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Central and Eastern European Economies

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Title: Central and Eastern European Economies


1
Central and Eastern European Economies
David Chelly ESC DijonAmerican
studentsFebruary-May 2005
2
Aims of the course
  • This course provides students with an
    introduction to Eastern European economic and
    social systems
  • This course may interest young graduates, as
    Central and Eastern European countries offer
    excellent job opportunities for western European
    and US students in management.
  • Students are introduced to specialized research
    sources, which may be useful to them in their
    careers

3
Your instructor
  • David CHELLY
  • Ph.D in Management Sciences, post-graduate
    diploma in Finance, degrees in Money and Banking,
    Law, Accounting and Sociology.
  • Head of a consultancy firm and a website
    (http//www.centreurope.org) specialized in
    business with Central Eastern Europe
  • Former expatriate in Prague and Sofia, professor
    of management in various business and engineering
    schools

contacts_at_centreurope.org
4
The courses outline
  • 1. (2nd of February). Central and Eastern Europe
    basics
  • A Brief History of the region, current social and
    economic realities, the gap between Central and
    Eastern Europe
  • 2. (9th of February). From the socialist economic
    model to the transition process
  • The failure of the socialist economic and
    political system The setting of a new
    institutional framework

5
The courses outline (continuation)
  • 3. (23rd of February) An Economic overview
  • Comparison of macroeconomic indicators and
    underlying socio-economic variables
  • 4. (2nd of March) Restructuring and current
    situation of financial and production systems
  • Privatisation of banks and companies, the new
    financing systems, evolution of industrial
    structures and specialisation

6
The courses outline (continuation)
  • 5. (9th of March) The shift of the Central and
    Eastern European economies towards less industry
    and more services
  • Central European industries in the new
    international division of labour, new competitive
    advantages and declining sectors
  • 6. (16th of March) Nature and extent of Foreign
    Direct Investments
  • The main reasons for investments in the past ten
    years, the role of FDI vs. local businesses, the
    different ways of FDI, management issues

7
The courses outline (continuation)
  • 7. (23rd of March) The evolution of social
    structures winners and losers
  • Labour and labour markets, unemployment, income
    and income inequalities, impact on growth
    regimes, regional discrepancies
  • 8. (6th of April) Country focus doing business
    in Moldova
  • 9. (6th of April) Country focus doing business
    in the Czech Republic
  • 10. (30th of March) Team work (see next slide)
  • 11. (13rd of April) The enlargement challenge
  • The enlargement round, impact of enlargement on
    Central European economies, the euro in Central
    Europe.
  • The new shape of the European continent, its
    future and its relationships to the United
    States.
  • Oral presentations

8
Methodology
  • REQUIRED WORK AND FORM OF ASSESSMENT
  • Preparatory works short assignments dealing with
    Eastern Europe leading to individual
    presentations (20 - Lecture 10)
  • Team works during classes cases, text analysis
    and comments (10 - Lecture 10)
  • Final examination questions and case (30 ).
  • Final assignment 5-page document on a topic of
    your choice (40 ). 11th of June, 2005.
  • The documents of this course will be fully
    available through the internet, in English and in
    French, at the web address http//www.centreurope.
    org

9
Oral presentation (the slides)
  • 1. Powerpoint slides with pictures, photographs,
    maps, sound
  • 2. Slides not too dense and well presented
    (spelling, ergonomy, punctuation)
  • 3. Sobriety (e.g. absence of !!!)
  • 4. Synthetic and relevant information

10
Oral presentation (the presentation)
  • 5. Quality of the expression
  • 6. Coordination between the members of the group
  • 7. Capacity to capture the attention of the class
  • 8. Technicity, use of specific sentences
  • 9. The speakers must not read their notes
  • 10. Prohibit laughing, puns, remarks without link
    to the subject
  • 11. Respect of the assigned timing
  • 12. Respect of the deadlines

11
Oral presentation (the content)
  • 13. Effectiveness of the introduction
  • 14. Quality of the outline and of the transitions
  • 15. Quality and exhaustiveness of the
    presentation
  • 16. Quantified and recent information, indication
    of the sources
  • 17. Use of examples company practices, quotes
  • 18. Objectivity of the presentation
  • 19. Prohibit developments not related to the
    topic and obvious information
  • 20. Indication of references and complementary
    sources of information

12
I. Central and Eastern European basics
13
How can we describe Central and Eastern European
countries?
  • Discovering Latvia

