The role of CenTral europe in The German eConomyaei.pitt.edu/76457/1/raport_role-ce-in-german-economy_net...The role of CenTral europe in The German eConomy the political consequences

The role of CenTral europe in The German eConomy the political consequences

Konrad popławski

The role of CenTral europe in The German eConomy the political consequences

Konrad popławski

WaRsaWjune 2016

© copyright by ośrodek studiów Wschodnichim. Marka Karpia / centre for eastern studies

content editoRMateusz Gniazdowski, anna Kwiatkowska-drożdż

editoRhalina Kowalczyk

co-opeRationKatarzyna Kazimierska, anna Łabuszewska

tRanslationjim todd GRaphic desiGn paRa-buch

photoGRaph on coVeRshutterstock

dtpGroupMedia

FiGuResWojciech Mańkowski

publisheRośrodek Studiów Wschodnich im. marka Karpia centre for eastern studies

ul. Koszykowa 6a, Warsaw, polandphone + 48 /22/ 525 80 00Fax: + 48 /22/ 525 80 40osw.waw.pl

isbn 978-83-62936-84-7

contents

Theses /5

InTroducTIon /8

I. the adVantaGes oF centRal euRope FRoM the peRspectiVe oF GeRMany /10

II. the deVelopMent oF tRade betWeen GeRMany and the V4 /15

1. The role of central europe as a key trading partner for Germany /152. The position of individual V4 states in their trade with Germany /203. risks associated with the V4’s dependence on trade with Germany /25

III. the FloW oF inVestMents betWeen GeRMany and V4 /31

1. The flow of investments between Germany and V4 /312. Motives for investment /353. The investment climate in the V4 countries from the perspective of German

investors /39

IV. the political pRospects FoR econoMic coopeRation /44

V. APPendIX /48

1. The automotive sector /482. The electro-mechanical sector /503. The logistics sector /534. The energy sector /535. The retail sector /566. The banking sector /60

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Theses

• The economic cooperation between Germany and Central Europe hasbroughtmutualbenefitsinrecentyears.Since1989,GermanyhasbecomethemostimportanttradingandinvestmentpartnerfortheV4states,whichhashadsignificantimpactontheevolutionoftheeconomicmodelofCen-tralEurope,andhelpedintheprocessofmodernisingtheregion.Germancompaniesfromtheautomotive,financialandenergysectors,amongoth-ers,havegainedsignificantmarketsharesinthosecountries.Thedevelop-mentofeconomiclinksbetweenGermanyandtheV4stateshasalsobeenbeneficial forGermany itself.Taken together, theVisegradGroup stateshavebecomeGermany’smostimportantglobalpartnerbothinexportsandimports.Theyhavemanaged–assomeofthefewstateswithoutanysig-nificantresourcesofrawmaterials–tomaintainrelativelybalancedtraderelations,showingsurplusesorminordeficitsintheirtradewithGermany.

• Overthelastdecade,CentralEuropehasbecomeanimportantsourceforimproving the international competitiveness of the German economy.Firstly,movingfactoriesfromGermanytoV4becameanelementoflower-ingproductioncostsformanyGermancompanies.ThepressurebusinessexertedonGermanworkerstoreducelabourcostswasalsoanimportantelement.Secondly, in the faceofmajorproblemscausedbya lackof en-gineers,GermanbusinessesmovedpartoftheirR&DactivitiestoCentralEurope,orattractedqualifiedworkersfromtheregiontoGermany.

• TheeconomiccooperationbetweenGermanyandCentralEuropehasbeenboosted by investmentsfinanced fromEuropeanUnion funds.GermanyhasbeenbyfarthelargestbeneficiaryofinvestmentsintheV4statesfromtheEU’scohesionpolicy.Thankstothis,Germanyhasbeenabletorelyonadditionalexportstothesecountries,tothetuneof€30billioninthepe-riod2004-151.Germanyhasbenefitednotonlydirectly,fromthecontractsitacquired,butalsoindirectly;asignificantproportionofthesefundshasbeenspentoninfrastructure,whichhasmadeiteasiertotransportgoodsbetweenGermanyandCentral&EasternEurope.

1 AssessmentofthebenefitsobtainedbytheEU-15memberstatesasaresultoftheimplemen-tationofthecohesionpolicyinthecountriesoftheVisegradGroup.Finalreport.TheStruc-turalResearchInstitute.London,December2011;http://ibs.org.pl/app/uploads/2015/12/Oce-na-korzy%C5%9Bci-uzyskiwanych-przez-pa%C5%84stwa-UE-15-w-wyniku-realizacji-poli-tyki-sp%C3%B3jno%C5%9Bci-w-krajach-Grupy-Wyszehradzkiej.pdf

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• OverrecentyearstheV4countrieshaveprovedabletoproducepartsandgoodsforGermancompaniesinanefficientmanner.Inrecentyears,theautomotive, electro-mechanical, electricity and retail trade sectors havesignificantly increased their expansion inCentralEurope. It is expectedthatGermancompanieswillmovetheseR&DactivitiestoCentralEurope,whichwouldbeimpossibletoconductinGermany,forexampleduetoalackofengineers.However,thisprocesswillprobablynotbeverylargeinscale.

• OneconditionfortheV4statestoachievelevelsoftradecooperationwithGermanyonthelevelofcountriessuchasAustria,Belgium,theNetherlandsorSwitzerlandisthattheyshouldbeabletosellGermancompaniestheirownproducts,withhighaddedvalue.ThereisstillgreatpotentialtodeepeneconomiccooperationbetweenGermanyandtheV4countries.InadditiontothetraditionaladvantagesofCentralEurope,suchasgeographicalprox-imity,traditionsofindustrialproduction,lowlabourcosts,andreliability& security of supply,German companies appreciate the new elements ofcompetitiveness in the region, such as the stability of economicdevelop-mentandpolitical-institutionalconditions,everbetterinfrastructure,andthehighlevelsofthelocalworkers’qualificationsandproductivity.

• CentralEurope’sgreatdependenceonGermantradeandinvestmentposesanumberofrisksfortheregion’seconomicdevelopment.First,Germanyspecialisesinexportingcapitalgoodsbasedontraditionalindustrialcom-panies.GermancompanieshavestillnotshownanysignificantsuccessesintheITsector,whichmaydeterminethestrengthoftheeconomyinthefuture.Secondly,theroleofCentralEuropeasanassemblyplantforGer-mancompaniesislinkedinthemediumtermwiththeriskoflosingthatpositiontocountrieswithlowerproductioncosts.Inaddition,thesaleofproductsfromCentralEuropeunderthebrandnamesofGermancompa-niesdoesnothelpinmakingtheirown,globallyrecognisablebrands;itisthusdifficult tomakesignificantmarginsandescape fromthe so-calledmiddleincometrap.

• The current period of global political and economic instability has in-creasedtheimportanceofCentralEuropeforGermany.Firstly,theregion’sgeographicalproximityensuresthatthiseconomiccooperationwillnotbedisturbedbygeopoliticalproblems,andthereisnoriskthatthecontinuityofsupplywillbeinterrupted.Secondly,duetotheeurocrisis,thedisputeoverthefutureshapeoftheEU’seconomicpolicyhasintensified.Germanyneedsallieswhowillpromoteafree-marketmodeloftheUnion,basedon

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theprinciplesoffiscaldiscipline,intheclashwiththemorestatistvisionoftheEUrepresentedbyFrance,butprobablyalsobyleftist-ruledGreeceandPortugal,andalsoperhapsSpain.

• Inthecomingyears,GermanymaybecomeinterestedinbringingCentralEuropeovertoitssideinavarietyofdisputes,suchasthereformoftheeuro-zone,therevisionoftheEU’sclimateandenergypolicy,andalsotheproblemsintheEU’seasternandsouthernneighbourhoods.Sofar,despitethedynamicallydevelopingeconomiccooperationinrecentyears,Germa-nydoesnotappeartoshowanyparticularinterestindeepeningitspoliticalcooperationwithCentralEurope.Enhancedcooperationwithintheframe-workoftheV4mayhelpGermanytobecomemoresensitivetotheregion’sinterests,especiallyas itseemspossiblethatBerlincanreachacommonpositionwiththeV4onmanyEUissues.

• An importantprerequisite for improving cooperationbetweenGermanyandCentral Europe is to informGermanpublic opinion, through inten-sivepromotionalactivities,aboutthesignificantscaleoftheirmutualeco-nomicties.Germany’sdynamicallydeepeningcooperationhaspassedtheGermanmediaby,incontrasttotheirconsiderablenumberofreportsandanalysisonthedevelopmentofeconomicrelationswiththeBRICcountries.Thisalsostems fromGermaneconomists’ lackof interest inCentralEu-rope.AftertheaccessionofthecountriesoftheregiontotheEU,thein-terestareasofmanyscientificcentresshiftedfurthereastwards.GermanpoliticalinstitutionsareconductingonlysmallamountsofanalyticalworkintheareaofCentralEurope.Thisleadstomisunderstandingsofthesitu-ationintheregion,andtoanincorrectnarrativestatingthatfundingfromthe cohesionpolicy is onlyawayoffinancing thepoorermember stateswhichdoesnotguaranteeGermanyanyeconomicbenefits.

• The effects of the possible breakup of the Schengen area are difficult toquantify. An increased bureaucratic burden on the movement of goodsbetweenGermanyandV4wouldcertainlyimpedetradeandgeneratead-ditionalcosts.ItwouldlikelybeabigproblemfortheGermanautomotiveandlogisticssectors,inwhichtimeofdeliveryplaysanimportantroleincompetitiveness.Forthisreason,itcanalsobeexpectedthatGermancom-paniesinvolvedinCentralEuropewillopposestricterbordercontrols.

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InTroducTIon

ManyexpertsinterpretedtheaccessionoftheCzechRepublic,Hungary,Slo-vakiaandPolandtotheEuropeanUnionasthe‘endofhistory’intheireconom-icrelationswith theGermany.Since2004 therehavebeen fewcomparativestudiesonthedevelopmentofeconomicrelationsbetweenGermanyandCen-tralEurope.Thefollowingreportisintendedtofillthisgap,anditspurposeistoanswerthequestionofhoweconomicrelationsbetweenGermanyandthecountriesoftheVisegradGroup(V4)havechangedinthelightofthesignificantpoliticalandeconomicchangeswithintheEuropeanUnionoverrecentyears.

TheCzechRepublic,Poland,SlovakiaandHungaryhavebeenselectedasex-amplesofthegeneralchangesinthelinksbetweenGermanyandCentralEu-rope,whichhavealsoaffectedGermany’srelationshipswithothercountriesintheregion,suchasBulgaria,RomaniaandtheBalticstates.Fromtheper-spectiveofGermany’sbusinesselites,thecountriesoftheregionarelinkedbymanysimilarities,suchasthefollowing:

• geographicalproximityandculturalsimilarity;• uniformmarketruleswhichapplythroughouttheEU;• long-standingindustrialtraditions,andthesubstantialparticipationofin-

dustrialproductionintheirGDPs;• thesignificantshareofforeigncapitalintheirmanufacturingandfinan-

cialsectors;• aneconomicmodelbasedonexports,withthesignificantparticipationof

foreigncompanies;• small or insignificant rawmaterial resources, and great dependence on

theirimport;• energysystemsbasedonpowerplantswhichusecoalandnuclearenergy,

fuelswhichareincreasinglybeingdisplacedfromtheEU;• significantresourcesofskilledworkerswithlowerwageexpectationsthan

theircounterpartsinWesternEurope;• relativelygoodeconomicperformancesagainstthebackdropoftheEUas

awholeduringtheglobalfinancialcrisisandthecrisiswithintheeuro-zone.

Germany is Central Europe’s most important economic partner, and in re-cent years this link has brought forthmutual economic benefits. However,it isworthconsideringthestabilityoftheeconomicmodelthathasevolved,andalsoaskinghowthecloseeconomiccooperationbetweentheV4statesand

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Germanymaybeusedtoincreasethelevelofinnovation.Theproblemofthecapacitytodesignandmanufacturemoderngoodsandservices isbecomingmoreimportantinthedebatewithinCentralEuropeontheso-called‘middleincometrap’.Thisisdefinedasariskofexhaustingexistingenginesofgrowth,andtheinabilitytotransitionfromaproductionmodelbasedonlowlabourcoststoonebasedonqualityandinnovation,resultinginhigherwages.

Three sourcesof informationwereused inpreparing this report.ThemainmethodologyappliedinthestudywastheanalysisofeconomicindicatorsintradeandinvestmentbetweenGermanyandtheV4countries.Inaddition,thestudywasbasedonconversationswithabout30experts,mostlyfromGerma-nybutalsotheV4states:representativesofGermanministriesatthefederalandregional (Länder) levels, aswellasembassies,businessassociations, re-searchinstitutes,chambersofcommerceandforeigninvestmentagenciesintheCzechRepublic,Poland,HungaryandSlovakia.Thisinformationhasbeensupplemented by case studies from themost importantGerman industries,withananalysisoftheirsituationintheV4states.

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I. The advanTages of cenTral europe from The perspecTIve of germany

In recent years, the region of Central Europe has continued its quite rapidgrowth, and ithasdealt relativelywellwith theglobal economicdownturnpost-2009,especiallywhenconsideringthesituationintheeuro-zoneasaref-erencepoint.Itsstrongereconomicposition,alongwiththechangeinpoliticalconditionsinEurope,makesitanevenmoreattractivepartnerforGermanythanbefore.

From theGermanpoint of view, the regionofCentralEuropehas since the1990sdisplayedanumberofcommonfeatures.ThebasiccharacteristicsoftheV4countries’economies–suchastheirindustrialtraditions,lowlabourcosts,culturalandgeographicproximity,andaskilledworkforce–madethemanidealareafortheexpansionoftradeandinvestment.Fromtheoutset,Germa-nyinvolveditselfintheeconomictransitionprocessinthecountriesofCen-tralEurope,perceivinganopportunitytogainpolitical,economicandsecuritybenefits.Germany’sgoalwastoestablishstrongrelationshipswithCentralEu-rope,tolinkitpoliticallywithWesternstructures,andbuildupaneconomichinterlandforitselfintheregion.

CentralEurope’seconomicimportanceforGermanyhasriseninrecentyears,asthehighefficiencyofthebusinesseslocatedintheregionhashelpedthemostimportantbranchesoftheGermaneconomytokeeptheiroutputcom-petitiveduringtheglobaleconomicdownturn.Thankstoitsrelatively lowwagesandhighproductivity,CentralEuropehasbecomeafactoryforGer-manproductsontheEUmarketwhoseproductioncouldnothavebeenmovedto Asia. After entering the euro-zone, Germany’s economic situation wasevaluatedverycriticallybothathomeandabroad.Theeconomyremainedstagnant for several years after German reunification. Unemployment inGermany between 1991 and 2001, especially in the new Länder, remainedatahighlevelofaround20%;publicdebtrose,andthecountry’sexchangepaymentsdeficitwithothercountriesremainedhigh.Germany,alongwithFrance,wasthefirsttobreaktherulesonthebudgetdeficitintheeuro-zone.InresponsetothediagnosisofeconomistswhoblamedGermany’sproblemson its overly high labour costs, the government in Berlin introduced a re-formpackagein2003-5calledAgenda2010,limitingsocialbenefits,improv-ingbusinessconditionsandmakingthelabourmarketmoreflexible.Underpressurefromthesereforms,aswellasthethreatbyGermancompaniesthattheywouldtransferjobstothecountriesofCentralandEasternEurope,the

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Germantradeunionsloweredtheirwagedemands,focusingonkeepingtheirplantsinGermanyrunning.MoresavingsweregeneratedbymovingpartoftheproductionfromGermanytocountrieswithlowerlabourcosts–thatis,countriesinAsiaandCentralEurope.

