The role of Central Europe in the German economy the political consequences

Konrad Popławski WARSAW june 2016

The role of Central Europe in the German economy the political consequences

Konrad Popławski © Copyright by Ośrodek Studiów Wschodnich im. Marka Karpia / Centre for Eastern Studies

Content editor Mateusz Gniazdowski, Anna Kwiatkowska-Drożdż

Editor Halina Kowalczyk

Co-operation Katarzyna Kazimierska, Anna Łabuszewska

TRANSLATION Jim Todd

Graphic design Para-buch

PHOTOGRAPH ON COVER Shutterstock

DTP GroupMedia

FIGURES Wojciech Mańkowski

Publisher Ośrodek Studiów Wschodnich im. Marka Karpia Centre for Eastern Studies ul. Koszykowa 6a, Warsaw, Poland Phone + 48 /22/ 525 80 00 Fax: + 48 /22/ 525 80 40 osw.waw.pl

ISBN 978-83-62936-84-7 Contents

Theses /5

Introduction /8

I. The advantages of Central Europe from the perspective of Germany /10 II. The development of trade between Germany and the V4 /15

1. The role of Central Europe as a key trading partner for Germany /15 2. The position of individual V4 states in their trade with Germany /20 3. Risks associated with the V4’s dependence on trade with Germany /25

III. The flow of investments between Germany and V4 /31

1. The flow of investments between Germany and V4/31 2. Motives for investment /35 3. The investment climate in the V4 countries from the perspective of German investors /39

IV. The political prospects for economic cooperation /44

V. APPENDIX /48

1. The automotive sector /48 2. The electro-mechanical sector /50 3. The logistics sector /53 4. The energy sector /53 5. The retail sector /56 6. The banking sector /60 1 • • • Theses Assessment tyki-sp%C3%B3jno%C5%9Bci-w-krajach-Grupy-Wyszehradzkiej.pdf na-korzy%C5%9Bci-uzyskiwanych-przez-pa%C5%84stwa-UE-15-w-wyniku-realizacji-poli tation tural imports. relations, ment nificant beneficial have ers, companies tral boosted the brought has has been Europe. &Eastern Central and Germany between Germany. to region workers the from qualified orEurope, attracted gineers, element. exerted ing improving The Firstly, Over The it the additional riod acquired,

most have EU’s production Research been had Europe, economic of 2004-15 economic become spent the of the moving economic on significant resources mutual by German cohesion gained important They by cohesion last Secondly, of showing for exports from German

the on Institute. the investments but 1 far and . Germany’s decade, Germany cooperation Germany benefits infrastructure, have cooperation costs the factories also significant international benefits the helped policy businesses policy. links of surpluses to largest

trading impact in London, workers managed indirectly; automotive, raw for obtained Central these in the has between in most the itself. many from financed in Thanks materials

face between beneficiary December the on market and countries recent benefited countries, between moved or to by important Europe – the Germany which process competitiveness Taken German of minor the investment reduce a as financial Germany to significant major evolution EU-15 from years. some shares

2011; – Germany of this, part to has the has not together, deficits Germany of to of labour

member http://ibs.org.pl/app/uploads/2015/12/Oce maintain companies. global European to of problems Visegrad Germany of investments Since modernising made the only become in and V4 the and partner their of those proportion tune and became in costs the states directly, partner energy few 1989, it the the of their Group. and R&D easier relatively Central an economic countries. of caused has Union the states V4 for was as The Visegrad Germany €30 important trade Central an a in activities states Final sectors, the the been both result German from to of pressure also the element billion funds. without Europe transport by region. V4 these report. with balanced in able V4 of model has an The the states, Group a the exports Europe has among states lack important source to in Germany. funds to also Germany economy. contracts develop implemen The of has business German any become Central of the rely lower which of states goods Struc trade from been been Cen oth and sig has has en pe for on ------

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Switzerland Slovakia by countries exported 82 than their Germany’s http://www.osw.waw.pl/en/publikacje/osw-re

