3 years in the EU: Czechs, Slovaks ponder what might've been

By bne IntelliNews May 2, 2007

Dominic Swire in Prague -

A few years ago there was uproar in the Czech Republic when rumours abounded that new EU hygiene standards were going to outlaw the traditional way of serving the national dish: namely a big pot of goulash kept simmering throughout the day, sometimes longer. As it happened the fears turned out to be unfounded and stemmed from a misunderstood directive the Czech Health Ministry issued in 2001. Yet the speed at which they spread illustrates an underlying mistrust the EU must address if it is to win hearts and minds in Central Europe.

Gradually it appears to be doing that as the popularity of the EU in the Czech Republic is rising. The most recent Eurobarometer figures from the European Commission show that 66% of Czechs believe their country has benefited from European membership, compared with 56% one year after accession in the spring of 2005. The Slovaks are even more upbeat with 77%, up from 63% in 2005.

Perhaps these figures aren't surprising. Since membership both countries have enjoyed booming economies, record levels of investment and an optimism that neither has experienced for generations. Three years prior to the 2004 accession, the growth of Czech exports was 6.6% per month; three years later it has shot up to 16%. GDP over the same period has doubled from 2.5% to 5.1%, and the country is attracting the highest per-capita level of foreign direct investment in Central Europe.

For Slovakia too, EU membership has been a much-needed economic shot in the arm. As in the Czech Republic, much of this investment has come from the auto sector, to such an extent that Slovakia is soon expected to produce more cars per head than any other country in the world. Last year, South Korea's Kia, one of Europe's fastest growing auto brands, announced plans to open a €1.1bn plant that will produce 300,000 cars per year by 2009. Peugeot, too, has recently invested heavily in building a similar-sized plant and taken over a whole wing of a local technical school to teach teenagers how to build cars. On top of this, the country is touted as the next EU country to join the Eurozone in 2009.

Despite this new prosperity, many Czechs still harbour doubts about whether joining the EU was necessarily a good move.

Credit where it's due

According to the most recent Eurobarometer figures, only 51% of Czechs are convinced membership is a good thing for their country, just below the EU average of 53%.

Milos Smaha, a Prague-based banker, voted against joining the EU in the 2003 referendum. Four years later, he said he would still vote the same way. Although membership of the EU is not inherently bad, he says things could be much the same if the Czech Republic had stayed out.

"I believe that advantages such as a relatively cheap labour force, high level of education, and stability of government, banking, and currency would have been enough to attract investment even without EU membership. Norway and Switzerland are not members and they do well. It's the stability of the region that's most important," he says.

However, Sharon Fisher, an analyst at the consultancy Global Insight, says it's unrealistic to make such hypothetical comparisons. "I don't think that either the Czech Republic or Slovakia really had a choice regarding whether to join the EU," she says. "For Switzerland and Norway, it was a completely different situation, as those countries were already rich when they decided to stay out. The Czechs and Slovaks need the investment and aid that accompanies EU accession to catch up with Western Europe."

Takekazu Kawamura, the Japanese ambassador to the EU, supports this view. Japan is second only to Germany in the amount of money it has pumped into the Czech Republic over the last few years. "Hypothetically speaking, had the Czech Republic not joined the EU, I'm sure that many Japanese companies would have decided to invest elsewhere," Kawamura told bne after a making a speech recently to the Czech Institute of International Relations.

Nevertheless, the innate scepticism lurking beneath the surface in the Czech Republic has not gone unnoticed and perhaps explains why the traditionally Euro-sceptic UK Conservative Party is so keen to jump into bed with the centre-right Czech Civic Democrats (ODS). Together they aim to forge a partnership following the 2009 European elections and form a new European party, which will fight against deeper European integration and promote stronger ties with the US.

Slovaks on the other hand seem altogether more upbeat about their membership of the EU, with recent approval figures consistently above the EU average. Walking down the streets of central Bratislava, the newfound confidence in the country is evident from a host of swish restaurants and coffee shops doing a roaring trade. The Flower Café on Venturska Street even boasts a set of original Andy Warhol prints. Tourists are flocking to this newly fashionable city in their droves, with many arriving from Vienna on the luxury Twin City Liner that regularly sails between the two cities. It's difficult to imagine that only a few years ago it was almost impossible to find a decent cup of coffee in this town.

Yet in Slovakia, too, some are reluctant to give too much credit for the recent progress to the EU. Robert Prega, head of research at Tatra Bank in Bratislava, acknowledges that EU membership and the target of monetary union has been a factor in the country's development, but he says it is by no means the major one.

"In recent years, especially between 2002 and 2006, Slovakia has undertaken deep structural reforms that have not been directly linked with EU accession, but I think most of these decisions would have been taken anyway even if we had decided not to enter the EU," he says.

The EU brand

Economists are likely to be arguing for a long time about the real financial implications of joining the EU, yet it's possible that the main advantages for these countries are less measurable. Vit Benes, a researcher at the Czech Institute of International Relations, says the boost has been psychological more than anything. He describes the EU as a globally respected brand that offers a guarantee of quality to outside investors.

Fisher adds the EU has also helped these countries politically. "If [Slovak PM Robert] Fico had formed the current government at a time when Slovakia wasn't in the EU, the country would have likely become an international pariah once again, returning to its 'bad boy' image of 1994-98," she says. "Even in the Czech case, the recent political instability following the 2006 elections would likely have had a more serious impact if the country weren't an EU member."

Aside from increased levels of investment, there is also the huge level of EU funding available to new members to help improve infrastructure. However, the banker Smaha warns that this could be the source of more problems further down the line. He says people tend to see EU funds as free money rather than public taxes, which could lead to problems when the funding is switched off.

"EU funds for infrastructure are wonderful, I'm glad the highways are improving. But we mustn't make the mistake of seeing this as zero cost, because in a few years we will effectively have to pay everything back to Bulgaria, Romania and Ukraine," he says.

Failure to recognize this fact could lead to further disquiet, which may make complaints about the culinary arts look like small potatoes.

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