Disparities in the European Union – is there a chance to alleviate them?

Analysis briefly:

• Over the last 2 decades, the countries of Central Europe have seen crucial economical growth, peculiarly in the context of per capita GDP by purchasing power parity.
• The dependence of Central Europe on abroad investments with low added value drives economical growth, but at the same time reduces innovation.
• Although the countries of Central Europe accomplish trade surpluses in relations with the European Union, they face trade deficits with non-EU countries.
• The median age in the European Union (EU) is steadily increasing, contributing to a crucial simplification in labour availability.

The analysis of disparities in the European Union covers respective key aspects, specified as the share of EU average GDP per capita, the position of the Community in planet trade, European industrial policy and human capital and unemployment rates. An analysis of the level of EU backing for innovation has besides been undertaken.

The article was written on the basis of the study of the Center for east Studies “A glass half full. Searching for fresh sources of economical growth in Central Europe", by Konrad Popławski and Sandra Baniak.

Pursuit of Western Europe: Are the foundations strong enough?

According to the OSH report, the countries of Central Europe have achieved crucial economical growth over the last 20 years, especially with respect to GDP per capita measured by purchasing power parity. Slovenia and the Czech Republic, reaching 91% of EU average GDP per capita, overtaken any EU members adopted before 2004, specified as Spain (89%). Lithuania, with a score of 87%, besides surpassed Portugal, with a GDP per capita of 83%[1]. These data confirm the crucial dynamics of regional improvement in the context of integration into the EU interior market.

GDP per capita in selected EU countries in 2003, 2013 and 2023 (source: own improvement based on K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSW).

The current situation in Central Europe reveals crucial differences in the level of regional development, mostly due to different economical structures and different employment rates. In addition, sectors with low added value dominate little developed regions[2]. This reduces innovation, as local companies stay closed in narrow supply chains, with small investigation and improvement potential.

In the face of increasing geopolitical threats and disruptions in global supply chains, the Central Europe region must take action to turn its economy towards greater innovation. Today, innovation in the European Union is steadily increasing, with 10% growth since 2017 and an additional 0.5% between 2023 and 2024. According to the latest edition of the European Innovation Scoreboard (EIS) for 2024, most EU associate States have improved their innovation performance, although the degree of this increase varies widely from country to country[3]. However, expanding defence spending, resulting from increasing safety concerns, can unduly burden national budgets.

EU position in planet trade

The authors of the study of the OSH point out that accession to the European Union has enabled countries of Central Europe to full integrate into the Single Market, which has fostered abroad investment, capital and technology. However, the economical model based on these elements required low labour costs and led to a strong dependence on rigid supply chains. Today, maintaining this model is becoming increasingly problematic due to the economical downturn in the EU, rising wages in Central Europe and higher production costs related to energy transformation[4].

Export dependence on the EU marketplace in 2022 (source: own improvement based on K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSW).

Although countries in Central Europe are achieving trade surpluses in exchange with the European Union, they face trade deficits with countries outside the EU. In 2022, the European Union recorded a trade deficit of EUR 432 billion, mostly due to a crucial increase in energy prices. Nevertheless, the situation gradually improved. In the first 4th of 2023, the deficit amounted to EUR 2 billion. In 2022 the EU's main export partner was the United States, while China was the largest origin of imports[5]. The advanced dependence of the region on exports to the EU is peculiarly noticeable in the V4 countries.

European industrial policy

CO2 emissions comparative to GDP in 2020 (source: own improvement based on K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSW).

The region of Central Europe has a advanced level of CO2 emissions, a consequence of industrial heritage and past investments in the manufacturing sector. The participation of countries specified as Poland in the full emissions of the European Union is increasing, despite a general fall in the volume of emissions in the EU. This is due to the fact that countries specified as Germany, the Netherlands and Italy are gradually reducing emissions by giving up fossil fuels, while changes are minimal in Central Europe[6]. Their shift towards sustainable energy entails advanced costs for Central Europe, which could lead to risks of deindustrialisation.

Europe is presently experiencing a decline in competitiveness due to the dominant function of Germany and France, which negatively affects the position of Central Europe. This situation highlights the urgent request to address the problems associated with the functioning of the Single Market, which is considered to be 1 of the key assets of the European Union[7].

The authors of the OSH study point out that 1 of the key challenges in promoting the interests of Central Europe in industrial policy is insufficient representation of this region in the EU institutions. As data show, since 2004, only 9% of crucial posts in the EU institutions, agencies and consultative bodies have been filled with people from Central Europe. comparative improvements are noticeable in the European Parliament, as 14% of crucial positions are represented by representatives of the region during the current word of office. In another EU institutions, this share is only 6%[8].