ThecentralEuropeanstateshavebecomeanimportantproductioncentreontheEUmarket.Theyhavebecomeanattractiveplacetoinvestcapital,espe-cially forGermansmall-andmedium-sizedbusinesses,becauseafter theyenteredtheEUtheir legislationwasalreadyclosetoGermantaxlaws,andtheirstandardsoflegalprotectionwerehigherthanthoseofotheremergingeconomies.Forthesereasons,investmentinCentralEuropewasalsoeasierforthesmall-andmedium-sizedenterprisessector,whichisstronginGer-many.Moreover,somebulkygoodsdestinedfortheEuropeanmarket,suchas cars ormachinery,were notworth producing in Asia due to transportcosts.Itisnoteworthythatsince2009,GermanautomotivecompanieshavebuiltuptheirproductioncapacityinCentralEuropeinordertogeneratesav-ings.Thesourceofthesesavingswasnolongerlabourcostsalone,whichhadrisen considerably in previous years, but also increased efficiency thankstothefactories’highproductivityandtheimprovingqualificationsoflocalworkers.

In recent years, the favourable economic situation of the central Europeancountriescontinued,whichincreasedtheirattractivenessasamarketingpart-nerforGermanyagainstthebackgroundofanincreasinglydifficultglobaleco-nomicsituation.TheVisegradGroup’smemberstateshavebeenabletomain-tainahighrateofeconomicdevelopment.Intheperiod1999-2014,theaverageGDPperpersoninthesecountriesrosefrom60%to75%oftheEUaverage2.

2 GDP per capita, consumption per capita and price level indices, December 2015; http://ec.europa.eu/eurostat/statistics-explained/index.php/GDP_per_capita,_consumption_per_capita_and_price_level_indices

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Figure 1.ThegrowthrateofGDPofselectedgroupsofcountries(%)*

2000

1999

2014

2013

2012

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

The euro-zone

BRIC

V4

-6

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12 [%]

source:WorldBank*Theeuro-zoneaverageincludesits11foundingmemberstatesapartfromGermany.Theresultsarebasedonthearithmeticmean,inordertoshowthedatafromthethreegroupsofcountriesincross-sectionalterms.Ifwewerecalculatingtheweightedaverage,theBRICresultwouldbegreatlyboostedbyChina,andthatoftheV4byPoland.ThisapproachisoftenusedinanalysesbytheGermanChamberofCommerceandIndustry.

ThechartdataclearlyshowsthattheV4stateshavedevelopedfasterthantheeuro-zonecountriessince2001;agrowthspurtwasespeciallyvisibleinthepe-riod2001-7.GDProsemoreslowlyintheV4statesin1999-2014thanintheBRICcountries,but it cannotberuledout that thepaceofeconomicdevelopmentinCentralEuropewilloutstriptheGDPgrowthrateofthebiggestemergingeconomiesinthenextfewyears3.ThecomparisonofV4withtheBRICcoun-triesisparticularlyinteresting,asinrecentyearscompaniesfromGermanyhavefocusedonexpansioninthesetwogroupsofcountries,soinawayitispossibletotreatthemasgroupscompetingforGermancapital.

After 2007, economic relations betweenGermany andCentral Europewereboostedbytheprocessofmodernisation,whichwasalsofinancedbytheEU’scohesion policy. The V4 countrieswere some of the biggest beneficiaries ofthese funds; at the same time, theyhavemanaged tomaintaindiscipline inpublicfinances inrecentyears (onlyHungaryhashadaproblemwiththis).Andsointheperiodofglobaleconomicdownturnafter2009,thesecountries

3 ThisestimateisbasedontheassumptionofcontinuedeconomicturmoilinBrazilandRus-siaandthestructuralproblemsaccumulatinginChina.

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maintainedhighlevelsofpublicinvestment.Thiswasthereverseofthesitu-ationinmanyothercountries,especiallyinthesouthoftheeuro-zone,whichsignificantlyreducedtheirbudgetaryexpenditureunderthethreatof insol-vency.GermanywasbyfarthegreatestbeneficiaryoftheinvestmentintheV4countriesfinancedby theEU’s cohesionpolicy.Thanks to this,Germanywasableatleasttorelyonadditionalexportstothesecountries,tothetuneof€30billionintheperiod2004-154.ThankstotheinvestmentsfromthecohesionfundinCentralEurope,Germanygainednotonlydirectly,fromthecontractsit acquired, but also indirectly; a significant proportion of these fundswasspentoninfrastructure,whichmadeiteasiertotransportgoodsbetweenGer-manyandCentral&EasternEurope.ThiswasofgreatimportanceforGermanautomotivecompanies, forwhomgood transportnetworkswereaconditionforbuildingmodernproductionfacilitiesintheV4states.

OnthequestionofreformingtheEU,thecountriesofCentralEuropeandGer-manyoftenfoundthemselvesonoppositesidespolitically.ThedominantlineofdisputeswasthedivisionintooldandnewEUcountries.TheV4stateswerewaryoftheextensionofthepowersofEUinstitutionsattheexpenseofthoseoftheirowncountries,andtheylongresistedtheintroductionoftheLisbonTreaty.ThedistrusttowardsthecentralEuropeanEUstateswhichjoinedin2004wasboostedbytheirsupportfortheUSinterventioninIraq,forwhichtheyfacedstrongcriticismfromFranceandGermany.Thelowerlevelofeco-nomicdevelopmentinCentralEuropeencouragedthesecountriestoresisttheintroductionofcertainintegrationsolutions,suchastheunificationofCITtaxrates.Thecountriesintheregionoftenopposedstricterclimatepolicies,whichBrusselssawasoneoftheelementsoftheEU’scommonidentity.In2010,whentheeuro-zonecrisisbegan,anewdividinglineappearedintheEUbetweenthecountriesofNorthandSouth.Itappeared,however,thatthesoutherncoun-triesof theeuro-zone, suchasGreece,Spain,FranceandPortugal,havenotusedtheirmembershipoftheeuro-zonetoimprovetheirtradingcompetitive-ness,andafter2010theybegantostrugglewitheconomicproblems.Germany,whichdecidedtofreezepayrises,makeitslabourmarketmoreflexible,andcutbackonsocialbenefits,founditselfinamuchbetterposition.Thiswasun-comfortableforBerlin,becausethemonetaryunionnowincludedasignificant

4 Report:assessmentofthebenefitsobtainedbytheEU-15memberstatesasaresultoftheim-plementationofthecohesionpolicyinthecountriesoftheVisegradGroup,December2011;http://ibs.org.pl/app/uploads/2015/12/Ocena-korzy%C5%9Bci-uzyskiwanych-przez-pa%C5%84stwa-UE-15-w-wyniku-realizacji-polityki-sp%C3%B3jno%C5%9Bci-w-krajach-Grupy-Wyszehradzkiej.pdf,p.52.

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numberofmemberstateswithproblems,andthustherewasariskthattheywould throw the burden of their problems ontoGermany.One symptomofthiswastheisolationofGermany’srepresentativesontheforumoftheEuro-peanCentralBank,whosedecisionsoftenwentagainstBerlin’sdemands.Inthissituation,thecountriesofCentralEuropewhichhadjoinedtheeuro-zone,suchasEstonia,Lithuania,LatviaandSlovakia,provedtobevaluablealliesforGermany.BratislavawasoneofthemostvocalopponentstograntingloanstoAthens,whichatthattimewasthreatenedbyinsolvency.

TheV4stateswillbeanimportantvoiceinanydebateonfurtherreformstotheEuropeanUnioninthenextfewyears.Whenthattimecomes,Germanywillbeontheoppositesidetothesoutherneuro-zonecountriesbecauseofitsdifferenteconomicconditions.Currentlyadeepeninggapcanbeobservedbe-tweenGermany,whichhasregisteredafavourableeconomicperformanceandisreducingitsdebt,andthemonetaryunion’ssoutherncountries,whosedebtsarestillrising.Inanyfuturedebate,Berlinwillprobablystandforamorefree-marketEU,anditisnotclearwhetheritwillbeabletocountonsupportinthismatterfromLondon,whichisconsideringleavingtheUnion.CentralEurope,whichistiedtoGermanybystrongeconomicinterests,mayprovetobeakeypartnerinthequestionofreformingtheEU.

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II. The developmenT of Trade beTween germany and The v4

Inrecentyears,theV4grouphasbecomeoneofGermany’skeytradepartners,ina relationship thathascomecloser to reachingequality.Notonly isGer-manytheV4group’smostimportanttradingpartner,butalsoviceversa;theV4statesasoneregionareakeypartnerforGermany.Itisalsoworthemphasis-ingthatalthoughtheGermaneconomyisabletogenerateatradesurpluswithmostcountriesoftheworld,itmaintainsarelativebalancewiththeV4states’economies.TheircooperationwithGermanyoffersawiderangeofbenefits,andhasagoodopportunitytodevelop,especiallyduringtheglobaleconomicdownturn.Despite this, strongeconomicrelationswithGermanyalonewillnothelptheV4countriestoescapetheso-calledmiddleincometrap.ItishardtoexpectthatGermancompanieswillbereadytomovetheirR&Dactivitytotheregiononalargerscale,asthisisanareawhichgeneratesthemostprofitfortheGermaneconomy.ThehithertoprofitablecollaborationwithGermanymaydiscouragemanycompaniesfromCentralEuropefromlimitingtheirde-pendenceonGermancompaniesandworkingonproducingtheirownincreas-inglytechnicallyadvancedproducts.

1. The role of central europe as a key trading partner for germany

Inthelastdecade,theroleofforeigntradeintheGermaneconomyhasgrownextremelyrapidly.Since2007, theV4countries taken togetherhavebecomeGermany’s important trading partner, providing the most components forGermanexporters(aftertheUSA),andthuscontributingtotheimprovementinthetradingcompetitivenessofGermany’seconomy.

Inthelasttenyears,thedevelopmentoftradehasbecomeoneofGermany’smost important sources of economic growth, especially since internal con-sumptionhasnotproventobeanimportantdriverofeconomicdevelopment.In the years 2004-8, Germany’s turnover rose very dynamically, thanks togoodtimesintheeuro-zoneandontheemergingmarkets.Thebiggestreces-sion inpost-warGermanhistory in2009,whenGDPfellby5%,didnot leadtoaprolongedweakeningofgrowthinGermany.Despitetheinitialcollapseof German trading, the losseswere quickly recovered, and in the next fewyearssalesofGermanproductsabroadrosesteadily.TradingcompetitivenessprovedtobeoneofthemainfactorsmaintainingstableeconomicgrowthinGermany,andwhichalsostrengthenedthecountry’simageasastrongecono-mywhichhadmanagedtoresisttheeconomiccrisis.Themostvisiblesymbol

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ofthispowerwasthetradesurplus,whichhadbeenrisingforadecade.Since2012,Germanyhasrecordedthelargestcurrent-accountsurplusintheworld5.In2014 itamountedtoUS$285billion,whichwasalmostdoublethevalueofthat of second-rankedChina (US$150billion) andalmost three timeshigherthanthird-rankedSaudiArabia(US$100billion)6.ThescaleofthesuccessofGermanexports isgreater thanwhencomparedwith thesituationofmanyothercountriesintheeuro-zone,suchasGreece,SpainorPortugal,whichinrecentyearshavebeengrapplingwiththeconsequencesofsignificantcurrentaccountdeficitswhichthreatentobankruptthem.

Figure 2.Germanexportstoselectedcountriesaroundtheworld,andtotheV4group(€billion)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

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Japan

Russia

V4

V4

USA

USA

France

France

Great Britain

Great Britain

EXPORTS

Netherlands

China

Japan

Russia

IMPORTS

Netherlands

China

[€ billion]

[€ billion]

source:FederalStatisticalOffice

5 Goodstradeisoneofthekeyfactorsshapingthecurrentaccountvalue,whichrepresentsthestateofcashflowsbetweenthecountryandabroad.

6 DeutschlandhatweltweitgrößtenExportüberschuss,Die Welt,2February2015;http://www.welt.de/wirtschaft/article137024573/Deutschland-hat-weltweit-groessten-Exportueber-schuss.html

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ThereisadirectrelationshipbetweentheimprovementoftheGermanecon-omyoverrecentyearsanditsclosercommercialrelationswithCentralEu-rope.TheV4countriesareplayinganevergreaterrole,fromthepointofviewofGermaneconomicinterests,becausetheyhavebeenreceivingthelargestshareofexports.Backin2008theV4grouptakentogetherbecamethemostimportantbuyersofGermangoods;however,duringtheeconomiccrisisin2009,theyreducedtheirdemandforGermangoodstoagreaterextentthan,for example, France. In subsequentyears theirpositiongradually revived.Asaresult, in2014Germancompaniessoldgoodsworth€112billionintheV4countries–9.8%morethaninFrance,acountrywhichisricherandmorepopulousthanalltheV4statestogether.TheV4countriesalsoovertookChi-nainthisrespect,by50%,andRussiabyafactoroffour,eventhoughRus-siaisrecognisedinGermanyasanextremelylucrativemarket.ItshouldbenotedthatthestrongpositionoftheV4countrieswouldnothavebeenpossi-blewithouttheirstrongintegrationintothesupplychainofGermany,whosecompaniesownmanyfactoriesinthesecountries.ThisalsoboostsGermanexports.Ononehand,GermanplantslocatedinV4countriesacquiresomeoftheirpartsfromtheirmother-factoriesinGermany.Ontheother,thehighlevelofexportsfromGermanytotheV4countriesalsoresultsfromthelat-ter’sgreaterpurchasingpower,becausetheyarebuyingagrowingpropor-tion of the added value from the production of flagshipGerman products,suchascarsormachinery.

Thetrendinimportshasdevelopedsomewhatdifferently.Since2004,theV4statestakentogetherhavebeenthemost importantexportersontotheGer-manmarket,andtheirpositiondidnotfalterevenduringthecrisisin2009,thegreatestrecessioninpost-warGermanhistory.ItisworthnotingthatGer-manimportsfromtheV4countrieshavecontinuedatarelativelystablelevel,comparedwiththestagnationofimportsfromChina,RussiaandFranceoverthelastfiveyears.ThistestifiestothegreatimportanceofthefactorieslocatedinV4countriesinmaintainingthepricecompetitivenessofGermanindustry.Ononehand,companiesfromGermanyprefernottoincreasetheirsuppliesfromothercountries,whilestillbringinginevermoregoodsfromtheV4coun-tries.Ontheotherhand,Germancompanieshavebeenlookingfornewsup-pliersinCentralEurope,whoadmittedlywouldnotoffersuchlowproductioncostsascountriesinAsia,butwhoseproductivityandproductionqualitycouldmatchthoseofcountriesinWesternEurope.

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Figure 3.ValueofGermany’sforeigntradewithindividualcountriesper capi-ta(€thousands)between2004-2014

2004 20062005 20082007 20102009 2011 2012 2013 2014

Belgium

V4

Netherlands

Austria

Switzerland

Great Britain

France

0

2

4

6

8

10

12 [€ thousands per capita]


AninterestingperspectiveontradebetweenGermanyandV4isrevealedbyasummaryoftradeper capita,whichshowstheintensityofthetrading.FromthechartweseethattheV4statesarecharacterisedbyhighertradewithGer-manyper capita thancountriessuchasFranceor theUnitedKingdom,withasignificantincreaseafter2009.AmongtheV4countriestherearelargevari-ations. In2014, theCzechRepublic,withnearly€7000perperson,hadonlyslightlylowertradeper capitawithGermanythanBelgium.HungaryandSlo-vakia’stradewithGermanyranataround€4000,andPolandslightlyless,with€2300per capita–nevertheless,runningaheadofBritainandapproachingthelevelofFrance.FromthisitcanalsobeconcludedthattheV4statesstillhavegreatpotentialtoexpandtheirtradewithGermany.TheexampleofcountriesmorestronglyintegratedwiththeGermaneconomy,suchasAustria,Belgium,theNetherlandsorSwitzerland,showsthatthevalueoftradeper capitacouldreach€10,000perannum.However,itshouldbepointedoutthatthehighlevelofGermantradewiththesecountriesalsostemsfromtheirabilitytoselltheirowntechnologies toGermanbusinesses.This is thereforenotarelationshipbasedlargelyonmanufacturingproductstotheorderofGermancompanies,asitisinthecaseofV4.