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21 PRACEOSW REPORT OSW 09/2012 06/2016 22 PRACEOSW REPORT OSW 09/2012 06/2016 foreign trade. countries’ as 2.5 6 maintained Deeper In ticipation to In Source: 6. Figure to 15 20 25 30 35 40 percentage fall, pp the the 25% desirable, 2003 [%] to http://unctadstat.unctad.org Development; and Trade on Conference Nations United period period thanks for analysis 24%; V4 the in foreign Germany’s trade countries’ share of 2004 the their the and because points 2003-14 2003-14, to V4 2005 allows V4 which for group dependences states (pp) Slovakia, the it 2006 in us Germany’s increases as the to German in to a 29%; 2007 Germany’s case conclude whole. 9 on pp for of 2008 share the trade dominant to the Hungary, During 19%. geographical that 2009 Czech foreign in with This the the the position 2010 Germany Republic it V4 change individual trade fell same states’ diversification 2011 3 rose was pp period, should this to foreign to 2012 V4 reduced from varying 26%; indicator countries be Czech Republic the 2013 7.9% trade considered for Hungary total Slovakia from of Poland degrees. Poland, to 2014 the fell began have 20%. par 30% V4 by -

man of German Source: (€countries billion) 7. Figure developed vakia dropped The the than of In enough. was V4 years other of the three case states the in whereas land. fewer 10 10 30 30 40 50 40 50 20 20 0 0 the their analysing 1999 1999 losses [€ billion] [€ billion] economic goods. Slovakia Czech Office Statistical Federal Czech (10%) goods 2000 2000 economies, exports by Group Visegrad individual from imports and to Germany’s exports of most 20-30%. After and 2001 2001 Republic manufacturers 2009 from German or crisis rapidly the 2002 2002 to Hungary. accession in the which individual German Czech in exports 2003 2003 is imports Czech 2009 noteworthy. (15% 2004 2004 results However, Republic to provide affected annually companies Republic to from V4 the 2005 2005 Hungary, countries from IMPORTS EU, EXPORTS 2006 2006 the The (9%), Germany if exports sales on than the we V4 2007 2007 took German average) achieving and look similarity countries, have of it 2008 2008 the from does most goods with at been 2009 2009 market longest the a Germany from slowly far this little from of the dynamics 2010 2010 proportional their more receives only time the very more 2011 2011 Germany in to demand much Hungary goods after to strong 2012 2012 the of slowly recover Czech Republic Czech Republic only the five to 2013 2013 larger V4, per capita per to Hungary Hungary Slovakia Slovakia position for the Poland Poland slightly growth Poland to (5.5%). which years, 2014 2014 from Ger Slo size Po - - -

23 PRACEOSW REPORT OSW 09/2012 06/2016 24 PRACEOSW REPORT OSW 09/2012 06/2016 9 In Source: of Poland material 8. Figure Republic (12%), (7.5%) Slovakia (6.5%). Hungary and actually many, clarification. other gary this developed tors, encing -30 -20 -10 Polish 10 20 30 40 50 0 imports recent from the to If Statistical in had background, Polish Germany 2004 [€ billion] imports such was Office Statistical Federal V4 Main recorded although is a China data ** suppliers recorded countries, surplus (€ countries billion) selected with balance Germany’s trade the close years, calculations as states, Statistical to 2005 Office, shows from to would leader China. Data Germany * about Poland to this Germany Germany in its these that such even. a 2006 such be from €4 after Office, trade trade (with trade had via Germany closer has Poland billion differences as as the from Initially been Russia the 2007 several (€37 under fallen surplus with an the Norway to balance German experienced more had that considered average billion Polish China the USA, the Germany. remained a 2008 of in in stem trade Poland years V4 with ports the authority exports with and euros). recent Great Main countries from growth other surplus in 2009 are of Russia, Germany the a the saw *** to According the relative Britain, However, a counted negative V4 Statistical years, of Norway France Germany figure, positive Czech with the states. fact rate a 2010 growing as after * Slovakia /**CzechRepublic***Hungary President that Germany as to for Poland’s of well stability, France Republic, (Response to exports balance (€43.6 the 15%), these in 2011 trade the several their Office German as information level trade of billion) trade in its followed and results from the balance accession 2012 2014 have by of shows major Slovakia years Council of statistics, the position deficit Austria. Germany Great Britain trade of and €8 begun Poland vice-president €6.5 require 2013 9 by subcontrac from . €10 with that billion. The of billion, with to with with the and billion Ministers, USA goods to Against the the experi Poland ability 2014 highly Poland. Czech regard Hun some raw- Ger Main The as sent EU, less of it - - - -