14
Economic structures as a product of History
  • History is essential to understand the
    functioning of the firms.
  • Philippe D'Iribarne, who wrote The Logic of
    Honor National Traditions and Corporate
    Management , shows that the way of working and
    the corporate processes in a given country
    originate in a main historical event.
  • According to him, management practices in the
    United States reflect a particular way of living
    in society, inherited from the contractual
    relationships of the religious merchants of 1620.
  • France is marked by the logic of Honor, inherited
    from the pre 1789 times, where people used to
    fight duels in order to defend their honor. This
    tradition of social inequality is according to
    DIribarne the reason why French companies are
    still so segmented and why hierarchy is so
    present.

15
A rich and ancient history
  • It is not because we (French people) dont know
    Central and Eastern Europe history that these
    countries do not have any history.
  • Almost all CEE countries have played a major role
    in Europe in their history
  • But they have early fallen under the domination
    of different empires, which have shaped their
    future

Cyrille and Méthode, inventors of the Cyrillic
alphabet
Charles the IVth (1346-1378), King of Rome and
Empereur of the Holy German Empire
16
The empires and their influences
  • Long dominated by the Habsburg Empire, the
    history of Central Europe has been marked by
    education, art and modernism.
  • While in 1789 in France only a third of the
    citizens were able to speak and read French (the
    rest spoke local dialects), education in German
    had been compulsory for a century in the whole
    Kingdom
  • Eastern European countries used to live under the
    Ottoman and the Russian Empires rule, which
    prevented their economic development.

Vlad Tepes (1428-1476), a Romanian figure of the
struggle against the Ottoman Empire.
17
A rich Central Europe
  • Central Europe is mainly composed of reformed
    Catholics, close to the Protestants in terms of
    seriousness and rigor.
  • Central Europe comprises the former Eastern block
    countries that previously belonged to the
    Habsburg and Prussian Empires, but also Germany,
    Switzerland and Austria

According to M. Kunderas  The Stolen West or
the Tragedy of Central Europe (1983)  , Central
European countries culturally belong to Western
Europe.
18
A less developed Eastern Europe
  • Eastern European countries are mainly
    economically under-developed.
  • None of them have successfully managed their
    economic transition to capitalism.
  • The religions are orthodox and Muslim.

19
Exercise Central and Eastern European countries
on the map
20
Central and Eastern Europe map
21
Preparation for lecture 2
  • Browse the key economic indicators for Central
    and Eastern Europe in Centreurope.org

22
II. The transformation process
23
Exercise sub-groups in Central and Eastern
Europe
  • You are a consultant with the French Center for
    External Trade (CFCE). Your task is to promote
    business relationships with Central and Eastern
    European countries.
  • Up to now, the CFCE had grouped the countries of
    this region in a category called  Pays de
    lEst  ( Eastern countries ).
  • Until 1991, the region used to comprise eight
    countries Albania, Yugoslavia, Bulgaria,
    Romania, Hungary, Czechoslovakia, Poland, and
    USSR. But now they count up to more than twenty.
  • Your mission is to split them in different
    subgroups, that should be geographically close
    and economically homogeneous. Explain your
    decisions.
  • The countries are Albania Armenia Azerbaijan
    Byelorussia Bosnia-Herzegovina Bulgaria Croatia
    Estonia Georgia Hungary Latvia Lithuania
    Macedonia Moldova Poland Czech Republic Romania
    Russia Serbia-Montenegro Slovakia Slovenia Ukraine

24
The influences of capitalism and communism for
Central and Eastern European economies
  • Europe has given birth both to
  • capitalism the Industrial Revolution started at
    the end of the XVIIIth century in Great-Britain
    and spread in Central Europe and partly in
    Eastern Europe
  • communism the spirit came from philosophers such
    as the Swiss J-J. Rousseau and politicians like
    the Prussian K. Marx.
  • According to some historians, Russians used the
    communist ideology as a pretext to perpetuate
    their tradition of imperialism.

25
The communist era
After World War II, a Soviet-style Communist
regime was imposed to Central and Eastern
European countries. Central planning biased the
structure of employment by placing a
disproportionate emphasis on industry, to the
detriment of the services sector. Like dominos,
several revolutions brought about the downfall of
the Communist regime, and reintroduced peoples
rights.
Like Albania and Yugoslovia, Romania had its own
communist regime, independent from Moscow.
26
The communist heritage
  • Central and Eastern European countries have lived
    forty (seventy) years of communism, which still
    influence local behaviors and habits.

