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The accession of Eastern European countries to the EU has not only given them access to the world’s largest single market area, but also allowed them to integrate seamlessly into the EU’s economic framework by eliminating trade barriers and adopting common regulations. This integration has been particularly beneficial for export-driven economies like Czechia and Slovakia, where access to the EU market has led to a substantial increase in trade volumes. The Czech Republic serves as an exemplary case, with its trade with other EU member states accounting for over 80% of the country’s total trade, highlighting the importance of this EU single market to its economy. Naturally, the ease of doing business within the EU has also facilitated the development of complex supply chains spanning multiple countries. This phenomenon has allowed Eastern European countries to specialize in specific sectors, such as automotive manufacturing in Slovakia or electronics in Hungary.
Success Stories
A shining example of a success story has been Poland, which since joining the EU in 2004 has more than doubled its GDP, representing one of the most impressive economic turnarounds in modern European history. In the decade leading up to 2022, Poland’s economy experienced an average growth rate of 3.7%, significantly above the 2.5% average for Eastern Europe, and noticeably outpacing the EU average. This growth stems from a combination of factors such as the effective utilization of EU funds, strong domestic demand, and a resilient export sector.
Poland has also seen a substantial reduction in unemployment, which dropped from 18.6% in 2004, the highest in the Eurozone at the time, to around 3% in 2024, representing the second lowest unemployment in the EU. Poland was also Central and Eastern Europe’s leading FDI destination in 2019, 2020, and 2021, attracting 424 FDI projects in 2021 alone. Some of the key sectors for investment in the country include software and IT services, logistics, and construction.
Latvia and Lithuania have also followed the path of embracing digital transformation and have focused on building robust IT sectors. As a result, Latvia is now recognized as a growing Information and Communication Technology (ICT) superpower, having the sixth-fastest broadband connection in the world and the third largest fintech cluster in Europe. These States, and particularly Estonia, have also maintained strong fiscal discipline, with low public debt levels and balanced budgets which has helped them maintain stable growth. At the end of 2023, out of all EU Member states Estonia had the lowest debt to GDP ratio at 19.6%, and Lithuania significantly below some of its western counterparts, at 38.3%.
In the case of Romania, which joined the EU slightly later than some of its neighbors in 2007 with a GDP of 74 billion euros at the time, now has a figure over 4 times higher, resting above 300 billion. The country has even earned itself the nickname “The Switzerland of the East”. Since joining the EU, Romania has made considerable progress across several other key areas. For instance, life expectancy in the country has increased by nearly four years, rising from 72.76 years in 2007 to 76.64 years in 2021. Although Romania still lags behind more developed economies like Germany in this regard, the country has seen a profound improvement since becoming an EU member. Another indicator of Romania’s economic maturity is the significant reduction in its GINI index, which has dropped from 37.5 in 2007 to 33.9 by 2021, signaling progress in reducing income inequality. Additionally, Romania has made substantial strides in lowering unemployment, reducing the rate from around 6.5% in early 2007 to below 5% by 2019. Despite a slight increase in unemployment following the pandemic, Romania's jobless rate remains notably lower than that of more established economies like France, Italy, and Belgium.
Stock Market Performance
In addition, the stock markets of Eastern European countries like Romania, the Czech Republic, and Hungary have experienced significant growth since joining the EU. The main stock market index in Prague, called the PX index, is a great example of this. Over the past two decades, the PX index has generally outperformed many Western European markets. However, this performance has also been accompanied by greater volatility, particularly during the GFC of 2008 and the Eurozone crisis, during which the index suffered substantial losses. Moreover, Romania’s BET index has also shown strong performance since Romania joined the EU in 2007, experiencing even more volatility over the past two decades, but also recording notably higher returns. It’s a similar story for Hungary’s main index, the BUX, which has also experienced significant growth since the country joined the EU in 2004. Overall, Eastern European indices have generally offered higher long-term returns than their Western European counterparts, though with greater risk and volatility. This reflects the rapid economic growth of these countries and their ongoing efforts to catch up to more developed economies.