Companies Source: http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=14). (see others among toys and books cameras, shoes, clothing, furniture, covers category ‘other’ The steel. and cement textiles, paper, as such items includes category goods’ ‘semi-finished The ore. iron and cotton rubber, as such items ral non-mine as well as minerals, includes category ‘raw The materials’ oils. and fats vegetable and animal animals, live covers also category &tobacco’ ‘food The classification. SITC the on based * Categories with sectors The 3. countries. these located in factories German the from exports current to at V4 to of (%)* Germany’s 2014 export in countries 9.Structure Figure sector. &telecommunications IT develop to the in on failure and to Semi-finished goods Semi-finished goods the R the generate fice; land to Cars &vehicles Cars &vehicles isks associated with the V the with associated isks trade 19.4% 19.4% question the Office Statistical Federal same

Cars &vehicles Cars &vehicles V4 56.9% 56.9% http://orka2.sejm.gov.pl/IZ6.nsf/main/275B09FA) and predominate, attractiveness 34.2% 34.2% Semi-finished goods Semi-finished goods risk countries structures the time from Chemical products Chemical products a no. German balanced 15.2% 15.2% of 22326 HUNGARY HUNGARY 15.4% 15.4% POLAND POLAND major dependence these in on Federal of such the the investors of industries trade Chemical products Chemical products both Finished products Finished products Raw materials Raw materials Finished products Finished products V4 discrepancies Raw materials Raw materials medium Food &tobacco Food &tobacco Republic, 7.0% 7.0% 10.0% 10.0% Other Other as: Food &tobacco Food &tobacco 4.3% 4.3% 10.3% 10.3% Other Other products 6.3% 6.3% 8.1% 8.1% 1.4% 1.4% relationship, Germany on 7.4% 7.4% 5.9% 5.9% machinery, in overly 4’s dependence G on with trade are the presented term, of the for V4 statistics and homogeneous German states. leading but Cars &vehicles Cars &vehicles Semi-finished goods Semi-finished goods however, vehicles, by the Cars &vehicles Cars &vehicles 46.1% 46.1% in the Semi-finished goods Semi-finished goods on 17.7% 17.7% 44.3% 44.3% V4 Such the CSO businesses trade consumers, states 18.3% 18.3% CZECH REPUBLIC CZECH REPUBLIC long does and and trade SLOVAKIA SLOVAKIA between production the term are not chemical Chemical products Chemical products will Federal in Finished products Finished products similar. derive the Chemical products Chemical products but Finished products Finished products it 12.8% 12.8% Germany, bring Raw materials Raw materials Raw materials Raw materials Republic is 13.6% 13.6% Food &tobacco Food &tobacco rather Food &tobacco Food &tobacco Other Other Other Other 9.6% 9.6% Statistical 5.0% 5.0% 5.5% 5.5% structures, 9.6% 9.6% associated 5.5% 5.5% 3.5% 3.5% ermany products. from 3.8% 3.8% 4.6% 4.6% benefits Certain of from and the Po Of - - - 25 PRACEOSW REPORT OSW 09/2012 06/2016 26 PRACEOSW REPORT OSW 09/2012 06/2016 German relation hand, from from chemical vantage Czech that corporations Figure 10. Figure economic growth. able maintain to intoPoland recession, was while fell try’s majority Germany crises sales The Source: The exports. Semi-finished goods Semi-finished goods Cars &vehicles Cars &vehicles Cars &vehicles Cars &vehicles structure 66.2% 66.2% structure some 19.4% 19.4% economy, other Germany collapsed, Office Statistical Federal on it 34.3% 34.3% Republic of to shows automotive It the of to products. V4 from (%) 2014 imports in countries of German The structure of such the is categories. Chemical products Chemical products sales V4 automotive located these worth of namely size of is HUNGARY HUNGARY the than and 6.6% 6.6% POLAND POLAND a the German made by German relationship of exports lower Poland, German economies Slovakia, noting in factories other Finished products Finished products the Semi-finished goods Semi-finished goods machines This up these Finished products Finished products Raw materials Raw materials market. 14.6% 14.6% exports economy Chemical products Chemical products involvement of imports 9.3% 9.3% Food &tobacco Food &tobacco Other Other Other Other 6.2% 6.2% Raw materials Raw materials 8.8% 8.8% 5.3% 5.3% V4 Food &tobacco Food &tobacco that were probably 9.8% 9.8% which semi-finished companies countries. 10.0% 10.0% 1.8% 1.8% 4.0% 4.0% and in countries, 3.5% 3.5% is of in and For trade that to components the the imports than from Germany’s the example, cars: accounts the Czech least of between individual A Cars &vehicles Cars &vehicles Cars &vehicles Cars &vehicles in are the receives German Polish significant most the 54.0% 54.0% goods, 62.7% 62.7% a to the V4 Republic, much in for Poland. trade rest for Semi-finished goods Semi-finished goods to flagship countries economy Poland 2009, other the proportionately Hungary, the V4 car of CZECH REPUBLIC CZECH REPUBLIC smaller 15,3% 15,3% with share countries V4. factories SLOVAKIA SLOVAKIA Semi-finished goods Semi-finished goods smaller companies It when Slovakia finished and products is On is the is 15.3% 15.3% worth of percentage less slightly Germany. similar global Finished products Finished products the Finished products Finished products the Czech participation of is Chemical products Chemical products susceptible products and other, 11.2% 11.2% 9,8% 9,8% exports Chemical products Chemical products Other Other Raw materials Raw materials 7.3% 7.3% similar. pointing in Food &tobacco Food &tobacco the of more Food &tobacco Food &tobacco car Raw materials Raw materials 4.7% 4.7% 4,6% 4,6% Other Other less 6,3% 6,3% Poland the to Republic, Hungary 2.8% 2.8% 3,3% 3,3% German 1,7% 1,7% 0,9% 0,9% market On the of that goods coun to from and The cars one the out ad in to of of - -