The communist heritage Corrupted civil servants,
unreliable businessmen, opportunist politicians
27
Young democracies
  • Central and Eastern democracies are ten year old
    or less
  • Except in Czechoslovakia with the Velvet
    Revolution, the communist rule has violently been
    rejected in 1989 such as in Romania where
    thousands of people died in a civil war and
    Dictator N. Ceaucescu and some members of his
    family were executed the day of Christmas 1989.

But the political risk is limited to only a few
countries in the CIS and in the Balkans
28
A lack of political maturity
  • Demagogues may be elected on the basis of their
    unrealistic pledges and political scandals
    concern all parties and all countries.
  • As an example, Polish President Kwasniewski, who
    was elected boasting a diploma he had never
    obtained, has recently appeared in a commercial
    for Polish agricultural machinesbecause this
    company employed two of his relatives.
  • The leading coalitions are not able to keep the
    power due to a too large number of political
    parties.
  • In Central and Eastern Europe, people tend not to
    vote for opinions but for the defense of certain
    categories of people a Czech pensioner will tend
    to vote for the Party of the Pensioners, a Polish
    farmer for the Party of the farmers, a Hungarian
    in Slovakia for the Parties of Hungarians in
    Slovakia, etc.

29
An inefficient legal framework
  • In Central and Eastern Europe, the new legal
    framework is very similar to those of Western
    Europe.
  • As an example, the Czech accounting law is
    almost a copy of the French one.
  • Central and Eastern European countries have done
    so because they sought to enter the European
    Union
  • But in practise, the legal environment is a
    jungle. Laws are
  • Incomplete (lack of case law, decrees)
  • Volatile and contradictory
  • Not enough enforced

On the main square in Sofia, one can buy the most
recent and expensive software CDs for a few
dollars.
30
Preparation for lecture 3
  • Browse the key economic indicators for Russia,
    Estonia and Romania in Centreurope.org

31
Questions Answers
  • What is the main strong point and drawback of the
    Romanian, Russian and Estonian economies?
  • Is unemployment a crucial figure to analyze?
  • Who performs the best for public and commercial
    deficits and why?
  • Why public and commercial deficits should be
    avoided ?

32
III. An economic overview
33
An generalized improvement of the economic
performances
  • After a deep collapse of their GDP, Central
    European countries have been achieving steady
    economic GDP growths, followed by most Eastern
    European countries
  • With the example of up to 1000 inflation in one
    month in Bulgaria in February 1997,
    hyper-inflation has severely affected some CEE
    countries, namely Poland, the Baltic countries
    and Russia.
  • This issue is today under control, and figures
    are even close to Western standards in Central
    Europe.

34
Consumption as the most important economic
indicator
  • Demography is essential to understand consumption
    patterns, as old people do not consume the same
    products and services as young people.
  • The rate of equipment helps us understand which
    goods are not possessed by households and thus
    may be purchased.
  • In Central and Eastern Europe, people will turn
    to semi-durable goods, as they are still
    under-equipped.

35
How GDP helps us understand consumption patterns
  • The long or medium term GDP Growth is as
    important as the ratio GDP/head to understand
    commercial opportunities.
  • In countries where GDP Growth is steady, such as
    Poland, people tend to buy durable goods (houses,
    cars the Polish automotive market is the 7th in
    Europe).
  • In countries where GDP growth is relatively good,
    the domestic consumption will support
    semi-durable goods (ex. hi-fi), such as in
    Hungary.
  • And when GDP Growth is uncertain, like in Russia,
    people prefer non durable goods (food, luxury
    products, etc.), even though their purchasing
    power would enable them to buy durable goods.

36
The challenges of competitiveness
  • Commercial deficits are found in most CEE
    countries.
  • The values of the currencies tend to decline,
    which impoverish these countries and put them
    under the threat of speculators
  • Local consumers and companies ask for foreign
    goods and services, while the Eastern European
    quality does not export well.
  • The commercial deficits tend however to narrow,
    thanks to the export successes of multinationals
    subsidiaries such as Skoda (Volkswagen Group),
    Philips, Matsushita, etc.

