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Central and Eastern European Economies

David Chelly

ESC DijonAmerican students

February-May 2005

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Aims of the course

• This course provides students with an introduction to Eastern European economic and social systems

• This course may interest young graduates, as Central and Eastern European countries offer excellent job opportunities for western European and US students in management.

• Students are introduced to specialized research sources, which may be useful to them in their careers

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Your instructor

• David CHELLY• Ph.D in Management Sciences, post-

graduate diploma in Finance, degrees in Money and Banking, Law, Accounting and Sociology.

• Head of a consultancy firm and a website (http://www.centreurope.org) specialized in business with Central & Eastern Europe

• Former expatriate in Prague and Sofia, professor of management in various business and engineering schools

contacts@centreurope.org

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The course’s outline• 1. (2nd of February). Central and Eastern Europe

basics– A Brief History of the region, current social and

economic realities, the gap between Central and Eastern Europe

• 2. (9th of February). From the socialist economic model to the transition process– The failure of the socialist economic and political

system; The setting of a new institutional framework

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The course’s outline (continuation)

• 3. (23rd of February) An Economic overview

– Comparison of macroeconomic indicators and underlying socio-economic variables

• 4. (2nd of March) Restructuring and current situation of financial and production systems

– Privatisation of banks and companies, the new financing systems, evolution of industrial structures and specialisation

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The course’s outline (continuation)

• 5. (9th of March) The shift of the Central and Eastern European economies towards less industry and more services– Central European industries in the new international

division of labour, new competitive advantages and declining sectors

• 6. (16th of March) Nature and extent of Foreign Direct Investments – The main reasons for investments in the past ten

years, the role of FDI vs. local businesses, the different ways of FDI, management issues

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The course’s outline (continuation)

• 7. (23rd of March) The evolution of social structures: winners and losers – Labour and labour markets, unemployment, income and income

inequalities, impact on growth regimes, regional discrepancies• 8. (6th of April) Country focus: doing business in Moldova • 9. (6th of April) Country focus: doing business in the Czech Republic• 10. (30th of March) Team work (see next slide)• 11. (13rd of April) The enlargement challenge

– The enlargement round, impact of enlargement on Central European economies, the euro in Central Europe.

– The new shape of the European continent, its future and its relationships to the United States.

– Oral presentations

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Methodology

• REQUIRED WORK AND FORM OF ASSESSMENT– Preparatory works: short assignments dealing with

Eastern Europe leading to individual presentations (20 % - Lecture 10)

– Team works during classes: cases, text analysis and comments (10 % - Lecture 10)

– Final examination: questions and case (30 %).– Final assignment: 5-page document on a topic of your

choice (40 %). 11th of June, 2005.• The documents of this course will be fully available

through the internet, in English and in French, at the web address http://www.centreurope.org

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Oral presentation (the slides)

• 1. Powerpoint slides with pictures, photographs, maps, sound

• 2. Slides not too dense and well presented (spelling, ergonomy, punctuation…)

• 3. Sobriety (e.g. absence of !!!)• 4. Synthetic and relevant information

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Oral presentation (the presentation)

• 5. Quality of the expression• 6. Coordination between the members of the group • 7. Capacity to capture the attention of the class• 8. Technicity, use of specific sentences • 9. The speakers must not read their notes• 10. Prohibit laughing, puns, remarks without link to the

subject • 11. Respect of the assigned timing • 12. Respect of the deadlines

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Oral presentation (the content)

• 13. Effectiveness of the introduction• 14. Quality of the outline and of the transitions • 15. Quality and exhaustiveness of the presentation • 16. Quantified and recent information, indication of the

sources • 17. Use of examples: company practices, quotes…• 18. Objectivity of the presentation• 19. Prohibit developments not related to the topic and

obvious information• 20. Indication of references and complementary sources

of information

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I. Central and Eastern European basics

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How can we describe Central and Eastern European countries?