ic a which plus based ny receipts. Slovakia exports. dependent gary, contributes either been utes This V4 other the countries. than companies German kia automotive euro-zone. spent running than machines from When products. finished and by represented foodstuffs is Germany to exports versity categories the Germany and ture small be veloping re-exported of significant development German able for International 29% Hungary to of with close other a Poland thanks proportion within on analysing investments own their considerable the German to than This and a and Compared thanks the may maintain is Germany dependence of model emergence large on chemical At the products to own onwards, for similar; portion to to in means German Hungary, large Germany 27%. the the significant suffer factories, Germany greater the of Hungary imports economies. the to exports. of of Monetary business same Central Poland participation or case chemical domestic to its economic source that OECD in of companies from in is loans, imports of these in on employment considerable the the itself, the much time, the of it global these from are the imbalances 21%. provides Germany For data, also Europe. this revenue automotive cycle the of trade If case Fund, for countries, imported case products, but factors. income infrastructure global more development the Poland The from three benefits other more imbalances. example, we to on of of instead of of Czech have maintain more situation The may foreign goes Poland, the balanced. in poses the trade trade cars Slovakia V4 than V4 in for It is these sector’s by trade due the states global economic criticised the add V4 is (as states. to components Republic, German to is and automotive a slows surplus. those not the Czech trade, countries, to the transferred which risk in euro-zone, 53% Germany’s countries, that regarding production between in 42%, the have car When marketplace the share known German most A Germany down of of member 49% continued large Republic, Germany due development companies. parts. case is this instability parts in Many been is indebted analysing unbalanced of for companies the we Germany to over whether as higher since the high ratio percentage automotive of the abroad, in able products which Despite sent well countries, Czech notice states exports) has Germany. the export car to Slovakia in strong trade is the to However, to a as for countries in recent been next parts 32%, the achieve of greater the Germany which in and Republic the increased Germany income imports from the and the exported Germany surplus of the of preference greater companies remaining country neglected, few for as relatively Poland and exported years parts fact econom One Poland’s contrib Germa form are well extent a Slova years, it in is Hun than sur 32%, that also will fea has tax not the are de for for di by as in of is is ------27 PRACEOSW REPORT OSW 09/2012 06/2016 28 PRACEOSW REPORT OSW 09/2012 06/2016 V4the states. phenomenon, reduce clear problems, ment zone, states, cess mar Germany states cial industries motive ternational in risk trade the 12 11 10 cars) of electric purchase on the 2016 also recently ruled and Russia), economic emerging education, Konrad Germany: Handelsblatt Modernisierung, für Euro Milliarden 600 SPD: subsequent http://www.oecd.org/germany/Better-policies-germany.pdf p. 6-8; 2014, OECD, February germany-defending-its-exports-based-model-economic-development OSW Analyses OSW

