This special episode of Cross-Border Talks is devoted to an outstanding study prepared under the auspices of transform!europe – Hundred Shades of the EU — Mapping the Political Economy of the EU Peripheries. We invited two of three co-authors of the book: historian and journalist Veronika Susova-Salminen and economist Giuseppe Celi to speak about European South and East. They explain reasons behind permanent crises and difficulties faced by Southern and Eastern states of the community, explaining also how the structure of the community does not help them to ‘catch up’ with richer central states in terms of welfare and development. They also look for ways of development of the whole Europe which do not deepen the inequalities between peripheries and the centre. After all, often in the history of humanity those were people from the periphery who came up with courageous, revolutionary ideas, and advocated a real change.
The entire transcription of video and audio recordings is available below.
Malgorzata Kulbaczewska-Figat: Good evening, everybody. This is Cross Border Talks, perhaps your favorite show on international relations from human and social perspective. Today I will be the sole host of the meeting because my colleague Veronika Salminen comes to you as the guest.
This episode will be dedicated to the excellent study Hundred Shades of the EU, which was co-authored by her Giuseppe Celi, our second guest, Veronika Salminen and Valentina Petrović. Before I pass on to my first question, I invite you to subscribe to Cross-border Talks. We are on YouTube, SoundCloud, Spotify. Our today’s guests are Giuseppe Celli, the senior researcher responsible for the Southern European countries, an economist from Italy, associate professor of Economics in the University of Foggia, author, co-author of the book Crisis in the European Monetary Union. And Veronica Susova-Salminen, an expert on Central and Eastern European countries, specializing in history and politics of this region, author of books on Russia, holding a degree in Anthropology from Charles University in Prague. And I think that it will be you, Veronica, who can say more precisely what the whole study is about? What are the 100 shades of the EU and why is the work so exceptional?
Veronika Salmenin: Hello, everybody. Thank you, Malgorzata, for the opportunity this time to speak not as the interviewer, but as a guest. I am very glad that I can introduce very shortly only our new study: 100 Shades of the European Union. This study concerns the relation between peripheries of today’s European Union and their relations with the core. Of course, I am very glad that Giuseppe is with us. Valentina Petrovic is not joining us today, but I hope she will join us under the other occasion and she will be able to talk also about her research topics too. You can find the book on the pages of transform!europe for free, as it was supported by transform!europe and Rosa Luxemburg Stiftung, which I should say in the beginning.
So what was the idea behind? To compare recent peripheries of the European Union, meaning Southern European Member States and the Member States on the Eastern part of the EU. It means Central, Eastern European states and the Balkan Member states. The idea was originally to have a look on it on the European Union through the prism of peripherality and through the prism of concept of relations between periphery and the core: to see the political economy of the European Union with special focus on these countries.
While the periphery is the main focus, you cannot study it without having a look at the core, because the core and periphery are related and they cannot exist without each other. We decided to study the last last 30 years in order to grasp a longer historical dynamics, and study the times where peripheries were already within the European Union. This way, we could see the interaction between them within the European Union and of course the way how the European Union is working for them, how are they embedded in the European Union and how the European Union integration process works for these two regions or peripheries. So this was the main idea. The next argument is that peripheral reality is not one one dimension of something. We try to grasp it from three different dimensions. We look at the economic one, we study political economics. Giuseppe will tell us some of our findings about the economic models which are functioning on these peripheries and how they were created by the integration process. Then we looked at the political dimension, which is the second most important,and finally on the ideological and cultural dimensions of the peripheral. So we were trying to have a 3D picture of the peripheral zone within the European Union. We based on different types of approaches and studies. I need to say that Giuseppe is economist, I am the comparative historian and anthropologist and Valentina is political scientist.
Another key idea behind the study was that it would be done by people from these regions, from Southern Europe and from Central East and Balkan countries. We wanted a self representation and not a study performed by somebody from the outside, from from other parts of the Europe, especially from the core.
And finally the idea was to grasp or to grasp the peripheral to show that the European Union is still about power. It hasn’t disappeared anywhere. Despite the many ideological narratives around it, it’s still there. It has different shapes. It is not just economical power. It is also ideological power and political power. It has different actors, because there are European institutions working with transnational corporations. Therefore, the final idea behind and totally on the top of it was to try to grasp this and then to enable some kind of dialogue between these two peripheral areas. Because whatever you know about the periphery, about core and periphery relations, you know that the core is usually the filter between different periphery stories. And it is not allowing this kind of direct relations, which is, in my opinion, politically and strategically very bad for both European peripheries today.
