Posted by: michaeldavidpower | October 10, 2009

Czeching out Central Europe’s Future

One of the first things you realize when comparing the countries of Central Europe is that generalizing about them is dangerous. That much is immediately obvious. But then, upon deeper reflection, you realize that the really dangerous thing to do is NOT to generalize about them!

Of course there is great variety in their current circumstances – the cautious Czechs are far better economically positioned than the have-a-go Hungarians; the former could likely have joined the Eurozone but haven’t (yet), the latter wish they could have already joined (like Slovakia) but haven’t been allowed to (yet).

But the central macro challenge they all will face from a fast changing world in the coming decade will be broadly the same: How can these passenger cars attached to the Euro locomotive avoid being disintermediated in the capital goods supply chain by lower cost Asians? Or to put it another way, how can Eastern Europe avoid befalling the same fate that is slowly strangling Mexico?

The landlocked trio of Hungary, the Czech Republic and Slovakia have small but well educated populations. They are sandwiched between a spluttering, demographically challenged locomotive to their west and a giant, unpredictable oil truck to their east. Because of their none-too-pleasant dealings with the latter in recent history, they were understandably always prime candidates for membership of the political club to the west – the EU, where all are now members – and its economic inner circle, the Eurozone – of which only Slovakia is thus far a member.

Practically speaking the EU and the Eurozone was and is the only destiny all three have, even if the likes of the Czechs are still umming and aaahing as to when they will choose to arrive in Frankfurt, the ‘home’ of the Eurozone. (The Hungarians will arrive as soon as they are allowed to!)

The really deep and scary question – which I have heard no one (dare?) ask – is this: “Is the whole concept of the EU (and so by extension the Eurozone) a concept whose best time is already behind it? Are the new arrivals being let in just as the party is dying down?” The really cynical are asking a refinement of the latter question: “Are the new arrivals being let in BECAUSE the party is dying down?”

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