Georges Soros a real philanthropist ?
37
Unemployment and public deficits two persistent
weaknesses
  • Impossible during the Communist times,
    unemployment has risen above average European
    standards in all countries that have started to
    restructure their local companies.
  • Owing to weak fiscal revenues and uncontrolled
    expenses, public debts have dangerously grown
  • The consequence is high interest rates, which
    prevent all economic development.

38
The European Monetary Union (EMU)
  • The EMU belongs to the EMS. It has been
    implemented in three steps, including the
    creation of a European Central Bank, the
    convergence of European countries economic
    policies and the launch of the single currency,
    in early 2002.
  • 12 countries out of 25 (the  ins ) belong to
    the EMU.
  • The Entry process for the  outs  requires
    achieving a certain degree of economic
    convergence, called the Maastricht Treaty
    convergence criteria - limits on the public
    deficit and debt have been set respectively at 3
    and 60 of the GDP - inflation and interest
    rates must be kept under control (respectively
    not more than 1.5 and 2 of the average of
    the three lowest scores in Europe. - exchange
    rates must be stabilized.

39
Preparation for lecture 4
  • Browse the main facts and figures for Russia,
    Poland, Ukraine and Romania in Centreurope.org

40
IV. Restructuring and current situation of
financial and production systems
41
The impact of privatizations in Central and
Eastern Europe
  • Privatisations of banks and companies are well
    advanced
  • But the industrial restructuring is still
    unsufficient
  • The companies suffer from overemployment,
    obsolete equipment, processes and management
    models, and they are not quality-driven.
  • The companies lack efficient shareholders pushing
    towards performance

42
(Eastern) European firms compared with the firms
of the other Triad powers
  • Compared with Japanese management
  • European management is more individualistic and
    centered around private needs, rather than on the
    country needs
  • Private companies clearly differ from
    public-owned companies and trade unions defend
    individual interests
  • Compared with American firms
  • European firms are more conservative and less
    structured
  • The decisions made by managers are less
    profit-oriented, because their strategies focus
    on the long-term.
  • State intervention and corporate democracy are
    widely tolerated, whereas competition and its
    cruelty are not well accepted.
  • Pay incentives are limited. Mobility occurs
    inside the company rather than outside.

43
The German model as the natural reference for
Eastern Europe
  • The Rhenan model of corporate strategy has long
    been a reference, owing to the strong position of
    Germany in Eastern Europe.
  • The particularities of this model are that
  • Companies must serve the society, the main goal
    of the companies is not necessarily profit
  • The consensus is sought at the micro level, with
    employers, trade unions, creditors and employees
    working hands in hands, and at the macro level,
    because frontal competition is avoided.

44
A marked preference for the Anglo-Saxon model of
corporate strategy
  • In the Anglo-Saxon model of corporate strategy,
    the State intervention is seen as negative and
    the companies are controlled by shareholders who
    are only interested in short-term profit and
    dividends.
  • The Anglo-saxon model spreads rapidly all over
    Eastern Europe
  • Central and Eastern European countries value this
    model, because the USA is seen as the world
    reference for business and trade.
  • The multinationals adopt similar management
    practices throughout the world
  • The ERP (Enterprise Resource Planning) software,
    such as SAP or Peoplesoft, tend to impose a
    global way of management for the world, with
    minor adaptations for each country
  • The consultancy firms, such as the Big 5, focus
    on the best practices, which mostly come from
    Anglo-Saxon countries

45
Industrial relations
  • There are several unions traditions in Europe.
    The European Trade Union Confederation hosts
    members from almost all European countries, but
    trade unions have never managed to create
    efficient Paneuropean organizations.
  • In Central and Eastern Europe, Trade Union
    memberships are quite high (over 30 ).
  • But except in a few countries like Poland, Trade
    Unions have virtually no power over the
    management of the companies.
  • Their action is limited to improving the work
    conditions and to the organization of social
    event

46
V. The shift of the Central and Eastern European
economies towards less industry and more services
47
  • What made Republica acquire its leading position
    in Eastern Europe?
  • What are the reasons of the decline of Republica
    ? Which reasons are specific to this company and
    which are common to post-communist companies?
  • What future can we predict for Republica?

48
The decline of the agriculture and the industry
  • The good potential of the agriculture sector has
    been destroyed by the communist choices and a
    inefficient privatization process.
  • Central European traditional industrial sectors
    (textile, iron steel industry, mining,
    defence...) are not anymore competitive in the
    new international division of labour.
  • Central European Countries such as Poland or
    Slovakia must focus on hi-added values industries
    because they become too expensive compared to
    their Ukrainian or Belarussian neighbors.
  • But these countries have maintained a few
    industrial competitive advantage (automotive
    industry, chemistry, electronics, IT...).

