REVIEW #20: Competitiveness and Convergence in CEE: What Can We Learn From 20 Years of EU Membership?

The 20th anniversary of the accession to the European Union (EU) in many countries in Central and Eastern Europe (CEE) is the perfect occasion to take an in-depth look at the economic development of all new member states and the convergence towards the biggest EU economies. New member states from CEE have come a long way in the last two decades, building upon their competitive advantages, expanding economic freedom and seizing the opportunities of the European Single Market. 

The economies in the CEE region may be relatively small in comparison to the biggest EU economies, but their economic growth is consistently stronger, and they are catching up. The share of the ten new member states from the CEE region, which are examined in this article, in the total EU economy (in terms of GDP) increased from 6.2% in 2004 to 11.2% in 2022. These are most of the countries from the EU’s ‘fifth’ enlargement in 2004 (the Czech Republic, Poland, Hungary, Estonia, Latvia, Lithuania, Slovakia, and Slovenia) and the two countries from the EU’s ‘sixth’ enlargement in 2007 (Bulgaria and Romania). All of these countries have integrated deeper within the wider EU economy and converged significantly towards the EU’s biggest economies The catching-up process has been accompanied by many challenges, with the EU economy going through at least three major crises in the last 20 years – the financial crisis of 2008-2009 (referred to as the ’Great Recession’), the mild recession of 2012-2013 (following the European debt crisis), and the sharp decrease in economic activity during the COVID-19 pandemic (2020). These episodes of economic downturn affected the new member states, but they still managed to return to the path of convergence rather quickly. At the end of 2023, following the energy crisis and the highest inflation in both new and old member states in the last 20 years, the EU is once again heading into a recession, making the topic of competitiveness, economic growth, and convergence highly relevant. In addition, some CEE countries are experiencing recent periods of political instability, which may potentially undermine their economies.   



The main thesis of the article is that the competitiveness of the new member states is key to faster growth and convergence. Countries implementing policies to support their competitiveness – expanding economic freedom and removing barriers, strengthening institutions and the rule of law, easing business environment, and staying fiscally responsible, ultimately perform better within the Single Market and grow faster. In the ever-changing and highly unpredictable world, new EU member states need to preserve their competitive advantages and pursue policies that provoke private investments, attract talent, and, ultimately, lead to economic growth

The Path to Convergence

The most straight-forward indicator to analyze the convergence within the European Union (EU) is the gross domestic product (GDP) per capita expressed in purchasing power standards (PPS) and, more specifically, the deviation from the EU average for the individual countries. Back in 2004, most of the new member states from Central and Eastern Europe (CEE) were at around 50-60% of the EU average. This means that the real expenditures of their citizens (also considering the price differences) were almost twice as low than the EU average. Six out of the eight new member states from CEE in 2004 were in the 47-63% range, and only the Czech Republic and Slovenia were above 80%. In the same period, just three years before their accession in 2007, Bulgaria and Romania were at 35% from the EU average.