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Will Brexit affect growth prospects in the EU Members of Central and Eastern Europe?

By Blog Admin, on 26 May 2016

Chiara Amini – Teaching Fellow in Economics and Business and Raphael Espinoza – Lecturer in Economics
UCL SSEES Centre for Comparative Studies of Emerging Economies

It is a common view that a UK exit from the European Union would cause significant damage to the UK and to the EU.  The Treasury claims that Brexit would make Britain significantly poorer and could result in GDP contracting by as much as 6%. Such a significant impact would not be so surprising, given that trade and investment between the UK and Europe has grown significantly in the last 40 years. In 2014 a study by Ottaviano et al showed that Brexit trade losses would amount to 3.6% of UK GDP, as a result of an increase in taxes, quotas and regulatory legislation. What’s really striking is the fact that these losses have the potential of reaching 10% of GDP, if we consider the dynamic effect of trade on innovation and competition. Earlier this year, JPMorgan estimated that Brexit could reduce GDP growth by as much as 1% between 2016-17. At the same time the bank also warned that Brexit could decrease Eurozone GDP by 0.2-0.3%.

Policymakers in the EU countries of Central and Eastern Europe have been vocal in expressing their concerns about Brexit. The countries this specifically refers to are: The Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia and Slovenia.  Recently Poland’s President, Andrzej Duda, warned that Brexit could have dramatic consequences for the Polish economy. However, formal analyses estimating the impact of Brexit on the region number on the fingers of one hand. Erste Bank argues that direct economic consequences on the region would be relatively minor as UK trade amounts to only 3-6% of total trade. However, countries such as Poland, Czech Republic, Hungary, Latvia, Lithuania and Slovakia, that run trade surpluses with the UK, are predicted to be most affected. After looking at the macro data, we can argue that Central and Eastern Europe would not only be affected by Brexit directly via a fall in flows from the UK, in terms of migration and remittances, trade and financial flow, but also indirectly through its effect on the Eurozone. As economic shocks spread easily from one country to another, a phenomenon known as ‘financial contagion,’ the impact of Brexit on the Eurozone would further reduce inflows to Central and Eastern Europe.

 

Financial flows from the UK to Central and Eastern Europe appear moderate (see Figure 1).  The median of UK financial flows to GDP is less than 1%.  Trade flows (import and export) are much more important, and they represent around 2.5% of GDP in Central and Eastern Europe.

Figure 1– Median Flows UK- Central and Eastern Europe

 

fig 1

 

 

 

 

 

 

 

 

 

 

However, taken together, UK trade and financial flows make up a sizeable share of the total flows to the region.  The proportion of UK remittances to total remittances in Central and Eastern Europe is as high as 8%. As far as trade is concerned, this ratio is 4%. Inevitably, some countries in the region have even stronger links with the UK; for instance, in the Czech Republic, foreign direct investment from the UK constitutes 14% of its total foreign direct investment.  Also in the Czech Republic, bank loans from the UK represent 2.5% of GDP. UK remittances also constitute an important part of total remittances sent to Latvia and Lithuania, over 20% of the total.

Moreover there has been a high degree of correlation in the economic growth between Central and Eastern Europe and the UK. This could be the result of financial contagion via other, third party countries. Alternatively, it could stem from both regions’ high integration with the two largest world economies, the US and the Eurozone.  However, the correlation between growth in Central and Eastern Europe and the UK (at 0.56) is higher than that between the US and Central and Eastern Europe. (0.43, see Figure 2) Disentangling such correlations so as to understand how economic shocks are transmitted between countries has been done in a variety of models.

 

Figure 2 – Real GDP growth (Year-on-Year; source: OECD and IMF)

fig 2

 

 

 

 

 

 

 

 

 

 

Our analysis shows that the UK is a significant source of financial contagion for Central and Eastern Europe. If, as a pessimistic example, estimated by PwC earlier this year, UK GDP fell by 5% as a consequence of Brexit, this would reduce GDP growth in Central and Eastern Europe by no less than 2.5%, as a consequence of third party financial contagion. Since the model is linear, if the fall in UK GDP was only 1%, the impact on Central and Eastern Europe would be only 0.5%.

 

Historically, shocks to UK GDP have contributed around 20 % of the variance in growth in Central and Eastern Europe. In our research for this piece, we employed a well-known statistical methodology, Vector Auto Regression, to examine how growth in Central and Eastern Europe relates to the economic performance of the UK, US and Europe. The historical decomposition of growth in Central and Eastern Europe (Figure 3) attributes the good performance of Central and Eastern Europe in the first decade of this century to strong growth in the UK. This occurred at a time when growth in the Eurozone was disappointing.   