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Figure 4.ProportionofdeliveriesfromselectedcountriesinGermanexports7(%)

0.0

0.5

1.0

1,5

2.0

2.51995 2000 2005 2009 2011

[%]

USA V4 France GreatBritain

Italy ChinaRussia

source:TheOECD-WTOTradeinValueAdded(TiVA)database,May2013;http://stats.oecd.org/

ThefiguresfromtheOECDandtheWTOdatabasesallowustoexaminewhatproportionofGermanexportswasbasedoncomponentsmadebyindividualstates.TheroleoftheV4countriesassuppliersforGermanexporters,along-sideChinaandRussia,hasincreasedsignificantlyinrecentyears.In1995,theproductionofV4comprisedaddedvalueinGermanoverseassalesof0.7%;overthenext 16years this indicator tripledto2.1%. Inthisway, theV4countriestooksecondplace(aftertheUS)asthemostimportantsuppliersforGermanexporters,aheadofFrance,Britain,Russia,ItalyandChina.ThismeansthattheV4countrieshavebecomeoneofthemostimportantregionsinGermany’ssupplychain,aswellasanimportantsourceofthecompetitivenessofGermancompanies,especiallyfortheautomotive(3.3%ofvalueaddedinforeignsales)andconstruction industries (2.7%).Combiningthisdatawiththefigures forforeigntradebetweenGermanyandV4,wecancometo theconclusionthat21%ofallGermanimportsfromV4areusedinonwardexports(in1995,thisfigureamountedto13%).

The development of Germany’s commercial relationswith the V4 countriesstillhasconsiderablepotentialfordevelopment,togetherwiththeincreasing-lysophisticatedtiesbetweenthesecountries.Itseemsthattheprospectsformoderateeconomicgrowth,orevenstagnation,inEuropewillboostGermancompanies’interestinreducingproductioncostsbymovingpartoftheirac-tivitytoCentralEurope,whichwillbeassociatedwithanincreaseinimports

7 ThisdataisavailablethankstothemethodologydevelopedjointlybytheWorldTradeOr-ganisationandtheOECD.Detailsofthemethodologyavailableat:https://www.wto.org/eng-lish/res_e/statis_e/miwi_e/tradedataday13_e/oecdbrochurejanv13_e.pdf

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fromthesecountries.ThegrowthinprosperityoftheV4countrieswillthusresultinincreasedGermanexportstothem.

TheV4countries’successintheirrelationswithGermanyisbasedonstableconditionsfordevelopment,aswellastheirgeographicalproximity,whichhasenabledthesignificantinvolvementofGermansmallandmedium-sizedenter-prises.Forthisreason,GermantradewiththeV4countrieshasamuchhighervaluethanwithother,muchlargerstatessuchasJapan,RussiaorTurkey.Thisthereforedemonstratestheveryhighdegreeofmutualcomplementaritybe-tweenGermanyandtheV4countries.

2. The position of individual v4 states in their trade with germany

ThedevelopmentoftradebetweenGermanyandtheV4stateshasledtomorebalancedeconomictiesbetweenthem.Whereasintheperiod2003-14thepar-ticipationofV4inGermany’sforeigntraderosefrom8%to20%,inthesameperiod,Germany’sshareoftradewiththeV4statestakentogetherfell from30%to25%.

Table 1.ThepositionoftheV4countriesamongGermany’smostimportanttradingpartners

country Trade in 2003(€ billion)

Trade in 2014(€ billion)

position, 2003

position, 2014

rise in trading

change in position

poland 15.7 87.5 12 8 457% +4

czech republic 17.5 70.4 11 11 302% 0

hungary 12.2 41.9 15 14 243% +1

slovakia 7.3 24.1 21 20 230% +1

germany’s trade 665 1124 69%


FromthelistofGermany’smostimportanttradingpartners,wecanseethatthe rise inGermany’s foreign trade turnoverwithV4 greatly exceeded theoverallaverage.ThisallowedthesecountriestoincreaseoratleastmaintaintheirplacesamongGermany’smost important tradingpartners.ThePolishpositionhasrisenthemost,fromthe12thtothe8thmostimportantcommercialpartnerforGermany;GermantradeturnoverwithPolandrosemuchfaster

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thanthatof theotherV4states.SlovakiaandHungarymoveduponeplaceeach,andtheCzechRepublicmaintained itsplaceasGermany’s 11thbiggesttradepartner.

Figure 5.Germany’smostimportanttradingpartnersin2014(€billion)

0

50

100

150

200

Fran

ce

Net

herla

nds

Chin

a

USA

Gre

at B

ritai

n

Italy

Aust

ria

Pola

nd

Switz

erla

nd

Belg

ium

Czec

h Re

publ

ic

Russ

ia

Spai

n

Hun

gary

Japa

n

Swed

en

Turk

ey

Den

mar

k

Slov

akia

Sout

h Ko

rea

UAE

[€ billion]167 161 154

118103

92 87 86 8270 68

6042 36 35 33 29 26 24

11

145


TheabovedatashowsthattheV4countrieshaveovertakencountrieswhicharemuchlargerorricherinresourcesasGermany’stradingpartners.Inthisclassification,PolandplacedhigherthanSwitzerlandandBelgium,theCzechRepublichigherthanRussiaandSpain,HungaryhigherthanJapanandSwe-den,andSlovakiaaboveSouthKorea.InthecaseofdatarelatingtotheNether-lands,itshouldberememberedthattheirfiguresareinflatedbytheso-calledRotterdameffect;someofthegoodsexportedfromorimportedtoGermanyviaRotterdamcountsasforeigntradebytheNetherlands.ThismakestheirresulttwiceashighasBelgium,whichisonlyslightlysmaller.

TheriseoftheV4countries’commercialimportanceforGermanyiscontinu-ing,despiteongoingintensivetradingrelationsbetweenGermanyandthefarmorepopulouscountriesofAsiaandSouthAmerica8.

8 KonradPopławski,Chasingglobalisation.Germany’seconomicrelationswiththeBRICcoun-tries, OSW Report, 25 November 2013: http://www.osw.waw.pl/en/publikacje/osw-re-port/2013-11-25/chasing-globalisation-germanys-economic-relations-bric-countries

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Figure 6.Germany’sshareintheV4countries’foreigntrade

20042003 2005 2006 2007 2008 2009 2010 2011 2012 2013 201415

20

25

30

35

40 [%]

Czech Republic

Hungary

Poland

Slovakia

source:UnitedNationsConferenceonTradeandDevelopment;http://unctadstat.unctad.org

Intheperiod2003-14theGermanshareintheV4states’foreigntradebegantofall,thankstowhichGermany’sdominantpositionwasreducedfrom30%to25% for theV4groupasawhole.During the sameperiod, the totalpar-ticipationoftheV4statesinGermany’sforeigntraderosefrom7.9%to20%.DeeperanalysisallowsustoconcludethattheindividualV4countrieshavemaintained theirdependenceson tradewithGermany tovaryingdegrees.Intheperiod2003-14,inthecaseoftheCzechRepublicthisindicatorfellby6percentagepoints(pp)to29%;forHungary,itfell3ppto26%;forPoland,2.5ppto24%;andforSlovakia,9ppto19%.Thischangeshouldbeconsideredasdesirable,because it increases thegeographicaldiversificationof theV4countries’foreigntrade.

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Figure 7.Germany’sexportstoandimportsfromindividualVisegradGroupcountries(€billion)

200420032002200120001999 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Czech Republic

Hungary

Slovakia

0

10

20

30

40

50 [€ billion] Poland

200420032002200120001999 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Hungary

0

10

20

30

40

50 [€ billion]

Poland

EXPORTS

IMPORTS

Czech Republic

Slovakia


GermanexportstoindividualV4countrieshavebeenproportionaltothesizeoftheireconomies,whichresultsfromthesimilarityoftheirdemandforGer-mangoods.AfteraccessiontotheEU,salesofgoodsfromGermanytoPolanddevelopedmostrapidly(15%annuallyonaverage)alittlemoreslowlytoSlo-vakia(10%)andtheCzechRepublic(9%),andmostslowlyinHungary(5.5%).Theeconomiccrisisin2009affectedexportsfromGermanytotheV4,whichdroppedby20-30%.Germancompaniestookthelongesttimetorecoverfromthelossesof2009inexportstoHungary,achievingthisonlyafterfiveyears,whereasinthecaseoftheotherV4statesthreeyearswasenough.

InanalysingGermanimportsfromtheV4countries,theverystrongpositionoftheCzechRepublicisnoteworthy.TheGermanmarketreceivesonlyslightlyfewergoods fromtheCzechRepublic than itdoes fromthemuch largerPo-land.CzechmanufacturersprovideGermanywithfarmoregoodsper capitathanSlovakiaorHungary.However,ifwelookatthedynamicsofthegrowth

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ofimportstoGermanyfromtheV4countriesaftertheiraccessiontotheEU,Polandistheleader(withanaveragegrowthrateof15%),followedbytheCzechRepublic(12%),Slovakia(7.5%)andHungary(6.5%).

Figure 8.Germany’stradebalancewithselectedcountries(€billion)

2004 2014201320122005 2006 2007 2008 2009 2010 2011-30

-20

-10

0

10

20

30

40

50 [€ billion]USA

* Slovakia / ** Czech Republic / *** Hungary*****

Poland

Norway

Russia

China

France Great Britain

*


Inrecentyears,Germanyexperiencedanegativebalanceoftradewithraw-materialsupplierssuchasNorwayandRussia,aswellasitsmajorsubcontrac-tors,suchasChina.Germanyremainedapositivetradebalancewithhighlydevelopedstates,suchastheUSA,GreatBritain,FranceandAustria.Againstthisbackground,itstradebalancewiththeCzechRepublic,SlovakiaandHun-garywasclosetoeven.InitiallyPolandsawagrowingtradedeficitwithGer-many,althoughthishasfallen inrecentyears, to the levelof€8billion.TheotherV4countries,afterseveralyearsofrelativestability,havebegunexperi-encingasurplusintradewithGermany.However,theseresultsrequiresomeclarification.Data from thePolishMainStatisticalOffice shows thatPolandactuallyrecordedatradesurpluswithGermanyforseveralyears9.Theability

9 PolishdatashowsthatPolandhadatradesurpluswithGermanyin2014of€6.5billion,asithadrecordedabout€4billionmoreinexportstoGermany(€43.6billion)and€10billionlessinimportsfromGermany(€37billioneuros).AccordingtotheinformationfromtheMainStatisticalOffice,thesedifferencesstemfromthefactthatinGermanstatistics,goodssentfromChinatoPolandviatheGermanportsarecountedasexportsfromGermanytoPoland.IfPolishcalculationshadbeenconsideredinthefigure,Poland’stradepositionwithregardtoGermanywouldbeclosertothatoftheotherV4states.(Responsebythevice-presidentoftheMainStatisticalOffice,undertheauthorityofthePresidentoftheCouncilofMinisters,

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togenerateabalancedtraderelationship,however,doesnotderivefromthecurrentattractivenessofV4productsforGermanconsumers,butratherfromexportsfromtheGermanfactorieslocatedinthesecountries.

3. risks associated with the v4’s dependence on trade with germany

ThetradestructuresofbothGermanyandtheV4statesaresimilar.Certainsectors predominate, such as: machinery, vehicles, and chemical products.CompaniesfromtheseindustriesaretheleadingbusinessesinGermany,andatthesametimemajorinvestorsintheV4states.SuchtradewillbringbenefitstotheV4countriesinthemediumterm,butinthelongtermitisassociatedwith the risk of dependence on overly homogeneous production structures,andonfailuretodevelopintheIT&telecommunicationssector.

Figure 9.StructureofGermany’sexporttoV4countriesin2014(%)*

Cars & vehicles34.2%

POLAND CZECH REPUBLIC

Finished products10.3%

Food & tobacco7.4%

Raw materials7.0%

Chemical products15.4%

Semi-finished goods19.4%

Other6.3%

Cars & vehicles44.3% Finished products

9.6%

Food & tobacco4.6%

Raw materials5.5%



Other5.5%


HUNGARY SLOVAKIA


Food & tobacco5.9%

Raw materials1.4%

Chemical products10.0%Semi-finished goods

15.2%

Other4.3%



Food & tobacco3.8%

Raw materials3.5%


18.3%

Other5.0%




Food & tobacco7.4%

Raw materials7.0%



Other6.3%

Cars & vehicles44.3% Finished products

9.6%

Food & tobacco4.6%

Raw materials5.5%



Other5.5%


HUNGARY SLOVAKIA


Food & tobacco5.9%

Raw materials1.4%


15.2%

Other4.3%



Food & tobacco3.8%

Raw materials3.5%


18.3%

Other5.0%

*CategoriesbasedontheSITCclassification.The‘food&tobacco’categoryalsocoversliveanimals,animalandvegetablefatsandoils.The‘rawmaterials’categoryincludesminerals,aswellasnon-mine-ralitemssuchasrubber,cottonandironore.The‘semi-finishedgoods’categoryincludesitemssuchaspaper,textiles,cementandsteel.The‘other’categorycoversfurniture,clothing,shoes,cameras,booksandtoysamongothers(seehttp://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=14).source:FederalStatisticalOffice

toquestionno.22326onthediscrepanciesofstatisticsontradebetweentheRepublicofPo-landandtheGermanFederalRepublic,presentedbytheCSOandtheFederalStatisticalOf-fice;http://orka2.sejm.gov.pl/IZ6.nsf/main/275B09FA)

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ThestructureofGermanexportstotheindividualV4countriesissimilar.ThemajorityofsalesbyGermancompaniesaretheflagshipproductsofthecoun-try’seconomy,namelymachinesandcars:mosttoHungary,slightlylesstotheCzechRepublicandSlovakia,andtheleasttoPoland.ItisworthpointingoutthatsomeoftheseexportswerecomponentsforthefactoriesoftheGermancorporationslocatedinthesecountries.AsignificantshareoftheexportsfromGermanytoV4ismadeupofsemi-finishedgoods,otherfinishedproductsandchemicalproducts.Poland,whichimportsamuchsmallerpercentageofcarsfromGermanythanotherV4countries,receivesproportionatelymoregoodsfromothercategories.ThisprobablyaccountsforthesmallerparticipationofGermanautomotivefactoriesintradebetweenPolandandGermany.Ononehand,itshowsthelowerinvolvementofGermancarcompaniesinPolandinrelationtothesizeoftheeconomythanintherestofV4.Ontheother,thead-vantageofsucharelationshipisthatthePolisheconomyislesssusceptibletocrisesontheautomotivemarket.Forexample,in2009,whenglobalcarmarketsalescollapsed, theeconomiesof theCzechRepublic,SlovakiaandHungaryfellintorecession,whilePolandwasabletomaintaineconomicgrowth.

Figure 10.ThestructureofGermanimportsfromV4countriesin2014(%)




Food & tobacco10.0%

Raw materials6.2%Chemical products

6.6%


Other8.8%



Food & tobacco2.8%

Raw materials4,6%



Other7.3%


HUNGARY SLOVAKIA


Food & tobacco3.5%

Raw materials1.8%



Other5.3%


Finished products9,8%

Food & tobacco0,9%

Raw materials1,7%

Chemical products3,3%Semi-finished goods

15,3%

Other6,3%




Food & tobacco10.0%

Raw materials6.2%Chemical products

6.6%


Other8.8%



Food & tobacco2.8%

Raw materials4,6%



Other7.3%


HUNGARY SLOVAKIA


Food & tobacco3.5%

Raw materials1.8%



Other5.3%


Finished products9,8%

Food & tobacco0,9%

Raw materials1,7%

Chemical products3,3%Semi-finished goods

15,3%

Other6,3%


ThestructureofGermanimportsfromtheV4countries issimilartothatofexports.ItisworthnotingthatinGermany’stradewiththeCzechRepublic,

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SlovakiaandHungary,theautomotivesector’sshareishigherinimportsthanexports.ThismeansthatthesethreeV4stateshavebeenabletoachieveasur-pluswithGermany in the trade of cars and car parts.Despite the fact thatasignificantportionoftherevenuegoestotheGermanautomotivecompanieswhichownthefactories,italsobenefitstheCzechRepublic,SlovakiaandHun-gary,thankstogreateremploymentinthesecountries,aswellasincreasedtaxreceipts.Comparedtothesecountries,tradebetweenGermanyandPolandinautomotiveproductsismuchmorebalanced.WhenanalysingtheremainingcategoriesofGermanimportsfromtheV4countries,wenoticetherelativelysmallproportionofchemicalproducts,duetothecontinuedstrongpreferenceofGermanchemicalcompaniestomaintainproductioninGermany.Onefea-tureofGermanimportsfromPolandis(asinthecaseofexports)greaterdi-versitythaninthecaseoftheotherV4states.AlargepercentageofPoland’sexportstoGermanyisrepresentedbyfoodstuffsandfinishedproducts.

