Twenty years ago as Central Europe was about to enter the European Union, a special Financial Times supplement opined that “for the eight accession countries that laboured under communism until 1989, EU entry is the ultimate guarantee of freedom, democracy and the rule of law”.

At the same time, it already warned of “signs that people in the ex-communist states are frustrated with reform, inequality and widespread corruption”.

“Some have been tempted by populist politicians,” it wrote, adding: “no populists are now in power in the region, but their presence makes it more difficult for mainstream leaders to stay on the long, hard road of economic rectitude”.

Twenty years on, frustration is still ever present in Central Europe but now populists are in power in Hungary and Slovakia, and present a strong challenge in most of the other EU countries in the region, notably Poland, Czechia, Bulgaria and Slovenia.

The region's populists are happy to take the EU's money, which they can funnel to their own loyal supporters, but they don't want any EU criticism.

What is more, the region’s populist and authoritarian radical right-wing governments have damaged the freedom, democracy and rule of law in their countries that EU membership was meant to entrench, and made a mockery of the bloc’s self-image as a club of democracies that teaches those values to potential new entrants.

Media freedom has particularly suffered, as a report by the Berlin-based Civil Liberties Union for Europe showed this week, pointing the finger at Hungarian and Slovakian populist politicians for abusing and threatening journalists.

Institutions have also been weakened. According to the World Bank’s World Governance Indicators, institutional quality in CEE member states has also barely improved since 2004, with some countries, notably Hungary, even going backwards.

Freedom House already ranks Hungary a hybrid regime rather than a full democracy. The European Commission itself has suspended EU aid to Poland and Hungary over their breaches of the rule of law, though Warsaw hopes to get its funds released soon.

Even more worryingly, Central Europe's populists now want to spread their model to the rest of the EU, and believe that the European Parliamentary elections in June will be a decisive step towards that goal.

Economic frustration

The rise of populism over the past 20 years – and particularly since Hungarian strongman Viktor Orban returned to power in 2010 – is partly a reflection of economic frustration.

Economic convergence has slowed since the global financial crisis, and overall growth has suffered since the outbreak of the COVID-19 pandemic, not least because Central European performance is now very closely tied to economic trends in Western Europe.

Few would dispute that EU accession has overall been a huge economic boon for the four Visegrad Group countries of Central Europe, as well as Slovenia and the three Baltic states that also entered in 2004, even if full convergence has not been achieved, and there remain black spots. Some Western countries also still lag behind the EU average, and many have their own black spots.

As RBI economist Gunter Deuber wrote for bne IntelliNews in an op-ed this week, “In relation to the EU average, income levels in the region have risen continuously over the long term, which is not the case for all convergence countries in the EU (e.g. Greece or Italy). If there were some frictions, then there were only some pauses of relative catch-up but no sustained, secular or drastic declines.”

However, he also goes on to admit that even economic leaders in the region such as Slovenia and Czechia have “so far always bounced off the 90% threshold” as a percentage of the EU average in GDP per capita (on a purchasing power parity basis).

This demonstrates, he points out, that “convergence becomes more complex at such income levels and requires different investments and framework conditions than during the phases of ‘simpler convergence, at lower income levels.”

Moreover, some accession countries, notably Hungary, an early economic transformation success story, have had a very disappointing record since accession and have fallen far behind star performers such as Estonia and Lithuania, as well as once poorer countries such as Poland and Romania.

None of the region's three major economies – Poland, Czechia and Hungary – have even mustered the determination to either create a political consensus or get their economies in shape to adopt the euro, as they pledged to do in their 2004 accession agreements.

All the Central European economies now need to prioritise investments into skills and digitalisation and research and development, so they can move into higher value-added sectors, rather than the assembly line manufacturing on which their catch up over the past 20 years has been built.

They also need to complete reforms to the business environment after the initial pace of reforms faded away after EU entry, as well as tackle endemic corruption.

