Impact of the crisis: don't lump all new Member States together, warn experts - Main contents

Initially the new EU Member States were thought to have been hit harder by the crisis than the old ones. In fact, there is considerable variation within both groups, agreed experts at a workshop on the impact of the crisis on the new Member States held on Monday by Parliament’s Special Committee on the Economic, Financial and Social Crisis i (CRIS).

An important role in the crisis was played by foreign banks, which contributed to growth in the region but also increased the vulnerability of these economies. European cohesion policy, as a major element of the crisis exit strategy, has helped the states in question to mitigate the repercussions of the crisis. But now the time has come to look to the long-term challenges.

New vs. old Member States?

“The crisis had a greater impact on new Member States than on the old ones”, said Filip KEEREMANS, head of the European Commission's unit for monitoring of national financial developments and external funding.  Zsolt DARVAS, research fellow at the Bruegel think tank, partly agreed that countries in Central and Eastern Europe had been "hit the hardest among all regions of the world" but at the same time argued that there were "substantial differences" between countries.

This was also the view of Katerina ŠMÍDKOVÁ, executive director of the Economic Research and Financial Stability Department at the Czech National Bank, for whom “the impact on growth and population in old and new Member States was quite similar”. Hence it “does not help with the analysis” to divide them into these two groups, she said, and moreover this “can hamper recovery in the new Member States as markets react to bad news in one country with a change in their investment decisions in all new Member States”. It was important to “dig deeper into facts” to find out why countries reacted to the crisis differently, she contended.

Dominant presence of foreign banks

The role played by foreign banks in overcoming the crisis was important, said Mr Keeremans, while Mr Darvas argued that, on one hand, the dominant presence of foreign banks contributed to pre-crisis economic growth but, on the other hand, their policies and "aggressive behaviour" were also partly responsible for the build-up of “pre-crisis vulnerabilities” like the huge house price boom. Kate?ina Šmídková believed the foreign western ownership of banks “does not seem to matter so much” as “all depends on the sound and credible macroeconomic policies, the sound management of banks aware of systemic risks, and sound supervision”.

Danuta Maria HUBNER (EPP, PL) quizzed the experts about current needs in terms of restructuring and recapitalisation of banks. In some countries, explained Filip Keeremans, banks received considerable help from governments. These banks now had to restructure and scale down their activities as "state aid can’t be used to expand or increase the market share”. But once “they repay the aid, they will be able to expand again,” he said.

In reply to Enikö GYORI (EPP, HU), who asked about the new financial regulations which are in preparation and impact studies to model what will happen in these countries, Filip Keeremans promised that Commission was aware of this “delicate question”. As the key measure in this respect he stressed the need for banks to retain more capital. Kate?ina Šmídková shared his view and added that she wouldn’t hesitate to increase capital requirements and that banks should be able to live with this. But again, the precondition was to have sound policies. “We didn’t pay enough attention to national supervision in the countries whose role is to reduce the risks,” she added.

Future of the eurozone

Replying to questions by CRIS rapporteur Pervenche BERÈS (S&D, FR), Olle SCHMIDT (ALDE, SE), Enikö GYORI and Roberts Z?LE (ECR, LV) who touched upon the situation in Greece, Spain, Ireland and Portugal and its possible impact on the enlargement of the euro area, Zsolt Darvas explained that “politicians will now think they have enough problems inside, rather than to invite new members”. As regards the Baltic countries specifically, “the best option for them is to join the euro area as soon as possible,” he said, “but the problem is their competitiveness”.

On the other hand Ms Šmídková didn’t see the rapid adoption of the euro as the only solution for those countries. Nevertheless she admitted that members of the eurozone were in better position to cope with the crisis “as they enjoy better credibility with better access to ECB resources”.

Role of cohesion policy

Fabian ZULEEG, senior policy analyst at the European Policy Centre, recalled that in the past there were doubts about the effectiveness of the cohesion policy but said its instruments had so far helped to counteract the impact of the crisis. Some improvements to the system had been made but it remained "too slow and too bureaucratic".  It was essential to make it more flexible.

“Cohesion policy should be retained, strengthened and adjusted to new challenges,” stressed Péter HEIL from the Hungarian Prime Minister's Office. “We don’t need any revolution, just to use what we have”.

“We expected greater convergence,” declared Pervenche BERÈS, and asked whether the cohesion instruments were sufficient and if so, if they could do better. “Cohesion policy in general is as effective as the policies we want to finance,” said Péter Heil. If we know how to create sustainable jobs or protect the environment, he explained, cohesion policy "will be there to finance the implementation on the ground". However, “public finances will never be enough to reach the goals”. In any case cohesion is “far better than anything else I can imagine,” declared Heil.

EU 2020 Strategy

As regards the new, post-Lisbon Strategy which is being prepared, Péter Heil pointed out that at the beginning it “practically omitted” to mention cohesion policy. Furthermore, the budget review paper “cut it into pieces”.

“Can we afford this strategy which is territorially blind?” asked Danuta Maria H?BNER. “It would be a great mistake,” replied Heil. “We don’t need some super policy imposed by Brussels” but one that is more focused or well-tailored.

For Fabian Zuleeg the key challenge in this respect was “not only to decide on what the objectives are but on what the instruments are as well”. The EU needs to look beyond the current crisis, shift the focus to long-term sustainable growth and “resist the temptation to use cohesion instruments to deal with short-term issues,” urged Mr Zuleeg.

Further steps

The draft report by Special Committee rapporteur Pervenche Berès is to be presented on 20 May with the deadline for amendments set to expire on 1 June (at noon). The adoption of the report by the CRIS Committee is scheduled for 13 July. The final report will be then put to the vote by the European Parliament as a whole at its September II plenary session in Strasbourg.

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