WhenanalysingtheOECDdata,wemayaddthat49%ofthecarpartsexportedfromPolandtoGermanyareimportedbyautomotivecompaniesfromGerma-nyfortheirownexports.FortheCzechRepublic,thisratiois32%,forSlova-kia29%andforHungary21%.Thesituationregardingtheexportofpartsformachinesissimilar; inthecaseofPoland,53%ofpartssenttoGermanyarere-exportedonwards,inthecaseofSlovakia42%,intheCzechRepublic32%,andHungary27%.PolandprovidesmorecomponentsforproductsexportedbyGermancompaniesthantheotherV4countries.

ThisclosedependenceonGermanyposesariskofinstabilityfortheeconom-icdevelopmentofCentralEurope.TheeconomicdevelopmentofGermanyisbasedonthelargeparticipationofforeigntrade,duetowhichthecountryisdependentonthebusinesscycleontheglobalmarketplacetoagreaterextentthanotherlargeeconomies.Ifglobaltradeslowsdownoverthenextfewyears,Germanymaysufferfromthismorethanthosememberstateswhicharede-veloping thanks todomestic factors. It isnotknownwhetherGermanywillbeabletomaintainitsconsiderabletradesurplus.Manycountries,aswellastheInternationalMonetaryFund,havecriticisedGermanyinrecentyearsforrunningamodelofeconomicdevelopmentwhichisunbalancedandcontrib-utestotheemergenceofglobalimbalances.Germany’shightradesurplushasbeenaconsiderablesourceofincomeforGermancompanies.However,italsocontributestosignificantimbalancesintheeuro-zone,sincetheincomeisnotspentwithinGermanyitself,butinsteadistransferredabroad,intheformofeitherinvestmentsorloans,forexample,tothemostindebtedcountriesintheeuro-zone.Atthesametime,infrastructureinGermanyhasbeenneglected,

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and its condition has deteriorated over recent years.However, it cannot beruledoutthatthissituationwillchangeoverthenextfewyears.Germanyhasrecentlywitnessedarevivalindomesticdemand;theGermangovernmentisalsoawareoftheproblemsofthelowlevelofinvestmentinthecountry.Sig-mar Gabriel, Vice-Chancellor and economy minister, suggested in January2016that€600billioneurosshouldbeinvestedininfrastructuredevelopment,education,andsupportingthecarindustryby2025(bymeansofasurchargeonthepurchaseofelectriccars)10.

GermanyhasforyearsbeencriticisedbytheUnitedStates,someeuro-areastates,aswellas internationaleconomicinstitutionssuchastheIMF11andtheOECD12,forbasingitseconomicdevelopmentonexports,generatinghightradesurplusesandinsufficientgrowthindomesticdemand.Germany’sin-ternationalcompetitivenessisbasedinparticularonthesuccessoftheauto-motiveandelectro-mechanical sectors.Thedynamicdevelopmentof theseindustries in recent years stemmed in largepart from thedevelopment ofemergingeconomiesthatneedmachinesandvehiclestocarryoutthepro-cessofmodernisation.Thedevelopedeconomies,andinparticulartheeuro-zone,werenotsuchanattractiveoutletmarketbecauseoftheneedtoimple-mentbudgetarysavings.Inthefaceofrisinggeopoliticalthreats,structuralproblems, the fall in income from the saleof rawmaterials, aswell as theriskofcapitaloutflow,itseemsthattheemergingeconomieswillnotbeableinsubsequentyearstoreplacethedevelopedcountriesingeneratingglobaleconomicgrowth.Amongthecountriesthathavegeneratedlargecommer-cialbenefitsforGermanyinrecentyears,twoareinseriouscrisis(BrazilandRussia),andthesituationofChina–thethirdandmostimportantoftheBRICstatesfortheGermanmarket–isfraughtwithincreasinguncertainty.Ifthecleardeclineinthegrowthrateofemergingeconomiesprovestobeadurablephenomenon,demandforGermancapitalgoodswillfall,whichinturnwillreducethelevelofordersfromthefactoriesofGermancompanieslocatedintheV4states.

10 SPD:600MilliardenEurofürModernisierung,Handelsblatt,29January2016,p.7.11 KonradPopławski,Germanyisdefendingitsexports-basedmodelofeconomicdevelopment,

OSW Analyses,17November2010;http://www.osw.waw.pl/en/publikacje/analyses/2010-11-17/germany-defending-its-exports-based-model-economic-development

12 Germany:KeepingtheEdge:CompetitivenessforInclusiveGrowth,BetterPoliciesSeries,OECD,February2014,p.6-8;http://www.oecd.org/germany/Better-policies-germany.pdf

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Figure 11.GDPgrowthinselectedEUcountriesin2009(%)

-7-6-5-4-3-2-10123

HungaryGermanySlovakiaEU28GreatBritain

CzechRepublicSpainFrance

Poland

[%]

source:Eurostat

The risks associatedwith becoming dependent on a favourable situation inworldtradearewellillustratedbytheeconomicsituationinEuropein2009.Theworldenteredrecession,andglobaltradeflowsingoodsfellby12%.TheglobalcrisisaffectedGermanyandtheV4countries(exceptPoland)toanex-ceptionaldegree;theysawworseresultsthantheaveragefortheEUasawhole.TheCzechRepublic,Germany,SlovakiaandHungaryrecordedsomeofthebig-gestfallsinGDPintheworldatthattime,incontrasttothosecountrieswhichhadlesshomogeneousstructuresofproduction.

Thecooperationbetween theV4countriesandGermanyposes the risk thattheV4stateswillbecomestuckinthegroupofcountrieswithamediumlevelofdevelopment. Inrecentyears, theconceptof the ‘middle incometrap’hasbeguntoenjoyacertainpopularity.Onthebasisofhistoricalstudies,econo-mistshaveconcludedthatitdoesnotrequireuniqueskillsforagivenstatetoenterthegroupofcountrieswithanaverageGDP,asjustkeepinglabourcostslowisenough.It ismuchmoreofachallengeto jointheeliteofthehighest-developedcountries,becausetodosoitisnecessarytobuildanationalsystemof innovation, that is, tocreate the institutionalandeconomicconditions tomakemodern,competitiveandprofitableproductsandservices.Manystateshaveprovedunabletoovercomethisobstacleinthepast13.

TheeconomiccooperationbetweentheV4countriesandGermany,whichhasbeenunbalancedbysalesofgoodsundertheirownbrandnames,maybefac-ingtwothreats.ThelucrativenatureofthecooperationbetweenV4businessesandtheirGermanpartnerscoulddeprivetheformerofthemotivationtotakerisks in developing their own technologies and brands. Thewage increases

13 FernandoGabrielIm,DavidRosenblatt,Middle-IncomeTraps-AConceptualandEmpiricalSurvey,WorldBank2013;http://www-wds.worldbank.org/external/default/WDSContent-Server/WDSP/IB/2013/09/09/000158349_20130909085739/Rendered/PDF/WPS6594.pdf

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linkedtothiscouldleadtothelossofothercountries,whowouldofferlowerwages.Inaddition,thestrategyofassemblingproductsforGermancompaniesisinthelongrunlinkedtotheriskofjoblossesintheindustry,ashappenedinthecaseofSpain,ItalyandtheUnitedKingdom,tothebenefitofother,cheap-ercountriessuchasTurkeyorUkraine.SellingproductsfromCentralEuropeunderthebrandnamesofcompaniesfromGermanydoesnothelpincreatingtheirown,powerful,recognisablebrandsonaglobalscale,andthisisanes-sentialconditionforobtainingsignificantprofitmargins.

Secondly, thedevelopmentof theV4 states’ economic cooperationwithGer-many has not been associatedwith an influx of knowledge connectedwithinformationandcommunicationtechnologies,whichwouldseemtobeakeyfactorinfutureeconomicsuccess.Germancompaniesdonotspecialiseinthisfield.Forthisreason,headsofGermancompanieshavebeenwatchingtheex-pansionofAmericanandChineseICTsectorenterprisesintotraditionalmar-ketsandtheirattemptstocreatedriverlesscarswithgrowingunease,asthiscouldthreatenthestrongpositionoftheGermanautomotiveindustry.In2015Volkswagen’schairmanMartinWinterkornmentionedforthefirsttimethatITcompaniessuchasAppleandGoogle,whicharepursuingadvancedstudyondriverlesscars,couldbehisfirm’smaincompetitorsinthefuture14.LeadersoftheGermaneconomyhavegraspedthatiftheysimplyremainmanufactur-ersofdevicesandmachines, theywillbereducing theirprofitsand leavingsubstantialpartsoftheminthehandsofthemanufacturersofthesoftwaretheyuse15.Inthepastfewyears,forexample,Samsunghasfounditselfinsuchasituation;itmakesonlysmallmarginsonitsmobilephones,whilemostoftheprofitsgotoGoogle,withitsAndroidoperatingsystem.

14 Winterkorn:BegrüßedasEngagementvonApple,Googleundco.;http://www.manager-magazin.de/unternehmen/autoindustrie/winterkorn-begruesse-engagement-von-apple-google-und-co-a-1021447.html

15 Germany’sindustry:DoesDeutschlanddodigital?,Economist,21November2015;http://www.economist.com/news/business/21678774-europes-biggest-economy-rightly-worried-digitisation-threat-its-industrial

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III. The flow of InvesTmenTs beTween germany and v4

Inrecentyears,investmentrelationsbetweenGermanyandthecountriesoftheV4havedevelopedintensively,butunilaterally.Germanyisthekeysup-plierofforeigncapitalformostofthesecountries,anditisGermaninvestorswhohave thusdetermined thedirections inwhich foreign tradehasdevel-oped.However,thisisnotauniquesituation.Manycountrieshavebeennetre-cipientsofcapitalfromGermany,asthankstoasignificantincreaseinexportsinrecentyears,companiesfromGermanyhavehadconsiderableresourcesofcashfreetomakesuchinvestments.TheinfluxofinvestmentfromGermanytoV4,however,wouldnothavebeenpossiblewithoutasignificantimprove-mentintheattractivenessofinvestinginCentralEurope,inwhichtheassess-mentofPolandhasimprovedthemost.

1. The flow of investments between germany and v4

Foreigntradeturnoverbetweencountriescanbesubjecttolargefluctuations.Forthisreason,thelevelofinvestmentisareliableindicatorshowingthedegreeofmaturityofeconomiccooperation,sincetheplacementofinvestmentsinagivencountryisamoreaccurateanalysisofthatcountry’sprospectsfordevelopment.Onthebasisofinvestmentdata,itcanclearlybeseenthattheeconomictiesbe-tweenGermanyandtheV4statesarestrengthening.However,ananalysisoftheinvestmentstreamsallowsustodiscernthestillsignificantlevelsofasymmetryinthoserelationships.Germanyisthelargestproviderofnetcapitaltothemem-berstates,thusaffectingthedirectionoftheV4states’economicdevelopment.

Figure 12.TheshareofGermancapitalininvestmentflowstotheV4coun-triesin2008and2012(%)

[%]

0

5

10

15

20

25

Poland Slovakia

2008 2012

CzechRepublic

Hungary Poland Slovakia CzechRepublic

Hungary

source:DatabasesofthecentralbanksoftheV4countries

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Inrecentyears,Germanyhasretained itspositionas the largest investor inalltheV4states,withtheexceptionoftheCzechRepublic,wheretheNether-landscamewellahead.TheshareofGermancapitalininvestmentsintheV4countriesincreasedslightlyinthecasesofPolandandHungary,anddecreasedslightlyintheCzechRepublicandSlovakia.Ingeneral,itcanthereforebecon-cludedthatGermany’spositionasaninvestor intheV4countrieshasdevel-opedsteadilyoverthepastfewyears.

Figure 13.TotalforeigndirectinvestmentbyGermanyinselectedcountriesandintheV4states(€billion)

2004 2005 2006 2009 2010 2011 20120

50

100

150

200

250

300 [€ billion]USA

V4Netherlands

FranceChinaRussia

Great Britain

source:Bundesbank

Intheperiod2004-12,thevalueofforeigninvestmentsfromGermanyintheV4countrieshasdoubled,from€36billionto€77billion.TheV4statestakento-getherareoneofthemaintargetsofGermaninvestment,andin2012theyover-tooktheNetherlands(€74billion),whichistraditionallylinkedtoGermanybyverystrongeconomicrelationships,andwhichisGermany’smostimportantlogisticshub.ThemostimportantplaceswhereGermancapitalisinvestedaretheUnitedStates(€269billion)andtheUnitedKingdom(€120billion),whichasstrongfinancialcentresprovideanumberofservicesforcompaniesfromGermany.InvestmentsbyGermancompaniesinChina(€42billion)weresig-nificantlylowerthanintheV4countries,althoughtheyhaveexpandedveryrapidly.German capital located inRussia (€21 billion)was also significantlylowerinvaluethanthefundsinvestedinV4countries,althoughthesefiguresdonottakeintoaccountthestillsignificantoutflowofinvestmentsfromRus-siaduetothewarinUkraine.Fromthisdata,itcanbeconcludedthatinarela-tivelyshortperiodoftime,theV4countriesmanagedtoattractnotonlythebigGermancompanies,butalsosmall-andmedium-sizedenterprises,thankstowhichthescaleofGermaninvestmentintheV4hascometoexceedthatinChinaorRussia.

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Figure 14.ForeigndirectInvestmentintheV4countries

20042003 2005 2006 2007 2008 2009 2010 2011 201220020

5

10

15

20

25

30 [€ billion]

Poland

Slovakia

Czech Republic

Hungary

source:Bundesbank

AnalysisofGermaninvestmentinindividualV4countriesclearlyshowsthatthe Czech Republic has attractedmost investment. In recent years, Polandhasbeguntocatchupwiththem;HungarycomesinthirdplaceandSlovakiafourth.However,comparingthesevalueswiththepopulationofeachcountry,weseethatPolandreceivesbyfartheleastinvestment,onlyaboutathirdoftheinvestmentper capitaofwhatHungaryandSlovakiareceives,andaquarteroftheCzechRepublic.ThismeansthattheintensityofGermaninvestmentsinPolandismuchlowerthaninotherV4countries.Despitethis,wecanseethatthisdifferenceisslowlybeinglevelledout.InvestmentgrowthfromGermanyin theperiod2004-12was fastest inPoland (a cumulative increaseof 160%);nextwereSlovakia(129%)andtheCzechRepublic(111%),andHungaryinaverydistantfourthplace(32%).

RecentyearshavebroughtasteepriseincapitalcommitmentinCentralEuropefromGermanindustriessuchastheautomotiveandlogisticalsectors,whichhaverecognisedtheadvantagesofinvestingintheregioninordertoimprovetheircompetitivenessandconsolidatetheirpositionontheworldmarket.Foritspart,theretailindustryhaslaunchedadynamicexpansionintheregion,takingadvantageofthegrowingconsumptionwhichhasreinforceditsposi-tioninEurope.Forothersectors,suchasenergyorbanking,thelastfewyearshavebeenaperiodofstagnation,oratimeinwhichtoverifytheirinvestmentopportunities. Generally it can be noted, however, that German businesseshaveincreasedthescopeoftheirinvestmentsinCentralEurope,totheextentthattheirfinancialsituationshaveallowed(seeAppendix).

