US and Europe diverge on trade and many others – is Central and Eastern Europe feeling the pain? | publicatii - Politica La Est

US and Europe diverge on trade and many others – is Central and Eastern Europe feeling the pain?

By Mugurel Radulescu
The battle lines are already drawn and it is getting worse – the US administration and European leaders are permanently expanding the list of contentious issues. Recently, in an article published in the newspaper Handelsblatt, the German Foreign Minister Heiko Maas, was arguing that “the fact that the Atlantic has widened politically is by no means solely due to Donald Trump. The US and Europe have been drifting apart for years. The overlapping of values and interests that shaped our relationship for two generations is decreasing. The binding force of the East-West conflict is history. These changes began well before Trump’s election — and will survive his presidency well into the future. That is why I am skeptical when some ardent trans-Atlanticist simply advises us to sit this presidency out.”
Most of the countries in the Central and Eastern European region have been trying to avoid taking sides openly in the dispute, although it has been an increasingly difficult game. After all, until not long ago EU and NATO expansion were processes progressing almost simultaneously, and the transatlantic links were rather an enabler.
Are the transatlantic controversies going to impact the business climate in the region?
Of course, the economies of the region are not so sophisticated as the ones on the sides of the Atlantic. But they are dynamic; and, they have become heavily interconnected with the European economy, i.e. with the countries finding themselves at odds with the United States. Romania, Bulgaria, Hungary and the others have rather open economies, that have become integrated in the global value chains, especially those that are depending on the western economies. Western Balkans seem to gradually engage on the same trajectory.
Ongoing Brexit negotiations are showing once more to those weaker economies how difficult it would be to split from the European market. And the state of the economies covered by of the so-called Eastern Partnership show how difficult is life outside of the single market of the European Union.
The US-led 3 Seas Initiative in the region, has avoided so far to generate conflicts with the European policies; on the contrary, it has only added an economic dimension with the Bucharest summit, aiming at improving transatlantic cooperation. However, a regional agenda is being build gradually, e.g. with the establishment of a Three Seas Fund or with the establishment of a regional network of chambers of commerce. Significantly, Germany is part of the debates for the first time. Also, non-EU countries in the region are joining.
The US and Europe also seem to gradually converge in evaluating China’s threat to their economies. Recently, Germany has started being more selective in approving acquisitions by Chinese companies, although China is a major export partner. No wonder that some Chinese sponsored projects have been met with negative press, the latest case being the loans provided to the Montenegrin authorities for building a costly highway.
However, a transatlantic or a global trade war will impact all Europe, including the region, which, again, is a major beneficiary – a subcontracting base for the western European economies. Economic sanctions and unilateral trade agreements, pursued by the US administration,  are also likely to disrupt current value chains in ways difficult to anticipate. If banks will again retract their investments in Central and Eastern Europe, as it happened a decade ago, during the financial crisis, the impact will be even worse. And sluggish economies tend to generate all sorts of political complications, including for security policies. Some countries, like Hungary, are openly weighting the risk[1], but are left with limited alternative options.
The most sensitive debates may though pop up when decisions related to newer EU policy areas will arise. For instance, the Eurozone consolidation or the common defence policies. Eurozone consolidation means that Europe is gradually becoming a financial powerhouse, able to challenge the almighty dominance of the US dollar.
The commitment to spend 2% of the GDP for defence, embraced by Romania and other countries apparently make financial prudence more difficult and compete with resources allocation for other areas important for European policies and competitiveness improvement – infrastructure or education for instance.
Also, Bulgaria managed to get support from Brussels for its bid to join Euro, in spite of its record on fighting corruption. The standards of the European Union have become very flexible lately[2]. The Bulgarian president Rumen Radev did not miss the occasion to make a point: "At a time when the Bulgarian Government commits itself in writing to our European partners and the European institutions to clear conditions for the preparation to adopt the Exchange Rate Mechanism, to enhanced transparency and counter-corruption measures, to effective management of State-owned enterprises, the Commercial Register crashes and wreaks havoc in business, and a scandal erupts in the insurance sector, which shows that supervision is practically non-existing," the President pointed out. "It is not by accident that all sorts of new criteria and mechanisms are being invented to keep Bulgaria under constant controls and checks. Efforts must be made to gain trust," Radev said[3].
We may see in the future a halt of the famous MCV supervision vs. Bulgaria, to the frustration of those who really believe that fighting corruption is not negotiable?
Across the Danube, in Bucharest, the debate is hot, with Brussels heavily criticizing Romania for the initiatives related to the rule of law and its procyclical economic policies that make accession to Euro a distant perspective. Romania is now sharing the criticism with countries like Poland and Hungary…but stays away from becoming an opponent of Brussels in the same way Hungary or Poland assert themselves. No wonder that German officials start asking Bucharest why is Romania decoupling from its southern neighbour?
Actually, in hindsight, if we leave aside rule of law and economic policy, actually Bucharest has a record of compliance with the requirements coming from Brussels. For sure there is no reason in coordinating with other heavily indebted European countries like Italy, who are openly frustrated with the functioning of the Eurozone and hint they may wish to rock the Euro-boat.
However, the Hungarian Prime Minister Viktor Orban has taken this bold step in his recent visit in Milan, carried out with the benediction of Mr. Silvio Berlusconi.
An important test will probably be the upcoming elections for the European Parliament scheduled for 2019. Many populist forces hope to get a better European representation and using this position to be able to impose their agenda – and leaders more acceptable to them. Self-styled advisors, like Mr. Steve Bannon, have already indicated that they may catalyse the debates from behind. It will be important to note how will the political agendas in Central and Eastern Europe be affected before and after the elections.
For now Central and Eastern Europe has no chance to become a player in the world of global finance. They are all states importing capital. Neither the US, nor other European countries see CEE as economic competitors. They cannot threaten the Eurozone in the same way Greece has done it. On the contrary, for different reasons, they are an opportunity for collaboration.


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