 4.7 percent.

In the Czech Republic there was a more moderate cut from 10 percent to 7.7 percent) while Hungary, once the top student in the EU class due to the rapid transformation of its political and economic system, saw its jobless rate grow from 5.8 percent in 2004 to 8.0 percent in 2008 as successive governments failed to introduce necessary but unpopular austerity measures.

Due to their relatively small, open and vulnerable economies, dependent on western markets, the EU newcomers took the full blow of the global economic crisis. Their unemployment rates have risen again to almost six percent in Lithuania, to more than nine percent in Hungary and to 11 percent in Poland.

The boom years saw real estate markets in Hungary, Poland and the Baltic States boosted by the arrival of euro and Swiss francs financing.

But when that capital fled to find more secure investments in late 2008, currencies like the Polish zloty or Hungary's forint plunged by as much as 30 percent against the euro.

As a result, monthly repayments for credit card and housing loans taken out in foreign currencies now weigh heavily on household budgets.

The different pace of development between the newcomers is also evident in the speed at which countries adopted the euro.

Slovenia introduced the EU currency in 2007, followed by Cyprus and Malta in 2008 and Slovakia in 2009, but the others are lagging behind.

Poland, the next candidate, has a target date of 2012, while the Czech Republic and Hungary expect to join the euro in 2013 or 2014.

According to the International Monetary Fund (IMF), which with the EU and World Bank bailed out Hungary with a 20 billion euro (27 billion dollar) lifeline and is to help Poland with another 20 billion euros, Central and Eastern European countries will suffer a brutal reversal due to global recession.

The IMF forecast a 3.7-percent drop in gross domestic product (GDP) in the region for 2009, with a growth of just 0.8 percent in 2010.

After years of fast economic expansion -- by 5.4 percent of GDP in 2007 and 2.9 percent in 2008 -- the countries will now have to atone for their "overheated" economies and their "excessive dependence" on foreign credit, the IMF said.

The recession is set to hit the Baltic states the hardest, with a 10.6-percent contraction of GDP expected in 2009, followed by a 2.3-percent contraction in 2010.

In Central Europe, the economy is expected to contract by 1.3 percent in 2009, followed however by 0.9-percent growth in 2010, the IMF predicted.

Geza Molnar/AFP/Expatica

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