Figure 3. Historical decomposition on GDP growth in Central and Eastern Europe (YoY)

 

 

 

fig 3

 

 

 

 

We have come to the conclusion that, although it is uncertain what the short-term impact of Brexit on the UK will be, there are good reasons to think that it will have negative repercussions on Central and Eastern Europe.

 

Please note: Views expressed are those of the author(s) and not those of SSEES, UCL or SSEES Research Blog.

 

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Poland’s Jewishness: the Polin Museum of Polish Jews and Paweł Pawlikowski’s Ida.

By Blog Admin, on 3 February 2015

Poland’s new museum of Polish-Jewish history and Paweł Pawlikowski’s film Ida are signs of a shift in Poland’s understanding of its Jewish past, writes Uilleam Blacker.

ida_still_02

Still from Ida, source: http://www.ida-movie.com/gallery

The opening, in October 2014, of the permanent exhibition of Warsaw’s new ‘Polin’ Museum of the history of Polish Jews marked a shift in Poland’s memory of the loss of its Jewish population. Until now, the key memorial sites in this regard have been sites of Jewish death, such as the former Auschwitz-Birkenau concentration camp and the former Warsaw ghetto in Muranów, Warsaw. The new museum has been located in the centre of Muranów, next to the famous ghetto uprising monument, precisely in order to rebalance the commemorative discourse away from the image of Poland as a ‘vast Jewish cemetery’ and towards recognition of it as a place of flourishing Jewish life, which, of course, it was for hundreds of years. As programme director Barbara Kirshenblatt-Gimblett has noted, “We have a moral obligation to remember not only how Jews died but also how they lived.”

The museum is not an isolated phenomenon, but rather the culmination of a long process of the recovery of Jewish heritage and culture in Poland that has its roots in the efforts of activists and intellectuals in the late communist period. Today, there are many small museums in Poland celebrating Polish-Jewish culture and history alongside the many Holocaust memorial sites, as well as countless Jewish-themed cultural events. One of the important achievements of this tendency is to move towards an understanding of Poland’s Jewish heritage not as something alien that needs to be looked after on behalf of someone else, but as part of the Polish story. As Kirshnblatt-Gimblett told the FT last year: “We’re trying to show the history of Polish Jews as an integral part of the history of Poland.” Thus, the museum tells stories such as that of Michał Landy, a Jewish student who was killed during an anti-tsarist protest in Warsaw in 1861 as he lifted a cross that had been dropped by an injured fellow protester.

For decades, memory of Poland’s Jews has, of course, been dominated by the Holocaust. This powerful, transnational discourse inscribed the memory of Polish Jews into a wider Jewish story, in which the different cultural backgrounds and experiences of the victims – among them the Polish-Jewish experience – faded into the background. This situation was compounded by the reluctance of the Polish communist authorities to allow discussion either of the anti-Semitic nature of the Nazi occupation or of Poland’s Jewish heritage, meaning that for decades the traces of that heritage crumbled, and the Polish-Jewish story remained untold.

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Danube-on-Thames: The New East Enders

By Blog Admin, on 30 May 2014

This year, 2-13 June, SSEES is running the second UCL Global Citizenship ‘Danube’ Summer School on Intercultural Interaction. This is one of the four summer schools that make up the first year of UCL’s Global Citizenship Programme. The Danube Summer School brings together nearly one hundred students from across the University to learn about the Danube and the people that live along its banks. Coordinated by Tim Beasley-Murray and Eszter Tarsoly, the Summer School draws on the expertise of a wide range of SSEES academic staff, language teachers, and PhD students.

Below is a text from the Danube Summer School’s blog that explains the rationale for the Danube-on-Thames project, one of the Summer School’s outputs.

danube-on-thames1

Historically, the region through which the Danube flows has been a region of extraordinary cultural, ethnic and linguistic diversity. The realm of Empires (the Ottoman and Habsburg) that were multi-, rather than mono- ethnic, this was a region that did not care much for neat borders that separated one group of people from another. Here, you used to be able to find Serbian villages dotted in what was otherwise Slovak countryside, German- and Yiddish-speaking towns wedged between Romanian and Hungarian villages, pockets of Turks and other Muslims, Christians of all denominations (Orthodox, Catholic and varieties of Protestants) living across the region, and everywhere settlements of Germans (the so-called Danube Swabians or Saxons) as well those Danubian cosmopolitans, Jews, both Sephardim and Ashkenazim, and different groups of Roma.

