How does the region of Central and Eastern Europe fit into the context of global politics and its corresponding risks?
CEE in a globalised world
Developments in international business and politics now have stronger and much faster direct and indirect impacts on the societies and economies of Central and Eastern Europe than what used to be the case – take fragmentized supply chains or the rise of populism as some of the most recent examples. But the effects of globalisation in the region appear to have been positive overall, especially in business terms, where this has manifested in the implementation of free-market policies and closer cooperation throughout the region.
According to ECB President Christine Lagarde, import prices have been lowered, technology spillover has led to more rapid development, the division of labour has resulted in productivity gains and the general openness and flexibility of trade have helped buffer the effects of local shocks. But while the economy appears to have benefited from globalisation, the current arrangements also present a significant risk. The closely intertwined nature of the global economy has become more prone to ripple effects often stemming from localised events, the outcomes of which are then felt worldwide.
The CEE region is no exception and is, for example, almost completely dependent on importing strategic materials. But while resource shortages may intuitively seem like the primary risk, they often present a secondary issue. Instead, the ripple effects of shocks are felt long before in the form of market speculations or fluctuations, which alone have the potential to cause significant damage to economies.
This, after all, has also been the case of the current energy shock Europe has been experiencing. The war in Ukraine has highlighted that depending on Russia for 40% of Europe’s gas supplies is not a sustainable strategy. The numbers are even higher in the case of some CEE countries, with 66% in the case of the Czech Republic and 70% in the case of Slovakia, indicating that now is the time for serious structural changes.
The obvious need to diversify Europe’s portfolio of commodity suppliers in light of the invasion and following sanctions rings true for other sectors as well, and has been pointed out by Lagarde as one of the three solutions to ensure a stronger and less risk-prone European – and therefore also Central and Eastern European – economy.
Stuck in the middle?
The general consensus within the discipline of international relations is that the current world order can be described as multipolar, with none of the global powers assuming a leadership position. Despite this, however, one cannot help but continue to notice two main leanings, roughly correlating with the “western” and “eastern” identities. And nowhere can this dichotomy be felt more strongly than in Central Europe, both a physical and metaphorical bridge between the East and West, with opinions often dividing the populations and resulting in the countries falling “somewhere in between”. The aforementioned trend of globalisation has reinforced the impacts of international developments on the region, not only in terms of business but also its identity and political leanings, thus creating a rather specific social context subject to fluctuation.
Take the recent report from GLOBSEC which states that as a result of the Russian invasion, “in all analysed countries, apart from Romania, there is a discernible shift in opinion away from the preference of being somewhere-in-between to a rather more unequivocal backing of a Western geopolitical orientation”. Accordingly, three out of four CEE respondents claimed they wished to remain part of the Western structures, displaying a strategic Western leaning. However, in comparison, only 44 % claimed they wished to be part of “the West'' itself, indicating the CEE member countries’ continuing preference for defining their own identity rather than simply adopting that of the West. While support for EU and NATO membership stands high, at 80% and 79% respectively, the alignment with Western ideas and identity is still a source of dispute.
Based on this division, a rather specific social and business environment is formed, which foreign businesses seeking opportunities within the CEE region should pay attention to. The specific composition of business relationship networks and various leanings can become especially difficult to navigate in the case of outside actors with little to no knowledge of the region.
Furthermore, the continuing divisions create the potential for social cohesion erosion and interference from malign influences. The most frequently reported are the activities of Chinese and Russian disinformation agents and Russian cyberattackers. A lack of the region’s own comprehensive reporting and expertise development on the aforementioned countries also contributes to the development of emotional and distorted narratives which then lead to more social divisions, lower the trust in traditional media and democratic institutions, and create the potential for further misinformation and political instability.
On the other hand, however, this specific positioning makes the CEE region a space attuned to the needs of both the East and West. It is both capable of operating within Western institutions and understanding the socio-economic context of the East with its implications, largely thanks to shared historical experiences. Such qualities become invaluable for businesses aiming to efficiently operate within both regions.
The recent shift is the latest proof that international developments carry a significant impact on not only the politics and social climate in the region but even its very own identity and self-perception. While this comes with certain risks that future analyses of the region should take into account, the region’s many-sided identity also presents a distinct asset. Instead of falling “in-between”, the region often succeeds in bridging the perceived gap between East and West.
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