CEE countries are not just assembly lines for Western Europe; they are also centres of innovation, talent, and investment. And the region’s people offer a sizeable market of increasingly wealthy consumers.
In Warsaw a butterfly flaps its wings, in Lisbon the stock market crashes. An exaggeration, perhaps, but a report this week in the Polish press hinted at the ever-tightening relationship between the western and eastern parts of the European Union.
Shares in Portuguese supermarket giant Jerónimo Martins, whose global revenues topped 30 billion euros in 2023, have fallen sharply since June, when it announced weaker than expected financial results partly because of the less than stellar performance of its Polish subsidiary Biedronka, the country’s largest chain of discount stores.
If Poles buy less cheap milk, Portuguese investors get twitchy, it appears.
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The reverse is also true. Just last week, Dutch insurance giant NN announced excellent results based on sustained growth and increased sales in Central and Eastern Europe, particularly notable in the value of new business in Czechia and Poland.
Poles looking for alternatives to their state healthcare scheme are good for the Euronext, it appears.
It’s all evidence that in the 20 years since the biggest ever enlargement of the European Union (when Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia joined the bloc; Bulgaria and Romania were added in 2007; Croatia in 2013), the EU has transformed from an entity dominated by Western European powers into a diverse and interconnected economy that increasingly relies on its Central and Eastern European members.
Countries once considered the periphery have become integral to the EU’s economic and political landscape. Although all of these nations remain net recipients of EU funds, their contribution to the Union is far from one-sided. They provide talent, markets, and significant production capacity, making the West-East relationship in the EU a dynamic and mutually beneficial partnership.
In a recent interview with Emerging Europe, PwC’s Global Government and Public Services Leader and CEE Clients and Markets Leader Agnieszka Gajewska made a point of noting the two-way nature of the relationship.
“The past two decades have not just been about the EU transferring funds and know-how to its members in the region—a great deal of talent and know-how have gone the other way,” she said.
“The phrase, ‘CEE owes the EU so much’ gets used a lot. But I am not a great fan of this word, ‘owing’. Brussels is not just an ATM. The EU is about partnership. CEE has contributed a great deal to European growth and we need to remember that.”
The economic power of Central and Eastern Europe
CEE countries have experienced remarkable economic growth since joining the EU. All have have seen their economies expand rapidly, driven by a combination of foreign direct investment (FDI), access to the EU single market, and structural reforms.
According to the World Bank, Poland’s GDP for example grew more than 170 per cent between 2004 and 2022.
This growth is not only beneficial to the CEE countries themselves but also to the entire EU. Western European companies have increasingly moved production to CEE nations, attracted by a skilled workforce and proximity to major markets.
For instance, the automotive industry, a cornerstone of the European economy, heavily relies on production facilities in countries like Slovakia, Hungary, and Romania. Indeed, Slovakia has the highest per capita car production in the world, with major players like Volkswagen, Peugeot, and Kia operating large plants there.
The reliance on CEE countries for manufacturing is not limited to the automotive sector. The region has also become a hub for electronics, machinery, and other high-value goods.
For example, Hungary hosts significant operations for companies like Samsung and Bosch, producing everything from consumer electronics to industrial components. These industries are critical not just for the local economies but for the supply chains that power the broader EU economy.
Talent and innovation: The new engines of growth
CEE countries are not just assembly lines for Western Europe; they are also centres of innovation and talent. The region boasts a highly educated population, with a strong emphasis on science, technology, engineering, and mathematics (STEM) education.
This has led to a burgeoning tech scene in cities like Warsaw, Cluj, Vilnius, Riga, and Tallinn.
Estonia, in particular, has gained international recognition for its digital prowess. The country is a pioneer in e-governance and digital innovation, leading the way with initiatives like e-residency and digital voting. Estonia’s start-ups, such as Pipedrive and Wise, have made a genuinely global impact, demonstrating that innovation in the EU is not confined to traditional powerhouses like Germany or France.
Moreover, the CEE region is becoming increasingly attractive to tech giants from the West. Companies like Google, Microsoft, and IBM have established research and development centres across the region, tapping into the local talent pool.
This trend highlights the growing importance of CEE countries as not just providers of cheap labour but as sources of innovation and technical expertise that are vital for the EU’s competitiveness on the global stage.
Markets and consumption: The growing influence of CEE
The economic ascent of CEE has also turned the region into an important market for Western European goods and services. As incomes rise and living standards improve, the consumer markets in CEE countries are expanding rapidly. This creates significant opportunities for businesses across the EU.
Western European companies have been quick to capitalise on this growing market. German carmakers, French luxury brands, and Italian fashion houses all see CEE countries as key growth areas.