A good, even clichéd image, of this cultural and ethnic plurality, as drawn, for example, by the Austrian writer, Joseph Roth, could be found in the classic Danubian café with its hubbub and chatter in many languages, its newspapers on sticks in German, Hungarian and Romanian, its Romany band playing music that draww on a complex fusion of musical traditions, its Jewish doctor playing chess with a Christian lawyer.

Today, much of this diversity has gone. The collapse of the multi-ethnic empires and the endeavour to create single-nation states, particularly following the First World War, started to tidy up the region and sorted people into national boxes. This process was continued in a much more violent way with the murder of most of the Danube’s Jews and a significant part of its Romany communities in the horrors of the Second World War. After the Second World War, this violence continued with the expulsion of the bulk of Germans from ‘non-German’ national territory – and also, to an extent, the removal of Hungarians from the more-spread out territories that they had previously occupied.

The raising of the Iron Curtain along the banks of the Danube, between Communist (Czecho)Slovakia and Hungary and capitalist Austria and between Communist Romania and non-aligned Yugoslavia, dealt another serious blow to the Danube as a site of intercultural flow. Most recently, the ‘ethnic cleansing’ that accompanied the Balkan Wars of the 1990s was a further step in the homogenization of the Danubian region.

The result is that the Danubian interculturality that this Summer School seeks to explore is not necessarily best explored on the banks of the Danube itself. Where then to look for it? (more…)

What will the Euro elections tell us about Eastern Europe?

By Blog Admin, on 11 May 2014

Plakat do Parlamentu Europejskiego 2014 Platforma Obywatelska

Photo: Lukasz2 via Wikicommons

Seán Hanley looks ahead to the upcoming European elections and assesses what they may tell us about the enduring differences between voters and parties in Western and Eastern Europe.

The elections to the European Parliament which take place across the EU’s 28 member states between 22 and 25 May are widely seen a series of national contests, which voters use to vent their frustration and give incumbent and established parties a good kicking. Newspaper leader writers and think-tankers got this story and have been working overtime to tell us about a rising tide of populism driven by a range of non-standard protest parties.

The conventional wisdom is that the ‘populist threat’ is all eurosceptic (and usually of a right-wing persuasion) although in some cases the ‘eurosceptic surge’ is clearly a matter of whipping together  familiar narrative than careful analysis.

But, as a simultaneous EU-wide poll using similar (PR-based) electoral systems, the EP elections also provide a rough and ready yardstick of Europe-wide political trends, ably tracked by the LSE-based Pollwatch 2014 and others.

And, for those interested in comparison and convergence of the two halves of a once divided continent, they a window into the political differences and similarities between the ‘old’ pre-2004 of Western and Southern Europe and the newer members from Central and Eastern Europe (now including Croatia which joined in 2013). (more…)

Unstable Platform? Poland’s ruling party struggles on

By Blog Admin, on 30 January 2014

A series of on-going political crises in 2013 saw support for Poland’s centrist ruling party, Civic Platform, slump. Despite a number of initiatives to revive its fortunes, public hostility may have passed a tipping point argues Aleks Szczerbiak.

 2013 was a year of on-going political crisis for Civic Platform (PO) party, he main governing party in Poland,. The approval ratings of both the Civic Platform-led government and prime minister and PO leader Donald Tus, slumped to their lowest levels since they came to office in 2007. A December 2013 poll by CBOS found that the number who declared themselves to be government supporters and were satisfied with Tusk as prime minister fell to 21% and 26% respectively – compared to 33% and 35% a year earlier.

 Another December 2013 CBOS poll found that only 31% trusted Mr Tusk, a slump of 10% over the past year and just 1% higher than the number trusting Jarosław Kaczyński, leader of the right-wing Law and Justice party (PiS), the main opposition grouping. Civic Platform also suffered a series of local by-election defeats and has, since May, trailed Law and Justice by around 5-10% in the polls.

 With the economy sluggish and unemployment remaining high, Poles have become increasingly gloomy about their future prospects. There has also been a growing sense of government drift with ministers appearing to spend too much of time on crisis management and failing to undertake long-term structural reforms. The Tusk government appeared to revert to the cautious policy of ‘small step’ reform that characterised its first term in office. This approach worked fairly well while the economy was strong but began to come unstuck when the tempo of growth slowed and unemployment increased.

 Divisions and tensions within the ruling party both contributed to and were exacerbated by the sense of crisis. This reached its peak during the summer when Mr Tusk was challenged for his party leadership by Jarosław Gowin. (more…)

Storming the Winter Palace

By Blog Admin, on 20 December 2013

Storming the Winter Palace, a SSEES languages and culture photo competition on the theme of Russian and East European London, led students and staff to contemplate cultural resonances, contemporary identities and stereotypes – and language-learning opportunities! In the final post of the year on the SSEES Research Blog, Sarah Young introduces a selection of entries. Commentaries are by the photographers, unless otherwise stated.