49
Thriving services
  • All services sectors perform great distribution,
    tourism, financial services...
  • The parallel economy is also very much developped

GDP Growth in Central and Eastern Europe is
mainly driven by foreign investment and
consumption of foreign goods
50
A buoyant distribution sector
  • The distribution is little concentrated in
    Central and Eastern Europe (Tesco is n1 in
    Slovakia with about 2 market share).
  • There are two types of hypermarkets
  • the French hypermarkets (Carrefour, Leclerc,
    Auchan) situated in the outskirts and aiming at
    generating traffic with good quality and branded
    products,
  • the German hypermarkets (Metro, Lidl, Meinl),
    situated in town centers and aiming at generating
    flow with cheap products.

Each unveiling of an hypermarket is celebrated by
hours of queues of avid consumers.
51
The transportation and logistics market
  • The Central and Eastern European Freight
    Transport Sector is leaded by the road haulage.
  • Major Industrial Sectors Automotive, fast moving
    consumer goods (FMCG) / Retail, Healthcare /
    Pharmaceutical, High Tech Electronics Almost all
    main transport players in market come from
    Western Europe and the US.
  • The local know-how, plants and equipments have
    not yet catched up with European standards
  • Road Networks, Customs Issues, Security Issues
    need to be improved.
  • Transportation and logistic costs are almost as
    high as in Western Europe.

52
Opportunities for US firms in offering logistic
services
  • The distribution sector is very much atomized.
  • Logistics and transportation is a priority for
    the EU.
  • Thanks to a strategic location and a buoyant
    economy, the logistics and transportation sector
    of most Central and Eastern European countries is
    growing rapidly
  • Local companies urgently need assistance from the
    West with a comprehensive updating of
    equipments/technologies and restructuring their
    organization.

53
VI. Nature and extent of Foreign Direct
Investments
54
Why invest in Central and Eastern Europe ?
  • Foreign direct investments in all sectors and
    from all countries are welcomed and little
    restricted.
  • Central and Eastern European countries benefits
    from a cheap and qualified workforce and an
    advantage of territorial location
  • Investment incentives are offered for
    Manufacturing investors.
  • It is a mistake to think that delocalizing in a
    low labor cost country increase competitiveness.
    The wages are a consequence of the
    competitiveness, not a cause.
  • For example, assembling cars in Poland should be
    very competitive with a skilled labor force and
    an average salary of USD 500, but in practice,
    local companies suffer from low motivation, bad
    organization, bureaucracy, insufficient national
    infrastructures, etc.
  • The main reason for FDI is good access to
    domestic and foreign markets, which are growing
    and unsaturated

55
Unsaturated markets
  • Local consumers ask for western products.
  • They are fascinated by the consumption society
    and relatively under-equipped.
  • Each unveiling of an hypermarket is celebrated by
    hours of queues of avid consumers.
  • Local companies urgently need comprehensive
    updating of equipments/technologies and
    restructuring their organization.
  • The local supply is unable to provide these
    services.
  • Local public authorities lack of everything
  • Services of public utility (environment,
    education, culture) constitute a huge market,
    often financed by the EU.

56
Where and how to invest ?
  • A few Central European countries attract the
    majority of FDI
  • Hungary, Poland and the Czech Republic have
    received the biggest shares, but now good
    opportunities can also be found in Eastern Europe
  • In Eastern Europe, some large companies are
    scheduled for privatisation, but the best deals
    have long been done

57
Greenfield investments
  • The most profitable way of investment is the
    Greenfield investment (starting up from scratch)
  • Greenfield investments are the least risky,
    because the foreign investor is not constrained
    by the communist heritage and low productivity of
    the local firms
  • Greenfield investments require arranging
    administrative problems.
  • When Auchan wanted to invest in Prague, they
    bought from the Town hall fields that eventually
    did not belong to the Town. Auchan offered
    bribery in order to solve the problem, which
    cause a national scandal and the abandonment of
    the project and the dismissal of dozens of
    people.
  • A new labor force is needed, which is not always
    available, especially in low-populated areas

58
The direct international cooperation
  • Well developed in Europe, the direct
    international cooperation offers an alternative
    between simple export and delocalisations.
  • In most cases, franchises and licensing
    agreements offer a win-win situation
  • International joint ventures, which are an
    association between a local company and one or
    several foreign investors offer less
    opportunities
  • A JV should be recommended for each unknown
    market, but in practice, the results are rarely
    positive due to cultural of financial
    disagreements.
  • In some countries such as Russia, it is the only
    authorized way to invest in some sectors, because
    local governments want to access foreign
    technology without losing the control of their
    wealth.