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Figure 15.TheinfluenceofindividualcountriesonthebalanceofsecondaryincomeofGermany(€billion)

-3

-2

-1

0

1

2

3

4 Hungary

Czech Republic

Poland

20042003200220012000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

[€ billion]

source:Theauthor’sowncalculations,basedontheBundesbank’sdatabase:MakroökonomischeZeitre-ihen,http://www.bundesbank.de/Navigation/DE/Statistiken/Zeitreihen_Datenbanken/Makrooekono-mische_Zeitreihen/makrooekonomische_zeitreihen_node.html

Byanalysingbalanceof secondary income,whichshowwhat thebalanceofprofitflowsandassetsheld abroad looks like,we canpartially evaluate thesizeofthebenefitintheformofdividendsfromGermaninvestmentsintheV4countries.Thedatashowsthatintheperiod2004-12,investmentinHun-garyproduced€22billionofrevenues, intheCzechRepublic€14billion,andinPoland€1.6billion(figuresforSlovakiaarenotavailable);inallcountries,then,atrendtowardsgrowthisvisible.ItseemsthatGermany’sdeficitinre-lationswithPolandintheperiod2000-6shouldbereadasresultingfromthefactthatGermancompanieshavemainlyinvestedwithoutreceivingsignifi-cantreturnsontheirinvestments.Inrecentyears,theoutflowofcapitalfromPolandmayhavebeeninhibitedbythegrowingnumberofPolishworkersinGermany,whotransfersomeoftheirearningsbacktotheirowncountry.

Figure 16.ThevalueofforeigndirectinvestmentsfromV4countriesinGermanyin2008and2012(€billion)

[€ billion]

0.0

0.5

1.0

1.5

2.0

Poland Slovakia

2008 2012

CzechRepublic

Hungary Poland Slovakia CzechRepublic

Hungary

0.6

0.1

0.30.1

2.0

0.01

0.30.1

source:DatabaseoftheV4countries’centralbanks

A comparison of investment flows from Germany to the V4 countries withcapitalflowingintheoppositedirectionallowsustoperceivetheconsiderable

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imbalanceininvestmentpotentialsonbothsides.ThevalueofV4capitalin-volvedinGermanymadeuponly3.5%oftheGermanfundsinvestedinV4.ItisclearthattheonlycountrythatsignificantlyincreaseditsinvestmentinGer-manywasPoland.ThevalueofPolishcapitalinvestedinGermanyinthepe-riod2008-12roseby233%to€2billion,whilethescaleoftheinvestmentcom-mitmentsoftheCzechRepublic,SlovakiaandHungaryremainedunchangedorevendecreased.TheincreasedinvolvementofPolishcompanies’capitalinGermanycouldbetheresultoftheimprovingcompetitivenessofPolishcompa-nies,suchasthefurnitureorcomputersectors,whichhasbeguntochallengesomeoftheirGermancompetitors.Intheperiod2008-13,23%ofPolishinvest-mentsinGermanywereinthecomputerindustry,16%infinancialservicesforcompanies,and14%inmachineproduction.ManyPolishcompanieshavealsodecidedtoentertheGermanmarketinordertoreceivethelabel‘MadeinGer-many’,whichcouldbeavaluableassetintheirfurtherexpansionontoforeignmarkets.Theanalysisshowsthat41%ofPolishinvestmentprojectsinGerma-nyinvolvedopeningsalesandmarketingdivisions,18%coveredtheopeningofcompanyheadquartersinGermany,and11%involvedofferingservicesthere16.

2. motives for investment

ThemainmotiveforGermancompaniestoinvestinCentralEuropeissalesandcustomerserviceonthelocalmarket,aswellasreducingcosts.GermancapitalthereforeoftengoestotheV4countriesinordertogeneratesavingsonproduc-inggoodswhichareoftensoldinthecountriesofwesternEurope.Withdif-ferencesinpaystillremaining,suchtrendsarequitenatural.Theproblemis,however,thatGermancompaniesstilldonotseeCentralandEasternEuropeasplacesinwhichtoinvestinresearchanddevelopment,evenoverthenextten years, deeming the developed countries to bemore attractive locations.ChinaandIndiaarealsomoreattractiveinthisrespect;becausetheyaresuchlargeandgeographicallyremotemarkets,moreandmoreGermancompaniessee theadvantage in locating theirR&Dcentres close to the factories there.Ontheonehand,thiscouldmeanthattheV4countriesaregeographicallytoocloseandhavetoosimilarstructuresofproductiontoGermanytobeabletoat-tractGermanR&Dinvestments.Ontheotherhand,however,thegeographicalandculturalproximityofCentralEuropecouldbeanopportunitytoprovidebusinessprocessoutsourcinginthisregionforGermancompanies.

16 PolnischeUnternehmenerobernneueMärkte,10November2014;http://www.gtai.de/GTAI/Navigation/DE/Trade/Maerkte/suche,t=polnische-unternehmen-erobern-neue-maerkte,did=1112698.

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Figure 17.ThepopularityofdifferentregionsasinvestmentlocationsforGermanindustry,andthemainmotivesforinvestmentin2014

0

10

20

30

40

50 [%]

Reduction of costs

Production on local market

Sales/Customer service

Russia, Ukraine,Turkey, non-EUBalkan states

EU-15 China North America Asia(except China)

New EU states SouthAmerica

47 46

36

28

21 2017

source:Europapunkteterneut–KostendruckwiederwichtigerAuslandsinvestitioneninderIndustrieFrühjahr2015,theGermanChamberofIndustryandCommerce,Berlin2015,p.15

AnanalysisoftheinvestmentrelationshipbetweenGermanyandV4shouldstartbyexaminingthosecountries’popularityasinvestmentlocations(givenasanum-berabovethebars),andthemotivesforinvestinginthosecountries(giveninsidethefigures).ThedatashowsthatthenewEUcountries17,whichincludetheV4,arethefifthmostpopulardestinationforinvestmentfromGermanindustries.How-ever,consideringthatthenewEUmemberstatesaretheregionwiththesmallestpotentialintermsofeconomyandpopulation,thentheirpositionismoresignifi-cant.TheyaremorefrequentlychosenforGermanindustrialinvestmentsthanSouthAmerica,Turkey,orcountriesinEasternandSouthernEurope.

AnalysingthemotivesbehindtheinvestmentofGermancapitalinCentralEu-rope,wecanseehowdifferentthisregionisfromotherpartsoftheworld.ThedatashowsthatthemostimportantpurposeofinvestinginthenewEUcoun-triesistoselltocustomersonthedomesticmarkets,andtoofferthemservices(42%).Comparedwithotherregions,movestoreducecostsmakeupasignificantproportionoftheinvestmentsinthenewEUcountries(39%).NootherregionisusedbyGermanindustryinthiswaytoreduceproductioncosts.However,thisresult isnotsurprising,becausegiventhattheEUisasinglemarket,movingproductiontothecheapestregionisanaturalprocess.Inothercountriestherearespecialrequirementsforaspecificproportionofproductiontobeoflocalori-gin,aswellasbureaucraticbarrierslimitingproductionforothermarkets.That

17 Inthisfigure,the‘new’EUcountriesmeansthosememberstateswhichjoinedtheEUafter2003.

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iswhyonly18%ofGermaninvestmentinChinaisaimedatreducingproductioncosts.AlessimportantmotiveforinvestinginnewEUcountriescomparedtootherregionsisproductionforthelocalmarkets(19%),asthisisamuchmoreimportantreasontoinvestcapitalinNorth&SouthAmericaandChina.

StudiessuggestthatChinaandCentralEuropeservecompletelydifferentfunc-tionsfortheGermaneconomy.CentralEuropeismuchmoreattractiveduetoitsgeographicalandculturalproximity18;itoffersmoderateproductioncosts,high-ly-qualifiedhumancapitalandincreasingproductivity,andisthelocationfortheproductionofmorespecialisedandcomplexgoods,primarilyfortheEuro-peanmarket.Chinainturn,duetolowwages,largenumbersofengineers,averylargeavailabilityofsuppliers,theproximityofresources,anditshugeinternalmarket,isalocationformass-producedgoodsaimedatthelocalmarket,andalsoinpartat foreignmarkets.Akeydifferencebetweenthesetworegions is theflexibilityofproductionandthesecurityoftechnology.ProductioninChinain-volvestherisksoftechnologyleaksandunpredictablegovernmentactions,andthereisalsolessflexibilityinadaptingproductiontosignificantrecentfluctua-tionsinglobaldemand,asitrequiresquitesometimetoadapt.Italsorequiresmuchgreateroutlayonlogistics.CentralEuropeoffersamorestableinstitution-alframework,aswellashighflexibilityinadaptingproductiontoglobalfluctua-tionsindemand,sothatproducerscankeeptightercontroloftheproduction.

Figure 18.Themostattractiveregionsforresearchanddevelopment(onascalefrom1–unimportantto4–veryimportant)

00.51.01.52.02.53.03.54.0

2015 2025

Wes

tern

Eur

ope

USA

& Ca

nada

Chin

a

Indi

a

Cent

ral &

Eas

tern

Euro

pe

Braz

il

Japa

n

Sout

h Ko

rea

Mex

ico

Turk

ey

Russ

ia &

CIS

3.83.8

3.12.8

1.8

2.3

1.81.5 1.51.6

1.3 1.41.2 1.2 1.3 1.2 1.31.4

1.8

2.22.6

2.9

source:Surveyentitled‘R&DLandscapeby2025:EineTrendstudiederROIManagementConsultingAG.EinWegweiserdurchdieTrendsimglobalenManagementvonForschungundEntwicklung,2013,p.11

18 H.-G.Scheibe,ChinaoderOsteuropa?RichtigeAntwortaufeinefalscheFrage;http://www.roi.de/fileadmin/ROI_DIALOG/ab_DIALOG_38/ROI__DIALOG_41_web.pdf

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StudiessuggestthattheV4countrieswillnotbeaprioritytargetforinnovationtransferoverthenexttenyears.Accordingtoasurveycarriedoutamongthedecision-makersof60Germanmedium-andlarge-sizedcompanies,thecoun-triesofcentral&easternEuropearethefourthmost important locationforR&Dinvestment(jointly withIndia)afterWesternEurope,NorthAmericaandChina.Theirpositionwillbe strengthenedby2025,but theirdistance fromWesterncountriesandChinawillstillbesignificant.ThestudyalsofoundthatthepositionofCentral&EasternEuropewillbeparticularlyimportantintheR&Dfieldoftheautomotiveindustry,butlesssointheproductionsector.

Thereareslightlymoreoptimisticconclusionsfromotherstudies,whichshowthatGermancompaniesarebecomingmoreinterestedinmovingvariousinter-nalactivities,suchasfinancialandhumanresourcesmanagement,toforeignaffiliates. In2011,65%ofcompaniespreferred tokeep theirprincipalactivi-tiesinGermany,19%favouredtransferringsomeoftheseprocessestoCentral&EasternEurope,andonly3%tootheremergingeconomiessuchasBrazil,ChinaorIndia19.Itisprimarilytransportandlogisticscompaniesthataremov-ingtheiractivitiestoCentral&EasternEurope(25%ofthemhavebranchesintheregion),aswellasbanking(24%),andIT(24%).Companiesfromthebank-ing,energyandwatersupplyindustrieshavechosenCentral&EasternEuropeas theplace to test theirnewservicesand software.The survey shows thatthebiggestbarrierstomovingelementsoftheirinternalactivitytothisregionarequestionsofdatasecurityandaninsufficientknowledgeofEnglishintheregion.ItseemstobeintheinterestsofCentralEuropetosupportthetrendtomovethebusinessprocessoutsourcingservicesofGermancompaniestotheregion,sinceattractingsuchinvestmentsmayofferawayofescapingthemid-dleincometrap,.Theseworksallowhighaddedvaluetobemovedtothetargetcountriesandensuretheemploymentofhighlyskilledworkers.

19 Studie:OsteuropagewinntAkzeptanzbeimOutsourcing,14February2012;http://www.presseportal.de/pm/50272/2198077

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3. The investment climate in the v4 countries from the perspective of german investors

Overthepasttwoyears,theinvestmentattractivenessoftheV4countrieshasincreased considerably in the eyes of German investors. In 2014 Poland ob-tainedthebestvaluesofspecificindicatorsforinvestmentattractiveness.Datafrom the surveys confirms that German investors’ evaluation of Hungary’seconomicpolicyweremuchhigherthantheconsiderablecriticismintheGer-manpresswouldsuggest.

Figure 19.EvaluationoftheinvestmentattractivenessoftheV4countries(1–best,6–worst)

2013 2014 20152008 2009 2010 2011 2012

4.5

4.0

3.5

3.0

2.5

Slovakia

Poland

Czech Republic

Hungary

source: Economic Survey in Central and Eastern Europe 2015, the German Chamber of Industry andCommerce;http://www.ahkungarn.hu/fileadmin/ahk_ungarn/Dokumente/Bereich_CC/Publikationen/Konjunktur/2015/AHK-Konjunkturumfrage_MOE_2015_final.pdf

Inrecentyears,assessmentsoftheV4countries’investmentattractivenesshaveclearlyimproved.Intheperiod2006-12theseratingswerequitestable;theleaderwasPoland(2.8),theCzechRepublic(3),Slovakia(3.2)andHungary(3.6).TheV4countries’assessmentsimprovedsignificantlyin2013,whichmayhavebeentheresultofbettereconomicconditionsinthosecountriesthanintheeuro-zone.ItseemsthatGermaninvestorsmostlyappreciatedthegreaterpoliticalstabilityintheV4countriesthaninWesterncountries,aswellastheir lowerlevelsofdebtcomparedtoWesterncountries.ThebiggestchangewasPoland’sadvancetofirstplaceasalocationforinvestmentsasof2013,aswellastheworseningassessmentofHungary.TheattractivenessoftheHungarianeconomydeterio-ratedin2009,soevenbeforePrimeMinisterViktorOrbáncametopower,anddidsoagaininthethirdyearofhisrule.ThepoorerperceptionofHungaryisnotthereforeconnectedonlyto itscontroversialeconomicpolicy,butratherwiththeoveralleconomicsituation,linkedtoitshighdebt.

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Figure 20.ThepercentageofGermancompanieswhichintendtoincreaseinvestmentinindividualcountries(%)

2009 2010 2011 2012 2013 20140

10

20

30

40

50

60 [%]

Hungary

Slovakia

Czech Republic

Poland

source:EconomicSurveyinCentralandEasternEurope2015,asabove

Analysisofthediagramshowsthatthepercentageofcompaniesplanningtoin-creaseinvestmentafterthedeclinein2009hasincreasedandremainsstable.Inrecentyears,aroundathirdofthecompaniesinterviewedintendedtoboostin-vestment.DespitetheweakerratingofHungary’sattractivenessinthedatacitedearlier,thisdoesnotappeartohaveaffectedthedesiretoinvest.Inthisrespect,HungarydoesnotdiffersignificantlyfromtheotherV4states.InrecentyearsGermancompanieshavebeenslightlymore likely to increase investments inHungarythaninSlovakia.Poland(39%)exhibitedmorefavourableassessmentsthanHungary(35%),theCzechRepublic(33%)andSlovakia(30%).

Figure 21.ThepercentageofGermancompanieswhichintendtoincreaseemploymentinindividualcountries(%)

20152008 2009 2010 2011 2012 2013 2014

Czech Republic

Hungary

Poland

0

10

20

30

40

50

60

70

80 [%]

Slovakia


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IntermsoftheintentiontoincreaseemploymentintheV4countries,Polandreceived thebestassessment,an improvementoverrecentyears.43%of thecompaniesinterviewedintendtoincreaseemploymentonthePolishmarket,36%intheCzechRepublic,35%inHungary,and33%inSlovakia.

Figure 22.ThepercentageofGermancompanieswhichsupporttheintroduc-tionoftheeuroinindividualcountries(percent)

20152009 2010 2011 2012 2013 20140

10

20

30

40

50

60

70

80

90

100 [%]

Czech Republic

Hungary

Poland

source:EconomicSurveyinCentralandEasternEurope2015,asabove.

Therehave been clear changeswith respect toGerman investors’ attitudetowardsplans to introduce theeuro in those countriesof theV4whichdonot yet use it. Support for this issue amongGerman companies has fallensignificantlyintheCzechRepublic,PolandandHungarytosimilardegrees,probablyasaresultofthecrisisinthemonetaryunion;nevertheless,aslightmajoritystillsupports the introductionof thesinglecurrency.Whereas in2009about90%ofintervieweesbelievedtheadoptionoftheeurowouldbebeneficialfortheircompanies,in2014thepercentagewasonlyslightlymorethan 50%.Thismaymean that someGerman companieshavebeen takingadvantageoftheV4currenciesweakeningagainsttheeuro,whichensuresadditionalsavingsforthem.