• Discovering Latvia

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Economic structures as a product of History

• History is essential to understand the functioning of the firms. – Philippe D'Iribarne, who wrote « The Logic of Honor :

National Traditions and Corporate Management », shows that the way of working and the corporate processes in a given country originate in a main historical event.

– According to him, management practices in the United States reflect a particular way of living in society, inherited from the contractual relationships of the religious merchants of 1620.

– France is marked by the logic of Honor, inherited from the pre 1789 times, where people used to fight duels in order to defend their honor. This tradition of social inequality is according to D’Iribarne the reason why French companies are still so segmented and why hierarchy is so present.

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A rich and ancient history

• It is not because we (French people) don’t know Central and Eastern Europe history that these countries do not have any history.

• Almost all CEE countries have played a major role in Europe in their history

• But they have early fallen under the domination of different empires, which have shaped their future

Charles the IVth (1346-1378), King of Rome and Empereur of the Holy German Empire

Cyrille and Méthode, inventors of the Cyrillic alphabet

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The empires and their influences

• Long dominated by the Habsburg Empire, the history of Central Europe has been marked by education, art and modernism. – While in 1789 in France only a third of the citizens

were able to speak and read French (the rest spoke local dialects), education in German had been compulsory for a century in the whole Kingdom

• Eastern European countries used to live under the Ottoman and the Russian Empires rule, which prevented their economic development.

Vlad Tepes (1428-1476), a Romanian figure of the struggle against the Ottoman Empire.

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A rich Central Europe

• Central Europe is mainly composed of reformed Catholics, close to the Protestants in terms of seriousness and rigor.

• Central Europe comprises the former Eastern block countries that previously belonged to the Habsburg and Prussian Empires, but also Germany, Switzerland and Austria

According to M. Kundera’s « The Stolen West or the Tragedy of

Central Europe (1983) » , Central European countries culturally belong to Western Europe.

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A less developed Eastern Europe

• Eastern European countries are mainly economically under-developed. – None of them have

successfully managed their economic transition to capitalism.

• The religions are orthodox and Muslim.

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Exercise : Central and Eastern European countries on the map

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Central and Eastern

Europe map

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Preparation for lecture 2

• Browse the key economic indicators for Central and Eastern Europe in Centreurope.org

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II. The transformation process

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Exercise : sub-groups in Central and Eastern Europe

• You are a consultant with the French Center for External Trade (CFCE). Your task is to promote business relationships with Central and Eastern European countries.

• Up to now, the CFCE had grouped the countries of this region in a category called « Pays de l’Est » (« Eastern countries »).

• Until 1991, the region used to comprise eight countries: Albania, Yugoslavia, Bulgaria, Romania, Hungary, Czechoslovakia, Poland, and USSR. But now they count up to more than twenty.

• Your mission is to split them in different subgroups, that should be geographically close and economically homogeneous. Explain your decisions.

• The countries are : Albania Armenia Azerbaijan Byelorussia Bosnia-Herzegovina Bulgaria Croatia Estonia Georgia Hungary Latvia Lithuania Macedonia Moldova Poland Czech Republic Romania Russia Serbia-Montenegro Slovakia Slovenia Ukraine

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• Europe has given birth both to: – capitalism: the Industrial Revolution started at

the end of the XVIIIth century in Great-Britain and spread in Central Europe and partly in Eastern Europe

– communism: the spirit came from philosophers such as the Swiss J-J. Rousseau and politicians like the Prussian K. Marx.

• According to some historians, Russians used the communist ideology as a pretext to perpetuate their tradition of imperialism.

The influences of capitalism and communism for Central and

Eastern European economies

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The communist era

After World War II, a Soviet-style Communist regime was imposed to Central and Eastern European countries.

Central planning biased the structure of employment by placing a disproportionate emphasis on industry, to the detriment of the services sector.

Like dominos, several revolutions brought about the downfall of the Communist regime, and reintroduced people’s rights.

Like Albania and Yugoslovia, Romania had its own communist regime, independent from Moscow.

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The communist heritage

• Central and Eastern European countries have lived forty (seventy) years of communism, which still influence local behaviors and habits.

