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The role of CenTral europe in The German eConomy the political consequences
Konrad popławski
WaRsaWjune 2016
© copyright by ośrodek studiów Wschodnichim. Marka Karpia / centre for eastern studies
content editoRMateusz Gniazdowski, anna Kwiatkowska-drożdż
editoRhalina Kowalczyk
co-opeRationKatarzyna Kazimierska, anna Łabuszewska
tRanslationjim todd GRaphic desiGn paRa-buch
photoGRaph on coVeRshutterstock
dtpGroupMedia
FiGuResWojciech Mańkowski
publisheRośrodek Studiów Wschodnich im. marka Karpia centre for eastern studies
ul. Koszykowa 6a, Warsaw, polandphone + 48 /22/ 525 80 00Fax: + 48 /22/ 525 80 40osw.waw.pl
isbn 978-83-62936-84-7
contents
Theses /5
InTroducTIon /8
I. the adVantaGes oF centRal euRope FRoM the peRspectiVe oF GeRMany /10
II. the deVelopMent oF tRade betWeen GeRMany and the V4 /15
1. The role of central europe as a key trading partner for Germany /152. The position of individual V4 states in their trade with Germany /203. risks associated with the V4’s dependence on trade with Germany /25
III. the FloW oF inVestMents betWeen GeRMany and V4 /31
1. The flow of investments between Germany and V4 /312. Motives for investment /353. The investment climate in the V4 countries from the perspective of German
investors /39
IV. the political pRospects FoR econoMic coopeRation /44
V. APPendIX /48
1. The automotive sector /482. The electro-mechanical sector /503. The logistics sector /534. The energy sector /535. The retail sector /566. The banking sector /60
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Theses
• The economic cooperation between Germany and Central Europe hasbroughtmutualbenefitsinrecentyears.Since1989,GermanyhasbecomethemostimportanttradingandinvestmentpartnerfortheV4states,whichhashadsignificantimpactontheevolutionoftheeconomicmodelofCen-tralEurope,andhelpedintheprocessofmodernisingtheregion.Germancompaniesfromtheautomotive,financialandenergysectors,amongoth-ers,havegainedsignificantmarketsharesinthosecountries.Thedevelop-mentofeconomiclinksbetweenGermanyandtheV4stateshasalsobeenbeneficial forGermany itself.Taken together, theVisegradGroup stateshavebecomeGermany’smostimportantglobalpartnerbothinexportsandimports.Theyhavemanaged–assomeofthefewstateswithoutanysig-nificantresourcesofrawmaterials–tomaintainrelativelybalancedtraderelations,showingsurplusesorminordeficitsintheirtradewithGermany.
• Overthelastdecade,CentralEuropehasbecomeanimportantsourceforimproving the international competitiveness of the German economy.Firstly,movingfactoriesfromGermanytoV4becameanelementoflower-ingproductioncostsformanyGermancompanies.ThepressurebusinessexertedonGermanworkerstoreducelabourcostswasalsoanimportantelement.Secondly, in the faceofmajorproblemscausedbya lackof en-gineers,GermanbusinessesmovedpartoftheirR&DactivitiestoCentralEurope,orattractedqualifiedworkersfromtheregiontoGermany.
• TheeconomiccooperationbetweenGermanyandCentralEuropehasbeenboosted by investmentsfinanced fromEuropeanUnion funds.GermanyhasbeenbyfarthelargestbeneficiaryofinvestmentsintheV4statesfromtheEU’scohesionpolicy.Thankstothis,Germanyhasbeenabletorelyonadditionalexportstothesecountries,tothetuneof€30billioninthepe-riod2004-151.Germanyhasbenefitednotonlydirectly,fromthecontractsitacquired,butalsoindirectly;asignificantproportionofthesefundshasbeenspentoninfrastructure,whichhasmadeiteasiertotransportgoodsbetweenGermanyandCentral&EasternEurope.
1 AssessmentofthebenefitsobtainedbytheEU-15memberstatesasaresultoftheimplemen-tationofthecohesionpolicyinthecountriesoftheVisegradGroup.Finalreport.TheStruc-turalResearchInstitute.London,December2011;http://ibs.org.pl/app/uploads/2015/12/Oce-na-korzy%C5%9Bci-uzyskiwanych-przez-pa%C5%84stwa-UE-15-w-wyniku-realizacji-poli-tyki-sp%C3%B3jno%C5%9Bci-w-krajach-Grupy-Wyszehradzkiej.pdf
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• OverrecentyearstheV4countrieshaveprovedabletoproducepartsandgoodsforGermancompaniesinanefficientmanner.Inrecentyears,theautomotive, electro-mechanical, electricity and retail trade sectors havesignificantly increased their expansion inCentralEurope. It is expectedthatGermancompanieswillmovetheseR&DactivitiestoCentralEurope,whichwouldbeimpossibletoconductinGermany,forexampleduetoalackofengineers.However,thisprocesswillprobablynotbeverylargeinscale.
• OneconditionfortheV4statestoachievelevelsoftradecooperationwithGermanyonthelevelofcountriessuchasAustria,Belgium,theNetherlandsorSwitzerlandisthattheyshouldbeabletosellGermancompaniestheirownproducts,withhighaddedvalue.ThereisstillgreatpotentialtodeepeneconomiccooperationbetweenGermanyandtheV4countries.InadditiontothetraditionaladvantagesofCentralEurope,suchasgeographicalprox-imity,traditionsofindustrialproduction,lowlabourcosts,andreliability& security of supply,German companies appreciate the new elements ofcompetitiveness in the region, such as the stability of economicdevelop-mentandpolitical-institutionalconditions,everbetterinfrastructure,andthehighlevelsofthelocalworkers’qualificationsandproductivity.
• CentralEurope’sgreatdependenceonGermantradeandinvestmentposesanumberofrisksfortheregion’seconomicdevelopment.First,Germanyspecialisesinexportingcapitalgoodsbasedontraditionalindustrialcom-panies.GermancompanieshavestillnotshownanysignificantsuccessesintheITsector,whichmaydeterminethestrengthoftheeconomyinthefuture.Secondly,theroleofCentralEuropeasanassemblyplantforGer-mancompaniesislinkedinthemediumtermwiththeriskoflosingthatpositiontocountrieswithlowerproductioncosts.Inaddition,thesaleofproductsfromCentralEuropeunderthebrandnamesofGermancompa-niesdoesnothelpinmakingtheirown,globallyrecognisablebrands;itisthusdifficult tomakesignificantmarginsandescape fromthe so-calledmiddleincometrap.
• The current period of global political and economic instability has in-creasedtheimportanceofCentralEuropeforGermany.Firstly,theregion’sgeographicalproximityensuresthatthiseconomiccooperationwillnotbedisturbedbygeopoliticalproblems,andthereisnoriskthatthecontinuityofsupplywillbeinterrupted.Secondly,duetotheeurocrisis,thedisputeoverthefutureshapeoftheEU’seconomicpolicyhasintensified.Germanyneedsallieswhowillpromoteafree-marketmodeloftheUnion,basedon
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theprinciplesoffiscaldiscipline,intheclashwiththemorestatistvisionoftheEUrepresentedbyFrance,butprobablyalsobyleftist-ruledGreeceandPortugal,andalsoperhapsSpain.
• Inthecomingyears,GermanymaybecomeinterestedinbringingCentralEuropeovertoitssideinavarietyofdisputes,suchasthereformoftheeuro-zone,therevisionoftheEU’sclimateandenergypolicy,andalsotheproblemsintheEU’seasternandsouthernneighbourhoods.Sofar,despitethedynamicallydevelopingeconomiccooperationinrecentyears,Germa-nydoesnotappeartoshowanyparticularinterestindeepeningitspoliticalcooperationwithCentralEurope.Enhancedcooperationwithintheframe-workoftheV4mayhelpGermanytobecomemoresensitivetotheregion’sinterests,especiallyas itseemspossiblethatBerlincanreachacommonpositionwiththeV4onmanyEUissues.
• An importantprerequisite for improving cooperationbetweenGermanyandCentral Europe is to informGermanpublic opinion, through inten-sivepromotionalactivities,aboutthesignificantscaleoftheirmutualeco-nomicties.Germany’sdynamicallydeepeningcooperationhaspassedtheGermanmediaby,incontrasttotheirconsiderablenumberofreportsandanalysisonthedevelopmentofeconomicrelationswiththeBRICcountries.Thisalsostems fromGermaneconomists’ lackof interest inCentralEu-rope.AftertheaccessionofthecountriesoftheregiontotheEU,thein-terestareasofmanyscientificcentresshiftedfurthereastwards.GermanpoliticalinstitutionsareconductingonlysmallamountsofanalyticalworkintheareaofCentralEurope.Thisleadstomisunderstandingsofthesitu-ationintheregion,andtoanincorrectnarrativestatingthatfundingfromthe cohesionpolicy is onlyawayoffinancing thepoorermember stateswhichdoesnotguaranteeGermanyanyeconomicbenefits.
• The effects of the possible breakup of the Schengen area are difficult toquantify. An increased bureaucratic burden on the movement of goodsbetweenGermanyandV4wouldcertainlyimpedetradeandgeneratead-ditionalcosts.ItwouldlikelybeabigproblemfortheGermanautomotiveandlogisticssectors,inwhichtimeofdeliveryplaysanimportantroleincompetitiveness.Forthisreason,itcanalsobeexpectedthatGermancom-paniesinvolvedinCentralEuropewillopposestricterbordercontrols.
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InTroducTIon
ManyexpertsinterpretedtheaccessionoftheCzechRepublic,Hungary,Slo-vakiaandPolandtotheEuropeanUnionasthe‘endofhistory’intheireconom-icrelationswith theGermany.Since2004 therehavebeen fewcomparativestudiesonthedevelopmentofeconomicrelationsbetweenGermanyandCen-tralEurope.Thefollowingreportisintendedtofillthisgap,anditspurposeistoanswerthequestionofhoweconomicrelationsbetweenGermanyandthecountriesoftheVisegradGroup(V4)havechangedinthelightofthesignificantpoliticalandeconomicchangeswithintheEuropeanUnionoverrecentyears.
TheCzechRepublic,Poland,SlovakiaandHungaryhavebeenselectedasex-amplesofthegeneralchangesinthelinksbetweenGermanyandCentralEu-rope,whichhavealsoaffectedGermany’srelationshipswithothercountriesintheregion,suchasBulgaria,RomaniaandtheBalticstates.Fromtheper-spectiveofGermany’sbusinesselites,thecountriesoftheregionarelinkedbymanysimilarities,suchasthefollowing:
• geographicalproximityandculturalsimilarity;• uniformmarketruleswhichapplythroughouttheEU;• long-standingindustrialtraditions,andthesubstantialparticipationofin-
dustrialproductionintheirGDPs;• thesignificantshareofforeigncapitalintheirmanufacturingandfinan-
cialsectors;• aneconomicmodelbasedonexports,withthesignificantparticipationof
foreigncompanies;• small or insignificant rawmaterial resources, and great dependence on
theirimport;• energysystemsbasedonpowerplantswhichusecoalandnuclearenergy,
fuelswhichareincreasinglybeingdisplacedfromtheEU;• significantresourcesofskilledworkerswithlowerwageexpectationsthan
theircounterpartsinWesternEurope;• relativelygoodeconomicperformancesagainstthebackdropoftheEUas
awholeduringtheglobalfinancialcrisisandthecrisiswithintheeuro-zone.
Germany is Central Europe’s most important economic partner, and in re-cent years this link has brought forthmutual economic benefits. However,it isworthconsideringthestabilityoftheeconomicmodelthathasevolved,andalsoaskinghowthecloseeconomiccooperationbetweentheV4statesand
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Germanymaybeusedtoincreasethelevelofinnovation.Theproblemofthecapacitytodesignandmanufacturemoderngoodsandservices isbecomingmoreimportantinthedebatewithinCentralEuropeontheso-called‘middleincometrap’.Thisisdefinedasariskofexhaustingexistingenginesofgrowth,andtheinabilitytotransitionfromaproductionmodelbasedonlowlabourcoststoonebasedonqualityandinnovation,resultinginhigherwages.
Three sourcesof informationwereused inpreparing this report.ThemainmethodologyappliedinthestudywastheanalysisofeconomicindicatorsintradeandinvestmentbetweenGermanyandtheV4countries.Inaddition,thestudywasbasedonconversationswithabout30experts,mostlyfromGerma-nybutalsotheV4states:representativesofGermanministriesatthefederalandregional (Länder) levels, aswellasembassies,businessassociations, re-searchinstitutes,chambersofcommerceandforeigninvestmentagenciesintheCzechRepublic,Poland,HungaryandSlovakia.Thisinformationhasbeensupplemented by case studies from themost importantGerman industries,withananalysisoftheirsituationintheV4states.
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I. The advanTages of cenTral europe from The perspecTIve of germany
In recent years, the region of Central Europe has continued its quite rapidgrowth, and ithasdealt relativelywellwith theglobal economicdownturnpost-2009,especiallywhenconsideringthesituationintheeuro-zoneasaref-erencepoint.Itsstrongereconomicposition,alongwiththechangeinpoliticalconditionsinEurope,makesitanevenmoreattractivepartnerforGermanythanbefore.
From theGermanpoint of view, the regionofCentralEuropehas since the1990sdisplayedanumberofcommonfeatures.ThebasiccharacteristicsoftheV4countries’economies–suchastheirindustrialtraditions,lowlabourcosts,culturalandgeographicproximity,andaskilledworkforce–madethemanidealareafortheexpansionoftradeandinvestment.Fromtheoutset,Germa-nyinvolveditselfintheeconomictransitionprocessinthecountriesofCen-tralEurope,perceivinganopportunitytogainpolitical,economicandsecuritybenefits.Germany’sgoalwastoestablishstrongrelationshipswithCentralEu-rope,tolinkitpoliticallywithWesternstructures,andbuildupaneconomichinterlandforitselfintheregion.
CentralEurope’seconomicimportanceforGermanyhasriseninrecentyears,asthehighefficiencyofthebusinesseslocatedintheregionhashelpedthemostimportantbranchesoftheGermaneconomytokeeptheiroutputcom-petitiveduringtheglobaleconomicdownturn.Thankstoitsrelatively lowwagesandhighproductivity,CentralEuropehasbecomeafactoryforGer-manproductsontheEUmarketwhoseproductioncouldnothavebeenmovedto Asia. After entering the euro-zone, Germany’s economic situation wasevaluatedverycriticallybothathomeandabroad.Theeconomyremainedstagnant for several years after German reunification. Unemployment inGermany between 1991 and 2001, especially in the new Länder, remainedatahighlevelofaround20%;publicdebtrose,andthecountry’sexchangepaymentsdeficitwithothercountriesremainedhigh.Germany,alongwithFrance,wasthefirsttobreaktherulesonthebudgetdeficitintheeuro-zone.InresponsetothediagnosisofeconomistswhoblamedGermany’sproblemson its overly high labour costs, the government in Berlin introduced a re-formpackagein2003-5calledAgenda2010,limitingsocialbenefits,improv-ingbusinessconditionsandmakingthelabourmarketmoreflexible.Underpressurefromthesereforms,aswellasthethreatbyGermancompaniesthattheywouldtransferjobstothecountriesofCentralandEasternEurope,the
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Germantradeunionsloweredtheirwagedemands,focusingonkeepingtheirplantsinGermanyrunning.MoresavingsweregeneratedbymovingpartoftheproductionfromGermanytocountrieswithlowerlabourcosts–thatis,countriesinAsiaandCentralEurope.
ThecentralEuropeanstateshavebecomeanimportantproductioncentreontheEUmarket.Theyhavebecomeanattractiveplacetoinvestcapital,espe-cially forGermansmall-andmedium-sizedbusinesses,becauseafter theyenteredtheEUtheir legislationwasalreadyclosetoGermantaxlaws,andtheirstandardsoflegalprotectionwerehigherthanthoseofotheremergingeconomies.Forthesereasons,investmentinCentralEuropewasalsoeasierforthesmall-andmedium-sizedenterprisessector,whichisstronginGer-many.Moreover,somebulkygoodsdestinedfortheEuropeanmarket,suchas cars ormachinery,were notworth producing in Asia due to transportcosts.Itisnoteworthythatsince2009,GermanautomotivecompanieshavebuiltuptheirproductioncapacityinCentralEuropeinordertogeneratesav-ings.Thesourceofthesesavingswasnolongerlabourcostsalone,whichhadrisen considerably in previous years, but also increased efficiency thankstothefactories’highproductivityandtheimprovingqualificationsoflocalworkers.
