Hundred Shades of the EU – Mapping the Political Economy of the EU Peripheries

The full study will be published in the first quarter of 2022 and the workshop, organized in the context of the European Forum 2022, some of aspects were unveiled.

The online workshop held on 24th of November 2021 was introduced by providing an explanation of the meaning of the terms “core” and “periphery” and it was explained how core-periphery relations within the EU were approached:

Firstly, political and economic polarization patterns in the EU have been documented by several recent studies. It was highlighted that the promise of economic convergence and economic growth between richer and poorer countries was a feature of European integration right from the onset. This promise remained unfulfilled (apart from the short convergence period before 2008), especially if one takes a long-term perspective on development and growth in the EU.

Given the persistent discrepancies and inequalities between the regions, the study starts from the premise that competition, and therefore growth, is driven by the economic structure of a country. In this context, historical legacies play a decisive role for a country’s starting position once EU integration hits in.

Depending on which indicators were used, different classifications of core-periphery arise. Therefore, several socio-economic indicators that helped to understand the different development levels in the three regions were chosen. The selection of the indicators was driven by existing literature and studies on core-periphery relations. (In this case, the study looks at inter alia GDP per capita, growth, debt rates, indicators on informality and social exclusion and inequality). Furthermore, in line with current research on core-periphery relations within the EU, the concepts are characterized as being relational, spatial, and non-static (Gräbner & Hafele 2020, Magone et al. 2016). Relational, because without a core, there is no periphery. Spatial, because geographical distance is the manifestation of a historical process leading to a widening gap between core and periphery, in which the growth of political communities was driven by the core areas, which were politically, administratively, economically, and educationally more advanced than the periphery (Deutsch et al.1957). Also the concepts of “core” and “periphery” are non-static, as economic (as well as political) characteristics can change over time, and therefore a state’s core-periphery position within the broader regional and global system is also dynamic.

The two peripheries within the EU are the South (PT, ES, IT, GR, CY, MT) and the East, which was divided into CEE (CZ, SK, HU, PL, LT, LV, EE) and SEE (SL, CR, RO, BG) regions. This was necessary because the researchers believe that without taking the structural imbalances and country specific characteristics into account, adequate policy recommendations cannot be developed.

Thus, the Southern economies became dependent on tourism, remittances and FDIs (that target mostly services), which are volatile sectors and financial sources. In cases of external shocks, such pillars are not likely to protect the economies and its citizens sufficiently. This also became evident when looking how the CEE economies (especially the V4 countries) recovered after 2008, whereby the Southern country group has had great difficulties and continues to exhibit sluggish economic growth. It is highly unlikely that Southern peripheral countries will change their dependent position any time soon.

In contrast, CEE states are dependent on FDIs, but exhibit more policy space due to not being part of the Eurozone (the most obvious example is Hungary’s macro-economic and fiscal policy after 2010). While SEE states are also dependent on FDIs, Slovenia exhibits a relatively more favourable position due to its gradual transformation process in the 1990s and the preservation of its productive basis during the 1990s. The 2008 economic crisis has weakened Slovenia’s economy badly, especially as it has introduced the euro, and was constrained in its policy options.

During the session all Researchers took the round in answering the variety of the questions:

Why is it important to revitalize the discussion on core – periphery relations within the EU?

Giuseppe Celi: The revival of the terms “core” and “periphery” in the debate on European integration should not be a surprise. Why? Because the expectations of convergence have been completely disappointed. Europe is trapped in her paradox. On the one hand, an original project aimed at promoting convergence and harmonization among member countries. On the other hand, a reality characterized by big divides between strong areas and weak areas, between areas that manage value chains creating opportunities for the development of new peripheries (as in the case of Germany with Eastern European countries) and de-industrialized areas which lose skilled workforce and depend on external financial flows (as in the case of Southern Europe). How did we get to a so polarized situation? To answer this question, we should not limit the analysis to the years following the euro inception, but it is necessary to have a longer-term view. The structural crisis of 1970s raised the standards required to stay on global markets and product differentiation based on quality and innovation was a reaction to the saturation of the demand for mass consumer durables. In this transition from a price-led competition to a product-led competition, some countries (Southern European countries) fell behind interrupting or slowing down the process of industrialization, while other countries (like Germany) faced the changing regime by innovating the industrial structure. With trajectories of industrial development of the countries so different since the 1970s, a project of monetary unification with a strong neo-liberal connotation as the EMU, and with convergence criteria referring to financial rather than real indicators, inevitably entailed problems of sustainability over time.

What was the historical context for European integration for the South and the East in the EU?

Veronika Sušová-Salminen: Comparison is never a perfect instrument of analysis, and it needs a certain level of synthesis. In our research, we think it is very important to understand how each country has been integrated into the European economy and the EU. That is why we focused on the economic models and their development during last decades and took into account the historical contexts of integration. In the case of Southern countries (except Italy, the EU founder state) the domestic one was democratization after authoritarian regimes. In the case of Eastern countries, a complete rebuilding of societies after systemic failure of state socialism. Both regions experience political and social discontinuities, and the integration was perceived very similarly as a remedy, an instrument of modernization and a way to overcome economic peripherality.

Finally, there were global circumstances which influence the process of integration. The South began to integrate in the aftermath of the economic crisis of 1970s, which announced the end of Keynesianism. In this sense, it was a beginning of post Keynesian interregnum of the 1980-90s. The East began to access the EU when the interregnum ended, and the neoliberal model was established as the mainstream and the EU was neoliberalised.