Giuseppe, you studied the economical dimension of the peripheries. What key characteristics of the economic models of the Southern periphery and the Eastern periphery have you found? Can we really speak of a particular model that was developed over history in these two groups of countries? And what is particular about it?
The answer to this question requires a necessary premise. After the birth of the EU and the eastward enlargement of the EU, important change occurred in production and trade relations among European countries. If you want – there happened a profound hierarchical reorganization of European industrial structure leading to the consolidation of Germany as a hegemonic power in Europe and to a reshuffling, if you want, of the relations between core and peripheral countries. On the one hand, the eastward expansion of the powerful German manufacturing platform overtook the industrial base of some peripheral countries, especially Visegrad group countries. On the other hand, other peripheral countries followed a different destiny, a different evolution marked by deindustrialization, loss of human capital through huge immigration flows and external dependence on financial flows. This is the case of Southern Europe. However, when we compare both peripheries, the South and the East, we see what they have in common. They have an external externally dependent position in terms of capital investment and technologies, which determines a very important constraint on their economic development.
Of course, these dependencies are structured according to different economic models and in different historical contexts. When we look at the southern EU peripheral countries, we see that during the crisis of the 1970s they stopped or slowed down the process of industrialization. In the following years, in the eighties, in the nineties,when deregulation and liberalisation of market was going on on a global level, these countries embarked on the road toward financialisation with the hypertrophy of services and in some cases also of public sector. Financialization for these countries was a particularly distorting factor for development because this factor contributed to diverting resources from long-term industrial investment to activities which were much more volatile, with shorter term return. The result is persistence of the incompleteness of the production matrix of these countries.
We can define the development model of Southern peripheral countries as a debt-financed consumption and growth, witn an incomplete productive base. The present economic model of Southern Europe is not supporting convergence. Countries like Italy or Greece that have experienced a continuous economic and social decline.
Then, the competition from eastern peripheral countries, especially from Visegrad Group, in their role of providers of intermediate goods for the German manufacturing industry, contributed to a further weakening of production base in Southern Europe. If you look, for example, at a very simple indicator, the evolution of GDP per capita in Southern and Eastern European countries over the last few decades, the trend that emerged is quite unequivocal. The countries of Southern periphery go down, especially after the 2008 crisis, while the countries of Eastern periphery go up. At the beginning of the period in the late 1990s, there is a clear division between the group of Southern peripheral countries showing a higher GDP per capita index and the Eastern periphery countries displaying a much lower index. Now the two groups are nearly on the same level. If there is a convergence, it is a downward convergence for Southern Europe, an upward convergence for Eastern peripheral countries.
It is very impressive to observe, for example, the peripheralization of a country like Italy that at the beginning of the period had a very high index of GDP per capita. Now, compared to the EU average, but at the end of the period, the index of Italy is very close to that of the Czech Republic.
When we consider the eastern EU periphery, we know that FDI, or foreign direct investment are the key drivers of economic development in these countries. But even with the robust development of the most dynamic central Eastern European countries, the Visegrad Group countries present an element of fragility, dependence on foreign capital and technology, domestic market hypertrophy of export with respect to GDP, low wage and strong specialization in sectors like the car industry.
Regarding the less dynamic Eastern European economies, the Baltic country and the South-Eastern European countries, or Western Balkans with countries like Slovenia or Croatia, we see fragilities that are very similar to those associated with Southern European countries. In the case of these countries, FDI is concentrated in the service sector, finance, insurance and real estate sector. In case of Baltic States, we see a strongly financialized economy. The Balkan countries, on the other hand, disproportionately oriented toward tourism activity. like Bulgaria and Croatia. However, Eastern European countries now, contrary to southern European countries, are upward, upward converging now in the EU context. Nevertheless, the macroeconomic convergence highlights important regional divides within each country and we show this in the study. There are great internal divides, even if there is a strong upward convergence at macroeconomic level in these peripheral countries.
You talked a lot about fragility, which is behind even what seems to be a success of Eastern economics. Would this fragility be even bigger in the difficult time that we live now, with the energy crisis looming, with the war, with the general prices rising. How about these economies in these difficult times? Will they be able to cope with the new challenges?
