EU, Russia quietly battle for Eastern Europe influence

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A low-key tug of war is developing between the EU and Russia as both sides battle for the long-term allegiances of Eastern European states, according to the president of the Austrian Federal Economic Chamber.

Background:

Central and Eastern European/South Eastern European (CEE/SEE) countries are a major trading and financial partner for the euro zone. The annual surplus in the balance of payments with eurozone countries is estimated at €60 billion.

Despite impressive economic development in recent years, GDP and financial services penetration in the region still lag behind Western industrial neighbours. The overall growth rate in Eastern European countries is expected to be positive this year, but Hungary and the Baltic states are likely to face recession.

A sharp decline in demand for the region's exports, falling investments and reduced access to lines of credit are combining to bring significant increases in unemployment. In addition, there is concern about currency devaluation.

The International Monetary Fund has already urged the EU to grant €150 billion in bilateral aid to Central and Eastern Europe.

Christoph Leitl said the EU must quadruple its financial assistance for Eastern European countries to balance the long-term influence of Russia in the region.

A major package of aid is required to help Eastern European countries – both within the EU and beyond its eastern frontier – and thus safeguard the strategic interests of Europe, he added.

"Russia is helping Eastern European countries in a very efficient way. It wants to pick them up and bring them closer to Russia. There is competition between the EU and Russia to determine which family Eastern European nations will belong to."

"This is a major question. It is in our own long-term political interests to show solidarity with our neighbours," he said.

Leitl's comments came as the Austrian Federal Economic Chamber and the Polish Chamber of Commerce held a joint press conference to launch a proposed recovery plan for Eastern Europe.

The package, which is similar to proposals put forward by the Austrian government, urges the EU to increase assistance to Eastern Europe from €25 billion to €100 billion by dramatically expanding the Union's balance of payments assistance to the region.

€50 billion of this package should be available for pre-accession and European Neighbourhood countries, according to Leitl, who said the stabilisation of these nations is strategically important to the EU.

"Eastern European countries have been hit harder than some of the stable Western economies. It's our common responsibility to take care of the weaker child."

"The East offers Europe the best prospect of long-term growth. We need each other and that means solidarity. It also means putting together a financial rescue package without delay," he said.

In addition, he called on EU members in South Eastern and Baltic regions to follow the model of bank rescue packages employed by Western European governments.

Cooperation between nations is key to bringing stability to Eastern Europe, he added.

 
 
Details of the proposed package:

  • Increased balance of payments assistance from €25 billion to €100 billion. The money could be raised on international financial markets and then lent to Central and Eastern European countries.
  • €50 billion of this should be put at the disposal of pre-accession and European Neighbourhood countries.
  • The funds should be used to set up financial rescue packages and economic recovery plans.
  • EU structural funds should temporarily raise the co-financing rate from 80% to 100% for infrastructure projects to speed up investments and to help member states with budgetary problems.
  • The European Central Bank should continue to cut interest rates.
  • The European Investment Bank should increase credit volume to SMEs in Eastern Europe so as to stimulate investment.

 
 

Positions:

Andrzej Arendarski, president of the Polish Chamber of Commerce, said Polish authorities had made a big mistake by not following Slovakia into the euro zone this year.

"We now have a big problem with the instability of our currency. It is necessary to act in solidarity to convince non-member neighbours to introduce more deregulation and to avoid the introduction of protectionism. It's very important to convince ECOFIN to multiply the assistance given," he said.

"The long-term interests of Europe lie in fewer barriers and the introduction of reforms in Eastern Europe," Arendarski continued, calling on East European member states that have not yet introduced stimulus packages to cooperate on a series of coordinated measures.

EuroActiv.com