In recent years, the favourable economic situation of the central Europeancountriescontinued,whichincreasedtheirattractivenessasamarketingpart-nerforGermanyagainstthebackgroundofanincreasinglydifficultglobaleco-nomicsituation.TheVisegradGroup’smemberstateshavebeenabletomain-tainahighrateofeconomicdevelopment.Intheperiod1999-2014,theaverageGDPperpersoninthesecountriesrosefrom60%to75%oftheEUaverage2.
2 GDP per capita, consumption per capita and price level indices, December 2015; http://ec.europa.eu/eurostat/statistics-explained/index.php/GDP_per_capita,_consumption_per_capita_and_price_level_indices
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Figure 1.ThegrowthrateofGDPofselectedgroupsofcountries(%)*
2000
1999
2014
2013
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
The euro-zone
BRIC
V4
-6
-4
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12 [%]
source:WorldBank*Theeuro-zoneaverageincludesits11foundingmemberstatesapartfromGermany.Theresultsarebasedonthearithmeticmean,inordertoshowthedatafromthethreegroupsofcountriesincross-sectionalterms.Ifwewerecalculatingtheweightedaverage,theBRICresultwouldbegreatlyboostedbyChina,andthatoftheV4byPoland.ThisapproachisoftenusedinanalysesbytheGermanChamberofCommerceandIndustry.
ThechartdataclearlyshowsthattheV4stateshavedevelopedfasterthantheeuro-zonecountriessince2001;agrowthspurtwasespeciallyvisibleinthepe-riod2001-7.GDProsemoreslowlyintheV4statesin1999-2014thanintheBRICcountries,but it cannotberuledout that thepaceofeconomicdevelopmentinCentralEuropewilloutstriptheGDPgrowthrateofthebiggestemergingeconomiesinthenextfewyears3.ThecomparisonofV4withtheBRICcoun-triesisparticularlyinteresting,asinrecentyearscompaniesfromGermanyhavefocusedonexpansioninthesetwogroupsofcountries,soinawayitispossibletotreatthemasgroupscompetingforGermancapital.
After 2007, economic relations betweenGermany andCentral Europewereboostedbytheprocessofmodernisation,whichwasalsofinancedbytheEU’scohesion policy. The V4 countrieswere some of the biggest beneficiaries ofthese funds; at the same time, theyhavemanaged tomaintaindiscipline inpublicfinances inrecentyears (onlyHungaryhashadaproblemwiththis).Andsointheperiodofglobaleconomicdownturnafter2009,thesecountries
3 ThisestimateisbasedontheassumptionofcontinuedeconomicturmoilinBrazilandRus-siaandthestructuralproblemsaccumulatinginChina.
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maintainedhighlevelsofpublicinvestment.Thiswasthereverseofthesitu-ationinmanyothercountries,especiallyinthesouthoftheeuro-zone,whichsignificantlyreducedtheirbudgetaryexpenditureunderthethreatof insol-vency.GermanywasbyfarthegreatestbeneficiaryoftheinvestmentintheV4countriesfinancedby theEU’s cohesionpolicy.Thanks to this,Germanywasableatleasttorelyonadditionalexportstothesecountries,tothetuneof€30billionintheperiod2004-154.ThankstotheinvestmentsfromthecohesionfundinCentralEurope,Germanygainednotonlydirectly,fromthecontractsit acquired, but also indirectly; a significant proportion of these fundswasspentoninfrastructure,whichmadeiteasiertotransportgoodsbetweenGer-manyandCentral&EasternEurope.ThiswasofgreatimportanceforGermanautomotivecompanies, forwhomgood transportnetworkswereaconditionforbuildingmodernproductionfacilitiesintheV4states.
OnthequestionofreformingtheEU,thecountriesofCentralEuropeandGer-manyoftenfoundthemselvesonoppositesidespolitically.ThedominantlineofdisputeswasthedivisionintooldandnewEUcountries.TheV4stateswerewaryoftheextensionofthepowersofEUinstitutionsattheexpenseofthoseoftheirowncountries,andtheylongresistedtheintroductionoftheLisbonTreaty.ThedistrusttowardsthecentralEuropeanEUstateswhichjoinedin2004wasboostedbytheirsupportfortheUSinterventioninIraq,forwhichtheyfacedstrongcriticismfromFranceandGermany.Thelowerlevelofeco-nomicdevelopmentinCentralEuropeencouragedthesecountriestoresisttheintroductionofcertainintegrationsolutions,suchastheunificationofCITtaxrates.Thecountriesintheregionoftenopposedstricterclimatepolicies,whichBrusselssawasoneoftheelementsoftheEU’scommonidentity.In2010,whentheeuro-zonecrisisbegan,anewdividinglineappearedintheEUbetweenthecountriesofNorthandSouth.Itappeared,however,thatthesoutherncoun-triesof theeuro-zone, suchasGreece,Spain,FranceandPortugal,havenotusedtheirmembershipoftheeuro-zonetoimprovetheirtradingcompetitive-ness,andafter2010theybegantostrugglewitheconomicproblems.Germany,whichdecidedtofreezepayrises,makeitslabourmarketmoreflexible,andcutbackonsocialbenefits,founditselfinamuchbetterposition.Thiswasun-comfortableforBerlin,becausethemonetaryunionnowincludedasignificant
4 Report:assessmentofthebenefitsobtainedbytheEU-15memberstatesasaresultoftheim-plementationofthecohesionpolicyinthecountriesoftheVisegradGroup,December2011;http://ibs.org.pl/app/uploads/2015/12/Ocena-korzy%C5%9Bci-uzyskiwanych-przez-pa%C5%84stwa-UE-15-w-wyniku-realizacji-polityki-sp%C3%B3jno%C5%9Bci-w-krajach-Grupy-Wyszehradzkiej.pdf,p.52.
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numberofmemberstateswithproblems,andthustherewasariskthattheywould throw the burden of their problems ontoGermany.One symptomofthiswastheisolationofGermany’srepresentativesontheforumoftheEuro-peanCentralBank,whosedecisionsoftenwentagainstBerlin’sdemands.Inthissituation,thecountriesofCentralEuropewhichhadjoinedtheeuro-zone,suchasEstonia,Lithuania,LatviaandSlovakia,provedtobevaluablealliesforGermany.BratislavawasoneofthemostvocalopponentstograntingloanstoAthens,whichatthattimewasthreatenedbyinsolvency.
TheV4stateswillbeanimportantvoiceinanydebateonfurtherreformstotheEuropeanUnioninthenextfewyears.Whenthattimecomes,Germanywillbeontheoppositesidetothesoutherneuro-zonecountriesbecauseofitsdifferenteconomicconditions.Currentlyadeepeninggapcanbeobservedbe-tweenGermany,whichhasregisteredafavourableeconomicperformanceandisreducingitsdebt,andthemonetaryunion’ssoutherncountries,whosedebtsarestillrising.Inanyfuturedebate,Berlinwillprobablystandforamorefree-marketEU,anditisnotclearwhetheritwillbeabletocountonsupportinthismatterfromLondon,whichisconsideringleavingtheUnion.CentralEurope,whichistiedtoGermanybystrongeconomicinterests,mayprovetobeakeypartnerinthequestionofreformingtheEU.
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II. The developmenT of Trade beTween germany and The v4
Inrecentyears,theV4grouphasbecomeoneofGermany’skeytradepartners,ina relationship thathascomecloser to reachingequality.Notonly isGer-manytheV4group’smostimportanttradingpartner,butalsoviceversa;theV4statesasoneregionareakeypartnerforGermany.Itisalsoworthemphasis-ingthatalthoughtheGermaneconomyisabletogenerateatradesurpluswithmostcountriesoftheworld,itmaintainsarelativebalancewiththeV4states’economies.TheircooperationwithGermanyoffersawiderangeofbenefits,andhasagoodopportunitytodevelop,especiallyduringtheglobaleconomicdownturn.Despite this, strongeconomicrelationswithGermanyalonewillnothelptheV4countriestoescapetheso-calledmiddleincometrap.ItishardtoexpectthatGermancompanieswillbereadytomovetheirR&Dactivitytotheregiononalargerscale,asthisisanareawhichgeneratesthemostprofitfortheGermaneconomy.ThehithertoprofitablecollaborationwithGermanymaydiscouragemanycompaniesfromCentralEuropefromlimitingtheirde-pendenceonGermancompaniesandworkingonproducingtheirownincreas-inglytechnicallyadvancedproducts.
1. The role of central europe as a key trading partner for germany
Inthelastdecade,theroleofforeigntradeintheGermaneconomyhasgrownextremelyrapidly.Since2007, theV4countries taken togetherhavebecomeGermany’s important trading partner, providing the most components forGermanexporters(aftertheUSA),andthuscontributingtotheimprovementinthetradingcompetitivenessofGermany’seconomy.
Inthelasttenyears,thedevelopmentoftradehasbecomeoneofGermany’smost important sources of economic growth, especially since internal con-sumptionhasnotproventobeanimportantdriverofeconomicdevelopment.In the years 2004-8, Germany’s turnover rose very dynamically, thanks togoodtimesintheeuro-zoneandontheemergingmarkets.Thebiggestreces-sion inpost-warGermanhistory in2009,whenGDPfellby5%,didnot leadtoaprolongedweakeningofgrowthinGermany.Despitetheinitialcollapseof German trading, the losseswere quickly recovered, and in the next fewyearssalesofGermanproductsabroadrosesteadily.TradingcompetitivenessprovedtobeoneofthemainfactorsmaintainingstableeconomicgrowthinGermany,andwhichalsostrengthenedthecountry’simageasastrongecono-mywhichhadmanagedtoresisttheeconomiccrisis.Themostvisiblesymbol
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ofthispowerwasthetradesurplus,whichhadbeenrisingforadecade.Since2012,Germanyhasrecordedthelargestcurrent-accountsurplusintheworld5.In2014 itamountedtoUS$285billion,whichwasalmostdoublethevalueofthat of second-rankedChina (US$150billion) andalmost three timeshigherthanthird-rankedSaudiArabia(US$100billion)6.ThescaleofthesuccessofGermanexports isgreater thanwhencomparedwith thesituationofmanyothercountriesintheeuro-zone,suchasGreece,SpainorPortugal,whichinrecentyearshavebeengrapplingwiththeconsequencesofsignificantcurrentaccountdeficitswhichthreatentobankruptthem.
Figure 2.Germanexportstoselectedcountriesaroundtheworld,andtotheV4group(€billion)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0
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Japan
Russia
V4
V4
USA
USA
France
France
Great Britain
Great Britain
EXPORTS
Netherlands
China
Japan
Russia
IMPORTS
Netherlands
China
[€ billion]
[€ billion]
source:FederalStatisticalOffice
5 Goodstradeisoneofthekeyfactorsshapingthecurrentaccountvalue,whichrepresentsthestateofcashflowsbetweenthecountryandabroad.
6 DeutschlandhatweltweitgrößtenExportüberschuss,Die Welt,2February2015;http://www.welt.de/wirtschaft/article137024573/Deutschland-hat-weltweit-groessten-Exportueber-schuss.html
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ThereisadirectrelationshipbetweentheimprovementoftheGermanecon-omyoverrecentyearsanditsclosercommercialrelationswithCentralEu-rope.TheV4countriesareplayinganevergreaterrole,fromthepointofviewofGermaneconomicinterests,becausetheyhavebeenreceivingthelargestshareofexports.Backin2008theV4grouptakentogetherbecamethemostimportantbuyersofGermangoods;however,duringtheeconomiccrisisin2009,theyreducedtheirdemandforGermangoodstoagreaterextentthan,for example, France. In subsequentyears theirpositiongradually revived.Asaresult, in2014Germancompaniessoldgoodsworth€112billionintheV4countries–9.8%morethaninFrance,acountrywhichisricherandmorepopulousthanalltheV4statestogether.TheV4countriesalsoovertookChi-nainthisrespect,by50%,andRussiabyafactoroffour,eventhoughRus-siaisrecognisedinGermanyasanextremelylucrativemarket.ItshouldbenotedthatthestrongpositionoftheV4countrieswouldnothavebeenpossi-blewithouttheirstrongintegrationintothesupplychainofGermany,whosecompaniesownmanyfactoriesinthesecountries.ThisalsoboostsGermanexports.Ononehand,GermanplantslocatedinV4countriesacquiresomeoftheirpartsfromtheirmother-factoriesinGermany.Ontheother,thehighlevelofexportsfromGermanytotheV4countriesalsoresultsfromthelat-ter’sgreaterpurchasingpower,becausetheyarebuyingagrowingpropor-tion of the added value from the production of flagshipGerman products,suchascarsormachinery.
Thetrendinimportshasdevelopedsomewhatdifferently.Since2004,theV4statestakentogetherhavebeenthemost importantexportersontotheGer-manmarket,andtheirpositiondidnotfalterevenduringthecrisisin2009,thegreatestrecessioninpost-warGermanhistory.ItisworthnotingthatGer-manimportsfromtheV4countrieshavecontinuedatarelativelystablelevel,comparedwiththestagnationofimportsfromChina,RussiaandFranceoverthelastfiveyears.ThistestifiestothegreatimportanceofthefactorieslocatedinV4countriesinmaintainingthepricecompetitivenessofGermanindustry.Ononehand,companiesfromGermanyprefernottoincreasetheirsuppliesfromothercountries,whilestillbringinginevermoregoodsfromtheV4coun-tries.Ontheotherhand,Germancompanieshavebeenlookingfornewsup-pliersinCentralEurope,whoadmittedlywouldnotoffersuchlowproductioncostsascountriesinAsia,butwhoseproductivityandproductionqualitycouldmatchthoseofcountriesinWesternEurope.
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Figure 3.ValueofGermany’sforeigntradewithindividualcountriesper capi-ta(€thousands)between2004-2014
2004 20062005 20082007 20102009 2011 2012 2013 2014
Belgium
V4
Netherlands
Austria
Switzerland
Great Britain
France
0
2
4
6
8
10
12 [€ thousands per capita]
source:FederalStatisticalOffice
AninterestingperspectiveontradebetweenGermanyandV4isrevealedbyasummaryoftradeper capita,whichshowstheintensityofthetrading.FromthechartweseethattheV4statesarecharacterisedbyhighertradewithGer-manyper capita thancountriessuchasFranceor theUnitedKingdom,withasignificantincreaseafter2009.AmongtheV4countriestherearelargevari-ations. In2014, theCzechRepublic,withnearly€7000perperson,hadonlyslightlylowertradeper capitawithGermanythanBelgium.HungaryandSlo-vakia’stradewithGermanyranataround€4000,andPolandslightlyless,with€2300per capita–nevertheless,runningaheadofBritainandapproachingthelevelofFrance.FromthisitcanalsobeconcludedthattheV4statesstillhavegreatpotentialtoexpandtheirtradewithGermany.TheexampleofcountriesmorestronglyintegratedwiththeGermaneconomy,suchasAustria,Belgium,theNetherlandsorSwitzerland,showsthatthevalueoftradeper capitacouldreach€10,000perannum.However,itshouldbepointedoutthatthehighlevelofGermantradewiththesecountriesalsostemsfromtheirabilitytoselltheirowntechnologies toGermanbusinesses.This is thereforenotarelationshipbasedlargelyonmanufacturingproductstotheorderofGermancompanies,asitisinthecaseofV4.
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Figure 4.ProportionofdeliveriesfromselectedcountriesinGermanexports7(%)
0.0
0.5
1.0
1,5
2.0
2.51995 2000 2005 2009 2011
[%]
USA V4 France GreatBritain
Italy ChinaRussia
source:TheOECD-WTOTradeinValueAdded(TiVA)database,May2013;http://stats.oecd.org/
ThefiguresfromtheOECDandtheWTOdatabasesallowustoexaminewhatproportionofGermanexportswasbasedoncomponentsmadebyindividualstates.TheroleoftheV4countriesassuppliersforGermanexporters,along-sideChinaandRussia,hasincreasedsignificantlyinrecentyears.In1995,theproductionofV4comprisedaddedvalueinGermanoverseassalesof0.7%;overthenext 16years this indicator tripledto2.1%. Inthisway, theV4countriestooksecondplace(aftertheUS)asthemostimportantsuppliersforGermanexporters,aheadofFrance,Britain,Russia,ItalyandChina.ThismeansthattheV4countrieshavebecomeoneofthemostimportantregionsinGermany’ssupplychain,aswellasanimportantsourceofthecompetitivenessofGermancompanies,especiallyfortheautomotive(3.3%ofvalueaddedinforeignsales)andconstruction industries (2.7%).Combiningthisdatawiththefigures forforeigntradebetweenGermanyandV4,wecancometo theconclusionthat21%ofallGermanimportsfromV4areusedinonwardexports(in1995,thisfigureamountedto13%).