Both the war in Ukraine and other dramatic shocks revealed how fragile global value chains are. Studies that have analyzed the propagation effects of shock like coronavirus, the war, but even earthquakes alongside the global value chain have revealed how destructive these effects are in terms of output, employment, and productive capacity. At the same time, shortage of a simple raw material like nickel could paralyze electric car production, for instance. Nickel is an important material for the production of electric vehicles, especially for batteries. One of the main world exporters of nickel is Russia, and in the EU, the most dependent countries on nickel imported from Russia are now Germany, Visegrad countries, also Baltic States and Finland. The four countries belong to the CMC, which is the acronym for Central European Manufacturing Core, particularly vulnerable to the impact of war.
But these countries are also particularly sensitive to the war in Ukraine from another point of view. If you look at another indicator, for example, the share of total employment in the energy intensive sector, we can observe that these countries, but in this case also Italy, knows this country has a particularly high share. The employment is concentrated in the energy intensive sector. This, together with the relatively higher dependence on fossil energy, often from Russia, make these countries, but also Germany or Italy particularly vulnerable to the impact of war. In general, the war, like the previous shock 2008 crisis and the pandemic is producing an asymmetric effect on European countries. This time, a certain reshuffling of the traditional core-periphery division happens, because now Germany is a country with a greater concentration of employment in the energy intensive sector, a greater dependence on energy input from Russia. This is a reshuffling within the traditional core.
Indiscriminately, both the poor and the peripheral countries are affected by the war. So what about the future? Future developments are now absolutely uncertain due to a number of factors. For example, ecological transition. Just a provocative question: is the ecological transition a real opportunity for change or a simple shift from Russia to China? OK, going green is a priority to overcome dependence on fossil fuels and on Russian gas. But the need to accelerate the ecological transition is revealing a very gloomy reality, for example, in terms of availability of raw materials, intermediate input and the technologies for the electric transition in terms of this availability. Europe lags behind China, which dominates the electric vehicle value chain and produc3w, for instance, a key component such as a lithium ion batteries.
So, while the EU’s peripheral countries are vulnerable, Europe itself is vulnerable in a global context, turning out to be fragile when compared to USA and China, technologically backward in key sectors. For example, in semiconductors, digital and green technology we see a total dependence on imports. Even the celebrated German export-led model seems ill-suited to cope with this changing economic environment in which the international trade itself is weaponized, and the countries that control raw materials, intermediate inputs and key technologies are ready to exert their power through this control. The basic element of the German export-led model is not able anymore to cope with this new economic order situation.
What are the basic elements of the German export-led model? No wage moderation, the compression of domestic and public demand, also the absence of diversification of production. The question is not with the crisis of the German export model. But the new economic and geopolitical context does lead to a retreat of the core country, Germany, and so so to a downward convergence of Europe with negative impact on the peripheral countries.
I would now say something provocative. If you look at the countries less integrated into the CMC, the Central European Manufacturing core, you see that these countries are less sensitive to the impact of the war. I am now speaking about some of the Southern European countries, Portugal or Spain. These countries have undertaken development trajectories in the field of renewable energies, wind and solar. The problem is that this development in some way is self-contained within national bond boundaries, there is no strong interconnection with other markets. But this is a hope for the future. If you want no area of cooperation in order to develop now, there are renewable energies.
Well, from what you both said, we can learn that the South and the East of the European community have more in common, that the populations living there are acknowledging. For instance, in Eastern Europe during the Greek crisis, many people heard in the media that Greeks were lazy and they fell into trouble because they were not able to deal with economics probably. Many people actually believed in that. And now we need to realize that, in fact, instead of feeding stereotypes against each other, we need to seek ways for cooperation. Veronica, I wanted to ask you, what are the possible paths for cooperation of two peripheries, and what are the obstacles, apart from the stereotypes and lack of knowledge?
As I already said in the beginning, producing some kind of dialogue and understanding each other was part of this project also. We, as academicians, try to create the academic conditions for it. But since the beginning there was this kind of, let’s say, political strategy behind it.
Of course, there is a lot of obstacles. Some of them are already usurped by the way they are structured and given. We are peripheral, we are both vulnerable, we are both dependent, even if the nature of dependency is different. For example, in Southern Europe, we can say they are dependent, because they financialized so much on the capital from the core countries, from the banks, from France and Germany, for example. On the other hand, in the Eastern part, we are more dependent on foreign direct investments coming from countries like Germany or Netherlands, again, the core countries. This is, of course, a political challenge, because you cannot create a political strategy, and even if you can – still you should realize that you are basically in the same position as if you could not. One of the biggest obstacle which you meet on the Southern part is a belief that South and – to an even greater extent – Eastern Europe have productive platforms and thus it is not any periphery and it is converging. But they don’t realize that we don’t own this productive platform – it is integrated with Germany, with transnational corporations, and they are basically controlling this. So we became a space which is nearly like a colony!. We have been colonized in a sense. They came in, because they knew that we had industrial traditions from the past, from the socialist period, and then used this. This doesn’t give us the position of the core because we don’t have the power to control. We don’t have the technological edge. All this is coming from the core, from the mother corporations. If you look at the relations between Skoda and Volkswagen… We know there is a huge tension between Skoda and Volkswagen, doesn’t want to offer Skoda factories the first technological edge and so on. So this is a wrong belief, somehow spread out in the Southern Europe, where there is no productive base.