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Figure 23.Investors’assessmentsofindividualaspectsofcompetitiveness:percentagesassatisfactoryorverysatisfactory(%)

0

20

40

60

80

100CzechRepublic Poland Slovakia Hungary

[%]

Membershipin EU

Employees'qualifications

Employees'productivity

and motivation

Quality ofacademiceducation

Labourcosts

Employees'availability

Quality andavailability

of local branches


WhencarryingoutadeeperanalysisofthefactorsthatmeettheexpectationsofGermancompanies,itisworthnotingthestrongpositionofPoland,whichleadsthewayinallcategories.Itsgoodpositionstemsprimarilyfromthequal-ityandavailabilityofitshumancapital.SlovakiacomparestoPolandinmanycategories,althoughitshowsworseperformancesparticularlyintermsofaca-demicquality,aswellas (toa lesserextent) thequalificationsof itsemploy-ees.Hungary’sresultsarelowerthanSlovakiaandPoland;Germaninvestorsappreciate(inPolandandSlovakiatosimilardegrees)onlyHungary’slabourcostsanditsaccessibilitytolocalsuppliers.TheCzechRepublicdeviatesfromtheothercountriesinalmostallcategories.Theirlowerpositionmay,ontheonehand,arise fromGerman investors’higherexpectationsof thecountry,andontheotherfromitslowereconomicperformanceinrecentyears.

Figure 24.Investors’assessmentsofindividualaspectsofcompetitiveness:percentagesasunsatisfactoryorveryunsatisfactory(%)

0

20

40

60

80

100CzechRepublic

Poland Slovakia Hungary[%]

Politicalstability

Predictabilityof economic

policy

Legalsecurity

Publicadministration

Infrastructure Conditionsfor innovation

Fight againstcorruption


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FromtheanalysisofthefactorsunsatisfactorytoGermaninvestors,itappearsthatPolandreceivedtheleastcriticism.OnlyHungaryisevaluatedlesscriti-cally thanPolandwithregardto thequalityof infrastructure.TheotherV4countrieshave similar ratings.TheCzechRepublic andSlovakia are judgedbyahigherpercentageofGermancompaniestobeworseatdealingwithcor-ruptionandpublictenders,stateadministrationandlegalsecurity.TheCzechRepublicisalsocriticisedforitssubstantialproblemswithpoliticalstability.HungaryinmostcategoriesisnotratedaslowastheCzechRepublicorSlova-kia,butfromthepointofviewofGermaninvestors,itisassessedmostcriti-callyintermsofthepredictabilityofitseconomicpolicy.

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Iv. The polITIcal prospecTs for economIc cooperaTIon

Inrecentyears,Germany’sgoodeconomicperformancehasaffordeditapriv-ileged position in Europe. It was no coincidence that Germany’s economystrengthenedsignificantlyaftertheaccessionofthecentralEuropeancoun-triestotheEuropeanUnion.Theguaranteedsecurityandeconomicdevelop-mentintheregionmeantthatitbecameacrucialoutletandanimportantin-vestmentdestinationforGermancompanies.Itsimportancewillincreaseinthecomingyearsduetopoliticalinstabilityintherestoftheworld,aswellastheneedtoovercomethreekeycriseswithintheEU:theeuro-zone,theRus-sian/Ukrainian conflict and themigration crisis. Due to their geographicalandeconomicimportanceforGermany,thecountriesofCentralEuropewillbeakeypartnerinaddressingtheseissues.ItseemsthattheformatoftheV4,whichhasproveditsusefulnessinthebattleforfundsfortheEUcohesionpol-icy,andovertheshapeoftheEU’senergypolicy,couldbeanimportantinstru-menttodefendtheinterestsofCentralandEasternEurope,especiallyinthedebateonreformingtheeuro-zone, theshapeoftheEU’senergypolicy,andmigrationissues.

AmajordownsidetotheeconomicrelationsbetweenGermanyandCentralEu-ropewillbethereformoftheeuro-zone.Themonetaryunion’spreviouscorrec-tiveactionshavebeeninadequate,andwillnotensureitssustainabilityinthelongterm,ifonlybecauseofthehighdebtmanycountrieshavenow.Anumberofproposalswhichhavebeendebated,suchasthecreationofaseparateparlia-mentoraeuro-zonebudget,threatentoreducetheimportanceofpreviouslyexistinginstitutionsundertheguiseofbuildingnewones.ThiscouldleadtotheexclusionofthosememberstateswhichdonotusethecommoncurrencyfromtheprocessofEuropeaneconomicintegration,ortotheinfringementoftheirinterests.ThisriskhasbeenhighlightedbytheUKgovernment,whichinexchangeforremainingintheEUexpectsthattheintegrationoftheeuro-zonewillnotleadtothedeteriorationofconditionsfordevelopmentinthosecountrieswhicharenotmembersofthezone.

Untilnow,Berlinhashadproblemsclarifyingwhattherelationshipbetweenthecountriesinsidetheeuro-zoneandthoseoutsideitshouldbeafterthere-formprocessisover.Forexample,somereformstothemonetaryunion,andinparticularconcerningthefinancialsector,mayaffecttheeconomiesoftheotherEUmemberstates,asthefinancialinstitutionsfromtheeuro-zonehavesignificantsharesonthemarketsoftheCzechRepublic,PolandandHungary.

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Thus these countrieswill in effect becomemembers of the banking union,eveniftheydonotformallyparticipate.Theglobalfinancialcrisisshowedthatmemberstates’excessivedependenceonbankinggroupsfromothercountriescarriesanincreasedriskofcrisesbeingtransmittedfromtheirparentcoun-triestothosewheretheyhavebranches.Worseconditionsforfinancingbusi-nessesmaythushindertheactivitiesofGermancompaniesinvolvedinCentralEurope.Germanyshouldthereforetakegreateraccountoftheinterestsoftheregion’scountriesduringtheprocessofreformingtheeuro-zone.Protectingeuro-zone banks from bankruptcy should not be associated with subsidis-ing them,whichcouldeffectivelymeangiving themunauthorisedstateaid,thusmakingiteasierforthemtocompeteontheV4countries’markets.Suchamovemayraisedoubts inCentralEuropeas towhether the liquiditypro-videdtobanksbytheEuropeanCentralBankinterfereswiththemechanismsofcompetitiononthebankingmarket,andthusmaintainsthestrongpositionofWesternEurope’sinstitutionsinCentralEurope.

WemayalsoimagineasituationinwhichBerlinneedspoliticalsupportfromCentralEurope.The insistenceonausteritypolicies insouthernEuropehasbecomeassociatedwithsignificantsocialcosts,suchasdecliningincomes,ris-ingunemploymentandtheradicalisationofsocieties.Thenewdivision intosouthern andnorthern EU countries seems to have become settled, at leastinthemediumterm,aseconomicinterestsbecomeconditionaluponlevelsofpublicdebt.Althoughthecrisisintheeuro-zonehasnowlastedforsomeyears,Germany’sbudgetary situationhas improved significantly, and itnowmorecloselyresemblesthatofthecountriesofCentralEuroperatherthanthoseofthesouth.GermanyisalsoawarethattheEuropeanCommission,ledbyJean--Claude Juncker,plays theroleofapoliticalactor,andnotsimply thatofanindependentguardianofthetreatieswhichissupposedtooverseefiscaldis-ciplinewithintheEU.ItcannotberuledoutthatthegovernmentsofFrance,Spain,Portugalor Italymaydecideto limit the implementationofausterity,whichwillfatethemtoaconfrontationwithBerlin.Inthisscenario,GermanywillseekalliesinEuropetopursuetheausteritypolicy.ThecountriesofCen-tralEuropeappeartobethenaturalchoiceforthis,togetherwiththecountriesofNorthernEurope.

Inrecentyears,energypolicyandclimatechangehavebecomeanimportantaxisofthedisputebetweenGermanyandthecentralEuropeancountries.Thereasonforthis,ontheonehand,wasBerlin’sdesiretopromoteanambitiousclimatepolicyinEuropeandaroundtheworld,inwhichitsawachancetosup-porttherenewableenergysectorinGermany,andtomeetpublicexpectations

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onrestrictingtheuseofnuclearandcoalplantsinenergyproduction.Ontheotherhand,theGermangovernmenthasnotdisplayedafullunderstandingofthestructuralconditionsinthecountriesofCentralEurope,whoseenergybalanceisbasedonconventionalfuelsources(includingnuclearenergy),andwhichdonothaveenoughfundstosubsidiserenewableenergysources.Inad-dition,afterthesuddenshutdownofsomenuclearpowerplantsinGermanyin2011,therewereuncontrolledflowsofrenewableenergyfromGermanoff-shorewindfarms,whichcausedproblemswiththestabilityoftheenergynet-worksintheCzechRepublicandPoland.

ItseemsthattheremaybeachancetobringthepositionsofGermanyandCen-tralEuropeintheareaofenergypolicyclosertogetheroverthenextfewyears.ThereseemstobeeverlessdeterminationwithintheEUtoimplementastrictclimatepolicy,andincreasingimportanceisbeingattachedtoindustrialpol-icy.Thistrendmaybeenhancedbythelowpricesofenergycarriersaroundtheworld,aswellasbytheprocessofreindustrialisationintheUnitedStates.Many EU countries will long continue to use conventional energy sources;forexample,theUnitedKingdomintendstobuildanewnuclearpowerplant.Moreover,decreasesinthepriceofoilandgasontheglobalmarketalsoclearlyfavoursuchatrend.ThesituationinGermanyisnoexception;Berlinstillhasnoideahowtoreplaceasignificantamountofthepowerwhichhadbeengen-eratedbycoal.RecentdecisionsbytheGermangovernment,suchaslimitingtheamountofsubsidiesforrenewableenergy,aswellassubsidisingcoalinre-turnforkeepingitasreservestocks,showthattheGermaneconomymaynotbeabletobearthecostsofatoorapidenergytransformationrelatedtotheim-plementationoftheEU’sclimategoals.ThereforethechanceforanagreementbetweenGermanyandtheV4countriesisgrowing.WemayimagineasolutioninwhichthecountriesofWesternEurope,thankstotheirfinancialcapabili-ties,maintainlargecapacitiesofrenewableenergy,whereasthecountriesofCentralEuropecouldstabilisetheenergysystemintheEUthankstothesig-nificantcapacityoftheirconventionalpowerplants.

Moreproblematicthandifferencesinthefieldofclimatepolicy,however,maybethedifferencebetweenGermanyandtheV4countriesovertheissueofdi-versifyinggas supplies. In 2015CentralEuropewasonce again surprised tolearnthatGazprom,togetherwithGermanandFrenchcompanies,wasplan-ningtoaddanotherbranchtotheNordStreamgaspipeline.ThiswasanevenbiggersurpriseastheEUhadinrecentyearsdemandedagreaterdiversifica-tionofenergysuppliers,apostulatesupportedbyGermany.ForecastssuggestthatexpandingNordStreamwouldonlymakeeconomicsenseifitisexempted

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fromtheEU’senergylegislationandRussiancompaniesareabletouseitsen-tirecapacity.EvennowtheprojectisraisingconcerninthecountriesofCen-tralEurope,becauseitwilldeprivesomeofthemoftheprofitsfromgastransit,anditalsoinvolvestheriskofmakinggassuppliestotheregionlesscertain.

IfmigrationistheprocesswhichmostaffectsEuropeanpolicyoverthenextfewyears,itmayalsobeafactorwhichstronglyconsolidatestheV4countriesinothercases.Thesecountries’attitudemayconflictwiththeinterestsofGer-many, if it continues to insistonadmittinga largenumberofmigrantsandredistributingthemamongEUcountries.Inthelongterm,however,itseemsunlikelythatBerlinwillcarryoutsuchapolicy,duetothegrowingresistanceoftheGermanpublic.TheGermangovernmentmustalsobeawarethatatooliberalmigration policymay inducemigration pressure on the countries ofCentralEurope,whichhavealreadybeenexposedtoasignificantinfluxofpeo-pleasaresultoftheRussia/Ukraineconflict.Suchprocessescouldthereforeleadtopoliticalandsocialproblemsthatwouldadverselyaffecttheeconomy.

AnimportantroleinshapingthepoliticalandeconomicrelationshipbetweenGermany and the V4 countries will be played by public opinion. In recentyears,GermannewspapersandexpertshavebeenfocusedontheproblemsofsouthernEurope,whichhasreducedtheirinterestinCentralEurope.PublicopinioninGermanyisunawareofthedegreetowhichtheregion’seconomicrelationswithGermanyhavedeveloped.Sincethestartofthemigrationcrisis,manyGermanpoliticianshavetriedtopersuadethememberstatesofCentralEuropetochangetheirmigrationpolicybythreateningtowithdrawEUfund-ing,whileGermancompaniesareamongthebiggestbeneficiariesofcontractsfinancedfromthestructural funds.TheGermanmediahavebeenspeculat-ingonthepossibilitythattheSchengenareawillbelimitedtoGermanyandtheBeneluxstates.OneofthebiggestlosersfromsuchasolutionwouldbetheGermanautomotivesector,whoseabilitytotransportto&fromtheirfactorieslocatedinCentralEuropewouldbehampered.Theseexamplesshowincreas-inglyclearlythatthereisnotenoughawarenessinGermanyofitseconomicdependencywiththeregionofCentralEurope.Thisalsoresultsfromthere-strictionoffundstofinanceresearchandexpertiseconcerningtheregion20.

20 TheexampleofBudapestsaysalot,assomeoftheGermaninterlocutorsinterviewedinHun-garystatedthatthemediainGermanyhadreactedtooemotionallytothepoliticalprocess-estakingplaceinthiscountry.Themisunderstandingofthesituationwascompoundedbythelackofrealknowledge;thesubjecthadoftenbeenraisedbyGermancorrespondentsfromVienna.

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v. appendIX

The InvolvemenT of german companIes In selecTed secTors In The member sTaTes of The vIsegrad group

1. The automotive sector

Theautomotivesectorhas,nexttothemachinesector,beenamajorsourceofexportcompetitivenessfortheGermaneconomyinrecentyears.AnimportantrolehasbeenplayedinthisprocessbythecountriesofCentralEurope,whichhave become a focal point for car production, bringing together theworld’smostimportantmanufacturersandsuppliers.MostGermancompaniesdur-ingthisperioddecidedtolimitproductioninWesternEurope,andincreaseitinCentralEurope.

Thefinancialcrisishasverifiedmanypreviouslyexistingeconomictenets,in-cluding the idea that aneconomycanonlybebasedon thefinancial sector.ManyeconomistshavedeemedGermanytobeagoodmodeltofollow;inrecentyearsitseconomyhasbeencharacterisedbyhighgrowthdynamics,astrongindustrialbase,aflexiblelabourmarketandhightradesurpluses.Oneofthemajorfactorsforstableeconomicdevelopmentwasthegoodconditionoftheautomotivesector.In2013,5.4millioncarswereproducedinthefactoriesofGermancorporationsinGermany,and8.6millionabroad21.Untilthefinancialcrisis,carproductioninGermanyexceededthenumberproducedabroad,butafter2010thisratiowasreversed.Germanautomotivecompaniesaredistin-guishedby theshareofpartsmanufacturedabroad throughout theproduc-tion.ThecompanieswhichmanufacturemostpartsoverseasareVolkswagen(79%),thenAudi(53%),Daimler(40%)andleastofallBMW(36%)22.

TogetherwithChina,CentralEurope isoneof themost important locationsforvehicleproduction.Intotal,throughoutCentralEurope(theV4,RomaniaandSlovenia)33plantsoperate,producing3.6millionvehicles,representing21%ofEUproduction.ThebulkofthosecarsaresoldonthemarketofWestern

21 E.Heymann,ZukunftdesAutomobilstandortsinDeutschland,2014;https://www.dbre-search.de/PROD/DBR_INTERNET_DE-PROD/PROD0000000000333574/Zukunft+des+Au-tomobilstandorts+URDeutschland.PDF

22 W.Olle,InvestitionenfolgendemWachstum:AuswirkungenaufdenAutomobilstandortDeutschland,ChemnitzAutomotiveInstitute,2015;http://cati.institute/wp-content/up-loads/2015/07/URKurzstudie_Juni_15.pdf,p.16.