59
... Foreign direct investment as an easier access
to foreign markets
  • FDI provide easier and more efficient access to
    the markets and avoid customs barriers.
  • When Asian or American companies want to access
    the European market, they can create a
    subsidiary, which can constitute a bridge for
    other markets Prague or Warsaw for the CIS,
    etc.
  • One of the reasons for FDI rather than for export
    is to deal with marketing, distribution, after
    sale service, etc. which are easier on the spot
    (ex. The French optical group Essilor has a
    strong implantation worldwide).

60
Foreign direct investment as a way to avoid
Western legislation
  • Some investments are offered for free to client
    with low financial means the provider gets paid
    by asking fees on revenues.
  • It sometimes happens for investments that permit
    to avoid Western environmental legislations. For
    example, the serious pollution of the Danube
    River in Romania in 2000 by a subsidiary of an
    Australian gold mining company was caused by the
    use of cyanure, which is totally prohibited in
    developed countries.

61
HRM strategies
  • Two HRM strategies coexist in Central and Eastern
    Europe
  • A culture-free model based on the global best
    practices
  • Corporate cultures must be stronger than national
    cultures.
  • A cross-cultural management model based on
    contingent strategies
  • Different environments, cultures and attitudes
    towards work lead to different practices
    corporate communication, pay systems, HRM

62
A qualified workforce
  • The workforce is
  • Qualified, especially in technical fields
  • relatively cheap, especially in Eastern Europe
  • respectful for hierarchy and rules and able to
    stand hard working conditions
  • So how can we explain such low salaries?

In spite of a high qualification in technical
fields such as computer science, Bulgarias wages
are about 10 times less than in Western Europe
63
but a low labor productivity
  • The main characteristic in Central and Eastern
    Europe is the dependency from a central structure
    of authority.
  • In practice, the management is hierarchical. This
    system is not competitive and human resources
    little productive compared to European standards.
  • Commitment (especially towards foreign
    investors), sense of initiative, mutual trust
    between workers, customer satisfaction, ability
    to communicate and ethics at work are low
  •  pretend to pay us and we will pretend to work 
  •  the one who does not steal, steals his family 
    (Czech proverbs)
  • But workers tend to behave in a more productive
    way in Eastern Europe than in Central Europe.

64
How to recruit/sack people?
  • Young graduates are targeted by companies
  • Outsourcing recruitment is not as common as in
    Western Europe
  • Assessment centers, psychological tests and even
    cvs are not as widespread as in western Europe
  • Sacking employees is easy, as labour laws and
    trade unions have little influence But it is
    risky especially for seniors.

65
How to motivate? How much to pay?
  • Money is generally the best incentive to motivate
    people
  • Young graduates receive higher salaries than
    their older colleagues with a long experience
  • Bonuses are not much widespread nor much
    effective
  • Cellular phones, company car and other
    non-monetary allowances have more impact than
    salary increases
  • Honors and titles are appreciated

66
What is the importance of training?
  • Central and Eastern European human resources are
    eager to learn
  • Training is not perceived by employers as a
    strategic investment, especially for  soft 
    skills
  • Money spent on vocational training is very low

67
VIII. The evolution of social structures winners
and losers
68
Democracy is relatively well spreaded in Central
and Eastern Europe
  • Parliamentary regimes dominate in Central and
    Eastern Europe, but some countries do not have a
    parliamentary but a presidential regime, such as
    Serbia and Montenegro.
  • Some States are not unitary but federal. In
    Eastern Europe (Czechoslovakia, USSR, Yugoslavia)
    they have exploded and those who remain (Russia,
    Serbia and Montenegro, Bosnia and Herzegovina...)
    are politically unstable.