They don’t have the productive base, because, as Giuseppe explained, the European integration process pushed them to stop the continuation of industrialization. Then there came liberalisation and they were not able to compete. They were not able to finish their building of the productive platform and they get in this financialization circle or problems. So we have to really be able to understand where are the differences and why these differences are there, what they mean. If we don’t understand, if we don’t know history, if we vdon’t know the dynamics of these things, we will never understand each other. We will never be able to cooperate.This was one of the things we were trying to do in the study: to show the structure, to show why it happened, how it happened, and that really the dependence of Central and East Europe is based on particular on the productive base. Something which normally gives you, like in Germany, the power, is actually not giving you power. It is actually not helping with your development, it is making you dependent. So structural obstacles are big and they have to be taken into account. They cannot be overcome easily.
Unfortunately, the European Union is very much based on the competition. We often speak about solidarity. But sorry – there is a competition drive which is connected with the neoliberal globalization, which unfortunately European Union adopted, at the time when the Central Eastern European and Balkan countries started to integrate, as a key mechanism. Competition is putting us against each other, because we are competing economically to lure the transnational corporations.
Another myth concerns the states which are supposedly one group, united by mutual support. The four Visegrad countries are supposedly all together because there is some Visegrad group and we are against migration. But since the very beginning, 1990s, basically the competition paradigm was accepted by all the states. Poland was first together with Hungary. Then we added Slovakia and Czechia, and all these countries were competing against each other to the bottom. Competition is the corporatism of the European Union economic policies, and it is putting us apart. Finally, there are ideological and cultural mechanisms already set, but the ideological culture are the easiest to overcome if we will really be able to understand how they work.
As I said before, the core is not only the filter for the redistribution of the economic power and political power, it is also a filter for the ideological mechanism to explain things to people to legitimise, as you said, for example, about the crisis in the Greece. We were taught that the Greeks were lazy. Generally speaking, all Southern Europeans are, supposedly, lazy. Italians are also lazy. They love women and drink and they don’t work hard, said one Dutch politician.
These ideological barriers should be the easiest to put away. Unfortunately, what we see today in the European Union with the war in Ukraine is that they are growing the new barriers – maybe not inside the European Union, but based on the same mechanisms: build the wall, to isolate from so-called enemy, to continue the Cold War logic of division in Europe. Only this division has moved a bit more Eastern than ever before.
The ideological obstacles are here. They are in our heads. We prove in the study that they are connected with the periphery: if you are on the periphery, you very often believe that the core is the authority and the model. Malgorzata, you probably in Poland also talk all the time about the West and about Germany, that you want to be like them. We want to do this like them, but we cannot be ever like them, if we repeat stay within the model of peripheral economic developments, if we listen to transnational corporation, if we try to copy the models which they are offering us. These models are here to reproduce the power of the core, of the of the capital in the core. Surely, in the core there are peripheries too and you have also allies there. The same goes for the Southern Europe.
Southern Europe is in the same position. They only look up, you know, they look to the north, to the west. And everything in the west is great. We have to converge. We have to repeat, we have to modernize. We have to become German. We have to suppress our Easternness, because Easternness is this house which is bad. And we are ideologically believing in some kind of dream. This really doesn’t exist even in the core, actually. And the South is very same. They look France, they look Germany and they want to become them. So, in order to break the chains of this kind of distribution of power, we must speak together directly and say: we cannot do this, we cannot agree about this.
For example, we know that migration is the huge problem for these these two countries, these two regions. We, however, know that the Ukrainian crisis is changing this very much. From the countries which were refusing to accept refugees from Africa and the Middle East, we became the biggest net saver of war refugees in the EU. Poland and Czech Republic are on the top if you compare to the amount of the population. Our people are taking these refugees to live at home with us. Nothing like this, by the way, I think, happened in the South. So these divergences are given by the different dynamics, by the geography.
