Baltic and Visegrad Responses to the European Economic Crisis

The Politics of Economic Sustainability: Baltic and Visegrad Responses to the European Economic Crisis Edited by Karlis Bukovskis 1 Riga, 2014 UDK 327(4)+33(4) Po 275 The collection of articles entitled “The Politics of Economic Sustainability: Baltic and Visegrad Responses to the European Economic Crisis” is an attempt by an international collection of authors to explain the political economy of the long and winding road of the Baltic States (Estonia, Latvia and Lithuania) and the four Visegrad countries (Poland, the Czech Republic, Slovakia and Hungary) in facing economic and financial problems domestically and/or on the European level. Authors from all the abovementioned countries contributed their ideas, explanations and projections on the future development of their respective countries based upon the lessons learned from the crisis. The book chronicles the economic environments and challenges and compares the political and social results of diverse macroeconomic choices that have been made in these seven European Union member states. The publication is available for free at www.liia.lv. Scientific editor and project director: Karlis Bukovskis [email protected]( ) Reviewers: Edijs Bošs, Andres Kasekamp Authors: Aldis Austers, Karlis Bukovskis, Juraj Draxler, Brian Fabo, Vytautas Kuokštis, Michal Mudroň, Vitalis Nakrošis, Ryszard Petru, Zoltán Pogátsa, Michal Rot, Viljar Veebel, Ramūnas Vilpišauskas English language editor: Talis Saule Archdeacon © Latvian Institute of International Affairs, 2014 © Authors of the articles, 2014 © Cover design: Aldis Ozoliņš, 2014 ISBN: 978-9984-583-49-5 ISBN for electronic issue: 978-9984-583-50-1 This publication is supported by Contents Introduction: Facing the Realities Karlis Bukovskis ...............................................................................................6 Latvia’s Controversial “Success Story” Aldis Austers .....................................................................................................9 The Politics of Reacting to the Crisis in Lithuania from 2008-2013: Exiting the Crisis, Entering Politics as Usual? Ramūnas Vilpišauskas, Vitalis Nakrošis, Vytautas Kuokštis .......................38 Estonian Economic, Social and Political Developments in the Years of Financial Crisis and Austerity, 2008-2011 Viljar Veebel ....................................................................................................64 The Effects of the Great Recession on Hungary Zoltán Pogátsa ................................................................................................90 Economic Sustainability in Slovakia Brian Fabo, Michal Mudroň ........................................................................107 The Czech Republic: From Supply-side Economics to Aggressive Deficit-Cutting. And Now an Expansionary Turn? Juraj Draxler .................................................................................................126 Poland – a “Not-So-Complete” Success Michal Rot, Ryszard Petru ...........................................................................151 Concluding Remarks: Stabilisation Lessons and Their Sustainability Karlis Bukovskis ...........................................................................................170 Selected Further Reading ............................................................................. 177 Notes on Authors ........................................................................................... 179 Introduction: Facing the Realities Karlis Bukovskis The financial instability and economic problems in the so called eurozone countries and in the European Union (EU) in general have tormented decision makers and challenged experts and businesses to find the proper, most sustainable and stabilising solutions to the situation. The European economic crisis, as it is sometimes labelled, started around 2008 and is considered to be over by represenatives of some EU countries and EU institutions. Many European Union member states in 2014 still face the realities of unemployment, cuts in public expenditures, stabilisation and the “stress-testing” of the largest banks, and of course the economic restructuring that would lead to a return to dynamic and sustainable economic growth. This book, “The Politics of Economic Sustainability: Baltic and Visegrad Responses to the European Economic Crisis”, is dedicated to observing and discovering the economic, financial, social and political results of the European economic crisis in one particular group of EU member states: the three Baltic States (Latvia, Lithuania and Estonia) and the four Visegrad countries (Hungary, Slovakia, the Czech Republic and Poland). The book seeks to define and explain the Baltic and Visegradic responses to internally and externally caused political and economic problems since 2008. The authors of this collection of articles tend to account for both the economic and political environments of the seven EU member states when they entered the European economic crisis, the mechanisms decision makers chose and the outcome of the stabilisation programmes, thus providing the reader with both empirical data and material for comparative analysis. Each of the chapters is a separate article where the authors seek to explain their respective country’s economic and political developments by covering a number of the main structural matters, like the central sources of financial problems, the influence of foreign banks, real estate sector developments, external trade and the current account balance, the role of political preferences, and ideologies. Authors also evaluate the role of the eurozone and EU funds, as well as international financial markets and institutions, in parallel with the main domestic political arguments for stabilisation, austerity, monetary policy, fiscal adjustments, sectoral structural reforms, migration, the fate of ruling political parties, labour market figures and other notable factors. 6 And each of the countries have their specific story to tell. The financial and economic problems that the Baltic States and Visegrad countries experienced have had different levels of severity and thus different solutions. While some were using monetary instruments to boost their exports, others had to engage in bailing out other partners in the eurozone. While some were drastically cutting public expenditures, others were softer on austerity. While some were issuing government bonds, others engaged in borrowing from international institutional lenders. While some had sustainable saving policies before the crisis, some were bailing out their national banks. Many common trends can be observed as well. The presence and structural economic role of the Western or Nordic banks in the Baltics and Visegrad countries, for example. Similar exposure to the “European Common Market”, relatively similar plans for an eventual membership in the “eurozone” and relatively similar general economic structures. The diverse experiences of a traditionally unitarily perceived region is an important object for analysis. Although all of the seven countries will mark their 10th anniversary of membership in the EU and have experienced a transition from the planned economic systems 20 years ago, their individual economic choices and environments, as well as their political results, demonstrate a rather colourful picture. Therefore, this collection of articles is meant to serve the purpose of informing and explaining the different paths the countries had taken while recognising the similarities as well. Politics and economics are not separable. They form the basis and realities of state and normative human existence. The choices that are made in politics are nowadays calculated in economic expenses. Economic reasoning and macroeconomic decisions always make an imprint on the functioning and wellbeing of societies, and thus their political satisfaction. It is this political satisfaction that is the most difficult goal during the times of sovereign financial or general financial problems. Political satisfaction is not easily achievable if the satisfaction of immediate individual needs is not secured. It is the stabilisation maneuvering between the external environment and the domestic situation that the politicians and decision makers (regardless of the political regime) have to face. Although democratic leaders traditionally have a less patient public to please, non-democratic political figures tend to face legitimacy questions every time serious economic disturbances occur. The Baltic and Visegrad countries are excellent examples of political entrapment between externally triggered financial difficulties and domestic demands for stabilisation. The realities of the European 7 economic crisis revealed more than the necessity to seek sustainable development models in the post-communist European Union member states. Besides the political and societal urges to achieve income cohesion with the average of the EU level, this also demonstrated the political maturity of each of the countries. Namely, the Baltic and Visegrad leaders were facing public pressure for achieving the “European dream” of stability and sustainability of personal income and societal welfare. Together with external economic ideologies and mutual competition, the countries opted for accelerated and excessive economic growth models. Moreover, the further from the average EU level the country was, more reckless it was ready to be. The more reckless a country had been in economic (mis-)management,

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