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Britain’s exit from the European Union on 29 March
will have far-reaching political, economic, and security
reverberations in Central-East Europe (CEE). Paradoxically, Romania
will hold the EU presidency as the UK departs and will no doubt
remember that Britain was at the forefront in supporting CEE
membership.
At the political level, Brexit has not fuelled
resentment towards the UK in CEE capitals or stimulated pro-leave
movements. Governing parties in Poland and Hungary and Euroskeptics
throughout the region may criticize alleged meddling in their
sovereignty by officials in Brussels, but they are not prepared to
follow London through the exit door.
Although some may point at Brexit as evidence that
deeper EU integration would shatter the Union, opinion polls
indicate that support for the Union has actually increased during
the last year partly because of the political chaos in Britain. Most
people realize that they are so closely interlinked with the EU that
leaving could prove even more damaging.
Some political leaders fear that without Britain,
Germany is more likely to dominate the continent. However, there is
a countervailing sentiment that without EU restraints Berlin would
have an even more commanding position. A shrunken EU is viewed as a
potential threat to balancing the interests of larger and smaller
states; hence, no CEE government has supported Brexit or the further
contraction of the Union.
A related concern is that Britain’s departure will
strengthen calls for a “two-tier” or “multi-speed” Europe in which
larger states such as Germany and France accelerate their
integration and exclude the CEE countries. The integrators may push
for a European Monetary Fund, a budgetary union, and other features
of a confederation that CEE capitals oppose but may be powerless to
prevent. The fear of being left behind by integration may be
stronger than the angst of German dominance or Brussels’ meddling.
The economic consequences of Brexit for CEE are
also troubling. London is one of the EU’s largest net financial
contributors; its withdrawal will mean an annual shortfall of some
€10bn in the Union budget. Brexit may provide the occasion for some
West European governments to reduce payments to those CEE countries
perceived to be slipping toward one party rule. Although governments
may castigate Brussels for interfering in their domestic affairs,
there is little alternative to the hundreds of millions of euros
they receive in structural and cohesion funds.
Brexit will disrupt trade inside Europe to the
detriment of CEE economic growth, as a UK-EU customs border will
lower demand for EU exports. According to the European Bank for
Reconstruction and Development (EBRD), between 1.3% and 3% of
Slovakia’s and Hungary’s GDP rely on exports to the UK, mainly in
the automotive and machinery sectors. Poland and Lithuania also
export food products, worth almost 2% of their GDP.
South East European countries could be hit even
harder. Unless other member states increase their contributions,
Brexit may lead to a 10-15% decline in funding to poorer regions.
Prospects of EU accession for candidate countries could also
dissipate, as Britain’s departure will eliminate one major voice for
widening the Union. In some states, this can undermine reform
programs geared toward EU entry and stimulate nationalist voices.
The free movement of labor will also be affected.
An estimated 3.5 million EU citizens settled legally in the UK over
the past decade, including over 900,000 Poles and 400,000 Romanians.
Most will need to apply for new immigration status after Brexit and
their future remains uncertain. In the case of Poland, the return of
economic migrants may prove beneficial, as unemployment is at a
record low and there are shortages in the supply of labor, but it
could also increase pressures on the welfare net.
In one positive indicator, a growing number of UK
companies are opening offices on the continent. While larger
businesses focus on Frankfurt, Paris, and Amsterdam, smaller
financial firms are turning to CEE. Lithuania is a leader in
attracting British companies by streamlining regulations to ease the
process of gaining a banking license. Eight UK fintechs now have
hubs in Lithuania. Poland is becoming more competitive because of
its low operating costs. And Estonia is known for its impressive
talent pool in engineering and IT while offering lower employment
costs than the UK. In these cases, Britain’s loss is a CEE gain.
In the security arena, anxieties persist that
after Brexit, CEE will lose a key ally with significant military and
intelligence capabilities. Such fears may be exaggerated because UK
influence on Europe’s security agenda will remain through its
prominent role in NATO. New deployments of Typhoon aircraft to
Romania, army personnel to Poland, and an infantry battalion to
Estonia demonstrate London’s commitment to Europe’s defense. Some
CEE capitals are also worried that Britain’s departure will weaken
transatlantic links and soften the EU’s stance toward an
expansionist Russia. And here the United States can play a crucial
role, not only by maintaining the “special relationship” with the UK
but also by reinforcing its security ties with EU members along
NATO’s eastern flank.
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