The development of Germany’s commercial relationswith the V4 countriesstillhasconsiderablepotentialfordevelopment,togetherwiththeincreasing-lysophisticatedtiesbetweenthesecountries.Itseemsthattheprospectsformoderateeconomicgrowth,orevenstagnation,inEuropewillboostGermancompanies’interestinreducingproductioncostsbymovingpartoftheirac-tivitytoCentralEurope,whichwillbeassociatedwithanincreaseinimports
7 ThisdataisavailablethankstothemethodologydevelopedjointlybytheWorldTradeOr-ganisationandtheOECD.Detailsofthemethodologyavailableat:https://www.wto.org/eng-lish/res_e/statis_e/miwi_e/tradedataday13_e/oecdbrochurejanv13_e.pdf
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fromthesecountries.ThegrowthinprosperityoftheV4countrieswillthusresultinincreasedGermanexportstothem.
TheV4countries’successintheirrelationswithGermanyisbasedonstableconditionsfordevelopment,aswellastheirgeographicalproximity,whichhasenabledthesignificantinvolvementofGermansmallandmedium-sizedenter-prises.Forthisreason,GermantradewiththeV4countrieshasamuchhighervaluethanwithother,muchlargerstatessuchasJapan,RussiaorTurkey.Thisthereforedemonstratestheveryhighdegreeofmutualcomplementaritybe-tweenGermanyandtheV4countries.
2. The position of individual v4 states in their trade with germany
ThedevelopmentoftradebetweenGermanyandtheV4stateshasledtomorebalancedeconomictiesbetweenthem.Whereasintheperiod2003-14thepar-ticipationofV4inGermany’sforeigntraderosefrom8%to20%,inthesameperiod,Germany’sshareoftradewiththeV4statestakentogetherfell from30%to25%.
Table 1.ThepositionoftheV4countriesamongGermany’smostimportanttradingpartners
country Trade in 2003(€ billion)
Trade in 2014(€ billion)
position, 2003
position, 2014
rise in trading
change in position
poland 15.7 87.5 12 8 457% +4
czech republic 17.5 70.4 11 11 302% 0
hungary 12.2 41.9 15 14 243% +1
slovakia 7.3 24.1 21 20 230% +1
germany’s trade 665 1124 69%
source:FederalStatisticalOffice
FromthelistofGermany’smostimportanttradingpartners,wecanseethatthe rise inGermany’s foreign trade turnoverwithV4 greatly exceeded theoverallaverage.ThisallowedthesecountriestoincreaseoratleastmaintaintheirplacesamongGermany’smost important tradingpartners.ThePolishpositionhasrisenthemost,fromthe12thtothe8thmostimportantcommercialpartnerforGermany;GermantradeturnoverwithPolandrosemuchfaster
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thanthatof theotherV4states.SlovakiaandHungarymoveduponeplaceeach,andtheCzechRepublicmaintained itsplaceasGermany’s 11thbiggesttradepartner.
Figure 5.Germany’smostimportanttradingpartnersin2014(€billion)
0
50
100
150
200
Fran
ce
Net
herla
nds
Chin
a
USA
Gre
at B
ritai
n
Italy
Aust
ria
Pola
nd
Switz
erla
nd
Belg
ium
Czec
h Re
publ
ic
Russ
ia
Spai
n
Hun
gary
Japa
n
Swed
en
Turk
ey
Den
mar
k
Slov
akia
Sout
h Ko
rea
UAE
[€ billion]167 161 154
118103
92 87 86 8270 68
6042 36 35 33 29 26 24
11
145
source:FederalStatisticalOffice
TheabovedatashowsthattheV4countrieshaveovertakencountrieswhicharemuchlargerorricherinresourcesasGermany’stradingpartners.Inthisclassification,PolandplacedhigherthanSwitzerlandandBelgium,theCzechRepublichigherthanRussiaandSpain,HungaryhigherthanJapanandSwe-den,andSlovakiaaboveSouthKorea.InthecaseofdatarelatingtotheNether-lands,itshouldberememberedthattheirfiguresareinflatedbytheso-calledRotterdameffect;someofthegoodsexportedfromorimportedtoGermanyviaRotterdamcountsasforeigntradebytheNetherlands.ThismakestheirresulttwiceashighasBelgium,whichisonlyslightlysmaller.
TheriseoftheV4countries’commercialimportanceforGermanyiscontinu-ing,despiteongoingintensivetradingrelationsbetweenGermanyandthefarmorepopulouscountriesofAsiaandSouthAmerica8.
8 KonradPopławski,Chasingglobalisation.Germany’seconomicrelationswiththeBRICcoun-tries, OSW Report, 25 November 2013: http://www.osw.waw.pl/en/publikacje/osw-re-port/2013-11-25/chasing-globalisation-germanys-economic-relations-bric-countries
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Figure 6.Germany’sshareintheV4countries’foreigntrade
20042003 2005 2006 2007 2008 2009 2010 2011 2012 2013 201415
20
25
30
35
40 [%]
Czech Republic
Hungary
Poland
Slovakia
source:UnitedNationsConferenceonTradeandDevelopment;http://unctadstat.unctad.org
Intheperiod2003-14theGermanshareintheV4states’foreigntradebegantofall,thankstowhichGermany’sdominantpositionwasreducedfrom30%to25% for theV4groupasawhole.During the sameperiod, the totalpar-ticipationoftheV4statesinGermany’sforeigntraderosefrom7.9%to20%.DeeperanalysisallowsustoconcludethattheindividualV4countrieshavemaintained theirdependenceson tradewithGermany tovaryingdegrees.Intheperiod2003-14,inthecaseoftheCzechRepublicthisindicatorfellby6percentagepoints(pp)to29%;forHungary,itfell3ppto26%;forPoland,2.5ppto24%;andforSlovakia,9ppto19%.Thischangeshouldbeconsideredasdesirable,because it increases thegeographicaldiversificationof theV4countries’foreigntrade.
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Figure 7.Germany’sexportstoandimportsfromindividualVisegradGroupcountries(€billion)
200420032002200120001999 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Czech Republic
Hungary
Slovakia
0
10
20
30
40
50 [€ billion] Poland
200420032002200120001999 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Hungary
0
10
20
30
40
50 [€ billion]
Poland
EXPORTS
IMPORTS
Czech Republic
Slovakia
source:FederalStatisticalOffice
GermanexportstoindividualV4countrieshavebeenproportionaltothesizeoftheireconomies,whichresultsfromthesimilarityoftheirdemandforGer-mangoods.AfteraccessiontotheEU,salesofgoodsfromGermanytoPolanddevelopedmostrapidly(15%annuallyonaverage)alittlemoreslowlytoSlo-vakia(10%)andtheCzechRepublic(9%),andmostslowlyinHungary(5.5%).Theeconomiccrisisin2009affectedexportsfromGermanytotheV4,whichdroppedby20-30%.Germancompaniestookthelongesttimetorecoverfromthelossesof2009inexportstoHungary,achievingthisonlyafterfiveyears,whereasinthecaseoftheotherV4statesthreeyearswasenough.
InanalysingGermanimportsfromtheV4countries,theverystrongpositionoftheCzechRepublicisnoteworthy.TheGermanmarketreceivesonlyslightlyfewergoods fromtheCzechRepublic than itdoes fromthemuch largerPo-land.CzechmanufacturersprovideGermanywithfarmoregoodsper capitathanSlovakiaorHungary.However,ifwelookatthedynamicsofthegrowth
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ofimportstoGermanyfromtheV4countriesaftertheiraccessiontotheEU,Polandistheleader(withanaveragegrowthrateof15%),followedbytheCzechRepublic(12%),Slovakia(7.5%)andHungary(6.5%).
Figure 8.Germany’stradebalancewithselectedcountries(€billion)
2004 2014201320122005 2006 2007 2008 2009 2010 2011-30
-20
-10
0
10
20
30
40
50 [€ billion]USA
* Slovakia / ** Czech Republic / *** Hungary*****
Poland
Norway
Russia
China
France Great Britain
*
source:FederalStatisticalOffice
Inrecentyears,Germanyexperiencedanegativebalanceoftradewithraw-materialsupplierssuchasNorwayandRussia,aswellasitsmajorsubcontrac-tors,suchasChina.Germanyremainedapositivetradebalancewithhighlydevelopedstates,suchastheUSA,GreatBritain,FranceandAustria.Againstthisbackground,itstradebalancewiththeCzechRepublic,SlovakiaandHun-garywasclosetoeven.InitiallyPolandsawagrowingtradedeficitwithGer-many,althoughthishasfallen inrecentyears, to the levelof€8billion.TheotherV4countries,afterseveralyearsofrelativestability,havebegunexperi-encingasurplusintradewithGermany.However,theseresultsrequiresomeclarification.Data from thePolishMainStatisticalOffice shows thatPolandactuallyrecordedatradesurpluswithGermanyforseveralyears9.Theability
9 PolishdatashowsthatPolandhadatradesurpluswithGermanyin2014of€6.5billion,asithadrecordedabout€4billionmoreinexportstoGermany(€43.6billion)and€10billionlessinimportsfromGermany(€37billioneuros).AccordingtotheinformationfromtheMainStatisticalOffice,thesedifferencesstemfromthefactthatinGermanstatistics,goodssentfromChinatoPolandviatheGermanportsarecountedasexportsfromGermanytoPoland.IfPolishcalculationshadbeenconsideredinthefigure,Poland’stradepositionwithregardtoGermanywouldbeclosertothatoftheotherV4states.(Responsebythevice-presidentoftheMainStatisticalOffice,undertheauthorityofthePresidentoftheCouncilofMinisters,
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togenerateabalancedtraderelationship,however,doesnotderivefromthecurrentattractivenessofV4productsforGermanconsumers,butratherfromexportsfromtheGermanfactorieslocatedinthesecountries.
3. risks associated with the v4’s dependence on trade with germany
ThetradestructuresofbothGermanyandtheV4statesaresimilar.Certainsectors predominate, such as: machinery, vehicles, and chemical products.CompaniesfromtheseindustriesaretheleadingbusinessesinGermany,andatthesametimemajorinvestorsintheV4states.SuchtradewillbringbenefitstotheV4countriesinthemediumterm,butinthelongtermitisassociatedwith the risk of dependence on overly homogeneous production structures,andonfailuretodevelopintheIT&telecommunicationssector.
Figure 9.StructureofGermany’sexporttoV4countriesin2014(%)*
Cars & vehicles34.2%
POLAND CZECH REPUBLIC
Finished products10.3%
Food & tobacco7.4%
Raw materials7.0%
Chemical products15.4%
Semi-finished goods19.4%
Other6.3%
Cars & vehicles44.3% Finished products
9.6%
Food & tobacco4.6%
Raw materials5.5%
Chemical products12.8%
Semi-finished goods17.7%
Other5.5%
Cars & vehicles56.9%
HUNGARY SLOVAKIA
Finished products8.1%
Food & tobacco5.9%
Raw materials1.4%
Chemical products10.0%Semi-finished goods
15.2%
Other4.3%
Cars & vehicles46.1%
Finished products13.6%
Food & tobacco3.8%
Raw materials3.5%
Chemical products9.6%Semi-finished goods
18.3%
Other5.0%
Cars & vehicles34.2%
POLAND CZECH REPUBLIC
Finished products10.3%
Food & tobacco7.4%
Raw materials7.0%
Chemical products15.4%
Semi-finished goods19.4%
Other6.3%
Cars & vehicles44.3% Finished products
9.6%
Food & tobacco4.6%
Raw materials5.5%
Chemical products12.8%
Semi-finished goods17.7%
Other5.5%
Cars & vehicles56.9%
HUNGARY SLOVAKIA
Finished products8.1%
Food & tobacco5.9%
Raw materials1.4%
Chemical products10.0%Semi-finished goods
15.2%
Other4.3%
Cars & vehicles46.1%
Finished products13.6%
Food & tobacco3.8%
Raw materials3.5%
Chemical products9.6%Semi-finished goods
18.3%
Other5.0%
*CategoriesbasedontheSITCclassification.The‘food&tobacco’categoryalsocoversliveanimals,animalandvegetablefatsandoils.The‘rawmaterials’categoryincludesminerals,aswellasnon-mine-ralitemssuchasrubber,cottonandironore.The‘semi-finishedgoods’categoryincludesitemssuchaspaper,textiles,cementandsteel.The‘other’categorycoversfurniture,clothing,shoes,cameras,booksandtoysamongothers(seehttp://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=14).source:FederalStatisticalOffice
toquestionno.22326onthediscrepanciesofstatisticsontradebetweentheRepublicofPo-landandtheGermanFederalRepublic,presentedbytheCSOandtheFederalStatisticalOf-fice;http://orka2.sejm.gov.pl/IZ6.nsf/main/275B09FA)
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ThestructureofGermanexportstotheindividualV4countriesissimilar.ThemajorityofsalesbyGermancompaniesaretheflagshipproductsofthecoun-try’seconomy,namelymachinesandcars:mosttoHungary,slightlylesstotheCzechRepublicandSlovakia,andtheleasttoPoland.ItisworthpointingoutthatsomeoftheseexportswerecomponentsforthefactoriesoftheGermancorporationslocatedinthesecountries.AsignificantshareoftheexportsfromGermanytoV4ismadeupofsemi-finishedgoods,otherfinishedproductsandchemicalproducts.Poland,whichimportsamuchsmallerpercentageofcarsfromGermanythanotherV4countries,receivesproportionatelymoregoodsfromothercategories.ThisprobablyaccountsforthesmallerparticipationofGermanautomotivefactoriesintradebetweenPolandandGermany.Ononehand,itshowsthelowerinvolvementofGermancarcompaniesinPolandinrelationtothesizeoftheeconomythanintherestofV4.Ontheother,thead-vantageofsucharelationshipisthatthePolisheconomyislesssusceptibletocrisesontheautomotivemarket.Forexample,in2009,whenglobalcarmarketsalescollapsed, theeconomiesof theCzechRepublic,SlovakiaandHungaryfellintorecession,whilePolandwasabletomaintaineconomicgrowth.
Figure 10.ThestructureofGermanimportsfromV4countriesin2014(%)
Cars & vehicles34.3%
POLAND CZECH REPUBLIC
Finished products14.6%
Food & tobacco10.0%
Raw materials6.2%Chemical products
6.6%
Semi-finished goods19.4%
Other8.8%
Cars & vehicles54.0%
Finished products11.2%
Food & tobacco2.8%
Raw materials4,6%
Chemical products4.7%
Semi-finished goods15.3%
Other7.3%
Cars & vehicles66.2%
HUNGARY SLOVAKIA
Finished products9.8%
Food & tobacco3.5%
Raw materials1.8%
Chemical products4.0%
Semi-finished goods9.3%
Other5.3%
Cars & vehicles62.7%
Finished products9,8%
Food & tobacco0,9%
Raw materials1,7%
Chemical products3,3%Semi-finished goods
15,3%
Other6,3%
Cars & vehicles34.3%
POLAND CZECH REPUBLIC
Finished products14.6%
Food & tobacco10.0%
Raw materials6.2%Chemical products
6.6%
Semi-finished goods19.4%
Other8.8%
Cars & vehicles54.0%
Finished products11.2%
Food & tobacco2.8%
Raw materials4,6%
Chemical products4.7%
Semi-finished goods15.3%
Other7.3%
Cars & vehicles66.2%
HUNGARY SLOVAKIA
Finished products9.8%
Food & tobacco3.5%
Raw materials1.8%
Chemical products4.0%
Semi-finished goods9.3%
Other5.3%
Cars & vehicles62.7%
Finished products9,8%
Food & tobacco0,9%
Raw materials1,7%
Chemical products3,3%Semi-finished goods
15,3%
Other6,3%
source:FederalStatisticalOffice
ThestructureofGermanimportsfromtheV4countries issimilartothatofexports.ItisworthnotingthatinGermany’stradewiththeCzechRepublic,
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SlovakiaandHungary,theautomotivesector’sshareishigherinimportsthanexports.ThismeansthatthesethreeV4stateshavebeenabletoachieveasur-pluswithGermany in the trade of cars and car parts.Despite the fact thatasignificantportionoftherevenuegoestotheGermanautomotivecompanieswhichownthefactories,italsobenefitstheCzechRepublic,SlovakiaandHun-gary,thankstogreateremploymentinthesecountries,aswellasincreasedtaxreceipts.Comparedtothesecountries,tradebetweenGermanyandPolandinautomotiveproductsismuchmorebalanced.WhenanalysingtheremainingcategoriesofGermanimportsfromtheV4countries,wenoticetherelativelysmallproportionofchemicalproducts,duetothecontinuedstrongpreferenceofGermanchemicalcompaniestomaintainproductioninGermany.Onefea-tureofGermanimportsfromPolandis(asinthecaseofexports)greaterdi-versitythaninthecaseoftheotherV4states.AlargepercentageofPoland’sexportstoGermanyisrepresentedbyfoodstuffsandfinishedproducts.