What new peripheries have emerged in Europe and which fragilities can be recognized?

Giuseppe Celi: Since the euro inception and the eastward enlargement of the EU, a profound reorganisation of the European industrial structure led to the emergence of the Central European Manufacturing Core (CEMC), as defined by Stehrer and Stöllinger. This process has resulted in the consolidation of Germany as hegemonic economic power in the EU and in the reshuffling of hierarchical relations between central and peripheral countries. On the one hand, the countries of Southern Europe have experienced a weakening of their industrial base and a growing dependence on financial flows from abroad. On the contrary, Eastern European countries, becoming an integral part of the European manufacturing platform managed by Germany, have significantly expanded and strengthened their industrial base, displacing, in part, the productions of Southern Europe. However, both peripheries are fragile (although differently fragile) because they are in an equal condition of economic and financial dependence on the core. In fact, the development driven by the production decisions of the German multinationals has also made the Eastern periphery vulnerable. The industrial trajectory of the East is a mono-specialisation trajectory, with the automotive sector playing the dominant role. Around this sector, there is not an equal development of other productive sectors. The domestic market remains limited, so that the high growth rates recorded by these countries are due to the growth of exports of local production by foreign multinationals. In addition, policies to curb wage growth induce young people with high educational qualifications to emigrate, weakening the skills base of Eastern European countries. In conclusion, both peripheries are fragile, although for different reasons.

What kind of economic models exist in these peripheries?

Veronika Sušová-Salminen: In the different regions under the scope of the study there are different, yet they share similar vulnerabilities, they are fragile and dependent. We hear a lot that the V4 countries still have productive bases while the South has lost it. This is true but it comes with a price. This price equals low wages and the politics of low wages, technological dependency, TNCs influence over politics and other deformations such as dualization of economy and rise of regional polarization within the countries. Moreover, financialization is a common problem in the East and in the South. For example, Baltic states have heavily financialized economies. Also, tertiarisation occurred in the East too, but it is not so predominant like in the South. We cannot say that the East has been radically re-industrialized, but the East was able to keep stable levels of industrialization by means of FDI. It is true that the productive bases give to the East some advantages in the times of crisis – it is more inertial sector, compared with flexible service sector and tourism sectors in the South.

Are there dependencies specific for the three regions? How would you describe them?

Valentina Petrović: Due to their different economic characteristics, their different positions within the European market and challenges they face, the dependencies differ for the country groups. With regards to their industry, Southern countries are characterised by a process of late industrialisation (compared to the core countries), whereby this process was partly halted with the crises in the 1970s and 1980s, and the ensuing global changes. Financialization, which targeted more services than productive structures in the Southern economies, did not provide the much-needed investments to stay competitive. At the same time, the EU integration process, which started in the 1980s, limited the state’s active role in industrial policy. The result was a pre-mature deindustrialisation process, with a productive base unfit to cope with economic crises or external shocks.

Is peripherality something completely new for these regions?

Veronika Sušová-Salminen: This is an interesting historical question because we have to say that no, it is not. The map of historical capitalism in Europe was certainly shifting in terms of the core. Italian towns, Portugal and Spain were the core for a short period inf the 15th and 16th centuries but were peripherised soon after. At the same time, Central East Europe became periphery of world-system in the 16th century as an agricultural product supplier. State-socialist system tried to address this issue but failed. So, it is peripherality is not something new, and we can say that the EU – despite its innovative rhetoric – did not change it a bit.

Is the core-periphery model reversible? Is the ‘Next Generation EU’ plan an opportunity to rebalance Europe?

Giuseppe Celi: With the recent ‘Next Generation EU’ plan, EU countries have decided for the first time to embark on a path of partial debt mutualisation. We will see how the plan will perform in practice and whether it will prove to be a precursor of a common European fiscal policy or, once the pandemic will end, it will envisage or not the reintroduction of old fiscal rules and conditionality. The main instrument for its implementation at the national level, the Recovery and Resilience Facility plan, would have on paper, the potential to act as a driving force for the expansion of the internal market. Especially if the guidelines (the three strategic axes) emphatically suggested by the EU – digitalisation, ecological transition, and social inclusion – were capable trigger a recovery in private investments. In any case, four goals should be pursued for a real change that looks at reducing the divergence between core and the periphery in Europe: expansion of the German and European internal market, balancing of production capacity within the EU, partial industrial reconversion towards sectors that meet social needs (such as education, health, and care) and shortening of value chains. Although the shift from an industrial platform designed for export to one for the domestic market is a huge challenge, this transformation would be beneficial for Germany itself, considering the narrowing of margins for manoeuvre that has emerged in recent years in trade with the US and China and the fragility of value chains revealed by the recent coronavirus crisis.

This is report provides only brief insight to the content of the Workshop held. Therefore, we invite you to watch the Workshop Video which offers more detailed picture as well as answers additional questions e.g.:

• What are commonallities and differences between the three regions?
• How do you want to study the political manifestation of peripherality in the EU?

Presenting Interdisciplinary Research Team:

• Veronika Sušová-Salminen, history/anthropology (CZ)
• Valentina Petrović, sociology/political sciences (RS)
• Giuseppe Celi, economics (IT)

Moderation:

• Tatiana Moutinho, transform! europe Facilitator, responsible for the “Cooperation Strategies for Southern Europe” strategic line (PT)
• Dagmar Švendová, responsible for “Central and Eastern Europe Strategy” (CZ)

Silent moderation and Q/A Box:

• Liliana Pinto from the European Forum’s organization