Thirty-five years on from the Berlin Wall’s collapse, Central and Eastern Europe faces another rebuild. This time, though, nobody’s wielding pickaxes. The region’s eleven EU members spent three decades swapping command economies for free markets. Job done. Next up: ditching their role as Europe’s cheap workshop for something rather more ambitious.
The numbers are decent. Polish growth will hit 3.5 per cent this year, according to the European Bank for Reconstruction and Development, Croatia 3.2 per cent, Lithuania 2.6 per cent, and Czechia two per cent—all comfortably ahead of the EU’s 1.5 per cent average. The region’s combined GDP now tops two trillion euros. Its 130m people outnumber Germany, Austria and Switzerland combined.
Moving beyond nuts and bolts
The old playbook—attract Western factories with cheap labour and motorway access to Germany—has run its course. Wages are rising. Labour costs across the region are catching up with the rest of Europe. Countries that want to stay in the investment game need a new trick.
Some have already cottoned on. Poland now hosts 40-plus digital champions, companies that make most of their money online. The Czechs manage 15. Slovenia and the Czechia lead the pack on innovation and digitalisation. Romania and Bulgaria lag behind, unsurprisingly.
The shift makes sense. Digital companies pay better, grow faster, and generally cause less fuss than heavy industry. They also don’t require vast car parks or worry much about transport links.
The great exodus
Demographics remain a problem. Between 1995 and 2017, the region lost seven per cent of its workforce. These weren’t pensioners shuffling off quietly—they were young, educated, and mobile. Romania scores worst on the brain-drain scale at 5.3 points. Poland watched 2.3 million citizens pack their bags in 2007 alone.
Some countries are fighting back cleverly. Estonia built a digital government so slick that tech workers actually want to stick around. Tallinn’s e-governance system has become a recruiting tool. Romania managed to stop its IT crowd from fleeing by offering tax breaks. (Then scrapped those breaks in January, which may prove shortsighted).
Plenty of scope remains for improvement. Women’s participation in the labour force sits at 60 per cent, ten points below Western Europe. Getting more women into work would help fill the gaps left by emigrants.
Going green, getting ahead
Climate policy offers an opportunity. The region spent decades as Europe’s smoky industrial backyard. Now it’s racing to become its clean energy laboratory. European Investment Bank officials note the biggest renewable energy shift is happening in Central and Eastern Europe.
The potential is enormous. Proper digitalisation plus renewable energy could cut the region’s carbon emissions by 70 per cent and energy costs by 80 per cent. Estonia wants 100 per cent renewable electricity by 2030. Data centres are popping up across Poland, Hungary and Romania like mushrooms after the rain.
The green rush serves multiple purposes. Energy independence from Russia became urgent after 2022. Brussels increasingly rewards early movers on climate. And leading Europe’s green transition beats following Germany’s industrial strategy forever.
The digital scramble
Technology offers the best chance to leapfrog Western Europe entirely. Covid gave digital adoption a massive shove across the region, creating 12 million new online users—more people than live in Slovakia, Croatia and Slovenia put together.
Bulgaria, Hungary, Poland and Romania claim four spots in the top 25 STEM countries. Success stories multiply. The region’s enterprise value has grown 7.6 times since 2017. Private equity firms are sniffing around, hunting for fragmented markets to roll up.
What comes next
The next phase won’t be straightforward. Countries need to keep their factories humming whilst building tech sectors. They want foreign investment without becoming branch-plant economies. Most importantly, they must persuade their brightest citizens that the action is at home, not in London or Berlin.
The fundamentals aren’t bad. Institutions work reasonably well. EU membership brings cash and credibility. Geography helps—you can drive a lorry from Prague to Hamburg in six hours. Central and Eastern European countries have doubled their research and development staff over the past decade.
Skills shortages remain a problem. Productivity growth is slowing. Competition from Asia and America keeps getting fiercer.
Still, bet against the region at your peril. It has already confounded predictions once. The countries that master the next transformation will join Europe’s top tier. Those that muddle through will stay comfortable but irrelevant. And those that fail? History’s dustbin awaits.
Photo: Dreamstime.