WhenanalysingtheOECDdata,wemayaddthat49%ofthecarpartsexportedfromPolandtoGermanyareimportedbyautomotivecompaniesfromGerma-nyfortheirownexports.FortheCzechRepublic,thisratiois32%,forSlova-kia29%andforHungary21%.Thesituationregardingtheexportofpartsformachinesissimilar; inthecaseofPoland,53%ofpartssenttoGermanyarere-exportedonwards,inthecaseofSlovakia42%,intheCzechRepublic32%,andHungary27%.PolandprovidesmorecomponentsforproductsexportedbyGermancompaniesthantheotherV4countries.
ThisclosedependenceonGermanyposesariskofinstabilityfortheeconom-icdevelopmentofCentralEurope.TheeconomicdevelopmentofGermanyisbasedonthelargeparticipationofforeigntrade,duetowhichthecountryisdependentonthebusinesscycleontheglobalmarketplacetoagreaterextentthanotherlargeeconomies.Ifglobaltradeslowsdownoverthenextfewyears,Germanymaysufferfromthismorethanthosememberstateswhicharede-veloping thanks todomestic factors. It isnotknownwhetherGermanywillbeabletomaintainitsconsiderabletradesurplus.Manycountries,aswellastheInternationalMonetaryFund,havecriticisedGermanyinrecentyearsforrunningamodelofeconomicdevelopmentwhichisunbalancedandcontrib-utestotheemergenceofglobalimbalances.Germany’shightradesurplushasbeenaconsiderablesourceofincomeforGermancompanies.However,italsocontributestosignificantimbalancesintheeuro-zone,sincetheincomeisnotspentwithinGermanyitself,butinsteadistransferredabroad,intheformofeitherinvestmentsorloans,forexample,tothemostindebtedcountriesintheeuro-zone.Atthesametime,infrastructureinGermanyhasbeenneglected,
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and its condition has deteriorated over recent years.However, it cannot beruledoutthatthissituationwillchangeoverthenextfewyears.Germanyhasrecentlywitnessedarevivalindomesticdemand;theGermangovernmentisalsoawareoftheproblemsofthelowlevelofinvestmentinthecountry.Sig-mar Gabriel, Vice-Chancellor and economy minister, suggested in January2016that€600billioneurosshouldbeinvestedininfrastructuredevelopment,education,andsupportingthecarindustryby2025(bymeansofasurchargeonthepurchaseofelectriccars)10.
GermanyhasforyearsbeencriticisedbytheUnitedStates,someeuro-areastates,aswellas internationaleconomicinstitutionssuchastheIMF11andtheOECD12,forbasingitseconomicdevelopmentonexports,generatinghightradesurplusesandinsufficientgrowthindomesticdemand.Germany’sin-ternationalcompetitivenessisbasedinparticularonthesuccessoftheauto-motiveandelectro-mechanical sectors.Thedynamicdevelopmentof theseindustries in recent years stemmed in largepart from thedevelopment ofemergingeconomiesthatneedmachinesandvehiclestocarryoutthepro-cessofmodernisation.Thedevelopedeconomies,andinparticulartheeuro-zone,werenotsuchanattractiveoutletmarketbecauseoftheneedtoimple-mentbudgetarysavings.Inthefaceofrisinggeopoliticalthreats,structuralproblems, the fall in income from the saleof rawmaterials, aswell as theriskofcapitaloutflow,itseemsthattheemergingeconomieswillnotbeableinsubsequentyearstoreplacethedevelopedcountriesingeneratingglobaleconomicgrowth.Amongthecountriesthathavegeneratedlargecommer-cialbenefitsforGermanyinrecentyears,twoareinseriouscrisis(BrazilandRussia),andthesituationofChina–thethirdandmostimportantoftheBRICstatesfortheGermanmarket–isfraughtwithincreasinguncertainty.Ifthecleardeclineinthegrowthrateofemergingeconomiesprovestobeadurablephenomenon,demandforGermancapitalgoodswillfall,whichinturnwillreducethelevelofordersfromthefactoriesofGermancompanieslocatedintheV4states.
10 SPD:600MilliardenEurofürModernisierung,Handelsblatt,29January2016,p.7.11 KonradPopławski,Germanyisdefendingitsexports-basedmodelofeconomicdevelopment,
OSW Analyses,17November2010;http://www.osw.waw.pl/en/publikacje/analyses/2010-11-17/germany-defending-its-exports-based-model-economic-development
12 Germany:KeepingtheEdge:CompetitivenessforInclusiveGrowth,BetterPoliciesSeries,OECD,February2014,p.6-8;http://www.oecd.org/germany/Better-policies-germany.pdf
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Figure 11.GDPgrowthinselectedEUcountriesin2009(%)
-7-6-5-4-3-2-10123
HungaryGermanySlovakiaEU28GreatBritain
CzechRepublicSpainFrance
Poland
[%]
source:Eurostat
The risks associatedwith becoming dependent on a favourable situation inworldtradearewellillustratedbytheeconomicsituationinEuropein2009.Theworldenteredrecession,andglobaltradeflowsingoodsfellby12%.TheglobalcrisisaffectedGermanyandtheV4countries(exceptPoland)toanex-ceptionaldegree;theysawworseresultsthantheaveragefortheEUasawhole.TheCzechRepublic,Germany,SlovakiaandHungaryrecordedsomeofthebig-gestfallsinGDPintheworldatthattime,incontrasttothosecountrieswhichhadlesshomogeneousstructuresofproduction.
Thecooperationbetween theV4countriesandGermanyposes the risk thattheV4stateswillbecomestuckinthegroupofcountrieswithamediumlevelofdevelopment. Inrecentyears, theconceptof the ‘middle incometrap’hasbeguntoenjoyacertainpopularity.Onthebasisofhistoricalstudies,econo-mistshaveconcludedthatitdoesnotrequireuniqueskillsforagivenstatetoenterthegroupofcountrieswithanaverageGDP,asjustkeepinglabourcostslowisenough.It ismuchmoreofachallengeto jointheeliteofthehighest-developedcountries,becausetodosoitisnecessarytobuildanationalsystemof innovation, that is, tocreate the institutionalandeconomicconditions tomakemodern,competitiveandprofitableproductsandservices.Manystateshaveprovedunabletoovercomethisobstacleinthepast13.
TheeconomiccooperationbetweentheV4countriesandGermany,whichhasbeenunbalancedbysalesofgoodsundertheirownbrandnames,maybefac-ingtwothreats.ThelucrativenatureofthecooperationbetweenV4businessesandtheirGermanpartnerscoulddeprivetheformerofthemotivationtotakerisks in developing their own technologies and brands. Thewage increases
13 FernandoGabrielIm,DavidRosenblatt,Middle-IncomeTraps-AConceptualandEmpiricalSurvey,WorldBank2013;http://www-wds.worldbank.org/external/default/WDSContent-Server/WDSP/IB/2013/09/09/000158349_20130909085739/Rendered/PDF/WPS6594.pdf
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linkedtothiscouldleadtothelossofothercountries,whowouldofferlowerwages.Inaddition,thestrategyofassemblingproductsforGermancompaniesisinthelongrunlinkedtotheriskofjoblossesintheindustry,ashappenedinthecaseofSpain,ItalyandtheUnitedKingdom,tothebenefitofother,cheap-ercountriessuchasTurkeyorUkraine.SellingproductsfromCentralEuropeunderthebrandnamesofcompaniesfromGermanydoesnothelpincreatingtheirown,powerful,recognisablebrandsonaglobalscale,andthisisanes-sentialconditionforobtainingsignificantprofitmargins.
Secondly, thedevelopmentof theV4 states’ economic cooperationwithGer-many has not been associatedwith an influx of knowledge connectedwithinformationandcommunicationtechnologies,whichwouldseemtobeakeyfactorinfutureeconomicsuccess.Germancompaniesdonotspecialiseinthisfield.Forthisreason,headsofGermancompanieshavebeenwatchingtheex-pansionofAmericanandChineseICTsectorenterprisesintotraditionalmar-ketsandtheirattemptstocreatedriverlesscarswithgrowingunease,asthiscouldthreatenthestrongpositionoftheGermanautomotiveindustry.In2015Volkswagen’schairmanMartinWinterkornmentionedforthefirsttimethatITcompaniessuchasAppleandGoogle,whicharepursuingadvancedstudyondriverlesscars,couldbehisfirm’smaincompetitorsinthefuture14.LeadersoftheGermaneconomyhavegraspedthatiftheysimplyremainmanufactur-ersofdevicesandmachines, theywillbereducing theirprofitsand leavingsubstantialpartsoftheminthehandsofthemanufacturersofthesoftwaretheyuse15.Inthepastfewyears,forexample,Samsunghasfounditselfinsuchasituation;itmakesonlysmallmarginsonitsmobilephones,whilemostoftheprofitsgotoGoogle,withitsAndroidoperatingsystem.
14 Winterkorn:BegrüßedasEngagementvonApple,Googleundco.;http://www.manager-magazin.de/unternehmen/autoindustrie/winterkorn-begruesse-engagement-von-apple-google-und-co-a-1021447.html
15 Germany’sindustry:DoesDeutschlanddodigital?,Economist,21November2015;http://www.economist.com/news/business/21678774-europes-biggest-economy-rightly-worried-digitisation-threat-its-industrial
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III. The flow of InvesTmenTs beTween germany and v4
Inrecentyears,investmentrelationsbetweenGermanyandthecountriesoftheV4havedevelopedintensively,butunilaterally.Germanyisthekeysup-plierofforeigncapitalformostofthesecountries,anditisGermaninvestorswhohave thusdetermined thedirections inwhich foreign tradehasdevel-oped.However,thisisnotauniquesituation.Manycountrieshavebeennetre-cipientsofcapitalfromGermany,asthankstoasignificantincreaseinexportsinrecentyears,companiesfromGermanyhavehadconsiderableresourcesofcashfreetomakesuchinvestments.TheinfluxofinvestmentfromGermanytoV4,however,wouldnothavebeenpossiblewithoutasignificantimprove-mentintheattractivenessofinvestinginCentralEurope,inwhichtheassess-mentofPolandhasimprovedthemost.
1. The flow of investments between germany and v4
Foreigntradeturnoverbetweencountriescanbesubjecttolargefluctuations.Forthisreason,thelevelofinvestmentisareliableindicatorshowingthedegreeofmaturityofeconomiccooperation,sincetheplacementofinvestmentsinagivencountryisamoreaccurateanalysisofthatcountry’sprospectsfordevelopment.Onthebasisofinvestmentdata,itcanclearlybeseenthattheeconomictiesbe-tweenGermanyandtheV4statesarestrengthening.However,ananalysisoftheinvestmentstreamsallowsustodiscernthestillsignificantlevelsofasymmetryinthoserelationships.Germanyisthelargestproviderofnetcapitaltothemem-berstates,thusaffectingthedirectionoftheV4states’economicdevelopment.
Figure 12.TheshareofGermancapitalininvestmentflowstotheV4coun-triesin2008and2012(%)
[%]
0
5
10
15
20
25
Poland Slovakia
2008 2012
CzechRepublic
Hungary Poland Slovakia CzechRepublic
Hungary
source:DatabasesofthecentralbanksoftheV4countries
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Inrecentyears,Germanyhasretained itspositionas the largest investor inalltheV4states,withtheexceptionoftheCzechRepublic,wheretheNether-landscamewellahead.TheshareofGermancapitalininvestmentsintheV4countriesincreasedslightlyinthecasesofPolandandHungary,anddecreasedslightlyintheCzechRepublicandSlovakia.Ingeneral,itcanthereforebecon-cludedthatGermany’spositionasaninvestor intheV4countrieshasdevel-opedsteadilyoverthepastfewyears.
Figure 13.TotalforeigndirectinvestmentbyGermanyinselectedcountriesandintheV4states(€billion)
2004 2005 2006 2009 2010 2011 20120
50
100
150
200
250
300 [€ billion]USA
V4Netherlands
FranceChinaRussia
Great Britain
source:Bundesbank
Intheperiod2004-12,thevalueofforeigninvestmentsfromGermanyintheV4countrieshasdoubled,from€36billionto€77billion.TheV4statestakento-getherareoneofthemaintargetsofGermaninvestment,andin2012theyover-tooktheNetherlands(€74billion),whichistraditionallylinkedtoGermanybyverystrongeconomicrelationships,andwhichisGermany’smostimportantlogisticshub.ThemostimportantplaceswhereGermancapitalisinvestedaretheUnitedStates(€269billion)andtheUnitedKingdom(€120billion),whichasstrongfinancialcentresprovideanumberofservicesforcompaniesfromGermany.InvestmentsbyGermancompaniesinChina(€42billion)weresig-nificantlylowerthanintheV4countries,althoughtheyhaveexpandedveryrapidly.German capital located inRussia (€21 billion)was also significantlylowerinvaluethanthefundsinvestedinV4countries,althoughthesefiguresdonottakeintoaccountthestillsignificantoutflowofinvestmentsfromRus-siaduetothewarinUkraine.Fromthisdata,itcanbeconcludedthatinarela-tivelyshortperiodoftime,theV4countriesmanagedtoattractnotonlythebigGermancompanies,butalsosmall-andmedium-sizedenterprises,thankstowhichthescaleofGermaninvestmentintheV4hascometoexceedthatinChinaorRussia.
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Figure 14.ForeigndirectInvestmentintheV4countries
20042003 2005 2006 2007 2008 2009 2010 2011 201220020
5
10
15
20
25
30 [€ billion]
Poland
Slovakia
Czech Republic
Hungary
source:Bundesbank
AnalysisofGermaninvestmentinindividualV4countriesclearlyshowsthatthe Czech Republic has attractedmost investment. In recent years, Polandhasbeguntocatchupwiththem;HungarycomesinthirdplaceandSlovakiafourth.However,comparingthesevalueswiththepopulationofeachcountry,weseethatPolandreceivesbyfartheleastinvestment,onlyaboutathirdoftheinvestmentper capitaofwhatHungaryandSlovakiareceives,andaquarteroftheCzechRepublic.ThismeansthattheintensityofGermaninvestmentsinPolandismuchlowerthaninotherV4countries.Despitethis,wecanseethatthisdifferenceisslowlybeinglevelledout.InvestmentgrowthfromGermanyin theperiod2004-12was fastest inPoland (a cumulative increaseof 160%);nextwereSlovakia(129%)andtheCzechRepublic(111%),andHungaryinaverydistantfourthplace(32%).
RecentyearshavebroughtasteepriseincapitalcommitmentinCentralEuropefromGermanindustriessuchastheautomotiveandlogisticalsectors,whichhaverecognisedtheadvantagesofinvestingintheregioninordertoimprovetheircompetitivenessandconsolidatetheirpositionontheworldmarket.Foritspart,theretailindustryhaslaunchedadynamicexpansionintheregion,takingadvantageofthegrowingconsumptionwhichhasreinforceditsposi-tioninEurope.Forothersectors,suchasenergyorbanking,thelastfewyearshavebeenaperiodofstagnation,oratimeinwhichtoverifytheirinvestmentopportunities. Generally it can be noted, however, that German businesseshaveincreasedthescopeoftheirinvestmentsinCentralEurope,totheextentthattheirfinancialsituationshaveallowed(seeAppendix).
