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Analysis
Unity strengthening in Visegrád group

Unity strengthening in Visegrád group

Economic self-reliance spurs disassociation from core EU states

by Miroslav Singer in Prague

Fri 7 Sep 2018

Solidarity among the Visegrád group of countries – the Czech Republic, Hungary, Poland and Slovakia, all members of the European Union since 2004 – played a major role in the EU abandoning common allocation quotas for migrants. Opposition to migration quotas is just one of the factors bolstering the V4's sense of unity.

In a previous OMFIF article I discussed the differing economic interests that may disrupt the group's harmony in the long term. This time I focus on the issues that, at least for the time being, are likely to deter greater political integration between the V4 and the EU.

First, it is important to recognise that the V4 countries have enjoyed relative prosperity in recent years. The Czech Republic boasts the lowest unemployment rate in the EU, and Hungarian citizens are benefitting from rising incomes. The same is true for Poland, the only EU member that did not experience a drop in output after the 2008 financial crisis, and Slovakia, which experienced only a short, mild downturn. From a fiscal perspective, the V4 countries are in good shape, especially compared with many 'old', 'core' EU members.

Though they are richer, the core economies tend to be more fragile and are growing more slowly. Still more important, from the politicians' point of view, is that public support for the leaders of core EU countries is significantly softer than that in the V4.

Even ignoring the migration issue, it is clear why V4 leaders are united in the feeling that they do not need to be lectured by their core EU peers. It is worth looking at the reasons why, in many cases, the heads of the V4 support policies that are clearly state-protective and which go against free flows of capital, goods and services across EU markets. With regard to restrictions of market economy outcomes and the resurgent popularity of domestic champions, we should note that sectoral taxes and the protection of strategic industries are concepts imported by the V4 from core EU members.

V4 countries are net EU budget gainers, but once dividend flows and other profit redistributions are considered, they are net losers in the EU economy. Common budget process outcomes and profit redistribution in a market economy are two different processes, but it is easy to understand why V4 citizens and their leaders may appear unenthused about free flows of capital and EU enforcement of free trade once they realise this. In addition, most EU grants flowing to the V4 benefit large international firms – mostly companies from core EU states – at the expense of small domestic firms.

For the V4, perhaps the most attractive quality of open EU capital markets is the ability to attract foreign capital. But even this is losing its lustre. Lowering spreads of V4 sovereign debt illustrate that the group no longer requires constant inflows of foreign capital to prop up their economies. As citizens and firms save and invest more, many entrepreneurs and local financial groups view foreign capital more as a competitor for the same limited numbers of projects.

Members of the V4 are perceiving more clearly the potentially negative consequences of the common market and free flows of capital. EU funding can, at best, mitigate some of these consequences, and the V4 is no longer as dependent on foreign capital as it was a decade ago. Together, these issues explain the relatively uniform shifts in the opinions of V4 leaders, and signal the region's continuing disassociation from western European politics.

Miroslav Singer is former Governor of the Czech National Bank and a Member of the OMFIF Advisory Board. He is Director of Institutional Affairs and Chief Economist at Generali CEE Holding.

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