Harbry Ellerby’s photograph of the Hungarian stall in Camden reminds Eszter Tarsoly that every encounter with Eastern European food in London invites us to reflect on cultural exchange, language, and translation:

Harbry Ellerby: Hungarian stall in Camden

Harbry Ellerby: Hungarian stall in Camden

The photographer took this shot in front of the Hungarian stall in Camden Town. The food on sale here, instead of the grilled sausages more usual on Polish and other East European stands, is lángos, a deep-fried flat bread whose dough is similar to that of pizza. It is traditionally seasoned with garlic and tejföl, a wide-spread diary product in Eastern Europe known in various guises in the region (e.g. Romanian smântână and Czech smetana) and most similar perhaps to soured-cream. How much a simple, hearty food – particularly recommended after a long, hearty night – can teach us about translation! The man’s silouette in front of the stall and the hanging flower baskets are revealing: the image, while entirely authentic, could have been taken only on a somewhat manicured market. This video clip of the song ’Lángos, tejföl’ by the band Kaukázus shows how lángos is enjoyed in Hungary.

Seeing a street sign commemorating one of the many Eastern European revolutionaries who lived in London during the nineteenth century, Eszter Tarsoly‘s thoughts turn to today’s immigrants:

Eszter Tarsoly: Kossuth Street: a Cul-de Sac

Eszter Tarsoly: Kossuth Street: a Cul-de Sac

In a quiet, respectable, yet exhilarating corner of Greenwich stretches a modest Cul-de-Sac called Kossuth Street, named after Hungary’s larger-than-life revolutionary hero, one of the driving forces behind the 1848-49 Revolution and War of Independence. Lajos Kossuth, after the demise of that Revolution, resided briefly in Britain, and legend has it that he stunned English-speaking audiences with his knowledge of English acquired in prison, or rather, with the kind of English he had acquired (only from written texts) in prison. We do not know exactly what Kossuth’s English was like. But not far from Kossuth Street, just across the Thames near Limehouse basin, there are entire blocks of flats inhabited almost exclusively by Kossuth’s contemporary compatriots, sharing overcrowded accommodation, having little hope – in the absence of knowing good English or who knows what other skills – to move on. A dead end…?

The reality of contemporary immigration from Eastern Europe is the subject of the first of two photographs by Ger Duijzings:

Ger Duijzings: Automatic Door

Ger Duijzings: Automatic Door

This image was taken during a cold night in February 2012 at just after 3 in the morning, at a bank branch opposite Victoria Station. Together with my research student Cezar Macarie I was doing a night walk around the area. Underneath a row of ‘fast, easy, and convenient’ cashpoints, in the glass protected bank area, a dozen or so Poles and Romanians are sleeping rough. As it is outside of official opening hours, the automatic door is kept open by a traffic cone. A Pole smoking a cigarette in front told us that he had been working in London for seven years, the first five years on a contract, but the last two working on-and-off.

Ger Duijzings’ second entry confronts insular British views of Europe and the question of what ‘Eastern Europe’ means in this country:

Ger Duijzings: SKY for Eastern Europe

Ger Duijzings: SKY for Eastern Europe

A quick snap shot taken at the end of November 2007 at Luton Airport which shows how outdoor advertising at UK airports targets low-budget travellers from East Europe. I had just returned from one of my frequent commutes to so-called ‘Eastern’ Europe which for some natives in the British isles apparently starts just across the North Sea. I took the photo from the inside of a bus waiting to take me into Central London. A lone individual is about to put his luggage into the belly of a bus: it may have been an East European guest worker or student, perhaps. The cold and grey image has the impersonal and slightly gloomy quality of what Marc Augé would call a ‘non-place’.

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How Poland came to be a major EU power

By Blog Admin, on 12 June 2013

Flaga RP z UE

Photo: Michal Osmenda via Wikimedia Commons

Poland has emerged as a major player in EU politics. The question now is what it wants to do with its new found clout, writes guest contributor Roderick Parkes.

There’s much to be learnt about power in the EU just by walking around its capitals. Parisians don’t walk so much as proceed; Berliners stare; Londoners apologize when bumped into, then look resentful. As for Varsovians, they simply don’t make space for others.

Conclusions? The French view power in terms of self-aggrandisement; the Germans, in terms of scrutiny and mutual control; the British, as a furtive game of playing states off against each other. As for the Poles, everyone knows why they don’t budge: they have an inferiority complex and a strong dose of territorial angst.

