Steady Economic Progress in Central and Eastern Europe

By Diana, Tom | Business Credit, June 2005 | Go to article overview

Steady Economic Progress in Central and Eastern Europe


Diana, Tom, Business Credit


In Europe, the Western European countries such as England, France and Germany have dominated the continent economically for many years. However, as some of these countries--such as Germany and France--have recently experienced a slowdown in their economic growth, the countries of Central and Eastern Europe have mostly enjoyed at least moderate to good economic growth in the last several years. Some are still making the full transition to an economy driven by private-sector economic forces since the collapse of the Soviet Union's influence over the region in 1989. Most of the countries in this region were controlled by the centralized economic structure of the former Communistic Soviet Regime, which ranged from East Germany, Poland, and Romania to the Baltic nations of Latvia, Estonia and Lithuania. Several new nations have emerged since the dissolution of the Soviet empire, such as the Czech Republic and Slovakia, which were carved out of the former Czechoslovakia in 1993; and Russia and the Ukraine, from the former Soviet Union of 15 sovereign states.

Most of the countries in Central and Eastern Europe are members of the European Union (EU), or slated for membership in the near future. The European Union offers member countries economic and political benefits based upon common treaties and other policies. On May 1, 2004, 10 new members joined the existing 15 EU nations. Those new members include the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. Manfred Stamer, a Country Risk Analyst for Euler Hermes ACI, who works in Hamburg, Germany, said, "The benefit of EU membership is mostly political. Of course, you want to create political stability--which in the long run has economic advantages."

Marty McCaffrey, Senior Advisor to the Outsourcing Institute, noted that these new EU members have received some direct economic benefits. "The EU provides significant dollars to the new countries," McCaffrey said. The EU website stated that the 75 million residents in the new EU states only earn 40 percent of the income enjoyed by the rest of the EU states. The website further reported, "That is why the accession arrangements include financial assistance worth 10 billion in 2004, 12.5 billion in 2005 and 15 billion in 2006. This will help the economies of the 10 new EU countries to catch up with the other 15. The 40 billion or so to be paid from the EU budget to the new member states in 2004-2006 will be spent mainly on structural and regional projects, support for farming, rural development, domestic policies and administrative costs." Stamer, pointed to other advantages of EU membership: it allows for the free trade of goods, services and capital. However, Stamer noted that there are some economic restrictions between some EU members. "There is not an absolute movement of labor between old and new EU countries. Western Europe is afraid that low wages (in some of the new EU countries) will drive down wages in Western Europe."

Central and Eastern European countries possess some advantages that help it economically. In addition to relatively Lower labor rates than in Western European countries, many of the countries are stable politically and possess a well-developed infrastructure, which encourages outside investment. McCaffrey also pointed out, "They have excellent educational systems. These countries have lower labor rates for software development, IT and Business Process Outsourcing (BPO) than you can find in Western Europe and the United States." However, McCaffrey mentioned that for outsourcing of IT services, labor rates are still about 20-25 percent higher in Eastern Europe than in India. "India is still the 10,000-pound gorilla. They're still 80-90 percent of the IT outsourcing market." Regarding the infrastructure of the region, McCaffrey said, "They all have excellent train and transportation facilities, and there aren't the health risks for travelers that you would have when you travel to India. …

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