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The Welfare state model is in crisis
  • In Central and Eastern Europe, the social role of
    the State is decreasing.
  • Most institutions (The Police, Universities,
    Hospitals) in Central and Eastern Europe are in
    crisis
  • Central and Eastern Europe faces a serious
    demographic problem.
  • While generations are renewed with an average of
    2,1 children by woman, the average is 1,3 for
    Eastern Europe countries with a world record for
    the Czech Republic and Latvia.
  • This has direct effects on the domestic demand
    and on the national competitiveness
  • Central and Eastern European states suffer from
    bureaucracy and corruption
  • Income inequalities and regional discrepancies
    are widening

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Unequalities for the local population
  • Central European countries GDP / head is about
    half of the average of the EUs one, and Eastern
    European countries GDP/head about a fifth.
  • The average revenue or GDP / head is not
    significant in Central and Eastern Europe, where
    revenues inequalities are high. Those countries
    are marked by a combination of few very rich
    people and many poor people, without a real
    medium class
  • The poor European regions are helped by the
    European Union, but there are still huge
    differences, even between rich countries
  • See human development index

71
Multiple regionalisms
  • Regions have always played in Europe but their
    importance tends to increase with the
    globalization.
  • Their development is financially supported by the
    European Union because of the principle of
    subsidiarity (each decision should be taken at
    the most local spot) and because regional
    identities are  allies  of the European Union
    against strong national identities..

72
Multiple regionalisms
  • Borders in central and Eastern Europe have more
    been designed according to the side chosen by the
    countries during the World Wars rather than by
    the human realities of the period (see map)
  • For example, Hungary, who was the ally of the
    Germans, saw at the dislocation of the
    Austro-Hungarian Empire its size reduced by three
    and its population by two.
  • As a consequence neighboring countries such as
    Romania and Slovakia respectively host 1,5
    million and 500 000 Hungarians, that is to about
    10 of their total population.
  • The regionalisms are also encountered in Romania,
    Poland or Ukraine with a strong east/west
    opposition.

73
Job market and educative systems in Central and
Eastern Europe
  • The educative system is a key issue for the
    productivity of human resources
  • Baltic countries specialize in the the Hi-tec
    industry because more than one third of their
    University graduates are specialized in this
    field.
  • But in most Central and Eastern European
    countries, the educative system is in crisis
  • In Eastern Europe, the fluidity of the job market
    is high thanks to an unconstraining labor law,
    but there is a high level of unemployment
  • People are highly attached to their town or
    region
  • Some people are officially unemployed in order to
    receive the dole
  • The brain drain is strong in countries such as
    Bulgaria or Serbia and Montenegro, where a doctor
    or a University professor earns about 100 USD per
    month.

74
Other factors of competitiveness
  • The tax level, costs of the workforce and of
    other factors and attitudes towards work, are
    highly varying across the region.
  • Some Central and Eastern European countries rank
    high in the competitiveness rankings (IMD, WEF)

75
VIII. The enlargement challenge
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The European identity
  • There is a common ground for the European
    identity, which is opposed to the two other poles
    of the Triad (USA and South-East Asia)
  • The heritage of the Greco-Roman Empire. The
    Greeks gave the name Europe to the continent, its
    first civilization and its rational spirit (the
    logos)
  • The Renaissance. This period has mainly affected
    the southern catholic part of Europe, where still
    today the look may be more important than the
    essence.
  • The social romanticism. The ideal of social
    justice, defended by V. Hugo and other romantic
    figures, continues to dominate the philosophy of
    a large part of Europe

77
Different aspirations for Europe
  • Germany and the Netherlands propose a form of
    federalism while Brits and Scandinavians reject
    the idea of a Super State and will only accept an
    unconstrained union.
  • The EU is the only supra-national structure of
    the world, which means that the European law is
    superior than national laws. The main body is the
    European Commission.
  • The European Union is criticized because of its
    lack of transparency, its bureaucracy and its
    high costs, namely budgets for translations and
    funding, with little control of the use of the
    money.

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Towards a stronger Europe
  • A group with 25 countries offers a stronger
    opposition to the other world powers
  • The USA will endeavour make the enlargement fail
  • The EU must adjust itself to the enlargement
  • Is it able to ?
  • How far can we go ?

80
A difficult task to achieve
  • A few international disputes are not solved yet
  • The first relationships between ancient and new
    EU members are marked by conflicts
  • Reciprocical expectations and knowledge from
    ancient and new members strongly diverge

Will they get along together ?
81
More information
D. Chelly F. Lafargue, Guide culturel et
d_at_ffaires pour lEurope de lEst, LHarmattan,
2003
www.centreurope.org East-west business portal
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