Human capital and unemployment rate

Comparison of unemployment rates in EU countries in 2003 and 2023 (source: K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSW).

The low unemployment rate in Central Europe poses major challenges, specified as the declining population and the shrinking labour force, as a consequence of emigration and an ageing population. According to the 2023 study on the impact of demographic change, the European Union has lost 5 million people of working age in the last 10 years. The largest declines have been recorded in Latvia, Bulgaria and Romania, mostly attributable to the low birth rate and migration rate[9].

It is worth noting that the fertility rate is rising in European countries. Eurostat data show that this origin has changed respective times over the years. After a comparatively low level of 1.43 in 2001 and 2002, it increased to 1.57 in 2008 and 2010, then somewhat dropped to 1.51 in 2013. In subsequent years, a average reflection took place, which lasted until 2017. In the period of the COVID-19 pandemic, the fertility rate in the European Union fell to 1.51 in 2020, after which it somewhat increased to 1.53 in 2021 to scope a fresh minimum of 1.46 in 2022[10]. Despite continuous growth, this value remains below 2.1, which provides a simple replacement for generations. The lowest fertility rates in the European Union were recorded in Malta (1,08) and Spain (1,16)[11].

The share of people aged 65+ in the full population – 2012-2022 (source: own improvement based on K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSW).

According to the OSH report, the median age in Central Europe increased from 38 years in 2003 to 44 years in 2023, which is consistent with the European Union average, but exceeds the value for the United States, which is 38.9 years. This demographic change, combined with a low fertility rate, poses a serious challenge to the long-term availability of the workforce[12].

It is worth noting that the percent of people aged 65 and over rose to 20.8% in 2021, an increase of 3 percent points compared to 2011. In the same period, the share of young people aged 15-29 fell, reaching 16.3% in 2021[13].

Problem of insufficient backing for innovation

The cohesion policy of the European Union, aimed at reducing regional economical and social disparities, has contributed to improving infrastructure in Central Europe. However, it has not importantly reduced the overall economical imbalances between richer and little prosperous EU countries. The income gap between the wealthy and the mediocre in the older associate States (those who joined the EU before 2004) is increasing, while those differences are decreasing in the countries that joined the Union after 2004. In addition, in most EU associate States, the proportion of people surviving below the poorness threshold increased between 2006 and 2021[14].

Despite the considerable resources allocated under the Multiannual Financial Framework 2014-2020, there are inactive major challenges, specified as outdated infrastructure and red tape problems. In addition, there are increasing differences in educational levels between urban and agrarian residents, which may negatively affect their employability. On average, 55% of adults in the EU aged 25-34 surviving in cities have tertiary education, whereas among agrarian people, this rate is only 34%[15].

Horizon Europe and INNOVFUND

Horizon Europe is simply a key component of the European Union's policy to finance investigation and innovation with a budget of EUR 95.5 billion. This initiative supports action to combat climate change and contributes to increased competitiveness and growth in the EU[16].

The largest recipients of Horizon 2020 backing (source: own improvement based on K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSW).

The authors of the OSH study indicate that many countries in Central Europe have received a large part of the Structural and Investment Funds from the European Union, mainly for infrastructure development. However, it is worth noting that the usage of these funds was varied and any countries faced administrative difficulties, although improvements were besides seen through extended deadlines. Horizon Europe continues to favour EU-15 countries, but the European Commission is taking action to guarantee a fairer distribution of R & D funding[17].

The INNOVFUND programme, launched by the European Commission in 2020, offers opportunities to increase investment in energy transformation and the improvement of green technologies in Europe. It is to be 1 of the largest programmes supporting innovative low-carbon technologies, and backing is to come from the gross generated from the EU Emissions Trading Scheme. To date, €6.5 billion has been allocated to the programme[18].

The biggest recipients of INNOVFUND backing are Germany, which received EUR 1.1 billion and Sweden with EUR 933 million. France received EUR 623 million and Norway (outside the EU) EUR 566 million. Belgium received EUR 535 million, while Poland implemented 5 projects for a full of EUR 304 million. another beneficiaries from Central Europe include Bulgaria (€190 million), Croatia (€106 million), Austria (€51 million), the Czech Republic (€19 million), Lithuania (€2.6 million), and Slovenia (€2.2 million)[19].

Conclusion

Despite the crucial economical growth of the countries of Central Europe, there is simply a crucial differentiation at the level of improvement of the various EU regions, which negatively affects the level of innovation in this area.

