Rpt-MNI:EU Mulls South To CEE Economic Power Shift: EU Sources

Brussels is eyeing tectonic transformations which could shift the EU’s political centre of gravity away from its north-south divide towards an emerging east, which could influence the outcome of key policy decisions in the coming years, EU officials believe.

While there is no agreement on how any new balance of forces will shake out, the impact of higher energy prices, Russia’s war against Ukraine and an increasingly assertive China will have profound consequences which are only just surfacing, the sources acknowledge.

The economic outperformance of central and east European (CEE) members of the EU in recent years has been well noted in Brussels and suggests the Visegrad 4 plus Romania and the Baltic states look set to become the economic dynamo of the EU in coming years.

One European Commission source predicts that, over time, this grouping will undermine the political clout of the southern periphery in EU decision making. Other EU officials point to how per capita GDP developments in Czechia, Slovenia, Lithuania and Estonia is racing ahead, not just of Greece, but also of Spain and Portugal in recent years.

Strong FDI flows, particularly from major global manufacturing companies attracted by the CEE's relatively low and competitive labour costs have helped fuel that growth, they note.

SOUTHERN COMFORT

Others are far from convinced that the south’s days of influence are over, however, saying that this grouping still has lots of chips to cash in.

“It is a bit premature and overestimated to conclude that the CEE and the Baltics will become the economic powerhouse of the EU,” another source said, arguing that productivity performance may be deceptive and linked to specific factors including inflation and a low euro exchange rate for non-euro states.

The working though of EU convergence funds and green transition benefits could also help the south, this contact added, noting, as an example, how the lower Emissions Trading Scheme thresholds conceded to Romania could constrain that country’s future competitiveness.

But more important for the south, the sources observe, will be how they leverage their future role as providers of new and alternative energy supplies to the rest of the EU, particularly the energy-hungry north. German leaders have been enthusiastic backers of energy infrastructure projects, such as the one to bring Spanish and Portuguese LNG imports into other EU states.

“The southerners have always found the way to make their voice heard when it is needed,” a third source says.

These developments might seem like longer-term imponderables, but the existential angst brought on by the Russian conflict and the catastrophic rise in energy prices are likely to focus minds across the EU, those who spoke to MNI accept.

Energy solidarity between EU states is an area where the new dynamics could start to make themselves felt as soon as this winter and could also influence the important debates on economic governance reform and the future of joint borrowing programmes like the NextGenerationEU fund.

For now, Germany continues to stall even the very limited EU joint borrowing MFA programme for Ukraine, but new dependence on its neighbours for energy supplies may soften that resistance.

UKRAINE INFLUENCE

The recent rise in the political influence of CEE and the Baltics is also driven by the Ukraine war, a trend which may fade should the conflict slips down the news agenda.

Commission President Ursula von der Leyen is due to give her State of the Union speech next month when she may give clues as to how the Commission’s longer-term thinking is evolving.

One key foreign policy she urgently needs to address, say EU sources, is the EU’s China strategy. The EU’s current stance on China as ‘partner in cooperation’, ‘economic competitor’ and ‘systemic rival’ looks outdated as concern grows over Beijing’s Taiwan strategy.

“We seem to be dragging our feet in the shadow of the US-China stand-off without any clear position of our own,” says one source, bemoaning the EU’s “reactive, passive, even helpless” approach to Beijing.