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Economic annexation of Eastern Europe by Germany

Author : Dmitry Dobrov

After the collapse of the communist regimes, German business began a large-scale expansion in the countries, which formerly belonged to the sphere of influence of the Soviet Union and the Comecon
21:53, 10 July 2018

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After the collapse of the communist regimes, German business began a large-scale expansion in the countries, which formerly belonged to the sphere of influence of the Soviet Union and the Comecon. In a very short time, Germany became the main economic partner of the former socialist countries, now members of the Visegrad Four (Czech Republic, Slovakia, Hungary, and Poland). Almost 30 years later, economists ask themselves: did the entry into the German zone of the division of labor help these countries?

Did they manage to overcome the historical backwardness from the old "centers of capitalism," Germany’s first of all? The answer to this question is obvious. Despite some economic progress, the backlog from Western Europe in recent years has not only been preserved but also intensified. The countries of the Visegrad Four remain "assembly shop" for the German concerns, a source of cheap labor and low production costs.

Now it has become obvious that the countries of Central Europe will never approach Germany’s level of life and wages. European analysts call it the new "Holy Roman Empire of the German Nation," in which the industrial and technological center takes the blood of its periphery.

The economic "recovery" of Germany after 2000 is usually attributed to two factors. The first is the program of radical reforms "Agenda 2010," adopted under the pressure of Chancellor Gerhard Schroeder, which ensured the liberalization of labor legislation. The second, but no less significant factor was the removal of production to the countries of Central Europe. US economist Stephen Gross believes that the success of Germany as the world champion in exports is crucially based on the commercial and industrial exploitation of the countries of Central and Eastern Europe. For a quarter of a century, rich Germany has been taking production to the "near abroad" just as the US is doing with Mexico. The system of unequal economic partnership between Germany and the countries of the Visegrad Group arose and became established.

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Trade and economic ties between Germany and Central Europe (Mitteleuropa) exist for more than a thousand years, and before the First World War, these regions were already part of the German system of division of labor. Czechia (Bohemia) was the industrial heart of Austria-Hungary, and Silesia (today Poland) was the most important industrial region of Germany. After 1945, Central Europe temporarily fell out of the sphere of influence of German capital, but already in the 1970s, thanks to the "eastern policy" of Chancellor Willy Brandt, German concerns began to be introduced here in joint ventures.

But a real feast for German corporations began after the fall of the Berlin Wall in 1989 when the privatization of state property of former socialist countries began. The most important stage was the acquisition by the Volkswagen concern of the Czech automobile plant Skoda in 1991. Using this production base, Volkswagen was able to establish an extremely profitable assembly even before the Czech Republic joined the European Union. This was facilitated by the EU law of 1986, which allowed exporting components and returning finished products without customs restrictions.

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This involved not only the car industry but also the production of the entire range of products - from household appliances to electronics and textiles. Among the countries of Western Europe, Germany has most successfully used the mechanism of external processing. As a result, within the first ten years after the fall of communist regimes, the economies of the countries of Central Europe were under the complete control of the German corporations.

Since the end of the 1990s, the second phase of the German economic expansion in the region has come. External recycling is replaced by the direct investment. The transnational corporations of Germany are no longer limited to partial production; they build enterprises in the areas with a low cost of labor. In the period from 1991 to 1999, the volume of direct German investment in Eastern Europe grew by 23 times. German concerns fully utilized the advantages of labor from Eastern Europe. It was more technically and professionally prepared than Asia, it was inexpensive and close to Germany, there was no need to carry the finished products through the seas and oceans.

Back in 2010, the average salary in the countries of the Visegrad Group was a quarter from the German one. Thus, Germany received an excellent industrial rear with a population of 73 million people, and in fact, a platform for the transfer of production. By 2004, when the Visegrad Group joined the European Union (with active lobbying from Germany), the economic annexation of the region was completed. As a result of the global financial crisis of 2008, dependence on Germany became even stronger.

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The Czech political scientist Vladimir Handl writes in this regard: "There has been a historical paradox: the enlargement of the European Union, conceived as a deterrence of German economic expansion after the end of the Cold War, made Germany the hegemon of Central Europe." If you look at the map of the continent, you will clearly see the new German industrial empire, the "hardcore" which exploits skilled labor in the eastern provinces. We are talking about the semi-colonial status of the economies of Poland, the Czech Republic, Slovakia, and Hungary, which are completely dependent on their German master. It was the existence of this dependent periphery that allowed German capital to launch an attack on workers in Germany itself because the presence of a cheap competitor in neighboring countries automatically meant cutting wages in the metropolitan area, where the minimum hourly rate was reduced from 12 to 9 euros.

Polish economist Konrad Poplavsky also notes that paradoxically, Germany has become the main beneficiary of multi-billion-dollar structural assistance to the EU countries of the Visegrad Group. Thanks to the regional development programs of the EU in Poland, the Czech Republic and other countries of the Visegrad Group, the infrastructure was significantly improved, which provided reliable logistics to German companies.

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What are the results of the German economic expansion for the countries of the Visegrad Group themselves? The answer is ambiguous. On the one hand, German investments have made it possible to modernize the industrial base, attract new technologies, raise labor productivity and wages, and create jobs. But all this happens in the conditions of continuing economic and technological dependence: Germany controls production.

In addition, the standard of living and wages in the countries of the Visegrad Group, although slightly increased, rests on a strictly defined level: half or even two-thirds of the German per capita GDP. In the event that this bar is overcome, there is an outflow of capital and a crisis occurs. The iron logic of modern capitalism is that the "vengeance" will never be able to overcome the status of the economic periphery of Germany. However, they can be envied by the Baltic countries, Romania, and Bulgaria, where living standards and wages are much lower.

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This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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