By Jan Puhl
Now trouble is beginning to brew in these young democracies. In Bulgaria, Latvia and Lithuania, angry citizens have taken to pelting government buildings with eggs, rocks and -- weather permitting -- snowballs. In the Latvian capital, the government of Prime Minister Ivars Godmanis was even forced to step down. Meanwhile in Hungary, Prime Minister Ferenc Gyurcsany announced Saturday he was resigning, saying he was an "obstacle" to the reforms needed to help his country overcome the financial crisis.
The new EU countries, after experiencing a dizzying boom, are in trouble once again. But in contrast to the recession in the early 1990s, there are different reasons for their problems today. In fact, the face of the crisis varies from country to country.
In the Baltic states, it was primarily cheap money from Scandinavia that ignited a consumption-driven flash in the pan. After 40 lean years of communism, Hungary, the Czech Republic and Slovakia had a great deal of catching up to do, and yet the manufacturing industry's share of growth in recent years was disproportionately greater than in the Baltic states. However, companies and private citizens there, as well as in Romania, have also incurred too much debt. Unfortunately, much of that debt is denominated in euros, Swiss francs or dollars. Foreign banks muscled their way into the new markets in the East and were simply able to offer better terms than their domestic competitors. But now that the forint and the leu have lost value, many borrowers can no longer afford to make their loan payments.
Poland, the Czech Republic and Slovakia are in better shape than their northern and southern neighbors. The major automakers from Western Europe and Asia have built new plants in these countries, such as Korean carmaker Kia's plant in Zilina, Slovakia, which opened in 2007 -- and where employees have now been put on short-time as a result of the crisis. Nevertheless, these plants are often more modern than those in the West, and wage costs are much lower. This fuels hopes that these countries will come out of the crisis in a more favorable position for the future.
The Polish economy is currently in the best shape. An independent small- and medium-sized business sector has developed there in the last two decades, and the country is big enough that domestic demand can support the economy for the time being. Even though the Finance Ministry in Warsaw had to revise its growth forecast downward on Thursday, experts still expect to see growth of 1.5 percent in the coming months.
Entrepreneurs like Ryszard Delewski, with their hard work and ingenuity, are the ones who helped produce the Polish economic miracle. But since receiving the call from his bank in Minsk, he too is at a loss. The Millennium Bank is now demanding payment of 8 million zloty, money that Delewski does not have. "I am liable with my personal assets," he says, glancing at a photo of his sailing yacht on the wall. "I'm not worried about myself, but I have 150 employees."
About 10,000 Polish companies entered into such currency transactions, and now they could face bankruptcy while thousands of workers risk losing their jobs.
This has already been the fate of many workers in the Baltic states. In Latvia, unemployment rose from 5 percent in 2007 to 12 percent today. To make matters worse, private citizens are deeply in debt. "Some people are so broke that they have to spend the night in Internet cafes," says a German real estate agent in Riga. Many brand-new office buildings on the outskirts of the city's picturesque downtown are half-empty. "The market for houses is dead at the moment," says the broker.
After decades under communist rule, the Latvians and their neighbors embarked on a wild party, paid for with borrowed money. In Estonia, it was even possible to secure a loan by cellphone text message. A would-be borrower simply had to send a message to a lender asking for a specific amount, and the money would be wired to his bank account.
"In only a few years, the Balts have developed a tremendous sense of entitlement," says a software entrepreneur, "that was often no longer in line with performance." Everyone, says the businessman, expected the boom to last forever and wages to rise automatically.
Meanwhile, say experts, important work was left undone. Although the Estonians, Latvians and Lithuanians liquidated the big state-owned businesses after the fall of communism, they failed to develop new products for export. Instead, the governments in Tallinn, Riga and Vilnius focused on a radical course of deregulation, which included the introduction of a uniform flat tax throughout the Baltics. It was enough to attract capital to the region, but not enough to stimulate sustainable industrial growth, says Sten Tamkivi, a 30-year-old Estonian who works for the IT firm Skype.
Tamkivi is one of the few people doing well in the crisis. Estonia is banking on widespread broadband penetration and likes to advertise itself as "E-stonia." Almost all banking in the country is done online. Estonians use their mobile phones to pay for movie and parking tickets, and they can even vote on the Internet.
Nevertheless, Skype is the country's only global success story. The company offers a program on the Internet that allows computer users to make telephone calls and videoconference for free. "The number of Skype users has grown since the crisis began," says Tamkivi. "Companies are apparently saving on business trips, and many meetings are now conducted through Skype."
But now the Balts are also feeling helpless. The krone, lats and litas are tied to the euro. To stimulate exports, the Baltic currencies would need to be devalued. But then many banks and businesses with large amounts of foreign-denominated debt could face insolvency -- a difficult dilemma.
Romania and Bulgaria are reacting to the crisis by investing billions in infrastructure, education and environmental protection, and both countries expect a small amount of growth this year. So far other new EU member states have rejected such stimulus programs, although they could hardly come up with the necessary funds even if they wanted to.
"Economic stimulus programs increase debt, and their effects fizzle out very quickly," says Vratislav Kulhánek. His comment reflects a widely held attitude in the East.
Kulhánek was a senior executive with Czech carmaker Skoda before striking out on his own as a business consultant in Prague. "The government cannot really run the economy. That much we learned in 40 years of communism." He does concede, however, that the Czech Republic benefits from Germany's so-called "scrapping bonus," a new initiative to promote consumption whereby owners of old cars are paid €2,500 to junk their wrecks and buy a new car. Indeed, Skoda, a subsidiary of Volkswagen, sold 9190 units of its Fabia model in Germany in February -- almost three times as many as it did in January.
But the Skoda example is an exception. Many new EU states, scenting protectionism, are deeply mistrustful of the Western stimulus programs. In early February, the governments of the Czech Republic and France became embroiled in a battle of words. French President Nicolas Sarkozy has promised government help for his domestic auto industry -- but only if companies agreed to produce all their products at home in the future and no longer outsourced production to the Czech Republic.
Last week, Czech Prime Minister Mirek Topolánek described debt-financed stimulus packages as a "deadly idea." Even a normally mild-mannered man like Polish Prime Minister Donald Tusk takes on a sharper tone when commenting on the German and French crisis policies. "We see the biggest risk in crumbling solidarity in Europe, and in growing national egoism," Tusk told SPIEGEL, noting that he fears the possibility of a "virtual division."
For years, the West imposed a strict course of privatization on Eastern European countries aspiring to join the EU. It was the condition for joining the exclusive Brussels club in 2004. This makes it all the more irritating to the East to see the West, once the role model when it came to capitalism, now seeking to combat the crisis with nationalization and government bailouts. Eastern Europe overcame the decades-long, ongoing crisis of communism because "we worked very hard for 20 years," says Tusk. "We are deeply convinced of that."
The question is whether this conviction among his fellow Poles can remain truly unshakeable, especially if the zloty continues to fall while the number of bankruptcies and the unemployed rises.
The government in Prague, at any rate, despite all professions of faith in the liberal market economy, approved a small rescue package for an ailing domestic industry last week: Workers in the deeply traditional Bohemian glass industry had not received wages in months.
Translated from the German by Christopher Sultan
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