The retail sector, in particular, has seen substantial investment, with major chains like Carrefour, Tesco, and IKEA—besides Jerónimo Martins—expanding their presence in the region.
Poland, with its large and increasingly affluent population, is a prime example of this trend. It has become the largest consumer market in Central and Eastern Europe, attracting a wide array of Western European companies.
The Polish e-commerce market, for instance, is one of the fastest-growing in the EU, driven by a tech-savvy population and improving logistics infrastructure. It can also boast its own e-commerce giant, Allegro, as can Romania, with eMag. Both are now owned (or majority-owned) by private equity and venture capital firms.
Even A-list performers, who for a long time swerved Central and Eastern Europe when on world tours fearing that locals would not pay the high cost of tickets, are arriving in ever growing numbers. Earlier this month, Taylor Swift performed for three consecutive nights at Poland’s national stadium in Warsaw, bringing the city an estimated economic boost of almost 50 million euros.
‘Warsaw? I remember it all too well‘
This growing consumer power in the CEE region not only benefits Western European businesses but also helps to balance the economic relationship within the EU. As CEE countries become more prosperous, their ability to contribute to and sustain the EU economy increases, helping to reduce—it is expected—the dependency on EU funds over time.
CEE investment heads West
CEE firms are also increasingly making their mark in Western Europe, driven by a mix of robust economic growth in their home markets and a strategic ambition to expand their footprint in more mature economies.
These firms, once primarily focused on their domestic markets or neighbouring countries, are now eyeing opportunities in Western Europe as a way to diversify and strengthen their global presence.
The recent acquisition of the UK’s Royal Mail by a Czech investor is a prime example of this trend. The investment, by Czech billionaire Daniel Křetínský, who has steadily built a significant portfolio across Europe, highlights the growing influence and confidence of CEE investors on the Western European stage.
This move is not an isolated case; it mirrors a broader pattern of CEE firms pursuing strategic assets in Western Europe. Lithuania’s Vinted is Europe’s go-to marketplace for secondhand clothes. Estonia’s Bolt has proven to be a reliable (and profitable) alternative to Uber. Romania’s FintechOS powers financial products for banking and non-banking institutions across the globe.
Another example is the Polish company CD Projekt, the gaming studio behind the globally successful Witcher series and Cyberpunk 2077. CD Projekt has established a strong presence in Western Europe by leveraging its creative and technical expertise to compete with leading gaming companies worldwide.
The firm’s success has not only bolstered Poland’s reputation in the tech and gaming sectors but has also paved the way for other CEE tech companies to explore opportunities in Western Europe.
Additionally, Hungarian low-cost airline Wizz Air has been rapidly expanding its operations across Western Europe. With its aggressive pricing strategy and focus on underserved routes, Wizz Air has become a formidable competitor to established Western European carriers like Ryanair and easyJet.
The airline’s growth reflects the broader trend of CEE companies leveraging cost advantages and strategic acumen to capture market share in western markets.
Bridging the West-East divide
Despite these positive developments, the relationship between Western and Eastern Europe within the EU is not without its challenges. There is still often talk of a West-East divide, characterised by differing political priorities, economic disparities, and, at times, mutual distrust. However, it is increasingly clear that this divide is not a one-way street.
The contribution of CEE countries to the EU is multifaceted. While they receive significant funding from the EU, they also provide the union with critical economic assets. The production capacity, innovation potential, and growing markets in these countries are essential for the EU’s overall economic health and global competitiveness.
Moreover, the political influence of CEE countries within the EU is growing. Poland and Hungary, in particular, have become vocal players in EU politics, advocating for policies that reflect their interests and perspectives. This has sometimes led to friction with Western European countries, especially on issues like the rule of law and migration.
However, it also underscores the fact that CEE countries are no longer just passive recipients of EU policies but active shapers of the Union’s future. Former Estonian Prime Minister Kaja Kallas is set to become the EU’s foreign policy chief later this year.
A more balanced Union
The role of Central and Eastern Europe is likely to become only more significant. The region’s growing economic clout, innovation capacity, and political influence suggest that the future of the EU will be increasingly shaped by the East as much as by the West.
To harness the full potential of this partnership, the EU must continue to invest in the integration of CEE countries, ensuring that economic disparities are reduced and that all member states can contribute to and benefit from the union’s successes.
This will require not just financial investment but also a commitment to dialogue and cooperation that bridges the gaps between East and West.
The relationship between the EU’s Western and Eastern members is evolving into a more balanced and reciprocal partnership. Central and Eastern Europe, once seen as the periphery, are now at the heart of the EU’s economic and political life.
As they continue to grow and assert their influence, they are helping to create a stronger, more resilient, and more united Europe.
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