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Figure 15.TheinfluenceofindividualcountriesonthebalanceofsecondaryincomeofGermany(€billion)
-3
-2
-1
0
1
2
3
4 Hungary
Czech Republic
Poland
20042003200220012000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
[€ billion]
source:Theauthor’sowncalculations,basedontheBundesbank’sdatabase:MakroökonomischeZeitre-ihen,http://www.bundesbank.de/Navigation/DE/Statistiken/Zeitreihen_Datenbanken/Makrooekono-mische_Zeitreihen/makrooekonomische_zeitreihen_node.html
Byanalysingbalanceof secondary income,whichshowwhat thebalanceofprofitflowsandassetsheld abroad looks like,we canpartially evaluate thesizeofthebenefitintheformofdividendsfromGermaninvestmentsintheV4countries.Thedatashowsthatintheperiod2004-12,investmentinHun-garyproduced€22billionofrevenues, intheCzechRepublic€14billion,andinPoland€1.6billion(figuresforSlovakiaarenotavailable);inallcountries,then,atrendtowardsgrowthisvisible.ItseemsthatGermany’sdeficitinre-lationswithPolandintheperiod2000-6shouldbereadasresultingfromthefactthatGermancompanieshavemainlyinvestedwithoutreceivingsignifi-cantreturnsontheirinvestments.Inrecentyears,theoutflowofcapitalfromPolandmayhavebeeninhibitedbythegrowingnumberofPolishworkersinGermany,whotransfersomeoftheirearningsbacktotheirowncountry.
Figure 16.ThevalueofforeigndirectinvestmentsfromV4countriesinGermanyin2008and2012(€billion)
[€ billion]
0.0
0.5
1.0
1.5
2.0
Poland Slovakia
2008 2012
CzechRepublic
Hungary Poland Slovakia CzechRepublic
Hungary
0.6
0.1
0.30.1
2.0
0.01
0.30.1
source:DatabaseoftheV4countries’centralbanks
A comparison of investment flows from Germany to the V4 countries withcapitalflowingintheoppositedirectionallowsustoperceivetheconsiderable
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imbalanceininvestmentpotentialsonbothsides.ThevalueofV4capitalin-volvedinGermanymadeuponly3.5%oftheGermanfundsinvestedinV4.ItisclearthattheonlycountrythatsignificantlyincreaseditsinvestmentinGer-manywasPoland.ThevalueofPolishcapitalinvestedinGermanyinthepe-riod2008-12roseby233%to€2billion,whilethescaleoftheinvestmentcom-mitmentsoftheCzechRepublic,SlovakiaandHungaryremainedunchangedorevendecreased.TheincreasedinvolvementofPolishcompanies’capitalinGermanycouldbetheresultoftheimprovingcompetitivenessofPolishcompa-nies,suchasthefurnitureorcomputersectors,whichhasbeguntochallengesomeoftheirGermancompetitors.Intheperiod2008-13,23%ofPolishinvest-mentsinGermanywereinthecomputerindustry,16%infinancialservicesforcompanies,and14%inmachineproduction.ManyPolishcompanieshavealsodecidedtoentertheGermanmarketinordertoreceivethelabel‘MadeinGer-many’,whichcouldbeavaluableassetintheirfurtherexpansionontoforeignmarkets.Theanalysisshowsthat41%ofPolishinvestmentprojectsinGerma-nyinvolvedopeningsalesandmarketingdivisions,18%coveredtheopeningofcompanyheadquartersinGermany,and11%involvedofferingservicesthere16.
2. motives for investment
ThemainmotiveforGermancompaniestoinvestinCentralEuropeissalesandcustomerserviceonthelocalmarket,aswellasreducingcosts.GermancapitalthereforeoftengoestotheV4countriesinordertogeneratesavingsonproduc-inggoodswhichareoftensoldinthecountriesofwesternEurope.Withdif-ferencesinpaystillremaining,suchtrendsarequitenatural.Theproblemis,however,thatGermancompaniesstilldonotseeCentralandEasternEuropeasplacesinwhichtoinvestinresearchanddevelopment,evenoverthenextten years, deeming the developed countries to bemore attractive locations.ChinaandIndiaarealsomoreattractiveinthisrespect;becausetheyaresuchlargeandgeographicallyremotemarkets,moreandmoreGermancompaniessee theadvantage in locating theirR&Dcentres close to the factories there.Ontheonehand,thiscouldmeanthattheV4countriesaregeographicallytoocloseandhavetoosimilarstructuresofproductiontoGermanytobeabletoat-tractGermanR&Dinvestments.Ontheotherhand,however,thegeographicalandculturalproximityofCentralEuropecouldbeanopportunitytoprovidebusinessprocessoutsourcinginthisregionforGermancompanies.
16 PolnischeUnternehmenerobernneueMärkte,10November2014;http://www.gtai.de/GTAI/Navigation/DE/Trade/Maerkte/suche,t=polnische-unternehmen-erobern-neue-maerkte,did=1112698.
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Figure 17.ThepopularityofdifferentregionsasinvestmentlocationsforGermanindustry,andthemainmotivesforinvestmentin2014
0
10
20
30
40
50 [%]
Reduction of costs
Production on local market
Sales/Customer service
Russia, Ukraine,Turkey, non-EUBalkan states
EU-15 China North America Asia(except China)
New EU states SouthAmerica
47 46
36
28
21 2017
source:Europapunkteterneut–KostendruckwiederwichtigerAuslandsinvestitioneninderIndustrieFrühjahr2015,theGermanChamberofIndustryandCommerce,Berlin2015,p.15
AnanalysisoftheinvestmentrelationshipbetweenGermanyandV4shouldstartbyexaminingthosecountries’popularityasinvestmentlocations(givenasanum-berabovethebars),andthemotivesforinvestinginthosecountries(giveninsidethefigures).ThedatashowsthatthenewEUcountries17,whichincludetheV4,arethefifthmostpopulardestinationforinvestmentfromGermanindustries.How-ever,consideringthatthenewEUmemberstatesaretheregionwiththesmallestpotentialintermsofeconomyandpopulation,thentheirpositionismoresignifi-cant.TheyaremorefrequentlychosenforGermanindustrialinvestmentsthanSouthAmerica,Turkey,orcountriesinEasternandSouthernEurope.
AnalysingthemotivesbehindtheinvestmentofGermancapitalinCentralEu-rope,wecanseehowdifferentthisregionisfromotherpartsoftheworld.ThedatashowsthatthemostimportantpurposeofinvestinginthenewEUcoun-triesistoselltocustomersonthedomesticmarkets,andtoofferthemservices(42%).Comparedwithotherregions,movestoreducecostsmakeupasignificantproportionoftheinvestmentsinthenewEUcountries(39%).NootherregionisusedbyGermanindustryinthiswaytoreduceproductioncosts.However,thisresult isnotsurprising,becausegiventhattheEUisasinglemarket,movingproductiontothecheapestregionisanaturalprocess.Inothercountriestherearespecialrequirementsforaspecificproportionofproductiontobeoflocalori-gin,aswellasbureaucraticbarrierslimitingproductionforothermarkets.That
17 Inthisfigure,the‘new’EUcountriesmeansthosememberstateswhichjoinedtheEUafter2003.
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iswhyonly18%ofGermaninvestmentinChinaisaimedatreducingproductioncosts.AlessimportantmotiveforinvestinginnewEUcountriescomparedtootherregionsisproductionforthelocalmarkets(19%),asthisisamuchmoreimportantreasontoinvestcapitalinNorth&SouthAmericaandChina.
StudiessuggestthatChinaandCentralEuropeservecompletelydifferentfunc-tionsfortheGermaneconomy.CentralEuropeismuchmoreattractiveduetoitsgeographicalandculturalproximity18;itoffersmoderateproductioncosts,high-ly-qualifiedhumancapitalandincreasingproductivity,andisthelocationfortheproductionofmorespecialisedandcomplexgoods,primarilyfortheEuro-peanmarket.Chinainturn,duetolowwages,largenumbersofengineers,averylargeavailabilityofsuppliers,theproximityofresources,anditshugeinternalmarket,isalocationformass-producedgoodsaimedatthelocalmarket,andalsoinpartat foreignmarkets.Akeydifferencebetweenthesetworegions is theflexibilityofproductionandthesecurityoftechnology.ProductioninChinain-volvestherisksoftechnologyleaksandunpredictablegovernmentactions,andthereisalsolessflexibilityinadaptingproductiontosignificantrecentfluctua-tionsinglobaldemand,asitrequiresquitesometimetoadapt.Italsorequiresmuchgreateroutlayonlogistics.CentralEuropeoffersamorestableinstitution-alframework,aswellashighflexibilityinadaptingproductiontoglobalfluctua-tionsindemand,sothatproducerscankeeptightercontroloftheproduction.
Figure 18.Themostattractiveregionsforresearchanddevelopment(onascalefrom1–unimportantto4–veryimportant)
00.51.01.52.02.53.03.54.0
2015 2025
Wes
tern
Eur
ope
USA
& Ca
nada
Chin
a
Indi
a
Cent
ral &
Eas
tern
Euro
pe
Braz
il
Japa
n
Sout
h Ko
rea
Mex
ico
Turk
ey
Russ
ia &
CIS
3.83.8
3.12.8
1.8
2.3
1.81.5 1.51.6
1.3 1.41.2 1.2 1.3 1.2 1.31.4
1.8
2.22.6
2.9
source:Surveyentitled‘R&DLandscapeby2025:EineTrendstudiederROIManagementConsultingAG.EinWegweiserdurchdieTrendsimglobalenManagementvonForschungundEntwicklung,2013,p.11
18 H.-G.Scheibe,ChinaoderOsteuropa?RichtigeAntwortaufeinefalscheFrage;http://www.roi.de/fileadmin/ROI_DIALOG/ab_DIALOG_38/ROI__DIALOG_41_web.pdf
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StudiessuggestthattheV4countrieswillnotbeaprioritytargetforinnovationtransferoverthenexttenyears.Accordingtoasurveycarriedoutamongthedecision-makersof60Germanmedium-andlarge-sizedcompanies,thecoun-triesofcentral&easternEuropearethefourthmost important locationforR&Dinvestment(jointly withIndia)afterWesternEurope,NorthAmericaandChina.Theirpositionwillbe strengthenedby2025,but theirdistance fromWesterncountriesandChinawillstillbesignificant.ThestudyalsofoundthatthepositionofCentral&EasternEuropewillbeparticularlyimportantintheR&Dfieldoftheautomotiveindustry,butlesssointheproductionsector.
Thereareslightlymoreoptimisticconclusionsfromotherstudies,whichshowthatGermancompaniesarebecomingmoreinterestedinmovingvariousinter-nalactivities,suchasfinancialandhumanresourcesmanagement,toforeignaffiliates. In2011,65%ofcompaniespreferred tokeep theirprincipalactivi-tiesinGermany,19%favouredtransferringsomeoftheseprocessestoCentral&EasternEurope,andonly3%tootheremergingeconomiessuchasBrazil,ChinaorIndia19.Itisprimarilytransportandlogisticscompaniesthataremov-ingtheiractivitiestoCentral&EasternEurope(25%ofthemhavebranchesintheregion),aswellasbanking(24%),andIT(24%).Companiesfromthebank-ing,energyandwatersupplyindustrieshavechosenCentral&EasternEuropeas theplace to test theirnewservicesand software.The survey shows thatthebiggestbarrierstomovingelementsoftheirinternalactivitytothisregionarequestionsofdatasecurityandaninsufficientknowledgeofEnglishintheregion.ItseemstobeintheinterestsofCentralEuropetosupportthetrendtomovethebusinessprocessoutsourcingservicesofGermancompaniestotheregion,sinceattractingsuchinvestmentsmayofferawayofescapingthemid-dleincometrap,.Theseworksallowhighaddedvaluetobemovedtothetargetcountriesandensuretheemploymentofhighlyskilledworkers.
19 Studie:OsteuropagewinntAkzeptanzbeimOutsourcing,14February2012;http://www.presseportal.de/pm/50272/2198077
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3. The investment climate in the v4 countries from the perspective of german investors
Overthepasttwoyears,theinvestmentattractivenessoftheV4countrieshasincreased considerably in the eyes of German investors. In 2014 Poland ob-tainedthebestvaluesofspecificindicatorsforinvestmentattractiveness.Datafrom the surveys confirms that German investors’ evaluation of Hungary’seconomicpolicyweremuchhigherthantheconsiderablecriticismintheGer-manpresswouldsuggest.
Figure 19.EvaluationoftheinvestmentattractivenessoftheV4countries(1–best,6–worst)
2013 2014 20152008 2009 2010 2011 2012
4.5
4.0
3.5
3.0
2.5
Slovakia
Poland
Czech Republic
Hungary
source: Economic Survey in Central and Eastern Europe 2015, the German Chamber of Industry andCommerce;http://www.ahkungarn.hu/fileadmin/ahk_ungarn/Dokumente/Bereich_CC/Publikationen/Konjunktur/2015/AHK-Konjunkturumfrage_MOE_2015_final.pdf
Inrecentyears,assessmentsoftheV4countries’investmentattractivenesshaveclearlyimproved.Intheperiod2006-12theseratingswerequitestable;theleaderwasPoland(2.8),theCzechRepublic(3),Slovakia(3.2)andHungary(3.6).TheV4countries’assessmentsimprovedsignificantlyin2013,whichmayhavebeentheresultofbettereconomicconditionsinthosecountriesthanintheeuro-zone.ItseemsthatGermaninvestorsmostlyappreciatedthegreaterpoliticalstabilityintheV4countriesthaninWesterncountries,aswellastheir lowerlevelsofdebtcomparedtoWesterncountries.ThebiggestchangewasPoland’sadvancetofirstplaceasalocationforinvestmentsasof2013,aswellastheworseningassessmentofHungary.TheattractivenessoftheHungarianeconomydeterio-ratedin2009,soevenbeforePrimeMinisterViktorOrbáncametopower,anddidsoagaininthethirdyearofhisrule.ThepoorerperceptionofHungaryisnotthereforeconnectedonlyto itscontroversialeconomicpolicy,butratherwiththeoveralleconomicsituation,linkedtoitshighdebt.
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Figure 20.ThepercentageofGermancompanieswhichintendtoincreaseinvestmentinindividualcountries(%)
2009 2010 2011 2012 2013 20140
10
20
30
40
50
60 [%]
Hungary
Slovakia
Czech Republic
Poland
source:EconomicSurveyinCentralandEasternEurope2015,asabove
Analysisofthediagramshowsthatthepercentageofcompaniesplanningtoin-creaseinvestmentafterthedeclinein2009hasincreasedandremainsstable.Inrecentyears,aroundathirdofthecompaniesinterviewedintendedtoboostin-vestment.DespitetheweakerratingofHungary’sattractivenessinthedatacitedearlier,thisdoesnotappeartohaveaffectedthedesiretoinvest.Inthisrespect,HungarydoesnotdiffersignificantlyfromtheotherV4states.InrecentyearsGermancompanieshavebeenslightlymore likely to increase investments inHungarythaninSlovakia.Poland(39%)exhibitedmorefavourableassessmentsthanHungary(35%),theCzechRepublic(33%)andSlovakia(30%).
Figure 21.ThepercentageofGermancompanieswhichintendtoincreaseemploymentinindividualcountries(%)
20152008 2009 2010 2011 2012 2013 2014
Czech Republic
Hungary
Poland
0
10
20
30
40
50
60
70
80 [%]
Slovakia
source:EconomicSurveyinCentralandEasternEurope2015,asabove
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IntermsoftheintentiontoincreaseemploymentintheV4countries,Polandreceived thebestassessment,an improvementoverrecentyears.43%of thecompaniesinterviewedintendtoincreaseemploymentonthePolishmarket,36%intheCzechRepublic,35%inHungary,and33%inSlovakia.
Figure 22.ThepercentageofGermancompanieswhichsupporttheintroduc-tionoftheeuroinindividualcountries(percent)
20152009 2010 2011 2012 2013 20140
10
20
30
40
50
60
70
80
90
100 [%]
Czech Republic
Hungary
Poland
source:EconomicSurveyinCentralandEasternEurope2015,asabove.