The communist heritage:

Corrupted civil servants, unreliable

businessmen, opportunist politicians…

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Young democracies• Central and Eastern democracies are ten year old or less• Except in Czechoslovakia with the Velvet Revolution, the

communist rule has violently been rejected in 1989 such as in Romania where thousands of people died in a civil war and Dictator N. Ceaucescu and some members of his family were executed the day of Christmas 1989.

But the political risk is limited to only a few countries in the CIS and in the Balkans

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• Demagogues may be elected on the basis of their unrealistic pledges and political scandals concern all parties and all countries. – As an example, Polish President Kwasniewski, who was

elected boasting a diploma he had never obtained, has recently appeared in a commercial for Polish agricultural machines…because this company employed two of his relatives.

• The leading coalitions are not able to keep the power due to a too large number of political parties. – In Central and Eastern Europe, people tend not to vote for

opinions but for the defense of certain categories of people: a Czech pensioner will tend to vote for the Party of the Pensioners, a Polish farmer for the Party of the farmers, a Hungarian in Slovakia for the Parties of Hungarians in Slovakia, etc.

A lack of political maturity

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• In Central and Eastern Europe, the new legal framework is very similar to those of Western Europe.– As an example, the Czech accounting law is almost a copy of

the French one. – Central and Eastern European countries have done so

because they sought to enter the European Union

• But in practise, the legal environment is a “jungle”. Laws are: – Incomplete (lack of case law, decrees…);– Volatile and contradictory;– Not enough enforced

An inefficient legal framework

On the main square in Sofia, one can buy the most recent and expensive software CDs for a few dollars.

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Preparation for lecture 3

• Browse the key economic indicators for Russia, Estonia and Romania in Centreurope.org

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Questions & Answers

• What is the main strong point and drawback of the Romanian, Russian and Estonian economies?

• Is unemployment a crucial figure to analyze?• Who performs the best for public and commercial

deficits and why?• Why public and commercial deficits should be

avoided ?

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III. An economic overview

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An generalized improvement of the economic performances

• After a deep collapse of their GDP, Central European countries have been achieving steady economic GDP growths, followed by most Eastern European countries

• With the example of up to 1000 % inflation in one month in Bulgaria in February 1997, hyper-inflation has severely affected some CEE countries, namely Poland, the Baltic countries and Russia. – This issue is today under control,

and figures are even close to Western standards in Central Europe.

Compared European GDP Growth (2000-2004)

-2

0

2

4

6

8

10

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2000 2001 2002 2003 2004

Romania

Germany

Poland

France

Ireland

Russia

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Consumption as the most important economic indicator

• Demography is essential to understand consumption patterns, as old people do not consume the same products and services as young people.

• The rate of equipment helps us understand which goods are not possessed by households and thus may be purchased. – In Central and Eastern Europe, people will turn to semi-

durable goods, as they are still under-equipped.

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How GDP helps us understand consumption patterns

• The long or medium term GDP Growth is as important as the ratio GDP/head to understand commercial opportunities. – In countries where GDP Growth is steady, such as

Poland, people tend to buy durable goods (houses, cars: the Polish automotive market is the 7th in Europe).

– In countries where GDP growth is relatively good, the domestic consumption will support semi-durable goods (ex. hi-fi), such as in Hungary.

– And when GDP Growth is uncertain, like in Russia, people prefer non durable goods (food, luxury products, etc.), even though their purchasing power would enable them to buy durable goods.

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• Commercial deficits are found in most CEE countries. – The values of the currencies tend to decline, which

impoverish these countries and put them under the threat of speculators

– Local consumers and companies ask for foreign goods and services, while the Eastern European quality does not export well.

– The commercial deficits tend however to narrow, thanks to the export successes of multinationals subsidiaries such as Skoda (Volkswagen Group), Philips, Matsushita, etc.

The challenges of competitiveness

Georges Soros: a real philanthropist ?

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Unemployment and public deficits: two persistent weaknesses

• Impossible during the Communist times, unemployment has risen above average European standards in all countries that have started to restructure their local companies.