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Europe,andonlyapproximately700,000arepurchasedbyconsumersinCen-tralEurope23.AmongGermancarcompanies,VolkswagenandAudihavethemostmanufacturingplantsinCentralEurope.OnlyBMWhasnofactoriesintheregion.CentralEuropeoccupiesaspecialpositionintheGermanautomo-tiveindustry.Typically,businessesinthisfieldinvestabroadinordertopro-duce for localmarkets;however, their investments inCentralEuropeare toalargeextentaimedatreducingproductioncosts24.

Asearlyasthe1990s,automotivecompaniesinvestedsignificantresourcesinCentralEurope,as theycouldseetheadvantagesof thesecountries,suchasstablepoliticalframeworks,geographicalproximityandstrongindustrialtra-ditions.Inrecentyears,therehasbeenacleartendencytobuildupplantsinCentralEuropeasakeyelementintheGermancorporations’supplychain,tothecostofcountries insouthernEuropeinparticular. Inrecentyears,AudihasbuiltanewlineofcarsinGyőr,DaimlerafactoryinKecskemét,Volkswa-genanassemblylineofcompactcarsatitsplantinSlovakia,andwillsooncom-pletetheconstructionofafactoryinPoznan.Opel(oneofthelargestAmericancompaniesinGermany,whichhasthreeproductionfacilitiesthere)hasmovedtheproductionofoneofitsmodelsfromRüsselheimtoGliwice.ForGermancompanies,movingfactoriestoCentralEuropewasanopportunitytoreduceproductioncosts,whichwasanimportantcompetitiveadvantage,especiallyintheperiodofglobaleconomicdownturnintheworld,inwhichcustomershaveattachedgreat importancetothepriceofcars.MovingevermoreimportantproductionphasestoCentralEuropecouldalsomotivatecompaniestomovesomeof theirR&Dfacilities tothisregion; itwouldbemostadvantageous ifthoseprocesseswereclosertotheproductionsites.AnadditionalincentiveforGermancompaniestoexpandtheiractivitiesinCentralEuropeisthegrowthintheregionofawholeclusterofautomotivecompanies,whichhavebeenin-vestedinbycompaniessuchasHyundai/KIAintheCzechRepublic,Peugeot/CitroëninSlovakia,SuzukiinHungaryandFiatinPoland.Thankstothepres-enceofthemostimportantglobalautomotiveproducersintheregion,therearenoproblemswiththeavailabilityofsuppliers.Manycompaniesinthesec-torcollaboratewiththeGermanautomotivecompaniesassubcontractors.Forexample,BoschhasfactoriesinHungarywhichproducecarparts.

23 S.Mittelhäuser, FDI alsMotor für die Autoindustrie in Osteuropa, 2015; https://owc.de/2015/07/22/fdi-als-motor-fuer-die-autoindustrie-in-/osteuropa

24 W.Olle,InvestitionenfolgendemWachstum:AuswirkungenaufdenAutomobilstandortDeutschland,ChemnitzAutomotiveInstitute,2015;http://cati.institute/wp-content/up-loads/2015/07/URKurzstudie_Juni_15.pdf,p.4.

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ThethreattomovejobstoCentralEuropeplayedanimportantroleinnegotia-tionswiththetradeunionsintheautomotivesector.Itisworthnotingthatinthelastdecade,Germanyhaskeptitsrisesinlabourcostsrelativelysmall,andthethreatoflosingGermanjobstoCentralEuropehasbeenwidelyreportedinthemedia.Infearoftheseprocesses,theGermantradeunionspresentedfairlylowwagedemands,andpreferredtomakeagreementswithemployerswhichwouldensurethatjobsweresaved.Thebusinessesappliedastrategyofencour-agingcompetitionbetweenplants toproducespecificmodels.ThequestionofthesaleofOpelbyGeneralMotorsin2009alsohadgreatresonanceinGermany;thistransaction(whichintheenddidnotcometofruition)wasdescribedinthepressasthreateningthousandsofjobsinGermany,andevenChancellorAngelaMerkelweighed inon thematter.Manycar companieswithheadquarters inGermanydeliberatelychoseastrategyofconstructingplantsinCentralEuropewhichwereeffectively twinsof theircounterparts inGermany,whichwouldhavebeencapableofquicklytakingovertheproductionofcarmodelsiftherewasnoagreementwiththetradeunionistsfromfactoriesinGermany.

The data shows that the increase in car production in Central Europe hasharmedtheindustryinsouthernEurope.Inrecentyears,manyoftheautomo-tivecompaniesremaininginthosecountrieshavenotbeenfullyutilisingtheircapacity,andItalytodayproduceshalfasmanycarsasSlovakia.Intheperiod2003-12theproductionofcarsineasternEurope(includingRussia)increasedby2.5million;duringthesameperiod,thenumberofcarsproducedintheEU-15fellby3.5million,withthebiggestdeclineintheyears2008-1225.Thispro-cessonlyaffectedGermanytoalimitedextent,whereproductionlevelshaveremainedrelativelystable.

2. The electro-mechanical sector

Theelectro-mechanicalfieldisthesecondmostimportantsectorintheGer-maneconomyaftertheautomotiveindustry.TheV4countriesarequiteimpor-tantsubsidiariesfromthepointofviewofthebiggestGermanelectro-mechan-icalcompanies,andtheirprospectsfordevelopingcooperationarefavourable.Manyofthecompaniesinthis industryarecommittedtoCentralEuropeasasubcontractorforcarcompanies.

25 VerbandderAutomobilindustrie[AutomotiveIndustryAssociation];https://www.vda.de/de

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Germany’selectro-mechanicalcompanies,incontrasttoitsautomobilecompa-nies,decidednottomovetheirproductionofadvancedgoodstoCentralEurope,andhavepreferredtofocusonmanufacturingthemachines’simplestcompo-nentsintheregion26,andkeepingthemostimportantproductionprocessesinGermany.Due to thedemographicdecline inGermany,aswellas the limitedcapacityoftheGermanlabourmarkettotrainasufficientnumberofengineers,theirinterestincreatingbranchesintheV4countriesshouldrise.Itisalsopos-siblethatthecompanies’internalprocesses,suchasaccountingorprocurementservices,couldbefarmedouttoserviceprovidersfromCentralEurope.How-ever,therewouldbeanumberofdifficultieswithcoordinatingthem,suchasmissingdeadlines,orthequalityoftheservicesprovidedbeingtoolow.ThesecompaniescountonthepossibilityofwinningcontractsinCentralEuropeoverthenext fewyears from funding tomodernise theenergy sector, suchasEUstructuralfunds,theEU’sConnectingEuropefund,theEuropeanInvestmentBank, or theHorizon2020programme27.Theactivityof theGermanelectro-mechanicalcompaniesinCentralEuropecanbetracedbacktotheexampleofBosch/Siemens,whichownstheSiemensandBoschcompanies.

Table 2.IncomeandemploymentatselectedbranchesofSiemensin2014

country Turnover (€ billion) number of employees (thousands)

germany 10.9 115

usa 12.9 46.3

china 6.4 32.3

czech republic 0.5 9

france 1.6 6.4

spain 1.0 3.2

russia 1.7 3.1

poland 0.8 1.3

slovakia 0.3 1.3

hungary (no data) - -

source:www.siemens.com

26 StrategischePlanungbringtEinsparungenbis15%;http://www.beschaffung-aktuell.de/home/-/article/16537505/26961417/Strategische-Planung-bringt-Einsparungen-bis-15%25/art_co_INSTANCE_0000/maximized/

27 OsteuropaglänztteilweisemitstarkenWachstumszahlen,2015;http://www.ke-next.de/in-dustrie/osteuropa-glaenzt-mit-teilweise-starken-wachstumszahlen-358.html

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Siemensemploysapproximately343,000employeesworldwide,anditsturno-veris€72billion.TheCzechRepublic,PolandandSlovakiaareresponsiblefor2.2%ofitsturnoverand3.4%ofitsemployment.Thecompany’sbranchesintheregionarenotitslargestandemployrelativelyfewpeople,withtheexceptionoftheCzechRepublic.SofaritdoesnotseemthattheV4countrieswillbethefuture location for Siemensplants, because the companyhas previously onlybeeninterestedinemployingsignificantnumbersofworkersinGermanyandthelargestglobalmarkets,suchasChinaandtheUnitedStates.TheexampleoftheCzechRepublic,however,showsthatSiemens’semploymentinV4countriesmayriseduetothegrowingdemandforengineers,ofwhichtheGermanlabourmarketnolongerprovidesasufficientnumber.ThisisconfirmedbySiemens’soperationssuchastheconstructionin2010inŽilinaofanengineeringcentre,andthecreationofresearchunitsinŁódźandWarsaw.TheV4countriesmayalsobenefitfromSiemens’s interestduetotheirsignificant investment inur-banenergyandmodernisationprojectsfinancedfromEUfunds.Amongothermoves,SiemenshasinrecentyearsparticipatedinthemodernisationofpowerplantsintheCzechRepublic,PolandandSlovakia.Inaddition,thecompanymaymovetoCentralEuropesomeoftheservicesthatwillbeimplementedthereforotherglobalbranchesasawhole,asevidencedby the transferof someof thecompany’saccountingtasksforEuropetoSlovakiain2011.AnothernewtrendinSiemens’sactivityinCentralEuropeisitsjointinvolvementwithPolishproduc-ersinacquiringcontractsabroad,includingRussia.

Table 3.IncomeandemploymentofselectedBoschaffiliatesin2014

country Turnover (€ billion) number of employees (thousands)

germany 49 105.5

china 7.2 54.5

usa 9.1 16.6

hungary 2.7 10.4

france 2.3 7.7

czech republic 1.6 7.7

poland 0.6 4.2

russia 0.7 3.8

slovakia 0.3 1

source:www.bosch.com

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InthecaseofBosch,CentralEuropehasbeenquiteasignificantplaceforin-vestment. The company’s branches in the Czech Republic andHungary areamongthelargestintheworldintermsofemployment.Boschemploysalargenumberofworkers,althoughtheygeneratearelativelysmallturnover,whichmeansthatproductsaremanufacturedheretobeexportedontoothermar-kets.AsinthecaseofSiemens,Boschmayalsobeexpectedtofurtherincreaseitsemployment,especiallyofengineers,inplantslocatedintheV4countries.AnimportanteventinEuropefortheBosch-SiemensGroupwastheacquisi-tionin2013ofZelmer,anappliancesmanufacturerinPoland.ThemainreasonfortheacquisitionwasprobablytoincreaseproductioninEuropeinthefaceofincreasingcosts.

3. The logistics sector

Oneoftherelativelylittle-knownfactsrelatedtotheaccessionoftheCentralEuropeancountriestotheEuropeanUnionwastheremarkabledevelopmentoftheGermanlogisticsindustry.Inrecentyearsithasgrownmuchfasterthantheeconomyasawhole;intheperiod2003-8,revenueincreasedby4.6%an-nually,whereastheaveragegrowthhasslowedto3.4%overrecentyears.Thegrowingcomplexityofthemanufactureofproductsandthedistributionofthestagesoftheprocessamongdifferentregionsmeansthatthelogisticsindustryhasgainedmorethanaverage.Animportantreasonforthis,inadditiontothehighgrowthofglobaltrade,wasGermany’sadoptionafterEUenlargementofthepositionas thecentral logisticshub,an important intermediatepoint intradebetweenEastandWest,especiallyinthefieldsofrailandmaritimetrans-port.Thelogisticscompanieshavebenefited,aboveall,fromthetransportofcomponentsandrawmaterialsfromtheemergingeconomiestothefactoriesofGermancompaniesinCentralEurope,sotheycancashinoncemorefromthetransportoffinishedproductsgoingintheoppositedirection,ortoeasternEurope.ManyGermanlogisticscompanieshavedecidedtoopenbranchesinthecountriesofcentralandeasternEurope,asthiswaspartofanaturalpro-cessofbringingtheservicesfortheirclientsfromtheGermanautomotiveandelectro-mechanical industries.Given thesephenomena,we can see that theGermanlogisticsindustryhasbeenamajorbeneficiaryofthedevelopmentofinfrastructureinCentralEuropefinancedbytheEU’scohesionpolicy.

4. The energy sector

GermanenergycompaniesarestillimportantplayersontheV4markets,al-thoughinrecenttimestheirpositionhasbeguntowane.TheGermanenergy

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transformation,whichacceleratedin2011afterthedisasteratthepowerplantin Fukushima, forced the closure of the oldest nuclear power stations andtheirgradualphasingoutfromthemarketby2023,thegrantingofsignificantfundingforrenewableenergy,andfavouringitsaccess to thenetwork.ThisoverlapswiththenegativeeconomicsituationinEurope,wherethedemandforelectricityhasnoticeablydropped;thishasreducedtheprofitsofGermancompanies,whichinadditionhavetocontendwithhighlevelsofdebt.TheseprocesseshaveunderminedthepositionandprofitabilityofleadingGermancompanies,suchasE.ONandRWE,whosemainsourceofincomewasthepro-ductionofenergyfromconventionalsources,namelynuclearpower,gasandcoal28.Duetothesecompanies’difficultfinancialsituation,CentralEuropebe-cameasourceforthemtogeneratefundsbysellingpartoftheirassets.Thedifficultfinancialsituationalsomeanttheydidnothavetheresourcestoin-creasetheirinvestmentsintheregion,andhavebeenunabletoimprovetheirmarketsituation.Theyhavemadeinvestmentsinrecentyearsonlytomakesavings.Forexample,RWEdecidedtomovesomejobsfromGermanytoPolandaspartofitsfinancialsavings29,openingajointservicecentreinKrakówin2013,wherefinancialsettlementandhumanresourcesmanagementarecar-riedout.Initially100specialistswereemployedthere,whichwasassociatedwithredundancies inGermany.E.ON, likeRWE,decided to saveonstaffingcostsbymovingpartofthecompany’sactivitytoCluj-NapocainRomania.Ger-manenergycompanieshavealsostruggledwithdifficultiesinHungary;theywereforcedtoselltheirassetsinthegassectortotheHungariangovernment,andwerealsostrickenbythefinancialeffectsoftheHungariangovernmentbodies’decisiontolowerenergyandgaspricesby20%30.DespitetheGermanenergycompanies’conflictwiththegovernmentinBudapest,however,theyhaveretainedtheirmostimportantassetsontheHungarianmarket.

FromananalysisofthesituationoftheGermanenergycompanies,itappearsthattheirpositioninCentralEuropehasweakenedinrecentyears.RWEhasfocuseditsmainventureinCentralEuropeontheholdingcompanyRWEEast,whichinadditiontotheV4countriesincludesCroatia,RomaniaandTurkey.

28 R.Bajczuk,K.Popławski,Niemcy:Ukrytekosztywyjściazatomu[Thehiddencostsofditch-ingnuclearpower], Komentarze OSW,25June2014;http://www.osw.waw.pl/pl/publikacje/komentarze-osw/2014-06-25/niemcy-ukryte-koszty-wyjscia-z-atomu

29 RWEverlagertStellennachKrakau,Die Welt,15May2013;http://www.welt.de/newstick-er/dpa_nt/infoline_nt/wirtschaft_nt/article116214659/RWE-verlagert-Stellen-nach-Krakau.html

30 RWEandE.ONsellingupinHungary,28March2013;http://www.powerengineeringint.com/articles/2013/03/RWE-and-EON-selling-up-in-Hungary.html

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The V4 countries, however, yield the predominant part of its revenues andprofits.IntheCzechRepublic,RWEgainsthemostrevenuefromamongtheV4countries.Itisthefifthlargestsupplierofenergythere(2TWh)andthelarg-estsupplierofgas(38TWh);italsoownssomepowerplants.Thecompanyalsocontrols88%ofgasnetworksinthiscountry(withatotalpipelinelengthof64,000km).IntheCzechRepublic,RWEhassolditscompanyNet4Gas,whichsoldandstoredgasfromtheAllianzandBorealisconsortium,aswellas35%ofitssharesintheelectricitynetworkcompanyMacquarie.InPoland,RWEis one of the largest foreign investors; it is thefifth largest energy supplier(6TWh/year),andenteredthegassectorin2014.InPoland,RWEhasnumer-ouswindfarms,andviathecompanyRWEStoenOperatoritcontrols1.8%ofthe country’s transmission networks (15,000 km). One feature distinguish-ingRWE’sactivityinPolandfromtheotherV4countriesistheestablishmentthereofsixwindfarmsthroughitscompanyRWEInnogy,whichmainlyoper-atesinWesternEurope31.InSlovakia,RWEisthethirdlargestenergysupplier(3TWh)andthesecondlargestsupplierofgas(13TWh).Thecompanycontrols22.8%ofenergynetworks inSlovakia (witha lengthof21,000km). InHun-gary,RWEisthesecondlargestenergysupplier(10TWh),andisthemajorityshareholderofseveralbrown-coalpowerplantsinthiscountry.Thecompanynolongerhassharesinthegassector,asitsolditsminoritysharepackagestotheTIGAZbusinesses.RWEhassolditssharesintheBudapestWaterworks.In2014,RWEsoldtheFőgázcompanytothestate-ownedMVMcompany.