Central European countries are characterised by crucial trade surpluses, in relations with the EU, at the same time facing a trade deficit with non-EU countries. This contributes to decreasing technological competition, rising energy costs and extended bureaucracy.

Despite the overall decline in emissions volumes in the EU, the Central Europe region is characterised by a advanced strength of CO2 emissions, resulting from industrial heritage and past investments in the manufacturing sector. any countries in the region, specified as Poland, have a steady increase in CO2 emissions.

Europe is presently losing its competitiveness, due to the dominant presence of Germany and France. In addition, the level of employment of people from the Central Europe region is gradually decreasing in key positions in EU institutions. This puts Central Europe at a disadvantage and besides contributes to the improvement of Single marketplace problems.

Despite the fall in unemployment in EU countries, a progressive trend in an ageing population is noticeable. The problem is exacerbated by a comparatively low fertility rate, which is unacceptable to the simple replacementability of generations.

EU cohesion policy does not warrant equal opportunities between Community countries. There are presently crucial differences between members adopted before and after 2004. The most crucial problems include outdated infrastructure and bureaucratic delays.

Bibliography

[1] K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSH, https://www.osw.waw.pl/sites/default/files/OSW_Report-A%20glass-half-full_net.pdf, p. 9 (accessed: 5.10.2024).

[2] Regions in Central and east Europe: Trends and improvement factors, the Centre for European Regional and Local Studies University of Warsaw, https://www.evaluation.gov.pl/media/23085/rrit_064.pdf (accessed: 3.09.2024).

[3] Europe’s innovation performance stealily improvising but at different speeds between associate States, the European Commission, https://ec.europa.eu/commission/presscorn/detail/en/ip_24_3666 (accessed 10.09.2024).

[4] K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSH, https://www.osw.waw.pl/sites/default/files/OSW_Report-A%20glass-half-full_net.pdf, p. 16 (accessed: 5.10.2024).

[5] EU position in planet trade: figures (infographics), the European Parliament, https://www.europarl.europa.eu/topics/en/article/20180703STO07132/position-ue-in-world-trade-numerical data-infographics (accessed: 7.09.2024).

[6] The president Central and east European CO2 Market—Challenges of Emissions Trading for Energy Companies, Energies 2021, 14(4).

[7] The European Union needs to velocity up competitiveness reforms, European economical and Social Committee, https://www.eesc.europa.eu/en/news-media/press-releases/european-union-needs-speed-competition-reforms (accessed 14.09.2024).

[8] K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSH, https://www.osw.waw.pl/sites/default/files/OSW_Report-A%20glass-half-full_net.pdf, p. 25 (accessed: 5.10.2024).

[9] Commission wars of shrinking workforce in many EU regions, Euroactiv, https://www.euractiv.com/section/economy-jobs/news/commission-warns-of-shrinking-workforce-in-many-eu-regions/ (accessed 18.09.2024).

[10] Fertility statisticsEurostat, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Fertility_statistics (accessed: 05.10.2024).

[11] Ibid.

[12] K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSH, https://www.osw.waw.pl/sites/default/files/OSW_Report-A%20glass-half-full_net.pdf, p. 27 (accessed: 5.10.2024).

[13] Commission wars of shrinking workforce in many EU regions, Euroactiv, https://www.euractiv.com/section/economy-jobs/news/commission-warns-of-shrinking-workforce-in-many-eu-regions/ (accessed 18.09.2024).

[14] Inequalities unmasked: Reality of disparities across the EUEurofound, https://www.eurofound.europa.eu/en/blog/2024/inequalities-unmasked-reality-disparities-across-eu (accessed 18.09.2024).

[15] Inequalities unmasked: Reality of disparities across the EUEurofound, https://www.eurofound.europa.eu/en/blog/2024/inequalities-unmasked-reality-disparities-across-eu (accessed 18.09.2024).

[16] Horizon Europe, the European Commission, https://cinea.ec.europa.eu/programmes/horizon-europe_en (accessed 5.10.2024)

[17] K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSH, https://www.osw.waw.pl/sites/default/files/OSW_Report-A%20glass-half-full_net.pdf, p. 41 (accessed: 5.10.2024).

[18] Innovation Fund, the European Commission, https://cinea.ec.europa.eu/programmes/innovation-fund_en (accessed 23.09.2024).

[19] K. Popławski, S. Baniak, A glass half full Searching for fresh sources of economical growth in Central Europe, OSH, https://www.osw.waw.pl/sites/default/files/OSW_Report-A%20glass-half-full_net.pdf, pp. 41-42 (accessed: 5.10.2024).