Lukashenko says he may quit as president
Belarus hits EU with tit-for-tat sanctions
Belarusian police introduce colour-coded torture system for detained protesters
Kremlin publicly condemns Belarusian police brutality in hint of growing frustration with Lukashenko
Russian services PMI rises to 48.2, but remains underwater as recovery continues to slow
Russia to start mass vaccinations on December 7
Azerbaijan’s Aliyev calls on Armenia, Russia, Turkey and Iran to assist in creating Nakhchivan land corridor
FPRI BMB Russia: Sberbank releases a three-year transformation strategy to e-commerce concern
Ukraine’s banking sector continues recovery, but profits still lagging last year
Ukraine’s real wages up over 10% in October but have been stagnant in dollar terms for almost a year
FPRI BMB Ukraine: Public has confused opinions on resolving the Donbas conflict
Western Balkans plus Ukraine subsidised coal with over €900mn in 2018-2019
Estonian parcel robot firm Cleveron eyes €30mn state loan
Estonia’s chief auditor says €1bn in state COVID-19 loans issued haphazardly
Economic sentiment in CEE falls in November as recovery momentum splutters
Estonian animation studio Imepilt to hold IPO
Brighter days ahead: The economic bounce back in 2021
Central, Southeast Europe stock markets jump in anticipation of COVID-free future
VISEGRAD BLOG: An easing of trade tensions but still an uncertain situation for export-oriented Central Europe
Hungary's PM risks isolation as Poland mulls dropping EU budget veto
Poland ready to back down from veto of EU budget
Hungary's ruling party in damage control mode after MEP sex scandal bombshell
Poland’s PMI remains stuck just above the improvement line at 50.8 in November
Czech companies dominate this year’s Deloitte Technology Fast 50 CE
Coronacrisis to get worse before it gets better forecasts wiiw
EU diplomats say no chance of Bulgaria removing veto for Skopje to start EU accession talks
IMF says downside risks to Albanian economy are increasing
EU ministers fail to agree on launch of accession talks with Albania and North Macedonia
Western Balkans commit to green agenda and regional common market at Sofia summit
Bosnia’s opposition ousts nationalist parties in major cities
Bosnia’s main ethnic parties fight to hold onto power in local elections
Southeast Europe’s EU members to get biggest boost from next budget and recovery funds
Bulgaria imposes 3-week lockdown to slow down COVID-19 spread
CEE politicians highlight trade and security ties as they congratulate Biden
Breakaway Transnistria fully under Sheriff’s control as Obnovlenie party sweeps board in parliament election
Moldova’s presidential election is over, now the battle for the parliament begins
Moldova’s foreign policy reset
Russian establishment quick to congratulate Moldova's new president-elect
Rising COVID-19 cases put intense pressure on CEE healthcare systems
MEPs urge European Commission to act against Hungarian media financing in North Macedonia and Slovenia
North Macedonia mulls decriminalising cannabis to boost tourism
Retail surpass pre-crisis peak as Romanians shop instead of holiday
Romanian venture capital firm Catalyst launches new €40mn-50mn fund for TMT
Aegon to sell its CEE business to Vienna Insurance for €830mn
The state is back in business
Slovenian PM Jansa stands alongside Hungary and Poland in EU rule of law row
BEYOND THE BOSPORUS: Turkish number crunchers deliver November inflation surprise of 14%
Erdogan needs to go says analyst assessing Turkey’s economic collapse
Ukraine strikes deal with Turkey to produce killer drones instrumental in Karabakh conflict
In Karabakh deal, as many questions as answers
Protesters flood Yerevan demanding Armenia’s “traitor” PM quit over Nagorno-Karabakh surrender
Who emerge as the real winners from the bloody Nagorno-Karabakh conflict?
