The EU States That Joined 20 Years Ago Want a New Boost to Growth

The spectacular economic growth of the ten countries that joined the EU two decades ago – most of which were on the other side of the Iron Curtain during the Cold War – makes them one of the continent’s clearest success stories.

But these countries must now find new sources of growth to avoid losing their competitive edge, policymakers and economists say, as the initial benefits of EU membership begin to fade and living standards catch up with those of their western neighbors.

The clear economic benefits of EU enlargement on May 1, 2004 were not always accompanied by political gains, as the rule of law and support for the EU weakened in several of the newer members.

There is no denying that the largest cohort of countries joining at once – the so-called ‘big bang’ of enlargement – has seen income levels rapidly converge with those of the rest of the Union. Once part of the single market, Cyprus, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Malta, Poland, Slovakia and Slovenia benefited from increases in trade, investment and spending.

On average, their gross domestic product per capita has risen from just under half of the EU level in 2004 to over three quarters today, FT calculations based on inflation- and currency-adjusted IMF data show.

“As these countries opened up and joined the single market, the large multinational companies brought in the latest technology, which dramatically increased productivity,” said Zuzana Zavarská of the Vienna Institute for International Economic Studies.

The most obvious example is Slovakia, where car manufacturers such as Volkswagen, Peugeot, Kia and Jaguar Land Rover have built factories, increasing annual vehicle production from nearly 200,000 in 2004 to over 1 million. This made the country the world’s largest car producer per capita, producing almost 20 vehicles per year per 100 Slovaks.

Another key positive driver was the hundreds of billions in EU funds paid to new EU members. Ivan Bartoš, deputy prime minister of the Czech Republic, told the Financial Times that cohesion funds from Brussels had helped the country close the economic gap with older member states and attract investment. “It’s a powerful tool,” he said. “The policy really works.”

Almost all of the ten countries have doubled their GDP per capita over the past two decades, driven by inflows of investment and increases in exports. Lithuania stands out as the front runner, having more than tripled its per capita GDP over the last two decades.

Gediminas Šimkus, governor of the Central Bank of Lithuania, attributes the country’s strong performance to its entrepreneurial spirit. “We always want to emerge from a crisis stronger,” he told the FT, recalling how the company recovered from a deep recession following the 2008 financial crisis and sanctions that halted exports to Russia in 2014.

Even countries like Cyprus, which have suffered numerous setbacks, have caught up with their neighbors. “Despite the local financial crisis in 2013, Covid-19 and now sanctions against Russians, Cyprus still manages to grow faster than the EU average,” said Fiona Mullen of Sapienta Economics.

The European Bank for Reconstruction and Development has helped the eight Central and Eastern European (CEE) countries that joined the EU in 2004 grow their GDP per capita more than twice as fast as other equivalent emerging economies.

In most newer member states, house prices have risen much faster than in the rest of the EU, particularly in Estonia, where they have more than tripled since 2004, compared with an average increase across the bloc of almost 70 percent.

In many of these countries, wages exceeded the EU average of 83 percent over the past 20 years and rose more than three times for Polish, Czech and Slovak workers, while they rose four to six times in Hungary and the Baltic states.

Beata Javorcik, EBRD chief economist, said the financial gains were accompanied by a “remarkable” improvement in quality of life.

The proportion of people in the eight CEE countries who report being in good health has increased to 62 percent from 44 percent two decades ago. “People in these countries feel just as healthy up to the age of 70 as people in the G7 countries,” Javorcik said.

Education has also improved in many of these countries, with young people in the EU accession years from 2004 performing better on tests than the OECD average.

Estonia has shot to the top of the OECD rankings among European countries for math, reading and science, overtaking countries such as Finland and the Netherlands in recent years.

The “sustained success” of these countries could be a model for Ukraine’s future, says Holger Schmieding, chief economist at German bank Berenberg. “Once the destructive war is over, a free and EU-friendly Ukraine could see a rapid rise in living standards,” he said. Kiev applied for EU membership following Russia’s full-scale invasion in 2022.

But as these economies converge with the rest of the EU, analysts say they risk losing momentum. “Many of the low-hanging fruits of EU accession have been picked,” Zavarská said, pointing out that job creation through greenfield investments has fallen sharply in recent years, as has labor productivity.

Javorcik said several Central and Eastern European countries wanted to move from low-cost manufacturing bases for Western companies to more advanced high-tech sectors. “The foreign direct investment they are now targeting has shifted to services such as research and development, software, biotechnology and digital industries,” she said.

After joining the EU, many of these countries experienced a brain drain as younger and more ambitious people left the country to study and work in Western Europe. However, in recent years, the net migration of citizens of these countries has changed, with more returnees than emigrants, helping to alleviate the labor shortages that have arisen in recent years.

“People know that they can get a more or less comparable salary in Lithuania, but we have a cheaper cost of living, plus we speak their language and they have family here,” said Šimkus. “We’ve never experienced it this good.”

However, there are signs that economic progress in some of the newer members is not being matched by improvements in governance standards or political support for the EU.

Hungary, Poland, Slovakia, Cyprus and Malta have all fallen behind in the World Bank’s index of governance indicators over the past decade. Both Budapest and Warsaw have clashed with Brussels over the rule of law and have frozen some of their EU funding for several years.

Likewise, support for the EU has declined in some of these countries. Public trust in the EU has fallen in Hungary, the Czech Republic, Slovenia and Cyprus since 2023, according to the annual Eurobarometer survey.

Bartoš said increasing Euroscepticism among Czechs and other countries in the region reflects the fact that governments blame the EU for the problems. “Politicians say the problem lies in Brussels. This narrative is very strong and is used for disinformation. It helps the extremes,” he said.

But these countries could also be offended by the feeling that, despite their increased prosperity, they are second-class EU members.

Kaja Kallas, Prime Minister of Estonia, said the bloc’s newer members still had to fight for the respect of the “big countries” even though “we have been in the EU long enough to be treated as equals.”

Additional reporting by Eleni Varvitsioti

Data Visualization by Keith Fray, Ray Douglas, Amy Borrett and Clara Murray