There are also two important experiences: the empire, because we are the former empire state nations and colonialism, which was more, more important for countries like Italy, Spain,Portugal. Understanding of the context of the historical dynamics of the reasoning behind is much more important than to listen to simple ideological narratives about us and them, and which are usually based on the, as I said, on the power of the foreign capital from the core.
We share the problem that we don’t. We cannot develop sustainably. We cannot develop, let’s say, with dignity, which our countries would need. And in this sense, we can help each other. I also believe that economically we could help each other because we could boost our own economies by some kind of direct, direct relations between our firms. Of course, this is the question of long term political dialogue, something which will take a long time and we must have patience. And we just started to work on it. So let’s see what brings us the future.
Veronica, That was quite an optimistic voice, surprisingly. Before we end this einterview, I have one question for both of you, and I would ask you for a concise answer. Do you believe there are grounds that in these crisis times the peripheral countries come up with an alternative for Europe? So this Europe of competition is replaced by Europe of solidarity, or at least that the steps you talked about are starting to be introduced in practice, that we don’t copy either the model of economy that does not serve our economies, but instead we come up with something that actually lets us make steps forward. Giuseppe, what are your take?
I said before that the German export-led model is in crisis, because there is no time anymore for cheaper globalization. So, maybe a retreat from the export model could be an expansion of the European internal market, also in the direction of satisfaction of social needs, not only in terms of increased competitiveness, or the myth of international competitiveness. Not an industrial policy to enhance and to boost international competitiveness, but to reinforce the element of expansion of internal markets in Europe in the direction of meeting social needs. There is a lot to do in this sense, to rethink industrial policies also in this direction, not to boost the export led model, but to expand an internal market in this time of crisis. This radical change of strategy could be happening.
Veronica, your final comment?
Historically, we know that the peripheries are usually more willing to do experiments with alternatives. Unfortunately, one of these experiments, a supposed answer for economic backwardness or economic problems was, in the first half of the 20th century, fascism. Fascism is actually very often called ‘modernization dictatorship’. In our part of Europe, in Central and Eastern Europe, we had another experiment: the state socialism, modelled more or less on the Soviet system (less Soviet in Yugoslavia or Poland, more in Czechoslovakia). The peripheries are prone to this because they are on the edges and they usually feel the vulnerabilities of any crisis.
Now Germany is in the crisis or coming into the crisis, and most probably all the Central European production platform will be in crisis and this will be a huge challenge for all of our countries. At the same time, we could see that the global financial crisis was very harsh for the South in Europe, and the pandemic was also very harsh for many southern European countries, because they were based on tourism and services – both sectors heavily hit. In the last ten years, we had three big crises and all of them have been deeply influencing the situation in Southern Europe and Eastern Europe.
Of course, the core countries were affected as well, but they are at different levels of problems. They are having, in all indicators, stronger numbers than we have. So we are falling quicker and deeper in the troubles because of the vulnerabilities we have. The problem is the articulation of alternative views about this, even the idea of expanding the internal market. Of course, we can think also about the political way, how to get rid of of neoliberal thinking, because this is this is something which is, I think, a huge problem. We know that neoliberalism doesn’t work, but especially in the central Eastern Europe, nobody wants to admit it openly. I hope we will have one of the next interviews about this, about the silence on neoliberalism in our region.
There are a lot of questions around the formulation or articulation of the alternatives. We know that the populist rightist populists are not the answer. They are growing in Italy. They are on the ground in Poland. They are close to power in the Czech Republic. Everywhere they are, they don’t bring any real alternatives. So it is definitely on the side of the left to try to develop something.
Here I want to be optimistic. I know that in our region the left is in very weak shape, but in southern Europe they are still relatively strong. We know that there are political parties of the same type in Spain, in Portugal, Czechia and so on. So we don’t know the future. It is important to at least try to articulate alternatives. And I have to say that for our region, for Central Eastern Europe, it is time to realize that we should definitely try to do it. I don’t feel that everybody believes that capitalism is great and globalization is basically great. But in the main discourse there is no any political economy, there is no debate, everyone is persuaded that freedom is the key and everything works by itself. So it is a very challenging thing. But I think the times will push us to start to search.
Thank you for this voice. I welcome you to read the whole study, the 100 Shades of Europe. It is available on the transform!europe site. Thank you, Giuseppe. Thank you, Veronica, for being us today. You will never understand the European Union if you don’t understand how core-periphery dynamics shapes the community. And this is the essential thing you will learn in the study. Thank you again. Don’t forget to subscribe and see you again.