• Owing to weak fiscal revenues and uncontrolled expenses, public debts have dangerously grown– The consequence is high interest rates, which

prevent all economic development.

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The European Monetary Union (EMU)

• The EMU belongs to the EMS. It has been implemented in three steps, including the creation of a European Central Bank, the convergence of European countries economic policies and the launch of the single currency, in early 2002.

• 12 countries out of 25 (the « ins ») belong to the EMU. • The Entry process for the « outs » requires

achieving a certain degree of economic convergence, called the Maastricht Treaty convergence criteria:

- limits on the public deficit and debt have been set respectively at 3% and 60% of the GDP;

- inflation and interest rates must be kept under control (respectively not more than +1.5 % and +2 % of the average of the three lowest scores in Europe.

- exchange rates must be stabilized.

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Preparation for lecture 4

• Browse the main facts and figures for Russia, Poland, Ukraine and Romania in Centreurope.org

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IV. Restructuring and current situation of financial and

production systems

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The impact of privatizations in Central and Eastern Europe

• Privatisations of banks and companies are well advanced

• But the industrial restructuring is still unsufficient

• The companies suffer from overemployment, obsolete equipment, processes and management models, and they are not quality-driven.

• The companies lack efficient shareholders pushing towards performance

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(Eastern) European firms compared with the firms of the other Triad powers

• Compared with Japanese management:– European management is more individualistic and

centered around private needs, rather than on the country needs

– Private companies clearly differ from public-owned companies and trade unions defend individual interests

• Compared with American firms :– European firms are more conservative and less structured– The decisions made by managers are less profit-oriented,

because their strategies focus on the long-term.– State intervention and corporate democracy are widely

tolerated, whereas competition and its cruelty are not well accepted.

– Pay incentives are limited. Mobility occurs inside the company rather than outside.

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The German model as the natural reference for Eastern Europe

• The Rhenan model of corporate strategy has long been a reference, owing to the strong position of Germany in Eastern Europe.

• The particularities of this model are that:– Companies must serve the society, the main goal of the

companies is not necessarily profit– The consensus is sought at the micro level, with employers,

trade unions, creditors and employees working hands in hands, and at the macro level, because frontal competition is avoided.

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A marked preference for the Anglo-Saxon model of corporate strategy

• In the Anglo-Saxon model of corporate strategy, the State intervention is seen as negative and the companies are controlled by shareholders who are only interested in short-term profit and dividends.

• The Anglo-saxon model spreads rapidly all over Eastern Europe:– Central and Eastern European countries value this model,

because the USA is seen as the world reference for business and trade.

– The multinationals adopt similar management practices throughout the world

– The ERP (Enterprise Resource Planning) software, such as SAP or Peoplesoft, tend to impose a global way of management for the world, with minor adaptations for each country

– The consultancy firms, such as the Big 5, focus on the best practices, which mostly come from Anglo-Saxon countries

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Industrial relations• There are several unions traditions in Europe. The

European Trade Union Confederation hosts members from almost all European countries, but trade unions have never managed to create efficient Paneuropean organizations.

• In Central and Eastern Europe, Trade Union memberships are quite high (over 30 %).– But except in a few countries like Poland, Trade Unions have

virtually no power over the management of the companies.– Their action is limited to improving the work conditions and to

the organization of social event

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V. The shift of the Central and Eastern European economies

towards less industry and more services

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• What made Republica acquire its leading position in Eastern Europe?

• What are the reasons of the decline of Republica ? Which reasons are specific to this company and which are common to post-communist companies?

• What future can we predict for Republica?

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The good potential of the agriculture sector has been destroyed by the communist choices and a inefficient privatization process.Central European traditional industrial sectors (textile, iron steel industry, mining, defence...) are not anymore competitive in the new international division of labour.

Central European Countries such as Poland or Slovakia must focus on hi-added values industries because they become too expensive compared to their Ukrainian or Belarussian neighbors.

– But these countries have maintained a few industrial competitive advantage (automotive industry, chemistry, electronics, IT...).