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29 PRACEOSW REPORT OSW 09/2012 06/2016 30 PRACEOSW REPORT OSW 09/2012 06/2016 system. operating Android its profits go with Google, to they substantial of a er the 15 14 is wages. linked ers information IT Volkswagen’s factor Secondly, profit margins. significant condition for obtaining sential many on could kets their under pansion field. Germany’s Winterkorn: situation;

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39 PRACEOSW REPORT OSW 09/2012 06/2016 40 PRACEOSW REPORT OSW 09/2012 06/2016 Hungary earlier, Hungary German vestment. (%) countries employment individual in 21. Figure (30%). (35%), Republic Slovakia (33%) Czech and Hungary the than recent crease Source: Analysis Source: (%) countries individual investment in 20. Figure 50 10 20 30 40 50 60 70 80 30 10 60 40 20 0 0 Hungary Slovakia [%] [%] above as 2015, Europe Eastern and Central in Survey Economic above as 2015, Europe Eastern and Central in Survey Economic 2008 investment years, 2009 this companies of than does increase to intend which companies The percentage of German Despite increase to intend which companies The percentage of German the Czech Republic does around in not diagram 2009 not Slovakia. the after differ 2010 have appear a weaker third the shows Hungary 2010 significantly been Poland decline to of rating have the that slightly 2011 2011 (39%) companies in the affected of 2009 from Hungary’s percentage more exhibited has 2012 the the 2012 likely interviewed increased other desire attractiveness more of Poland to 2013 companies V4 to increase favourable 2013 states. invest. and intended Slovakia remains Poland Czech Republic 2014 in In investments In planning the recent this assessments to 2014 data stable. boost 2015 respect, years to cited in in In in - -

for savings them. additional advantage than beneficial 2009 majority significantly not (percent) countries individual in euro tion of the probably towards There Source: 22. Figure Hungary, Republic,Slovakia. 33% in in 35% Czech and 36% the in companies received In 100 10 20 30 40 50 60 70 80 90 0 terms yet [%] 50%. about above. as 2015, Europe Eastern and Central in Survey Economic have 2009 use as plans the of still introduc the support which companies The percentage of German for of This interviewed a the 90% been it. best result in the their supports Support to intention the may of 2010 V4 assessment, clear introduce interviewees companies, of Czech currencies mean the changes the intend for to crisis Republic, Hungary 2011 that introduction this increase the an to in in weakening some issue euro with believed increase improvement Czech Republic 2014 the Poland employment monetary 2012 in respect German among the those of the employment percentage the and against German adoption to countries companies over single union; 2013 Poland Hungary German in the the recent was currency. companies nevertheless, on of euro, V4 of to investors’ the 2014 the only have countries, years. the similar which euro Polish slightly V4 been Whereas 43% has which would degrees, 2015 attitude ensures market, a Poland taking slight of fallen more the do be in -

41 PRACEOSW REPORT OSW 09/2012 06/2016 42 PRACEOSW REPORT OSW 09/2012 06/2016 demic ees. categories, ity appreciate costs one the (%) unsatisfactory or very unsatisfactory percentages as 24. Figure recent years. in lower its from economic other on performance the and 100 leads Source: of When Source: (%) satisfactory or very satisfactory percentages as 23. Figure 100 20 40 60 80 20 40 60 80 0 0 German and other hand, Hungary’s [%] [%] Membership