In some traditional sectors, for example Polish mining, it is workers who have obstructed necessary reforms that would clear the way for the economy to move to a higher level. But, given the weakness of organised labour in the region, more typically it is powerful local business lobbies –­ often those who privatised state assets in the wild era of the early 1990s – who have resisted further reforms of the business environment that would curb their corrupt and rent-seeking behaviour in the individual sectors where they have built up strong positions.

The pain of economic transformation has also left some groups, notably pensioners, and rural or old industrial regions behind, widening inequalities that populists have exploited.

Poland’s Law and Justice party (PiS) was able to use the resentment of many poorer Poles at not sharing in the country’s economic transformation to come back to power in 2015 and rule for two full terms. Its signature family benefit policy is now set to be preserved by the returning Civic Platform-led government.

But in general, populist governments such as Hungary’s have made little effort to reduce inequalities or reform sclerotic business environments, and they have often worsened corruption by allying with or creating new business elites. Except for short periods, the economic record of the region’s populist governments has usually been worse than their centrist predecessors.

Culture war

Instead populists have focussed on whipping up culture wars over Western liberal values being “imposed” on the more traditionally minded eastern EU states, and the alleged threat of waves of refugees entering the bloc, even if the region is just a stop on the migrant trail west.

Both these issues are channelled into attacks on the EU itself, not just for its individual policies but also its alleged infringement of member states’ sovereignty.

Such a charge is easy to make because the 2004 accession states have in general been ineffective in making their presence heard in Brussels, or getting their nationals into key positions, as a European Democracy Consulting report showed earlier this month. 

This disgruntlement with the EU reflects the problem that accession was seen as almost purely an economic project at the time – by both the existing and new members – with little consideration of what it would mean socially or culturally, or even what it would mean for the bloc’s geopolitical standing or internal workings. These oversights played a key role in the disaster of the British backlash in Brexit. Hopefully they will not be repeated in future waves of enlargement.

These populist attacks have had some impact on support for the EU, though in general membership retains strong backing, as Marcus How showed in another op-ed this week, even – or especially – in countries such as Viktor Orban's Hungary and Robert Fico's Slovakia. 

Trust in the EU has fallen to 49% among CEE respondents in a Eurobarometer poll, but only 8.6% said membership had been negative. The UK’s miserable performance since Brexit, as well as the shock of the Russian invasion of Ukraine, have amply demonstrated the geopolitical dangers of life outside the EU.

For the economic and cultural reasons outlined, populist parties are currently enjoying one of their periodic upswings in support. As well as in Hungary and Slovakia, the radical right-wing Freedom Party could return to power in Austria this year, creating a new “illiberal axis” in the former Habsburg empire states of Central Europe. Populists could also return to power in Bulgaria in the shape of Boykjo Borissov’s GERB.

Moreover, this populist political offensive has been successful not just in the 2004 accession states but throughout the bloc. Populist parties are now in power in Italy, and have strong political influence in Sweden and Finland and probably in the yet to be formed Dutch government.

The Hungarian exception

Hungary stands out for playing an outsized role in this populist wave because of his energetic promotion of the cause. This is a reflection of both Orban’s need for external enemies, and his own grandiosity.

As well as criticising the EU over migrants and LGBTQ+ rights, Orban has attacked the Green Deal, opening up a new front in his war against Brussels.

He has also held up the bloc’s support for Ukraine and its sanctions on Russia, and has tried to whip up fatigue with the Ukraine war, at a time when the other 2004 accession states’ firm stance towards Moscow was finally winning them greater influence in EU discussions. 

In economic policy, he has also challenged the official consensus of the past 35 years by bullying foreign investors in certain key sectors and building up a cadre of domestic tycoons loyal to his corrupt regime. He has also pursued Chinese and other Asian investors, as a counter-balance to more critical Western companies.

Orban now counts on a further strengthening of the populist wave at the European Parliamentary elections in June, after which Hungary takes over the EU's rotating presidency, and then a potential huge boost if Donald Trump is re-elected US president in November.