Therehave been clear changeswith respect toGerman investors’ attitudetowardsplans to introduce theeuro in those countriesof theV4whichdonot yet use it. Support for this issue amongGerman companies has fallensignificantlyintheCzechRepublic,PolandandHungarytosimilardegrees,probablyasaresultofthecrisisinthemonetaryunion;nevertheless,aslightmajoritystillsupports the introductionof thesinglecurrency.Whereas in2009about90%ofintervieweesbelievedtheadoptionoftheeurowouldbebeneficialfortheircompanies,in2014thepercentagewasonlyslightlymorethan 50%.Thismaymean that someGerman companieshavebeen takingadvantageoftheV4currenciesweakeningagainsttheeuro,whichensuresadditionalsavingsforthem.
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Figure 23.Investors’assessmentsofindividualaspectsofcompetitiveness:percentagesassatisfactoryorverysatisfactory(%)
0
20
40
60
80
100CzechRepublic Poland Slovakia Hungary
[%]
Membershipin EU
Employees'qualifications
Employees'productivity
and motivation
Quality ofacademiceducation
Labourcosts
Employees'availability
Quality andavailability
of local branches
source:EconomicSurveyinCentralandEasternEurope2015,asabove
WhencarryingoutadeeperanalysisofthefactorsthatmeettheexpectationsofGermancompanies,itisworthnotingthestrongpositionofPoland,whichleadsthewayinallcategories.Itsgoodpositionstemsprimarilyfromthequal-ityandavailabilityofitshumancapital.SlovakiacomparestoPolandinmanycategories,althoughitshowsworseperformancesparticularlyintermsofaca-demicquality,aswellas (toa lesserextent) thequalificationsof itsemploy-ees.Hungary’sresultsarelowerthanSlovakiaandPoland;Germaninvestorsappreciate(inPolandandSlovakiatosimilardegrees)onlyHungary’slabourcostsanditsaccessibilitytolocalsuppliers.TheCzechRepublicdeviatesfromtheothercountriesinalmostallcategories.Theirlowerpositionmay,ontheonehand,arise fromGerman investors’higherexpectationsof thecountry,andontheotherfromitslowereconomicperformanceinrecentyears.
Figure 24.Investors’assessmentsofindividualaspectsofcompetitiveness:percentagesasunsatisfactoryorveryunsatisfactory(%)
0
20
40
60
80
100CzechRepublic
Poland Slovakia Hungary[%]
Politicalstability
Predictabilityof economic
policy
Legalsecurity
Publicadministration
Infrastructure Conditionsfor innovation
Fight againstcorruption
source:EconomicSurveyinCentralandEasternEurope2015,asabove
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FromtheanalysisofthefactorsunsatisfactorytoGermaninvestors,itappearsthatPolandreceivedtheleastcriticism.OnlyHungaryisevaluatedlesscriti-cally thanPolandwithregardto thequalityof infrastructure.TheotherV4countrieshave similar ratings.TheCzechRepublic andSlovakia are judgedbyahigherpercentageofGermancompaniestobeworseatdealingwithcor-ruptionandpublictenders,stateadministrationandlegalsecurity.TheCzechRepublicisalsocriticisedforitssubstantialproblemswithpoliticalstability.HungaryinmostcategoriesisnotratedaslowastheCzechRepublicorSlova-kia,butfromthepointofviewofGermaninvestors,itisassessedmostcriti-callyintermsofthepredictabilityofitseconomicpolicy.
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Iv. The polITIcal prospecTs for economIc cooperaTIon
Inrecentyears,Germany’sgoodeconomicperformancehasaffordeditapriv-ileged position in Europe. It was no coincidence that Germany’s economystrengthenedsignificantlyaftertheaccessionofthecentralEuropeancoun-triestotheEuropeanUnion.Theguaranteedsecurityandeconomicdevelop-mentintheregionmeantthatitbecameacrucialoutletandanimportantin-vestmentdestinationforGermancompanies.Itsimportancewillincreaseinthecomingyearsduetopoliticalinstabilityintherestoftheworld,aswellastheneedtoovercomethreekeycriseswithintheEU:theeuro-zone,theRus-sian/Ukrainian conflict and themigration crisis. Due to their geographicalandeconomicimportanceforGermany,thecountriesofCentralEuropewillbeakeypartnerinaddressingtheseissues.ItseemsthattheformatoftheV4,whichhasproveditsusefulnessinthebattleforfundsfortheEUcohesionpol-icy,andovertheshapeoftheEU’senergypolicy,couldbeanimportantinstru-menttodefendtheinterestsofCentralandEasternEurope,especiallyinthedebateonreformingtheeuro-zone, theshapeoftheEU’senergypolicy,andmigrationissues.
AmajordownsidetotheeconomicrelationsbetweenGermanyandCentralEu-ropewillbethereformoftheeuro-zone.Themonetaryunion’spreviouscorrec-tiveactionshavebeeninadequate,andwillnotensureitssustainabilityinthelongterm,ifonlybecauseofthehighdebtmanycountrieshavenow.Anumberofproposalswhichhavebeendebated,suchasthecreationofaseparateparlia-mentoraeuro-zonebudget,threatentoreducetheimportanceofpreviouslyexistinginstitutionsundertheguiseofbuildingnewones.ThiscouldleadtotheexclusionofthosememberstateswhichdonotusethecommoncurrencyfromtheprocessofEuropeaneconomicintegration,ortotheinfringementoftheirinterests.ThisriskhasbeenhighlightedbytheUKgovernment,whichinexchangeforremainingintheEUexpectsthattheintegrationoftheeuro-zonewillnotleadtothedeteriorationofconditionsfordevelopmentinthosecountrieswhicharenotmembersofthezone.
Untilnow,Berlinhashadproblemsclarifyingwhattherelationshipbetweenthecountriesinsidetheeuro-zoneandthoseoutsideitshouldbeafterthere-formprocessisover.Forexample,somereformstothemonetaryunion,andinparticularconcerningthefinancialsector,mayaffecttheeconomiesoftheotherEUmemberstates,asthefinancialinstitutionsfromtheeuro-zonehavesignificantsharesonthemarketsoftheCzechRepublic,PolandandHungary.
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Thus these countrieswill in effect becomemembers of the banking union,eveniftheydonotformallyparticipate.Theglobalfinancialcrisisshowedthatmemberstates’excessivedependenceonbankinggroupsfromothercountriescarriesanincreasedriskofcrisesbeingtransmittedfromtheirparentcoun-triestothosewheretheyhavebranches.Worseconditionsforfinancingbusi-nessesmaythushindertheactivitiesofGermancompaniesinvolvedinCentralEurope.Germanyshouldthereforetakegreateraccountoftheinterestsoftheregion’scountriesduringtheprocessofreformingtheeuro-zone.Protectingeuro-zone banks from bankruptcy should not be associated with subsidis-ing them,whichcouldeffectivelymeangiving themunauthorisedstateaid,thusmakingiteasierforthemtocompeteontheV4countries’markets.Suchamovemayraisedoubts inCentralEuropeas towhether the liquiditypro-videdtobanksbytheEuropeanCentralBankinterfereswiththemechanismsofcompetitiononthebankingmarket,andthusmaintainsthestrongpositionofWesternEurope’sinstitutionsinCentralEurope.
WemayalsoimagineasituationinwhichBerlinneedspoliticalsupportfromCentralEurope.The insistenceonausteritypolicies insouthernEuropehasbecomeassociatedwithsignificantsocialcosts,suchasdecliningincomes,ris-ingunemploymentandtheradicalisationofsocieties.Thenewdivision intosouthern andnorthern EU countries seems to have become settled, at leastinthemediumterm,aseconomicinterestsbecomeconditionaluponlevelsofpublicdebt.Althoughthecrisisintheeuro-zonehasnowlastedforsomeyears,Germany’sbudgetary situationhas improved significantly, and itnowmorecloselyresemblesthatofthecountriesofCentralEuroperatherthanthoseofthesouth.GermanyisalsoawarethattheEuropeanCommission,ledbyJean--Claude Juncker,plays theroleofapoliticalactor,andnotsimply thatofanindependentguardianofthetreatieswhichissupposedtooverseefiscaldis-ciplinewithintheEU.ItcannotberuledoutthatthegovernmentsofFrance,Spain,Portugalor Italymaydecideto limit the implementationofausterity,whichwillfatethemtoaconfrontationwithBerlin.Inthisscenario,GermanywillseekalliesinEuropetopursuetheausteritypolicy.ThecountriesofCen-tralEuropeappeartobethenaturalchoiceforthis,togetherwiththecountriesofNorthernEurope.
Inrecentyears,energypolicyandclimatechangehavebecomeanimportantaxisofthedisputebetweenGermanyandthecentralEuropeancountries.Thereasonforthis,ontheonehand,wasBerlin’sdesiretopromoteanambitiousclimatepolicyinEuropeandaroundtheworld,inwhichitsawachancetosup-porttherenewableenergysectorinGermany,andtomeetpublicexpectations
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onrestrictingtheuseofnuclearandcoalplantsinenergyproduction.Ontheotherhand,theGermangovernmenthasnotdisplayedafullunderstandingofthestructuralconditionsinthecountriesofCentralEurope,whoseenergybalanceisbasedonconventionalfuelsources(includingnuclearenergy),andwhichdonothaveenoughfundstosubsidiserenewableenergysources.Inad-dition,afterthesuddenshutdownofsomenuclearpowerplantsinGermanyin2011,therewereuncontrolledflowsofrenewableenergyfromGermanoff-shorewindfarms,whichcausedproblemswiththestabilityoftheenergynet-worksintheCzechRepublicandPoland.
ItseemsthattheremaybeachancetobringthepositionsofGermanyandCen-tralEuropeintheareaofenergypolicyclosertogetheroverthenextfewyears.ThereseemstobeeverlessdeterminationwithintheEUtoimplementastrictclimatepolicy,andincreasingimportanceisbeingattachedtoindustrialpol-icy.Thistrendmaybeenhancedbythelowpricesofenergycarriersaroundtheworld,aswellasbytheprocessofreindustrialisationintheUnitedStates.Many EU countries will long continue to use conventional energy sources;forexample,theUnitedKingdomintendstobuildanewnuclearpowerplant.Moreover,decreasesinthepriceofoilandgasontheglobalmarketalsoclearlyfavoursuchatrend.ThesituationinGermanyisnoexception;Berlinstillhasnoideahowtoreplaceasignificantamountofthepowerwhichhadbeengen-eratedbycoal.RecentdecisionsbytheGermangovernment,suchaslimitingtheamountofsubsidiesforrenewableenergy,aswellassubsidisingcoalinre-turnforkeepingitasreservestocks,showthattheGermaneconomymaynotbeabletobearthecostsofatoorapidenergytransformationrelatedtotheim-plementationoftheEU’sclimategoals.ThereforethechanceforanagreementbetweenGermanyandtheV4countriesisgrowing.WemayimagineasolutioninwhichthecountriesofWesternEurope,thankstotheirfinancialcapabili-ties,maintainlargecapacitiesofrenewableenergy,whereasthecountriesofCentralEuropecouldstabilisetheenergysystemintheEUthankstothesig-nificantcapacityoftheirconventionalpowerplants.
Moreproblematicthandifferencesinthefieldofclimatepolicy,however,maybethedifferencebetweenGermanyandtheV4countriesovertheissueofdi-versifyinggas supplies. In 2015CentralEuropewasonce again surprised tolearnthatGazprom,togetherwithGermanandFrenchcompanies,wasplan-ningtoaddanotherbranchtotheNordStreamgaspipeline.ThiswasanevenbiggersurpriseastheEUhadinrecentyearsdemandedagreaterdiversifica-tionofenergysuppliers,apostulatesupportedbyGermany.ForecastssuggestthatexpandingNordStreamwouldonlymakeeconomicsenseifitisexempted
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fromtheEU’senergylegislationandRussiancompaniesareabletouseitsen-tirecapacity.EvennowtheprojectisraisingconcerninthecountriesofCen-tralEurope,becauseitwilldeprivesomeofthemoftheprofitsfromgastransit,anditalsoinvolvestheriskofmakinggassuppliestotheregionlesscertain.
IfmigrationistheprocesswhichmostaffectsEuropeanpolicyoverthenextfewyears,itmayalsobeafactorwhichstronglyconsolidatestheV4countriesinothercases.Thesecountries’attitudemayconflictwiththeinterestsofGer-many, if it continues to insistonadmittinga largenumberofmigrantsandredistributingthemamongEUcountries.Inthelongterm,however,itseemsunlikelythatBerlinwillcarryoutsuchapolicy,duetothegrowingresistanceoftheGermanpublic.TheGermangovernmentmustalsobeawarethatatooliberalmigration policymay inducemigration pressure on the countries ofCentralEurope,whichhavealreadybeenexposedtoasignificantinfluxofpeo-pleasaresultoftheRussia/Ukraineconflict.Suchprocessescouldthereforeleadtopoliticalandsocialproblemsthatwouldadverselyaffecttheeconomy.
AnimportantroleinshapingthepoliticalandeconomicrelationshipbetweenGermany and the V4 countries will be played by public opinion. In recentyears,GermannewspapersandexpertshavebeenfocusedontheproblemsofsouthernEurope,whichhasreducedtheirinterestinCentralEurope.PublicopinioninGermanyisunawareofthedegreetowhichtheregion’seconomicrelationswithGermanyhavedeveloped.Sincethestartofthemigrationcrisis,manyGermanpoliticianshavetriedtopersuadethememberstatesofCentralEuropetochangetheirmigrationpolicybythreateningtowithdrawEUfund-ing,whileGermancompaniesareamongthebiggestbeneficiariesofcontractsfinancedfromthestructural funds.TheGermanmediahavebeenspeculat-ingonthepossibilitythattheSchengenareawillbelimitedtoGermanyandtheBeneluxstates.OneofthebiggestlosersfromsuchasolutionwouldbetheGermanautomotivesector,whoseabilitytotransportto&fromtheirfactorieslocatedinCentralEuropewouldbehampered.Theseexamplesshowincreas-inglyclearlythatthereisnotenoughawarenessinGermanyofitseconomicdependencywiththeregionofCentralEurope.Thisalsoresultsfromthere-strictionoffundstofinanceresearchandexpertiseconcerningtheregion20.
20 TheexampleofBudapestsaysalot,assomeoftheGermaninterlocutorsinterviewedinHun-garystatedthatthemediainGermanyhadreactedtooemotionallytothepoliticalprocess-estakingplaceinthiscountry.Themisunderstandingofthesituationwascompoundedbythelackofrealknowledge;thesubjecthadoftenbeenraisedbyGermancorrespondentsfromVienna.
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v. appendIX
The InvolvemenT of german companIes In selecTed secTors In The member sTaTes of The vIsegrad group
1. The automotive sector
Theautomotivesectorhas,nexttothemachinesector,beenamajorsourceofexportcompetitivenessfortheGermaneconomyinrecentyears.AnimportantrolehasbeenplayedinthisprocessbythecountriesofCentralEurope,whichhave become a focal point for car production, bringing together theworld’smostimportantmanufacturersandsuppliers.MostGermancompaniesdur-ingthisperioddecidedtolimitproductioninWesternEurope,andincreaseitinCentralEurope.
Thefinancialcrisishasverifiedmanypreviouslyexistingeconomictenets,in-cluding the idea that aneconomycanonlybebasedon thefinancial sector.ManyeconomistshavedeemedGermanytobeagoodmodeltofollow;inrecentyearsitseconomyhasbeencharacterisedbyhighgrowthdynamics,astrongindustrialbase,aflexiblelabourmarketandhightradesurpluses.Oneofthemajorfactorsforstableeconomicdevelopmentwasthegoodconditionoftheautomotivesector.In2013,5.4millioncarswereproducedinthefactoriesofGermancorporationsinGermany,and8.6millionabroad21.Untilthefinancialcrisis,carproductioninGermanyexceededthenumberproducedabroad,butafter2010thisratiowasreversed.Germanautomotivecompaniesaredistin-guishedby theshareofpartsmanufacturedabroad throughout theproduc-tion.ThecompanieswhichmanufacturemostpartsoverseasareVolkswagen(79%),thenAudi(53%),Daimler(40%)andleastofallBMW(36%)22.