Below average 2020 wine production destined for volatile and uncertain global market
Iran calls on Saudis to limit $67bn defence spending to Tehran’s $10bn
Iranian prosecutors pledge to pursue Trump for Soleimani killing even after he leaves White House
No reaction from Kazakh elites as bombshell FT report says Nazarbayev’s son in law siphoned millions from pipeline scheme
UK court freezes $5bn in assets connected to fugitive Kazakh banker Ablyazov
Attack of the Debt Tsunami: global debt soars to a new all-time high
Kyrgyzstan's proposed new constitution provokes widespread revulsion
Kyrgyzstan's China debt: Between crowdfunding and austerity
CFC joins RWC in assessing KAZ Minerals buyout offer as under-valuation
China business briefing: Not happy with Kyrgyzstan
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
Mongolia in lockdown after suffering first local coronavirus transmissions
Mongolia’s wrestling culture: From the grasslands to the cage
No surprises in Tajikistan as Rahmon retains presidency with 91% of vote
A Tajikistan poised on verge of economic calamity set for vote
Tajikistan revives on-off dispute with Iran
Turkmenistan: The dammed united
Turkmenistan: Everybody yurts, sometimes
Dirty money investigation reviews identified payments worth $1.4bn linked to Turkmenistan
Uzbekistan unveils extensive privatisation programme
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The EU budget has had a positive impact on economic growth and helped to improve the quality of infrastructure in poorer parts of the bloc, not least in the countries of Central and Eastern Europe (CEE). Now, however, there is a chance that these funds will be cut, and a high likelihood that funding priorities will change. At least some CEE countries are likely to lose out.
Research from the Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw) shows a host of benefits for EU-CEE countries as a result of EU funds inflows in the past decade. Net inflows from the EU budget have been in the range of 2-5% of GNI per year for the newer member states. In 2015-17, EU funds inflows accounted for over 40% of total public investment in all EU-CEE countries except Slovenia. For Croatia, the figure was as high as 80%.
EU funds have also contributed to better living standards, helping to cement the transition to democracy and market economies in the region. Cohesion policy funding—at least when aimed at direct investments in R&D—has helped to raise firms’ productivity. We find that, overall, EU funds in the region have improved accessibility, connectivity and the business environment.
Change is on the way
But things are about to change. So far, little is certain, but two things are key. First, Brexit will cut 12-14% from the total funds available, according to official estimates. Second, there have been demands, both from the European Commission and some of the big net payers into the budget, to change how the EU money is spent.
As the new budget is thrashed out over the coming year, CEE countries will have their eyes on four mains issues:
First, the levels of funding after Brexit. If the overall level of the budget is indeed cut, EU-CEE countries will lose out disproportionately. The so-called “frugal four”—Austria, Denmark, Sweden and the Netherlands—have said that they will not increase their contributions to cover the post-Brexit funding gap.
Second, even if the size of the budget remains the same, member states in the region will be watching any changes to where the funding goes. The Commission’s idea to tie funding more to youth unemployment, for example, would see some transfers switched from eastern to southern Europe. Youth unemployment levels in most of EU-CEE are lower than in countries such as Spain and Greece. Günther Oettinger, the European Commissioner for Budget and Human Resources, has already said that a 5-10% cut in cohesion funds—from which EU-CEE benefits disproportionately—is possible.
Third, the issue of conditionality of future transfers from Brussels looms large. Even though this will be difficult to force through, many Western European member states hope to achieve it, motivated by the refusal by some in CEE to participate in refugee reallocation schemes, threats to the rule of law, and allegations of corruption in the use of EU funds.
Fourth, the big question for CEE countries, which are hoping to join the EU (specifically, the six Western Balkan states that are not yet members), is what happens to their funding in the new period. Funds available under the Instrument for Pre-Accession Assistance (IPA) are already very low compared with EU transfers for member states, helping to explain why the six Western Balkan hopefuls have such an infrastructure deficit, even compared to other parts of CEE.
This is going to drag on
Negotiations are likely to be messy and last for some time. The “frugal four” may well back down, but they will first need to show their national electorates that they have put up a fight. Many hope that discussions will be wrapped up before the 2019 European Parliament elections, but that might be too ambitious.
If funds are cut, EU-CEE looks set to lose out, and perhaps disproportionately so, depending on how significant changes to funding priorities turn out to be. This will be negative for growth, which will anyway be much lower by the time of the next funding period than is currently the case.
However, those with a glass half full disposition may see a silver lining in lower and/or differently targeted levels of EU funding. First, as a team of researchers including my colleague Mahdi Ghodsi recently showed, some EU funds (those targeted at business support) can actually harm firms’ productivity. Second, as my colleague Sandor Richter pointed out last year, a cut in the budget could actually help to improve competitiveness and reduce corruption in the region.
Richard Grieveson is an economist at the wiiw, specialising in CESEE country analysis and economic forecasting, with a particular focus on Turkey and the Western Balkans. He has previously worked as a director in the Emerging Europe Sovereigns team at Fitch Ratings and lead analyst for Germany and Poland at the Economist Intelligence Unit.
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