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EU Struggles for Coherence in the East

Stewart Fleming has an insightful piece on the EU’s attempts to embrace the east published in European Voice:

Some years ago in Kiev, a Swedish diplomat remarked privately that the EU had been lucky when it embarked on its eastern enlargement. Russia, he said, was weak at that time, hamstrung by political turmoil and economic collapse. Interestingly, as today’s economic turmoil spreads around central and eastern Europe, Russia is again looking (for some, surprisingly) fragile. Only a few months ago many economists were projecting that the Russian economy would weather the storms better than most. Now Russia has seen the swiftest and sharpest downgrading of economic prospects suffered by any large economy.

Barclays Capital, an investment bank, is predicting that the Russian economy will shrink by a dramatic 6.9% this year, which would be the worst performance of any significant emerging-market economy. This compares with a projected fall of 3.7% for the eurozone. (…)

But the question remains: what will be the new economic developmentmodel in eastern Europe? The old one, which was to rely on foreigndirect investment, much of it from western Europe, is no longerfunctioning as western business cuts back on its expansion plans.

Alongside the provision of ample official funding to compensate formissing private credit, one other element is vital, namely that richerEU states do not start protecting their markets or encourage theircompanies to run down their eastern business operations. We must alsohope that the European Central Bank (ECB) is more actively involvedbehind the scenes than it appears to be in public. The ECB hasthe credibility to play a strong co-ordinating role without committingnational governments to the sort of high-profile involvement which theyfear could undermine the (correct) case-by-case, IMF-led, approach to tackling the crisis in eastern European member states.

The troubled global economic outlook remains the biggest risk ineastern Europe, as elsewhere. But, as Zolt Darvas and Jean Pisani-Ferryof Bruegel, a Brussels-based think-tank, put it recently, Europe mustavoid displaying the lack of co-ordination it has openly demonstratedin recent times. The stakes, from making a success of enlargement tocontaining Russian influence, are very high.