Except, of course, that these days they do budge. Polish street etiquette is improving markedly, and a stroll from Nowy Świat to Ulica Warecka is no longer a full-body contact sport. That’s good news for visiting Brits, who no longer have to apologize as they are trodden underfoot.

 It’s good news, too, for the EU: it speaks of a growing sense of ease among Poles as the country’s weight in the bloc has grown. The question now is what Poland wants to do with its new-found clout. (more…)

Poland: Law and Justice struggles to find a winning formula

By Blog Admin, on 28 January 2013

Opposition parties across East Central Europe have made gains against economically beleagured governments,  but Poland’s Law and Justice party is struggling. Guest contributor Aleks Szczerbiak explains why.

Jarosław Kaczyński – Photo: M. A. Cholewicz (Gdansk/Poland) Via Wikimedia Commons

 For much of 2012, many Polish voters were clearly disappointed and frustrated with the ruling party, the centrist Civic Platform (PO), fearing that the Polish economy was entering a period of crisis.  Many incumbent parties in Central and East European facing similar problems have taken a political beating, losing out heavily to opposition groupings in recent elections. However, Civic Platform has benefited from the continued weakness of the main opposition grouping, the right-wing conservative Law and Justice (PiS) party.

Polls suggested that voters were reluctant to support Law and Justice because they did not see the party as a credible alternative to Donald Tusk’s Civic Platform-led administration. They particularly disliked the apparently more aggressive and divisive style of politics they associated with its leader Jarosław Kaczyński, Tusk’s controversial predecessor who has figured in polls among Poland’s least trusted politicians.

 Part of the reason why Law and Justice was unable to take advantage of the government’s problems was that during the first part of 2012 it was embroiled in a bitter political struggle to retain the loyalty of its core right-wing electorate against the new Solidaristic Poland (SP) party. This is a breakaway grouping comprising expelled Law and Justice members led by former party deputy chairman Zbigniew Ziobro who fell out with Jarosław Kaczyński after the autumn 2011 parliamentary election. The danger of Solidaristic Poland chipping away at Law and Justice’s core support stemm from the fact that Ziobro was, after Kaczyński himself, probably the best-known and most popular politician among right-wing voters. (more…)

Does the eurozone crisis threaten liberal reforms in Eastern Europe?

By Blog Admin, on 15 November 2012

Uncertainties about the EU’s future are undermining mainstream parties throughout Europe. In Central and Castern Europe politicians can no longer sell the European model of liberal reforms when that model is itself in crisis, argues Sean Hanley

OccupyFrankfurt October 2011 EZB

Photo: Blogotron via Wikicommons

Although only three EU members in Central and Eastern Europe (CEE), Estonia, Slovakia and Slovenia, have adopted the Euro, the knock-on  effects of stagnation in the Eurozone has pushed governments across CEE towards unpopular austerity programmes, exacerbating social tensions and collapsing support for incumbent parties. The uncertainties about the EU’s future are also undermining mainstream parties in the region. Politicians can no longer sell liberal reforms as part of a successful, tried and tested european model as they once did, when that model is itself in crisis. For many this seems to point darkly towards a turning away from liberal politics in CEE and a growth in euroscepticism, populism and nationalism. (more…)

Eastern Europe on a roll

By Blog Admin, on 24 October 2012

The humble toilet roll offers unsuspected insights into the East-West relationships in Europe finds Wendy Bracewell

Toaletni papir nekrepovany JIP

Czechoslovak toiilet paper c. 1980. Photo: Ludek via Wikicommons

Why is toilet paper such a commonplace in writing about Eastern Europe?  Anglo-American disgust at local toilet facilities – or their absence – certainly didn’t appear with the Cold War: this was an old cliché in Western depictions of East European and Mediterranean societies.  (Reactions to postwar Greek plumbing –especially the little basket for used paper – continued in this tradition, showing that while Greece was on the right side of the Iron Curtain during the Cold War, it was on the wrong side of the Paper one.)

 But Westerners also attached new, more ideological connotations to toilet paper.  As early as 1948 commentators saw blips in supply as the Party-State’s contempt for everyday human needs. (Concern for the ‘ordinary citizen’ seemed less important a decade later, with Americans questioning whether their success with consumer disposables, symbolized by toilet paper, measured up to the Soviet conquest of space with Sputnik.) Toilet paper was handy for dramatizing the humiliations visited on dissidents: interviewers with Milovan Djilas in the 1960s were less interested in what he had written during imprisonment than in the fact that his words had covered thousands of sheets of toilet paper (supply clearly wasn’t a problem). (more…)