The decline of the agriculture and the industry

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• All services sectors perform great: distribution, tourism, financial services...

• The parallel economy is also very much developped

Thriving services

GDP Growth in Central and Eastern Europe is mainly driven by foreign investment and consumption of foreign goods

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• The distribution is little concentrated in Central and Eastern Europe (Tesco is n°1 in Slovakia with about 2 % market share).

• There are two types of hypermarkets: – the French hypermarkets (Carrefour,

Leclerc, Auchan…) situated in the outskirts and aiming at generating traffic with good quality and branded products,

– the German hypermarkets (Metro, Lidl, Meinl…), situated in town centers and aiming at generating flow with cheap products.

A buoyant distribution sector

Each unveiling of an hypermarket is celebrated by hours of queues of avid consumers.

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The transportation and logistics market

• The Central and Eastern European Freight Transport Sector is leaded by the road haulage.

• Major Industrial Sectors: Automotive, fast moving consumer goods (FMCG) / Retail, Healthcare / Pharmaceutical, High Tech Electronics Almost all main transport players in market come from Western Europe and the US.

• The local know-how, plants and equipments have not yet catched up with European standards

• Road Networks, Customs Issues, Security Issues need to be improved.

• Transportation and logistic costs are almost as high as in Western Europe.

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Opportunities for US firms in offering logistic services

• The distribution sector is very much atomized. • Logistics and transportation is a priority for the EU.• Thanks to a strategic location and a buoyant

economy, the logistics and transportation sector of most Central and Eastern European countries is growing rapidly

• Local companies urgently need assistance from the West with a comprehensive updating of equipments/technologies and restructuring their organization.

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VI. Nature and extent of Foreign Direct Investments

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Why invest in Central and Eastern Europe ?

• Foreign direct investments in all sectors and from all countries are welcomed and little restricted.

• Central and Eastern European countries benefits from a cheap and qualified workforce and an advantage of territorial location– Investment incentives are offered for Manufacturing investors.– It is a mistake to think that delocalizing in a low labor cost country

increase competitiveness. The wages are a consequence of the competitiveness, not a cause.

– For example, assembling cars in Poland should be very competitive with a skilled labor force and an average salary of USD 500, but in practice, local companies suffer from low motivation, bad organization, bureaucracy, insufficient national infrastructures, etc.

– The main reason for FDI is good access to domestic and foreign markets, which are growing and unsaturated

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Unsaturated markets• Local consumers ask for western products.

– They are fascinated by the consumption society and relatively under-equipped. – Each unveiling of an hypermarket is celebrated by hours of queues of avid consumers.

• Local companies urgently need comprehensive updating of equipments/technologies and restructuring their organization.

– The local supply is unable to provide these services. – Local public authorities lack of everything

Services of public utility (environment, education, culture…) constitute a huge market, often financed by the EU.

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Where and how to invest ?Where and how to invest ?• A few Central European countries attract the

majority of FDI – Hungary, Poland and the Czech Republic

have received the biggest shares, but now good opportunities can also be found in Eastern Europe

– In Eastern Europe, some large companies are scheduled for privatisation, but the best deals have long been done

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Greenfield investments

• The most profitable way of investment is the Greenfield investment (starting up from scratch)

• Greenfield investments are the least risky, because the foreign investor is not constrained by the communist heritage and low productivity of the local firms

• Greenfield investments require arranging administrative problems. – When Auchan wanted to invest in Prague, they bought from the Town hall fields that

eventually did not belong to the Town. Auchan offered bribery in order to solve the problem, which cause a national scandal and the abandonment of the project and the dismissal of dozens of people.

• A new labor force is needed, which is not always available, especially in low-populated areas

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The direct international cooperation

• Well developed in Europe, the direct international cooperation offers an alternative between simple export and delocalisations.

• In most cases, franchises and licensing agreements offer a win-win situation

• International joint ventures, which are an association between a local company and one or several foreign investors offer less opportunities– A JV should be recommended for each unknown market,

but in practice, the results are rarely positive due to cultural of financial disagreements.