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45 PRACEOSW REPORT OSW 09/2012 06/2016 46 PRACEOSW REPORT OSW 09/2012 06/2016 that tion bigger ning Moreover, learn versifying erated no for be More conventional power plants. of their capacity nificant the favour Many in Central ties, between turn plementation be the of other balance on icy. There climate dition, which tral It Poland. Republic and Czech works the in shore in seems able the 2011, which the idea restricting world, example, amount This Europe expanding of maintain to for wind problematic that seems hand, do structural such EU difference surprise to by energy after add how there policy, Europe is that keeping Germany trend not bear the coal. as countries based Gazprom, decreases gas farms, another in a of to to the the well have there the countries trend. of were the the subsidies the suppliers, large replace be supplies. and Recent may Nord as could the German sudden on United it conditions between as ever area costs enough which use than the and may as uncontrolled increasing conventional EU’s The branch by be capacities in together will Stream reserve stabilise of EU decisions of less a the the enhanced the of be of differences for Kingdom significant situation shutdown nuclear In climate a caused energy government long a had funds Western a postulate Germany V4 determination process price renewable too 2015 chance to in would countries stocks, with in the importance the continue of the rapid problems to by policy of Central goals. and recent flows fuel renewable by in intends Nord subsidise energy countries oil of Europe, in of German to only the amount supported Germany and the energy coal show reindustrialisation bring the some and sources energy, has of closer Therefore German is Stream years make to low Europe the renewable field growing. plants within with gas to system not is that use thanks the nuclear of and transformation renewable build energy, V4 prices of being together on demanded (including as economic the is of displayed by the positions Central gas the conventional countries government, French in no the well climate was the the Germany. in power a stability energy We pipeline. to attached German of exception; power new global energy the whereas EU chance as once their energy over may energy Europe, subsidising companies, sense to EU a of policy, a nuclear in which nuclear over greater full production. plants market implement again the Germany financial imagine the of from thanks related economy Forecasts This to for such energy the carriers if the Berlin next understanding sources. the industrial United had however, whose it an power energy), surprised was German in countries is energy diversifica also issue as agreement to few to coal exempted was been a Germany and capabili still sources; limiting may solution an the a suggest the around States. energy clearly On In years. strict plant. in of plan even Cen net gen may has im pol and ad sig off not the re di to of ------

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47 PRACEOSW REPORT OSW 09/2012 06/2016 48 PRACEOSW REPORT OSW 09/2012 06/2016 most have 21% 1. major Many cluding ing role Together and German automotive industrial years The Europe. Central in 22 21 export The sec i The V. for (79%), BMW(36%) (40%) (53%), Audi of all least then and Daimler crisis, after tion. guished E. W. The automotive The sector

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53 PRACEOSW REPORT OSW 09/2012 06/2016 54 PRACEOSW REPORT OSW 09/2012 06/2016 processes duction companies, man for companies, coal came with ried energy 30 29 28 overlaps their in transformation, savings. market crease difficult bodies’ and government, Hungarian the to sector gas the in assets their were forced sell to costs 2013, From market. Hungarian on the assets mostimportant their have retained funding that as which focused R. RWE RWE part com/articles/2013/03/RWE-and-EON-selling-up-in-Hungary.html Krakau.html er/dpa_nt/infoline_nt/wirtschaft_nt/article116214659/RWE-verlagert-Stellen-nach- ing komentarze-osw/2014-06-25/niemcy-ukryte-koszty-wyjscia-z-atomu Fukushima, electricity 28 were their out. Bajczuk, energy by . redundancies where gradual an a Due nuclear their in verlagert decision and companies’ source of situation. its of moving For financial for analysis with Initially addition also have position its to energy main E.ON such which example, K. renewable investments financial companies Komentarze OSW power], Komentarze these financial phasing has Popławski, the stricken for undermined Stellen forced selling part as to which venture of 100 They situation noticeably from negative them to in companies’ in lower E.ON conflict in the of the addition Central RWE nach settlement specialists out up Germany. savings the accelerated the energy, by Niemcy: have have conventional situation to and in in V4 in energy from Krakau, the company’s decided generate Hungary, closure Central economic with the also countries the RWE, also dropped; made Europe have difficult financial 29 Ukryte the region, and , meant position and , E.ON, the opening were and of struggled

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- 55. in in of of - - - 61 PRACEOSW REPORT OSW 09/2012 06/2016