TogetherwithChina,CentralEurope isoneof themost important locationsforvehicleproduction.Intotal,throughoutCentralEurope(theV4,RomaniaandSlovenia)33plantsoperate,producing3.6millionvehicles,representing21%ofEUproduction.ThebulkofthosecarsaresoldonthemarketofWestern
21 E.Heymann,ZukunftdesAutomobilstandortsinDeutschland,2014;https://www.dbre-search.de/PROD/DBR_INTERNET_DE-PROD/PROD0000000000333574/Zukunft+des+Au-tomobilstandorts+URDeutschland.PDF
22 W.Olle,InvestitionenfolgendemWachstum:AuswirkungenaufdenAutomobilstandortDeutschland,ChemnitzAutomotiveInstitute,2015;http://cati.institute/wp-content/up-loads/2015/07/URKurzstudie_Juni_15.pdf,p.16.
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Europe,andonlyapproximately700,000arepurchasedbyconsumersinCen-tralEurope23.AmongGermancarcompanies,VolkswagenandAudihavethemostmanufacturingplantsinCentralEurope.OnlyBMWhasnofactoriesintheregion.CentralEuropeoccupiesaspecialpositionintheGermanautomo-tiveindustry.Typically,businessesinthisfieldinvestabroadinordertopro-duce for localmarkets;however, their investments inCentralEuropeare toalargeextentaimedatreducingproductioncosts24.
Asearlyasthe1990s,automotivecompaniesinvestedsignificantresourcesinCentralEurope,as theycouldseetheadvantagesof thesecountries,suchasstablepoliticalframeworks,geographicalproximityandstrongindustrialtra-ditions.Inrecentyears,therehasbeenacleartendencytobuildupplantsinCentralEuropeasakeyelementintheGermancorporations’supplychain,tothecostofcountries insouthernEuropeinparticular. Inrecentyears,AudihasbuiltanewlineofcarsinGyőr,DaimlerafactoryinKecskemét,Volkswa-genanassemblylineofcompactcarsatitsplantinSlovakia,andwillsooncom-pletetheconstructionofafactoryinPoznan.Opel(oneofthelargestAmericancompaniesinGermany,whichhasthreeproductionfacilitiesthere)hasmovedtheproductionofoneofitsmodelsfromRüsselheimtoGliwice.ForGermancompanies,movingfactoriestoCentralEuropewasanopportunitytoreduceproductioncosts,whichwasanimportantcompetitiveadvantage,especiallyintheperiodofglobaleconomicdownturnintheworld,inwhichcustomershaveattachedgreat importancetothepriceofcars.MovingevermoreimportantproductionphasestoCentralEuropecouldalsomotivatecompaniestomovesomeof theirR&Dfacilities tothisregion; itwouldbemostadvantageous ifthoseprocesseswereclosertotheproductionsites.AnadditionalincentiveforGermancompaniestoexpandtheiractivitiesinCentralEuropeisthegrowthintheregionofawholeclusterofautomotivecompanies,whichhavebeenin-vestedinbycompaniessuchasHyundai/KIAintheCzechRepublic,Peugeot/CitroëninSlovakia,SuzukiinHungaryandFiatinPoland.Thankstothepres-enceofthemostimportantglobalautomotiveproducersintheregion,therearenoproblemswiththeavailabilityofsuppliers.Manycompaniesinthesec-torcollaboratewiththeGermanautomotivecompaniesassubcontractors.Forexample,BoschhasfactoriesinHungarywhichproducecarparts.
23 S.Mittelhäuser, FDI alsMotor für die Autoindustrie in Osteuropa, 2015; https://owc.de/2015/07/22/fdi-als-motor-fuer-die-autoindustrie-in-/osteuropa
24 W.Olle,InvestitionenfolgendemWachstum:AuswirkungenaufdenAutomobilstandortDeutschland,ChemnitzAutomotiveInstitute,2015;http://cati.institute/wp-content/up-loads/2015/07/URKurzstudie_Juni_15.pdf,p.4.
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ThethreattomovejobstoCentralEuropeplayedanimportantroleinnegotia-tionswiththetradeunionsintheautomotivesector.Itisworthnotingthatinthelastdecade,Germanyhaskeptitsrisesinlabourcostsrelativelysmall,andthethreatoflosingGermanjobstoCentralEuropehasbeenwidelyreportedinthemedia.Infearoftheseprocesses,theGermantradeunionspresentedfairlylowwagedemands,andpreferredtomakeagreementswithemployerswhichwouldensurethatjobsweresaved.Thebusinessesappliedastrategyofencour-agingcompetitionbetweenplants toproducespecificmodels.ThequestionofthesaleofOpelbyGeneralMotorsin2009alsohadgreatresonanceinGermany;thistransaction(whichintheenddidnotcometofruition)wasdescribedinthepressasthreateningthousandsofjobsinGermany,andevenChancellorAngelaMerkelweighed inon thematter.Manycar companieswithheadquarters inGermanydeliberatelychoseastrategyofconstructingplantsinCentralEuropewhichwereeffectively twinsof theircounterparts inGermany,whichwouldhavebeencapableofquicklytakingovertheproductionofcarmodelsiftherewasnoagreementwiththetradeunionistsfromfactoriesinGermany.
The data shows that the increase in car production in Central Europe hasharmedtheindustryinsouthernEurope.Inrecentyears,manyoftheautomo-tivecompaniesremaininginthosecountrieshavenotbeenfullyutilisingtheircapacity,andItalytodayproduceshalfasmanycarsasSlovakia.Intheperiod2003-12theproductionofcarsineasternEurope(includingRussia)increasedby2.5million;duringthesameperiod,thenumberofcarsproducedintheEU-15fellby3.5million,withthebiggestdeclineintheyears2008-1225.Thispro-cessonlyaffectedGermanytoalimitedextent,whereproductionlevelshaveremainedrelativelystable.
2. The electro-mechanical sector
Theelectro-mechanicalfieldisthesecondmostimportantsectorintheGer-maneconomyaftertheautomotiveindustry.TheV4countriesarequiteimpor-tantsubsidiariesfromthepointofviewofthebiggestGermanelectro-mechan-icalcompanies,andtheirprospectsfordevelopingcooperationarefavourable.Manyofthecompaniesinthis industryarecommittedtoCentralEuropeasasubcontractorforcarcompanies.
25 VerbandderAutomobilindustrie[AutomotiveIndustryAssociation];https://www.vda.de/de
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Germany’selectro-mechanicalcompanies,incontrasttoitsautomobilecompa-nies,decidednottomovetheirproductionofadvancedgoodstoCentralEurope,andhavepreferredtofocusonmanufacturingthemachines’simplestcompo-nentsintheregion26,andkeepingthemostimportantproductionprocessesinGermany.Due to thedemographicdecline inGermany,aswellas the limitedcapacityoftheGermanlabourmarkettotrainasufficientnumberofengineers,theirinterestincreatingbranchesintheV4countriesshouldrise.Itisalsopos-siblethatthecompanies’internalprocesses,suchasaccountingorprocurementservices,couldbefarmedouttoserviceprovidersfromCentralEurope.How-ever,therewouldbeanumberofdifficultieswithcoordinatingthem,suchasmissingdeadlines,orthequalityoftheservicesprovidedbeingtoolow.ThesecompaniescountonthepossibilityofwinningcontractsinCentralEuropeoverthenext fewyears from funding tomodernise theenergy sector, suchasEUstructuralfunds,theEU’sConnectingEuropefund,theEuropeanInvestmentBank, or theHorizon2020programme27.Theactivityof theGermanelectro-mechanicalcompaniesinCentralEuropecanbetracedbacktotheexampleofBosch/Siemens,whichownstheSiemensandBoschcompanies.
Table 2.IncomeandemploymentatselectedbranchesofSiemensin2014
country Turnover (€ billion) number of employees (thousands)
germany 10.9 115
usa 12.9 46.3
china 6.4 32.3
czech republic 0.5 9
france 1.6 6.4
spain 1.0 3.2
russia 1.7 3.1
poland 0.8 1.3
slovakia 0.3 1.3
hungary (no data) - -
source:www.siemens.com
26 StrategischePlanungbringtEinsparungenbis15%;http://www.beschaffung-aktuell.de/home/-/article/16537505/26961417/Strategische-Planung-bringt-Einsparungen-bis-15%25/art_co_INSTANCE_0000/maximized/
27 OsteuropaglänztteilweisemitstarkenWachstumszahlen,2015;http://www.ke-next.de/in-dustrie/osteuropa-glaenzt-mit-teilweise-starken-wachstumszahlen-358.html
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Siemensemploysapproximately343,000employeesworldwide,anditsturno-veris€72billion.TheCzechRepublic,PolandandSlovakiaareresponsiblefor2.2%ofitsturnoverand3.4%ofitsemployment.Thecompany’sbranchesintheregionarenotitslargestandemployrelativelyfewpeople,withtheexceptionoftheCzechRepublic.SofaritdoesnotseemthattheV4countrieswillbethefuture location for Siemensplants, because the companyhas previously onlybeeninterestedinemployingsignificantnumbersofworkersinGermanyandthelargestglobalmarkets,suchasChinaandtheUnitedStates.TheexampleoftheCzechRepublic,however,showsthatSiemens’semploymentinV4countriesmayriseduetothegrowingdemandforengineers,ofwhichtheGermanlabourmarketnolongerprovidesasufficientnumber.ThisisconfirmedbySiemens’soperationssuchastheconstructionin2010inŽilinaofanengineeringcentre,andthecreationofresearchunitsinŁódźandWarsaw.TheV4countriesmayalsobenefitfromSiemens’s interestduetotheirsignificant investment inur-banenergyandmodernisationprojectsfinancedfromEUfunds.Amongothermoves,SiemenshasinrecentyearsparticipatedinthemodernisationofpowerplantsintheCzechRepublic,PolandandSlovakia.Inaddition,thecompanymaymovetoCentralEuropesomeoftheservicesthatwillbeimplementedthereforotherglobalbranchesasawhole,asevidencedby the transferof someof thecompany’saccountingtasksforEuropetoSlovakiain2011.AnothernewtrendinSiemens’sactivityinCentralEuropeisitsjointinvolvementwithPolishproduc-ersinacquiringcontractsabroad,includingRussia.
Table 3.IncomeandemploymentofselectedBoschaffiliatesin2014
country Turnover (€ billion) number of employees (thousands)
germany 49 105.5
china 7.2 54.5
usa 9.1 16.6
hungary 2.7 10.4
france 2.3 7.7
czech republic 1.6 7.7
poland 0.6 4.2
russia 0.7 3.8
slovakia 0.3 1
source:www.bosch.com
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InthecaseofBosch,CentralEuropehasbeenquiteasignificantplaceforin-vestment. The company’s branches in the Czech Republic andHungary areamongthelargestintheworldintermsofemployment.Boschemploysalargenumberofworkers,althoughtheygeneratearelativelysmallturnover,whichmeansthatproductsaremanufacturedheretobeexportedontoothermar-kets.AsinthecaseofSiemens,Boschmayalsobeexpectedtofurtherincreaseitsemployment,especiallyofengineers,inplantslocatedintheV4countries.AnimportanteventinEuropefortheBosch-SiemensGroupwastheacquisi-tionin2013ofZelmer,anappliancesmanufacturerinPoland.ThemainreasonfortheacquisitionwasprobablytoincreaseproductioninEuropeinthefaceofincreasingcosts.
3. The logistics sector
Oneoftherelativelylittle-knownfactsrelatedtotheaccessionoftheCentralEuropeancountriestotheEuropeanUnionwastheremarkabledevelopmentoftheGermanlogisticsindustry.Inrecentyearsithasgrownmuchfasterthantheeconomyasawhole;intheperiod2003-8,revenueincreasedby4.6%an-nually,whereastheaveragegrowthhasslowedto3.4%overrecentyears.Thegrowingcomplexityofthemanufactureofproductsandthedistributionofthestagesoftheprocessamongdifferentregionsmeansthatthelogisticsindustryhasgainedmorethanaverage.Animportantreasonforthis,inadditiontothehighgrowthofglobaltrade,wasGermany’sadoptionafterEUenlargementofthepositionas thecentral logisticshub,an important intermediatepoint intradebetweenEastandWest,especiallyinthefieldsofrailandmaritimetrans-port.Thelogisticscompanieshavebenefited,aboveall,fromthetransportofcomponentsandrawmaterialsfromtheemergingeconomiestothefactoriesofGermancompaniesinCentralEurope,sotheycancashinoncemorefromthetransportoffinishedproductsgoingintheoppositedirection,ortoeasternEurope.ManyGermanlogisticscompanieshavedecidedtoopenbranchesinthecountriesofcentralandeasternEurope,asthiswaspartofanaturalpro-cessofbringingtheservicesfortheirclientsfromtheGermanautomotiveandelectro-mechanical industries.Given thesephenomena,we can see that theGermanlogisticsindustryhasbeenamajorbeneficiaryofthedevelopmentofinfrastructureinCentralEuropefinancedbytheEU’scohesionpolicy.
4. The energy sector
GermanenergycompaniesarestillimportantplayersontheV4markets,al-thoughinrecenttimestheirpositionhasbeguntowane.TheGermanenergy
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transformation,whichacceleratedin2011afterthedisasteratthepowerplantin Fukushima, forced the closure of the oldest nuclear power stations andtheirgradualphasingoutfromthemarketby2023,thegrantingofsignificantfundingforrenewableenergy,andfavouringitsaccess to thenetwork.ThisoverlapswiththenegativeeconomicsituationinEurope,wherethedemandforelectricityhasnoticeablydropped;thishasreducedtheprofitsofGermancompanies,whichinadditionhavetocontendwithhighlevelsofdebt.TheseprocesseshaveunderminedthepositionandprofitabilityofleadingGermancompanies,suchasE.ONandRWE,whosemainsourceofincomewasthepro-ductionofenergyfromconventionalsources,namelynuclearpower,gasandcoal28.Duetothesecompanies’difficultfinancialsituation,CentralEuropebe-cameasourceforthemtogeneratefundsbysellingpartoftheirassets.Thedifficultfinancialsituationalsomeanttheydidnothavetheresourcestoin-creasetheirinvestmentsintheregion,andhavebeenunabletoimprovetheirmarketsituation.Theyhavemadeinvestmentsinrecentyearsonlytomakesavings.Forexample,RWEdecidedtomovesomejobsfromGermanytoPolandaspartofitsfinancialsavings29,openingajointservicecentreinKrakówin2013,wherefinancialsettlementandhumanresourcesmanagementarecar-riedout.Initially100specialistswereemployedthere,whichwasassociatedwithredundancies inGermany.E.ON, likeRWE,decided to saveonstaffingcostsbymovingpartofthecompany’sactivitytoCluj-NapocainRomania.Ger-manenergycompanieshavealsostruggledwithdifficultiesinHungary;theywereforcedtoselltheirassetsinthegassectortotheHungariangovernment,andwerealsostrickenbythefinancialeffectsoftheHungariangovernmentbodies’decisiontolowerenergyandgaspricesby20%30.DespitetheGermanenergycompanies’conflictwiththegovernmentinBudapest,however,theyhaveretainedtheirmostimportantassetsontheHungarianmarket.
FromananalysisofthesituationoftheGermanenergycompanies,itappearsthattheirpositioninCentralEuropehasweakenedinrecentyears.RWEhasfocuseditsmainventureinCentralEuropeontheholdingcompanyRWEEast,whichinadditiontotheV4countriesincludesCroatia,RomaniaandTurkey.