– In some countries such as Russia, it is the only authorized way to invest in some sectors, because local governments want to access foreign technology without losing the control of their wealth.

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... Foreign direct investment as an easier access to foreign markets

• FDI provide easier and more efficient access to the markets and avoid customs barriers. – When Asian or American companies want to access the

European market, they can create a subsidiary, which can constitute a bridge for other markets : Prague or Warsaw for the CIS, etc.

– One of the reasons for FDI rather than for export is to deal with marketing, distribution, after sale service, etc. which are easier on the spot (ex. The French optical group Essilor has a strong implantation worldwide).

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Foreign direct investment as a way to avoid Western legislation

• Some investments are offered for free to client with low financial means: the provider gets paid by asking fees on revenues. – It sometimes happens for investments that permit to avoid

Western environmental legislations. For example, the serious pollution of the Danube River in Romania in 2000 by a subsidiary of an Australian gold mining company was caused by the use of cyanure, which is totally prohibited in developed countries.

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HRM strategies

• Two HRM strategies coexist in Central and Eastern Europe:– A culture-free model based on the global best

practices • Corporate cultures must be stronger than

national cultures.– A cross-cultural management model based on

contingent strategies• Different environments, cultures and attitudes

towards work lead to different practices : corporate communication, pay systems, HRM…

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A qualified workforce…• The workforce is

– Qualified, especially in technical fields– relatively cheap, especially in Eastern

Europe– respectful for hierarchy and rules and

able to stand hard working conditions• So how can we explain such low salaries?

In spite of a high qualification in technical fields such as computer science, Bulgaria’s wages are about 10 times less than in Western Europe

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… but a low labor productivity– The main characteristic in Central and Eastern Europe is the

dependency from a central structure of authority. • In practice, the management is hierarchical. This system is not

competitive and human resources little productive compared to European standards.

– Commitment (especially towards foreign investors), sense of initiative, mutual trust between workers, customer satisfaction, ability to communicate and ethics at work are low

• « pretend to pay us and we will pretend to work »• « the one who does not steal, steals his family » (Czech

proverbs)• But workers tend to behave in a more productive way

in Eastern Europe than in Central Europe.

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How to recruit/sack people?

• Young graduates are targeted by companies• Outsourcing recruitment is not as common as in Western

Europe• Assessment centers, psychological tests and even cv’s

are not as widespread as in western Europe• Sacking employees is easy, as labour laws and trade

unions have little influence ; But it is risky especially for seniors.

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How to motivate? How much to pay?

– Money is generally the best incentive to motivate people

– Young graduates receive higher salaries than their older colleagues with a long experience

– Bonuses are not much widespread nor much effective– Cellular phones, company car and other non-

monetary allowances have more impact than salary increases

– Honors and titles are appreciated

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What is the importance of training?

– Central and Eastern European human resources are eager to learn

– Training is not perceived by employers as a strategic investment, especially for « soft » skills

– Money spent on vocational training is very low

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VIII. The evolution of social structures: winners and losers

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Democracy is relatively well spreaded in Central and Eastern Europe

• Parliamentary regimes dominate in Central and Eastern Europe, but some countries do not have a parliamentary but a presidential regime, such as Serbia and Montenegro.

• Some States are not unitary but federal. In Eastern Europe (Czechoslovakia, USSR, Yugoslavia) they have exploded and those who remain (Russia, Serbia and Montenegro, Bosnia and Herzegovina...) are politically unstable.

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• In Central and Eastern Europe, the social role of the State is decreasing.

• Most institutions (The Police, Universities, Hospitals…) in Central and Eastern Europe are in crisis

• Central and Eastern Europe faces a serious demographic problem.

• While generations are renewed with an average of 2,1 children by woman, the average is 1,3 for Eastern Europe countries with a world record for the Czech Republic and Latvia.