AsinthecaseoftheRWE,E.ONwasalsoforcedtosellmanyofitsimportantassets inCentralEurope.E.ONbegan itsoperation In theCzechRepublic in2004.AfterthederegulationoftheCzechmarket,thecompanyacquiredasig-nificantstakeinitthankstoprivatisation.Itcurrentlyholds19.5%oftheshares(10.2TWhofenergy,secondafterthestate-ownedČEZ)ontheinternalelec-tricitymarket,and7.5%inthegassector(6.6TWh).Thecompanyranksamongthe largest foreign investors in the Czech Republic, employing 2500 work-ers.E.ONalsoowns27.6%oftheCzechRepublic’selectricitynetworks(witha lengthof66,000km)and12.1%ofthegasnetworks(witha lengthof8800km). Interestingly, in2015E.ONsold its interests inpowerplants in Italy totheCzechfirmEPH.InPoland,E.ON’sassetsareminor;throughthecompanyE.ONEdisEnergy,itholdssharesinthedistributionofheatingforcitiessuchasSkarżysko-Kamienna,SzczecinandWarsaw.Inaddition,thecompanyhasbuiltfivewindfarmsinPoland,generatingatotalof99MW,andplanstobuild

31 RWEInnogygenerationdata;http://rwe-renewableslive.com/#/map/EU/PP1

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twomore.E.ONbeganoperatinginSlovakiain2002,andhasa49%stakeinthelargestenergydistributorZSE(therestisownedbythestatefund).E.ONsells21.9%ofSlovakia’senergy(6TWh)and1.4%ofitsgas(0.8TWh),controls40.2%of theenergynetwork (length37,000km), andalsohasonegas-fuelledandfourbiogas-fuelledpowerplants in thecountry.Thecompanyemploys 1800workersinSlovakia.In2013,E.ONandGDFSuezsolditssharesintheSlovakgascompanytotheCzechcompanyEPH,whichithadacquiredintheprocessofprivatizationin2002,andwhichemploys4000workers.In2014,thesamecompanysolditssharesingasreservoirsinSlovakia.InHungary,E.ONisoneofthelargestcompanies,providingclientswith33.2%ofthecountry’senergy(35.2TWh)and10.4%ofitsgas(9.1TWh).Thecompanyalsoowns52%ofHun-gary’senergydistributionnetworks(84,000km)and22%ofitsgasnetworks(18,000km).Inrecentyears,E.ONhassoldpartofitsstakeontheHungarianmarket.In2013,itsoldtheFöldgázcompany(whichdistributesandstoresgas)tothestatecompanyintheMVMgroupfor€1.1billion;ithadacquiredFöldgázintheprivatisationprocessin2004for€2.1billion.

5. The retail sector

GermancompaniesfromtheretailsectorhavebeensteadilyexpandingtheirpresenceintheV4countries,whichconstituteanimportantmarketforthem.Inrecentyears,theexpansionoftheretailtradehasarousedgreatcontroversyinalltheV4countries;theCzechRepublic,SlovakiaandHungaryhavebegunattemptingtoimposecertainrestrictionsontheindustry.However,thesenewrestrictionshavenotdiscouragedcompaniesfromGermanyfromincreasingtheirinvestmentintheregion.ThreefinancialgroupsmaybenamedasthemajorGermanplayerspresentintheV4countries:SchwarzAG(includingtheLidlandKauflandstores),MetroAG(MakroCash&Carry,MediaMarktandSaturn),andtheretailchainRossmann.

Table 4.ThenumberofLidlstoresinselectedcountries

country lidl Kaufland

germany 3300 640

france 1400

united Kingdom 568

spain 530

poland 525 190

Italy 511

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country lidl Kaufland

netherlands 400

belgium 290

czech republic 250 120

romania 148

slovakia 121 50

hungary 116

source:Lidl,https://de.wikipedia.org/wiki/Lidl#cite_note-52

In2015SchwarzAGovertookCarrefouras the largestretailcompanyinEu-rope.CentralEuropehasplayedanimportantroleinthecompany’sdevelop-ment,becauseitislocatedinalargenumberofestablishments(about10%oftheLidlbranchesworldwideand30%oftheKauflandoutlets32).Inviewofthefavourable prospects for growth in the V4 countries, the company plans toboostitsinvestmentsthere.In2013,theV4countriesgeneratedabout10%ofLidl’stotalsales(€54billion)33.InPoland,Lidl’sshopssoldgoodswithavalueof€2.7billioneuros;intheCzechRepublic€1.1billion,inSlovakia€800millioneuros,andinHungary€700million34.

It ispossiblethatLidl’s lowsalesinHungaryresultedfromBudapest’spolicyofblockingtheexpansionofforeignretailers.In2015thecountry’sauthoritiesre-jectedLidl’sappealtobuild28newsupermarkets35.ForeignretailchainshavealsocriticisedthedecisionoftheHungariangovernmenttobantradingonSunday,aswellasthethreattoclosesupermarketswhichhaveshownlossesfortwoconsecu-tiveyears.Inpreviousyearsthegovernmentimposeda‘crisistax’ontheforeignchains(between2010and2013),afeeforofficialmonitoringoffoodstuffs(intheformofataxonthesaleoffoodproducts),aswellasataxonadvertisingrevenues.Hungarywasnottheonlycountrywhichtriedtoimposegreaterrequirementsonforeignretailnetworks;asimilardebatetookplaceinSlovakia.Itwasreportedtherethatforeigncommercialnetworksonlysold45%localproductsinhypermar-ketsand51%insupermarkets,whileinSlovakchainsthesefiguresrangedfrom

32 FromKaufland’swebpagesinindividualcountries.33 Lidltoinvest9billioninCzech,5December2015;http://www.internationalsupermarket-

news.com/news/2130634 Romania,fourthmarketintheregionforLidlbasedonsales,11September2015;http://www.

romania-insider.com/romania-fourth-market-region-lidl-sales/155357/35 Since2012alawhasbeeninforceinHungary(theso-calledPlaza-Stoplaw)requiringaper-

mitfortheconstructionofanystoregreaterthan400m²inarea.

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57%to67%.InLidlstoresonly19%oftheproductscamefromSlovakia36.Asare-sult,theSlovakgovernmentintroducednewregulationsconcerningtherelationsbetween foreignretailnetworksandsuppliers.All additional feespaidbypro-ducersofgoodsfordisplayingtheirgoodsontheshelveswerewaived;thesaleoffoodproductsbelowthecostofproductionwasprohibited(apartfromafewex-ceptions);theperiodwithinwhichsuppliersarerequiredtoguaranteetheretailnetworksafixedpricefortheirgoodswaslimitedtothreemonths;andpaymentdeadlinestosupplierswerereducedto45days37.Verysimilarprovisionswerein-troducedbytheCzechgovernment,whichalsolimitedthepaymentdeadlinestosuppliers(to30days),bannedthesaleoffoodproductsbelowthecostofproduc-tion,andimposednewresponsibilitiesontheforeignretailnetworksrelatedtotheissueofcostsanddisplayofproductsinshops38.Againstthisbackground,PolandstandsoutfromtherestoftheV4countries,astheretherulesgoverningrelationsbetweentheforeignretailnetworksandthesuppliersaredefinitelymilder.Oneofthefewregulationsrestrictingabuseonthepartoftheretailnetworkswastheintroductionin2013ofanobligationtosettlepaymentfordeliverywithin30daysorpaystatutoryinterestforexceedingthetimelimit.

InspiteoftherestrictionsimposedontheretailtradeintheCzechRepublic,SlovakiaandHungary,noneofthecommercialnetworkshaswithdrawnfromthosecountries.TheattractivenessoftheregionhasalsobeenconfirmedbyLidl,whichin2014announcedsignificantrisesinexpenditureoninvestmentsinallfouroftheV4countries.

Inrecentyearscontroversywasarousedbyareportaboutthesupportprovid-edtotheSchwarzgroupbytheEuropeanBankforReconstructionandDevel-opment39.ThecompanyallegedlyreceiveUS$900millionofpublicsupport,intheformoflow-interestlong-termloansforexpansioninCentralEurope.Bankjustifiedthissupportbyadesiretocreatejobsandoutletsforlocalproducers,aswellasofferinghigh-qualityproductsforconsumers.

36 VertriebundHandelsvertretersuche-Slowakei,2016;https://www.gtai.de/GTAI/Naviga-tion/DE/Trade/Maerkte/Geschaeftspraxis/vertrieb-und-handelsvertretersuche,t=vertrieb-und-handelsvertretersuche-slowakei,did=1399410.

37 Ibid.38 VertriebundHandelsvertretersuche:TschechischeRepublik,2012;https://www.halle.ihk.

de/blob/halihk24/international/Aktuelles/downloads/626060/3844a27061455b2aa5272434e5985248/Vertrieb_und_Handelsvertretersuche_Tschechien_gtai-data.pdf,p.5.

39 Lidlhasreceivedalmost$1bninpublicdevelopmentfunding,Guardian,2June2015;http://www.theguardian.com/business/2015/jul/02/lidl-1bn-public-development-funding-super-market-world-bank-eastern-europe

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Table 5.ThenumberofshopsandemploymentfiguresinindividualbranchesofMetroAG

country number of shops employment (thousands)

germany 951 87

Italy 166 10

russia 136 23

poland 112 11

spain 109 8

france 93 8

china 78 12

Turkey 67 7

romania 36 6

hungary 34 4

ukraine 33 4

czech republic 13 3

slovakia 6 1

source:http://www.metrogroup.de

FortheMetroAGgroup,CentralEuropeisamarketofsimilarimportanceasitisfortheSchwarzgroup.IntheV4countries,Metroowns8%oftheshopsandemploys8%oftheworkers.Thegroup’sinvolvementintheregionhasde-creasedinrecentyears,afteritsolditshypermarkets,inPolandamongoth-ers,toAuchan.StablegrowthprospectsinCentralEuropewereimportantforMetroasitstabilizeditsresults,whichinrecentyearshavebeenstronglyim-pactednegativelybythesituationinGreece,RussiaandUkraine.

Table 6.ThenumberofRossmannshopsinindividualcountries

country number of shops

germany 1930

poland 1000

czech republic 124

hungary 180

Turkey 50

albania 8

source:http://www.rossmann.de

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Rossmann is a different case from the previously analysed companies, be-causeitsforeignexpansionhasfocusedalmostexclusivelyonCentralEurope.Thecompanyhasaturnoverof€7.9billion,26%ofwhichwasmainly intheCzechRepublic,PolandandHungary.Giventhat96%ofitsshopsabroadwerebrancheslocatedintheV4countries,provisionshouldbemadethattheygen-eratealmost€2billioninsales.Foreignsalesgrewatarateof14%,whichwastwiceashighasgrowthinGermany.Rossmannemploysabout17,500workers(37%ofallemployees)intheV4states.

6. The banking sector

TheGermanbankingsectordecidednot toparticipate substantially inCen-tralEuropeinthe1990s;andthissituationhasnotchangedsincetheV4coun-triesjoinedtheEU.ThedominantshareholdersinbanksinCentralEuropeareinvestors fromAustria, Belgium and Italy. Overall, foreign banksmaintainadominantmarketpositioninalltheV4countries;theyownalmost100%ofassets inSlovakia, 87%of assets inHungary,82%of theassets in theCzechRepublicand62%ofassets inPoland40.Onlysmall sharesof theV4marketshavegonetoGermany:about10%inPoland,9%inHungaryandaround5%inSlovakia41.FormajorGermanbanks,however,thePolishmarketseemstobeanespeciallyimportantdivisionontheglobalscale.

ThebiggestGermanbank,DeutscheBank,has161foreignaffiliatesinPoland(themostintheworldafterItalyandSpain)42.Polandisthusoneofitskeymar-ketsfortraditionalbankingactivities,especiallyinthefieldofmortgageandcorporatelending,aswellasinfinancialadvice.

Polandisalsoinfifthplacegloballyintermsofthevalueofloansgranted(aftertheNetherlands,theUK,theUSAandChina).Moreover,Polandhasbeenamar-ketincreditexpansionforDeutscheBankinrecentyears,whenDBreducedthevalueofloansgrantedinanumberofeuro-zonecountries,suchasSpain,ItalyandPortugal,aswellasinothercountriesoftheworld,suchasIndia.

40 TheCEEBankingSectorReport,May2014;http://www.rbinternational.com/eBusiness/ser-vices/resources/media/829189266947841370-on-988671613168380133-1UR-2-EN.pdf

41 TheCEEBankingSectorReport,June2015;http://www.rbinternational.com/eBusiness/01_template1/829189266947841370-829189148030934104-1079368060623981396-NA-2-EN.html

42 DeutscheBankGeschäftsbericht,2013;https://www.bundesbank.de/Redaktion/DE/Down-loads/Veroeffent lichungen/Geschaeftsberichte/2013_geschaeftsbericht.pdf ?__blob=publicationFile

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Table 7.Financialdata(in€million)andemploymentinthevariousbranchesofCommerzbank

country revenue profit before taxes Taxes employment

germany 7392 616 221 38,078

poland 984 441 85 7747

united Kingdom 938 385 19 1369

luxembourg 392 307 12 556

usa 222 127 51 460

china 109 61 7 231

singapore 100 38 -4 342

russia 67 49 10 144

netherlands 38 29 5 40

france 40 17 11 86

other 249 85 18 807

source:CommerzbankGeschäftsbericht2014;https://www.commerzbank.com/media/aktionaere/se-rvice/archive/konzern/2015_2/00_CAA_Geschaeftsbericht_2014_Konzern_DE.pdf

PolandisakeymarketforCommerzbank,secondonlytoGermany.Itisworthmentioning that this financial institution is 15% controlled by the Germanstate,which in2009purchasedapartof the shares in the company to savethemfromlosing liquidity.Commerzbankhas222branchesinPoland,26 intheCzechRepublic,9inSlovakiaand7inHungary43.mBank,abranchofCom-merzbank,isthethirdlargestbankinPoland;itsupports36.4%totalclientsofCommerzbank(4millionprivatecustomers inPoland,comparedtoabout3.2millioninGermany)andemploys19%ofallCommerzbankemployees(7700,comparedto38,000inGermany).ThecompanyoperatesonthePolishmarketunderthebrandnameofmBank.In2014thebranchinPolandbroughtCom-merzbank€440millionofprofits,whenitsmarketinGermanygenerated€616millioninprofit.InitsreportsthebankstressesthatthemarketsituationinPolandhasbeenbetterinrecentyearsthanintheeuro-zone.Despitethis,thebankhasmostrecentlyimplementedausteritymeasuresinordertoincreasethescaleofitsprofitsonthePolishmarket.ThebusinessmodelithasoperatedinPolandhasbeencopiedtotheCzechandSlovakmarkets,wherebranchesofmBankhavealsobeenopened,buttheactivityinthosecountriesstillconsti-tutesonlyasmallpartofthebank’sactivity.

43 The CEE Banking Sector Report, June 2015; http://www.rbinternational.com/eBusiness/01_template1/829189266947841370-829189148030934104-1079368060623981396-NA-2-EN.html,p.55.

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