In its current term, the European Commission finally recognised that Orban posed a significant challenge to the model of enlargement it had established 20 years ago, one that if left unchecked could damage not just its values but its very cohesion as it starts the process of accepting a future generation of new members, including several still struggling to escape from orbiting Russia.

The European Parliamentary elections next month will now be key in determining whether the new European Commission will continue to face up to Hungary. If radical right-wing parties make significant gains, or even finally co-operate in a new parliamentary bloc, there is a big risk that the EU will duck this challenge, with disastrous results.

Below, bne IntelliNews reporters assess the success of EU accession in their countries and the current strength of support for membership:

POLAND

Poland enters the 20th anniversary of its EU membership just after eight years of rule by the radical right, who said the bloc had long betrayed its ideals to usurp ever more power at the expense of the member states.

The new government’s rhetoric is a U-turn on that view, yet the days of a nuance-less view of the EU are long gone. Today, as Poland acknowledges the development boost it has achieved thanks (not exclusively) to €175bn in net transfers from the bloc’s kitty, Warsaw’s ambitions are now about beginning to punch its weight in EU counsels.

Some of the previous punches were obviously bad, like PiS’ attempt to overhaul the country’s judiciary in reaction to a perceived power grab by Brussels – which merely said that signing up to be a member state means respecting the collectively agreed legal order.

But others were and are a reflection of a better calculated power play inside the EU. Poland is now battling it out on several fronts, some new, some long-standing, such as migration, climate policy, trade with non-EU countries (read: Ukraine) and the Green Deal.

Amidst all the controversies and popular smirking at EU’s seemingly absurd regulations, Poles still overwhelmingly back their country’s membership. In a recent poll, 70% assessed 20 years in the block positively or “rather positively”. Only 22% said otherwise.

CZECHIA

Last week, the Czech Statistical Office (CZSO) held a press conference during which it unveiled its latest publication that highlighted how Czechia’s export-oriented economy is dependent on the EU and how EU membership has transformed the country.

“Foreign demand is until now the key trigger of the growth,” stated CZSO’s Chairman, Marek Rojicek, adding that “on the long-term basis 80% of Czech goods is directed to the European Union countries, which is one of the highest overall shares in the EU.”

The publication was released just days apart from a survey conducted by Deloitte consultancy which shows that the majority of companies favour adopting the euro. In the survey conducted as part of the Czech Best Managed Companies programme, Czech businesses stated that the adoption of the euro would make trade with the eurozone easier and would increase the confidence of foreign investors in Czechia.

Czechia agreed to adopt the euro as part of its EU accession in 2004, but no government has moved it forward since then. The sitting centre-right cabinet of Petr Fiala did not commit to joining the eurozone, nor the ERM II pre-adoption regime.

SLOVAKIA

Slovaks continue to trust the EU more than their own government, according to an analysis by the country’s leading daily SME, which compares the Eurobarometer data over the past twenty years. Trust in the EU peaked in Slovakia in 2008-10, when it reached 70-71%, significantly above the EU average of below 50%.   

In 2023, trust in the EU in Slovakia was at 48%, in spite of the victory in national elections in September 2023, followed by presidential elections in April 2024, of Slovakia’s current populist Prime Minister Robert Fico, and his more moderate ally Robert Pellegrini.  Fico has spread Kremlin-pleasing narratives critical of Ukraine and talking of alleged conflict between the EU’s and what Fico describes as Slovakia’s “traditional values”.

Although trust in the EU has moderated since the 2010s, when it “was in the position of a guardian of democratic values and the rule of law state”, as Aneta Vilagi, a political scientist from Bratislava’s Comenius University noted, the EU still appears to be the undisputed centre of political gravity for the majority of Slovaks. When forming the current left-right cabinet with the far-right SNS, neither Fico nor Pellegrini casted doubt on the country’s EU membership despite the heightened nationalist rhetoric

HUNGARY

More than three-quarters (77%) of Hungarians said EU membership was beneficial, which is 6pp higher than the EU average and 4pp higher than six months earlier, according to the latest Eurobarometer survey released earlier this month.