• This has direct effects on the domestic demand and on the national competitiveness

• Central and Eastern European states suffer from bureaucracy and corruption

• Income inequalities and regional discrepancies are widening

The Welfare state model is in crisis

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Unequalities for the local population

• Central European countries’ GDP / head is about half of the average of the EU’s one, and Eastern European countries’ GDP/head about a fifth.– The average revenue or GDP / head is not significant

in Central and Eastern Europe, where revenues inequalities are high. Those countries are marked by a combination of few very rich people and many poor people, without a real medium class

• The poor European regions are helped by the European Union, but there are still huge differences, even between rich countries– See human development index

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• Regions have always played in Europe but their importance tends to increase with the globalization.– Their development is financially supported by the European

Union because of the principle of subsidiarity (each decision should be taken at the most local spot) and because regional identities are « allies » of the European Union against strong national identities..

Multiple regionalisms

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• Borders in central and Eastern Europe have more been designed according to the side chosen by the countries during the World Wars rather than by the human realities of the period (see map)– For example, Hungary, who was the ally of the Germans,

saw at the dislocation of the Austro-Hungarian Empire its size reduced by three and its population by two.

– As a consequence neighboring countries such as Romania and Slovakia respectively host 1,5 million and 500 000 Hungarians, that is to about 10 % of their total population.

– The regionalisms are also encountered in Romania, Poland or Ukraine with a strong east/west opposition.

Multiple regionalisms

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Job market and educative systems in Central and Eastern Europe

• The educative system is a key issue for the productivity of human resources– Baltic countries specialize in the the Hi-tec industry because

more than one third of their University graduates are specialized in this field.

– But in most Central and Eastern European countries, the educative system is in crisis

• In Eastern Europe, the fluidity of the job market is high thanks to an unconstraining labor law, but there is a high level of unemployment– People are highly attached to their town or region– Some people are officially unemployed in order to receive the

dole– The brain drain is strong in countries such as Bulgaria or Serbia

and Montenegro, where a doctor or a University professor earns about 100 USD per month.

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Other factors of competitiveness

• The tax level, costs of the workforce and of other factors and attitudes towards work, are highly varying across the region.

• Some Central and Eastern European countries rank high in the competitiveness rankings (IMD, WEF)

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VIII. The enlargement challenge

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• There is a common ground for the European identity, which is opposed to the two other poles of the Triad (USA and South-East Asia)– The heritage of the Greco-Roman Empire. The Greeks

gave the name Europe to the continent, its first civilization and its rational spirit (the logos)

– The Renaissance. This period has mainly affected the southern catholic part of Europe, where still today the look may be more important than the essence.

– The social romanticism. The ideal of social justice, defended by V. Hugo and other romantic figures, continues to dominate the philosophy of a large part of Europe

The European identity

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Different aspirations for Europe

• Germany and the Netherlands propose a form of federalism while Brits and Scandinavians reject the idea of a Super State and will only accept an unconstrained union.

• The EU is the only supra-national structure of the world, which means that the European law is superior than national laws. The main body is the European Commission.

• The European Union is criticized because of its lack of transparency, its bureaucracy and its high costs, namely budgets for translations and funding, with little control of the use of the money.

OM BU DS M A N

E U ROP EA NPA RL IA ME NT

ECONOMICA ND SOCIA LCOM MITT EE

COMMIT T EEOF T HE

REGIONS

EU ROP EA NCOMMISS ION

COU NCIL OFM IN IST ERS

COU RT OFJ U ST ICE

COURT OFAU DITORS

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Towards a stronger Europe

• A group with 25 + countries offers a stronger opposition to the other world powers– The USA will

endeavour make the enlargement fail

• The EU must adjust itself to the enlargement – Is it able to ?– How far can we

go ?

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A difficult task to achieve

• A few international disputes are not solved yet

• The first relationships between ancient and new EU members are marked by conflicts

• Reciprocical expectations and knowledge from ancient and new members strongly diverge

Will they get along together ?

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More information…

D. Chelly & F. Lafargue, Guide culturel et d’@ffaires pour l’Europe de l’Est, L’Harmattan, 2003

www.centreurope.org East-west business portal