The key question for 2017 and 2018 is whether Germany will take upon itself the role of the main player – guarantor of safety and order in Central Europe. Economically, Germany has already been a decisive force in the region: it fostered its integration with the EU. Now, with an expected decline in U.S. interest in Central Europe coupled with Russia’s increased activity in the region, Germany’s role is more important than before. Berlin clearly understands its new challenges. Not by accident, German Chancellor Angela Merkel visited Warsaw shortly after the inauguration of the new U.S. president and met with Poland’s key decision makers. There is a widespread belief among experts in Warsaw, regardless of their political bent, that Germany will become a crucial ally.
Berlin appears willing to accept that democratic institutions in some countries are not top-notch, but it nonetheless wants to maintain strategic alliances in the region. If Germany moves to enhance European cooperation in key fields such as the single market, security or energy policy within the new, more flexible EU, then Central Europe as a whole will remain interested in participation.
In this scenario, Central Europe will naturally be drawn into the integration process and remain anchored in the EU’s institutional framework. If, however, Germany accepts that the eurozone is the main circle of integration in Europe, this scenario will be at risk. The EU would lose its present significance and members who have not adopted the common currency would drift away. It is not an exaggeration to say that Berlin’s policy decisions will play a huge role in Central Europe’s future.
Another set of critically important tests for the Central European countries will relate to internal issues – macroeconomic, political and institutional.
Strengths and weaknesses
Macroeconomic stability seems probable in the short term. Inflation, budget deficits and current accounts in most countries are under control. The region’s economies have rebalanced after the 2008 financial crisis and are not endangered by the turbulences that have depressed emerging markets like Brazil, Turkey and South Africa in recent years. It is difficult to find weaknesses in Central Europe’s macroeconomic landscape that could bring domestic shocks in the near term.
However, some trends under the surface warrant attention. The region faces increasing costs of its rapidly aging societies. Once the countries are cut off, even partially, from the EU’s financial largesse, the benign macroeconomic landscape of Central Europe may become more adverse. It is not a matter of the next 12-24 months, but it is worth observing how a weakening of institutional and ideological anchors impacts stability.
The fraying of the EU’s internal bonds is an important risk factor, because the union’s rules on fiscal and monetary policies create pressure on local decision makers to maintain stability. Also, a declining popular belief in liberal recipes for the economy leads to increasing acceptance for non-orthodox policies.
While not inherently wrong, the process opens the gates for more extreme forms of populism in the future. For example, the Polish government introduced a heavy tax on bank assets to fund its generous social programs, and now the Czech leaders are mulling the same option. This is not dangerous itself, but demonstrates that a shift in ideas can generate additional business uncertainty.
Risk of subversion
Political stability is an even more delicate issue. Only recently Western governments have begun to face the reality that concerted covert efforts to destabilize them may have been under way. If the apparent belief among the U.S. intelligence community that the Russians secretly interfered in the presidential elections is not mistaken or grossly overstated, then Central European countries also have a reason to be concerned.
These countries have scant resources to counter such subversion. Political inexperience, relatively weak institutions or lingering ethnic conflicts (for example between Hungary and Slovakia, or Poland and Ukraine) make the region fertile ground for foul play.
Historically, nationalist movements have been strong in this region of blurred ethnic borders, but after the countries’ successful transition from communism to democracy their role faded. Today, Central Europe’s nationalists have been gaining ground again (many groups with Russia’s support) and are starting to exert influence in mainstream politics. This constitutes an important risk factor for political stability.
Engagement and stability are the key words describing Central Europe’s challenges and the criteria to measure its progress. The coming year or two will show how these challenges are me
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2016. TOP — 15
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