The polls show that Hungarians, and even the majority of Fidesz voters, remain committed overall to the bloc despite the government’s constant fighting with the EU and the freezing of the funds over the rule of law and corruption.

Over the last 20 years Hungary has received a whopping €50bn in funding, equal to 3-4% of the country’s annual GDP in most of the years, which has helped the country’s economic convergence, though over the last five years closing the gap has slowed compared to its neighbours.

Despite the massive inflow of development funds, four out of seven Hungarian regions had per capita GDP between 50-55% of the EU average.

Budapest and Central Transdanubia closed the gap at the biggest pace with per capita GDP of the former rising from 144% to 158%, and the latter from 57% to 71% between 2010 and 2022. Over the same period, GDP per capita in the West Transdanubian region, which includes the industrial hub Gyor, home to the Audi plant, Volkswagen group’s largest engine factory, rose just 2pp to 68%.

Data from economists of Polish bank PKO show that Poland’s real GDP, a measure of economic output adjusted for price changes, doubled between 2004 and 2022, which was more than any of the other CEE countries achieved. Hungary’s GDP in contrast grew at one of the slowest pace in the same period, up 44%, level with Slovenia.

BALTIC STATES

A typical metric to assess the Baltics’ EU membership is the Balts’ level of income per person as a share of the EU average and, over the last 20 years, this has risen substantially from around 40% of the EU level to 71% today.

In 2004, income per person was pretty much the same in Latvia, Lithuania, Estonia and Russia.

But incomes per person – in constant prices (i.e. excluding inflation) – have almost doubled in Latvia since 2004 and in Lithuania and Estonia more than doubled. The Baltics overtook Russia in terms of income per person back in 2012-2014, a full ten years ago, and have increased the gap since then.

Latvia was somewhat behind in 2004 at 94% of the Lithuanian and Estonian income level but this has since fallen further to 83%.

Before EU membership, Latvian exports constituted about 40% of GDP. With open borders, this has increased to about 60%, making Latvia one of the most open economies in the EU. The shares of Lithuania and Estonia are similar.

Membership has also changed the composition of the Baltic nations’ trading partners. In 2004, for Latvia, the three most important export destinations were UK, Germany and Sweden. Today, Lithuania is by far the most important destination for Latvian exports, followed by Estonia.

SLOVENIA

Slovenia was the only Southeast European country to join the EU among the first wave of accession candidates from Central Europe in 2004. The small former Yugoslav country started the transition as the most prosperous state in the post-socialist space.

It split from Yugoslavia in a war that lasted just 11 days, and while other countries in the federation tore each other apart in the bloody wars of the 1990s, it quietly prospered.

The early transition years were also eased by Ljubljana’s decision to pursue a gradual model of transition, in contrast to the shock therapy in Poland.

Inheriting a strong industrial base in sectors such as food and beverages, automotive, metals, pharmaceuticals and chemicals, Slovenia built up its export-oriented industries post-independence, which were a major contributor to the GDP expansion of over 4% a year between 1993 and 2008.

Some of its major companies first grew to prominence in the Yugoslav era, among them Gorenje, one of Europe’s largest household appliance manufacturers, international generic pharma company Krka and ski equipment producer Elan.

Its strong growth path led Slovenia to overtake first Portugal (2005) and later Greece (2012) in per capita GDP terms. It was also the first emerging European country to enter the eurozone, in 2007.

In contrast to some Central European countries, Slovenians are committed members of both the EU and the eurozone. A Eurobarometer survey published in autumn 2023 shows eight out of 10 Slovenians believe that the country benefits from EU membership, and 78% believe the euro is good for their country.

Slovenia undoubtedly faces some challenges for the future. As such a small country – its population is just over 2.1mn – the development of the local capital market has been held back. As in many countries in the region, the labour market is very tight, though this has been somewhat alleviated by inward migration.

Further reporting by Wojciech Kosc in Warsaw, Albin Sybera, Tamas Csonka in Budapest,  Linas Jegelevicius in Vilnius and Clare Nuttall in Glasgow.