28 R.Bajczuk,K.Popławski,Niemcy:Ukrytekosztywyjściazatomu[Thehiddencostsofditch-ingnuclearpower], Komentarze OSW,25June2014;http://www.osw.waw.pl/pl/publikacje/komentarze-osw/2014-06-25/niemcy-ukryte-koszty-wyjscia-z-atomu
29 RWEverlagertStellennachKrakau,Die Welt,15May2013;http://www.welt.de/newstick-er/dpa_nt/infoline_nt/wirtschaft_nt/article116214659/RWE-verlagert-Stellen-nach-Krakau.html
30 RWEandE.ONsellingupinHungary,28March2013;http://www.powerengineeringint.com/articles/2013/03/RWE-and-EON-selling-up-in-Hungary.html
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The V4 countries, however, yield the predominant part of its revenues andprofits.IntheCzechRepublic,RWEgainsthemostrevenuefromamongtheV4countries.Itisthefifthlargestsupplierofenergythere(2TWh)andthelarg-estsupplierofgas(38TWh);italsoownssomepowerplants.Thecompanyalsocontrols88%ofgasnetworksinthiscountry(withatotalpipelinelengthof64,000km).IntheCzechRepublic,RWEhassolditscompanyNet4Gas,whichsoldandstoredgasfromtheAllianzandBorealisconsortium,aswellas35%ofitssharesintheelectricitynetworkcompanyMacquarie.InPoland,RWEis one of the largest foreign investors; it is thefifth largest energy supplier(6TWh/year),andenteredthegassectorin2014.InPoland,RWEhasnumer-ouswindfarms,andviathecompanyRWEStoenOperatoritcontrols1.8%ofthe country’s transmission networks (15,000 km). One feature distinguish-ingRWE’sactivityinPolandfromtheotherV4countriesistheestablishmentthereofsixwindfarmsthroughitscompanyRWEInnogy,whichmainlyoper-atesinWesternEurope31.InSlovakia,RWEisthethirdlargestenergysupplier(3TWh)andthesecondlargestsupplierofgas(13TWh).Thecompanycontrols22.8%ofenergynetworks inSlovakia (witha lengthof21,000km). InHun-gary,RWEisthesecondlargestenergysupplier(10TWh),andisthemajorityshareholderofseveralbrown-coalpowerplantsinthiscountry.Thecompanynolongerhassharesinthegassector,asitsolditsminoritysharepackagestotheTIGAZbusinesses.RWEhassolditssharesintheBudapestWaterworks.In2014,RWEsoldtheFőgázcompanytothestate-ownedMVMcompany.
AsinthecaseoftheRWE,E.ONwasalsoforcedtosellmanyofitsimportantassets inCentralEurope.E.ONbegan itsoperation In theCzechRepublic in2004.AfterthederegulationoftheCzechmarket,thecompanyacquiredasig-nificantstakeinitthankstoprivatisation.Itcurrentlyholds19.5%oftheshares(10.2TWhofenergy,secondafterthestate-ownedČEZ)ontheinternalelec-tricitymarket,and7.5%inthegassector(6.6TWh).Thecompanyranksamongthe largest foreign investors in the Czech Republic, employing 2500 work-ers.E.ONalsoowns27.6%oftheCzechRepublic’selectricitynetworks(witha lengthof66,000km)and12.1%ofthegasnetworks(witha lengthof8800km). Interestingly, in2015E.ONsold its interests inpowerplants in Italy totheCzechfirmEPH.InPoland,E.ON’sassetsareminor;throughthecompanyE.ONEdisEnergy,itholdssharesinthedistributionofheatingforcitiessuchasSkarżysko-Kamienna,SzczecinandWarsaw.Inaddition,thecompanyhasbuiltfivewindfarmsinPoland,generatingatotalof99MW,andplanstobuild
31 RWEInnogygenerationdata;http://rwe-renewableslive.com/#/map/EU/PP1
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twomore.E.ONbeganoperatinginSlovakiain2002,andhasa49%stakeinthelargestenergydistributorZSE(therestisownedbythestatefund).E.ONsells21.9%ofSlovakia’senergy(6TWh)and1.4%ofitsgas(0.8TWh),controls40.2%of theenergynetwork (length37,000km), andalsohasonegas-fuelledandfourbiogas-fuelledpowerplants in thecountry.Thecompanyemploys 1800workersinSlovakia.In2013,E.ONandGDFSuezsolditssharesintheSlovakgascompanytotheCzechcompanyEPH,whichithadacquiredintheprocessofprivatizationin2002,andwhichemploys4000workers.In2014,thesamecompanysolditssharesingasreservoirsinSlovakia.InHungary,E.ONisoneofthelargestcompanies,providingclientswith33.2%ofthecountry’senergy(35.2TWh)and10.4%ofitsgas(9.1TWh).Thecompanyalsoowns52%ofHun-gary’senergydistributionnetworks(84,000km)and22%ofitsgasnetworks(18,000km).Inrecentyears,E.ONhassoldpartofitsstakeontheHungarianmarket.In2013,itsoldtheFöldgázcompany(whichdistributesandstoresgas)tothestatecompanyintheMVMgroupfor€1.1billion;ithadacquiredFöldgázintheprivatisationprocessin2004for€2.1billion.
5. The retail sector
GermancompaniesfromtheretailsectorhavebeensteadilyexpandingtheirpresenceintheV4countries,whichconstituteanimportantmarketforthem.Inrecentyears,theexpansionoftheretailtradehasarousedgreatcontroversyinalltheV4countries;theCzechRepublic,SlovakiaandHungaryhavebegunattemptingtoimposecertainrestrictionsontheindustry.However,thesenewrestrictionshavenotdiscouragedcompaniesfromGermanyfromincreasingtheirinvestmentintheregion.ThreefinancialgroupsmaybenamedasthemajorGermanplayerspresentintheV4countries:SchwarzAG(includingtheLidlandKauflandstores),MetroAG(MakroCash&Carry,MediaMarktandSaturn),andtheretailchainRossmann.
Table 4.ThenumberofLidlstoresinselectedcountries
country lidl Kaufland
germany 3300 640
france 1400
united Kingdom 568
spain 530
poland 525 190
Italy 511
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country lidl Kaufland
netherlands 400
belgium 290
czech republic 250 120
romania 148
slovakia 121 50
hungary 116
source:Lidl,https://de.wikipedia.org/wiki/Lidl#cite_note-52
In2015SchwarzAGovertookCarrefouras the largestretailcompanyinEu-rope.CentralEuropehasplayedanimportantroleinthecompany’sdevelop-ment,becauseitislocatedinalargenumberofestablishments(about10%oftheLidlbranchesworldwideand30%oftheKauflandoutlets32).Inviewofthefavourable prospects for growth in the V4 countries, the company plans toboostitsinvestmentsthere.In2013,theV4countriesgeneratedabout10%ofLidl’stotalsales(€54billion)33.InPoland,Lidl’sshopssoldgoodswithavalueof€2.7billioneuros;intheCzechRepublic€1.1billion,inSlovakia€800millioneuros,andinHungary€700million34.
It ispossiblethatLidl’s lowsalesinHungaryresultedfromBudapest’spolicyofblockingtheexpansionofforeignretailers.In2015thecountry’sauthoritiesre-jectedLidl’sappealtobuild28newsupermarkets35.ForeignretailchainshavealsocriticisedthedecisionoftheHungariangovernmenttobantradingonSunday,aswellasthethreattoclosesupermarketswhichhaveshownlossesfortwoconsecu-tiveyears.Inpreviousyearsthegovernmentimposeda‘crisistax’ontheforeignchains(between2010and2013),afeeforofficialmonitoringoffoodstuffs(intheformofataxonthesaleoffoodproducts),aswellasataxonadvertisingrevenues.Hungarywasnottheonlycountrywhichtriedtoimposegreaterrequirementsonforeignretailnetworks;asimilardebatetookplaceinSlovakia.Itwasreportedtherethatforeigncommercialnetworksonlysold45%localproductsinhypermar-ketsand51%insupermarkets,whileinSlovakchainsthesefiguresrangedfrom
32 FromKaufland’swebpagesinindividualcountries.33 Lidltoinvest9billioninCzech,5December2015;http://www.internationalsupermarket-
news.com/news/2130634 Romania,fourthmarketintheregionforLidlbasedonsales,11September2015;http://www.
romania-insider.com/romania-fourth-market-region-lidl-sales/155357/35 Since2012alawhasbeeninforceinHungary(theso-calledPlaza-Stoplaw)requiringaper-
mitfortheconstructionofanystoregreaterthan400m²inarea.
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57%to67%.InLidlstoresonly19%oftheproductscamefromSlovakia36.Asare-sult,theSlovakgovernmentintroducednewregulationsconcerningtherelationsbetween foreignretailnetworksandsuppliers.All additional feespaidbypro-ducersofgoodsfordisplayingtheirgoodsontheshelveswerewaived;thesaleoffoodproductsbelowthecostofproductionwasprohibited(apartfromafewex-ceptions);theperiodwithinwhichsuppliersarerequiredtoguaranteetheretailnetworksafixedpricefortheirgoodswaslimitedtothreemonths;andpaymentdeadlinestosupplierswerereducedto45days37.Verysimilarprovisionswerein-troducedbytheCzechgovernment,whichalsolimitedthepaymentdeadlinestosuppliers(to30days),bannedthesaleoffoodproductsbelowthecostofproduc-tion,andimposednewresponsibilitiesontheforeignretailnetworksrelatedtotheissueofcostsanddisplayofproductsinshops38.Againstthisbackground,PolandstandsoutfromtherestoftheV4countries,astheretherulesgoverningrelationsbetweentheforeignretailnetworksandthesuppliersaredefinitelymilder.Oneofthefewregulationsrestrictingabuseonthepartoftheretailnetworkswastheintroductionin2013ofanobligationtosettlepaymentfordeliverywithin30daysorpaystatutoryinterestforexceedingthetimelimit.
InspiteoftherestrictionsimposedontheretailtradeintheCzechRepublic,SlovakiaandHungary,noneofthecommercialnetworkshaswithdrawnfromthosecountries.TheattractivenessoftheregionhasalsobeenconfirmedbyLidl,whichin2014announcedsignificantrisesinexpenditureoninvestmentsinallfouroftheV4countries.
Inrecentyearscontroversywasarousedbyareportaboutthesupportprovid-edtotheSchwarzgroupbytheEuropeanBankforReconstructionandDevel-opment39.ThecompanyallegedlyreceiveUS$900millionofpublicsupport,intheformoflow-interestlong-termloansforexpansioninCentralEurope.Bankjustifiedthissupportbyadesiretocreatejobsandoutletsforlocalproducers,aswellasofferinghigh-qualityproductsforconsumers.
36 VertriebundHandelsvertretersuche-Slowakei,2016;https://www.gtai.de/GTAI/Naviga-tion/DE/Trade/Maerkte/Geschaeftspraxis/vertrieb-und-handelsvertretersuche,t=vertrieb-und-handelsvertretersuche-slowakei,did=1399410.
37 Ibid.38 VertriebundHandelsvertretersuche:TschechischeRepublik,2012;https://www.halle.ihk.
de/blob/halihk24/international/Aktuelles/downloads/626060/3844a27061455b2aa5272434e5985248/Vertrieb_und_Handelsvertretersuche_Tschechien_gtai-data.pdf,p.5.
39 Lidlhasreceivedalmost$1bninpublicdevelopmentfunding,Guardian,2June2015;http://www.theguardian.com/business/2015/jul/02/lidl-1bn-public-development-funding-super-market-world-bank-eastern-europe
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Table 5.ThenumberofshopsandemploymentfiguresinindividualbranchesofMetroAG
country number of shops employment (thousands)
germany 951 87
Italy 166 10
russia 136 23
poland 112 11
spain 109 8
france 93 8
china 78 12
Turkey 67 7
romania 36 6
hungary 34 4
ukraine 33 4
czech republic 13 3
slovakia 6 1
source:http://www.metrogroup.de
FortheMetroAGgroup,CentralEuropeisamarketofsimilarimportanceasitisfortheSchwarzgroup.IntheV4countries,Metroowns8%oftheshopsandemploys8%oftheworkers.Thegroup’sinvolvementintheregionhasde-creasedinrecentyears,afteritsolditshypermarkets,inPolandamongoth-ers,toAuchan.StablegrowthprospectsinCentralEuropewereimportantforMetroasitstabilizeditsresults,whichinrecentyearshavebeenstronglyim-pactednegativelybythesituationinGreece,RussiaandUkraine.
Table 6.ThenumberofRossmannshopsinindividualcountries
country number of shops
germany 1930
poland 1000
czech republic 124
hungary 180
Turkey 50
albania 8
source:http://www.rossmann.de
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Rossmann is a different case from the previously analysed companies, be-causeitsforeignexpansionhasfocusedalmostexclusivelyonCentralEurope.Thecompanyhasaturnoverof€7.9billion,26%ofwhichwasmainly intheCzechRepublic,PolandandHungary.Giventhat96%ofitsshopsabroadwerebrancheslocatedintheV4countries,provisionshouldbemadethattheygen-eratealmost€2billioninsales.Foreignsalesgrewatarateof14%,whichwastwiceashighasgrowthinGermany.Rossmannemploysabout17,500workers(37%ofallemployees)intheV4states.
6. The banking sector
TheGermanbankingsectordecidednot toparticipate substantially inCen-tralEuropeinthe1990s;andthissituationhasnotchangedsincetheV4coun-triesjoinedtheEU.ThedominantshareholdersinbanksinCentralEuropeareinvestors fromAustria, Belgium and Italy. Overall, foreign banksmaintainadominantmarketpositioninalltheV4countries;theyownalmost100%ofassets inSlovakia, 87%of assets inHungary,82%of theassets in theCzechRepublicand62%ofassets inPoland40.Onlysmall sharesof theV4marketshavegonetoGermany:about10%inPoland,9%inHungaryandaround5%inSlovakia41.FormajorGermanbanks,however,thePolishmarketseemstobeanespeciallyimportantdivisionontheglobalscale.
ThebiggestGermanbank,DeutscheBank,has161foreignaffiliatesinPoland(themostintheworldafterItalyandSpain)42.Polandisthusoneofitskeymar-ketsfortraditionalbankingactivities,especiallyinthefieldofmortgageandcorporatelending,aswellasinfinancialadvice.
Polandisalsoinfifthplacegloballyintermsofthevalueofloansgranted(aftertheNetherlands,theUK,theUSAandChina).Moreover,Polandhasbeenamar-ketincreditexpansionforDeutscheBankinrecentyears,whenDBreducedthevalueofloansgrantedinanumberofeuro-zonecountries,suchasSpain,ItalyandPortugal,aswellasinothercountriesoftheworld,suchasIndia.
40 TheCEEBankingSectorReport,May2014;http://www.rbinternational.com/eBusiness/ser-vices/resources/media/829189266947841370-on-988671613168380133-1UR-2-EN.pdf
41 TheCEEBankingSectorReport,June2015;http://www.rbinternational.com/eBusiness/01_template1/829189266947841370-829189148030934104-1079368060623981396-NA-2-EN.html
42 DeutscheBankGeschäftsbericht,2013;https://www.bundesbank.de/Redaktion/DE/Down-loads/Veroeffent lichungen/Geschaeftsberichte/2013_geschaeftsbericht.pdf ?__blob=publicationFile
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Table 7.Financialdata(in€million)andemploymentinthevariousbranchesofCommerzbank
country revenue profit before taxes Taxes employment
germany 7392 616 221 38,078
poland 984 441 85 7747
united Kingdom 938 385 19 1369
luxembourg 392 307 12 556
usa 222 127 51 460
china 109 61 7 231
singapore 100 38 -4 342
russia 67 49 10 144
netherlands 38 29 5 40
france 40 17 11 86
other 249 85 18 807
source:CommerzbankGeschäftsbericht2014;https://www.commerzbank.com/media/aktionaere/se-rvice/archive/konzern/2015_2/00_CAA_Geschaeftsbericht_2014_Konzern_DE.pdf
PolandisakeymarketforCommerzbank,secondonlytoGermany.Itisworthmentioning that this financial institution is 15% controlled by the Germanstate,which in2009purchasedapartof the shares in the company to savethemfromlosing liquidity.Commerzbankhas222branchesinPoland,26 intheCzechRepublic,9inSlovakiaand7inHungary43.mBank,abranchofCom-merzbank,isthethirdlargestbankinPoland;itsupports36.4%totalclientsofCommerzbank(4millionprivatecustomers inPoland,comparedtoabout3.2millioninGermany)andemploys19%ofallCommerzbankemployees(7700,comparedto38,000inGermany).ThecompanyoperatesonthePolishmarketunderthebrandnameofmBank.In2014thebranchinPolandbroughtCom-merzbank€440millionofprofits,whenitsmarketinGermanygenerated€616millioninprofit.InitsreportsthebankstressesthatthemarketsituationinPolandhasbeenbetterinrecentyearsthanintheeuro-zone.Despitethis,thebankhasmostrecentlyimplementedausteritymeasuresinordertoincreasethescaleofitsprofitsonthePolishmarket.ThebusinessmodelithasoperatedinPolandhasbeencopiedtotheCzechandSlovakmarkets,wherebranchesofmBankhavealsobeenopened,buttheactivityinthosecountriesstillconsti-tutesonlyasmallpartofthebank’sactivity.
43 The CEE Banking Sector Report, June 2015; http://www.rbinternational.com/eBusiness/01_template1/829189266947841370-829189148030934104-1079368060623981396-NA-2-EN.html,p.55.
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