IntroductioN 1.2 WHAT ROLE SHOULD THE EU AND GERMANY PLAY? The model of the last 30 years has tended to create econ­omies in EU-CEE that, relative to GDP, have both a smaller state and higher level of exports than in Western Europe. This means that domestic demand plays a relatively less im­portant role as a growth driver and that exports are rela­tively more important. Given that EU-CEE’s exports tend to be strongly weighted towards Western Europe, the level of growth in the region’s big economies is itself an important source of demand and driver of economic development in EU-CEE. These links encompass trade in goods and servic­es, tourism, investment, remittances, and other capital flows. ing an imitator is often a psychological drama. But it be­comes a shipwreck if you realise midstream that the mod­el you have started to imitate is about to capsize and sink« (Holmes/ Krastev 2020). This has led to speculation that the relationship between at least some EU-CEE countries and the EU is on course for a fundamental break(Wanat/ Cienski 2020). We believe that this speculation is unfounded. Actually leaving the EU is not a realistic option for the eleven EU-CEE countries and would certainly not be in their interests. Whatever griev­ances EU-CEE countries may have with Brussels, it is ex­tremely hard to make a convincing case for an alternative. As we will show in this study, EU-CEE countries derive a multitude of positives from EU membership. In the period since the 2008 global financial crisis in par­ticular, growth rates in most of the pre-2004 member states have slowed. From 2010–19, real GDP growth aver­aged 1.5 percent per year in the EU-15. This compares with an average of 2.5 percent in the ten years leading up to 2007. This slowdown reflects particularly deep and long-lasting downturns after the 2008 crisis in some parts of the EU-15, such as Greece(where real GDP growth aver­aged –2 percent per year in 2010–19), Italy(0.3 percent per year) and Portugal(0.8 percent per year). However, it also reflects the widespread austerity bias over this period across the EU(Heimberger 2016). Given the high level of economic integration between pre- and post-2004 mem­ber states, EU-CEE risks also becoming trapped in this low growth trajectory. A consideration of the EU policy frame­work, and the ways in which a change here is possible and could contribute to EU-CEE growth performance, will also be an important part of this study. The rest of this paper is structured as follows. In Chapter 2, we look at the historical context of the EU-CEE growth model and explain how this historical legacy interacts with present challenges to further convergence that the region faces. In Chapter 3, we look at six of the megatrends in more detail. In Chapter 4, we bring together parts 2 and 3 in a SWOT analysis to identify EU-CEE’s strengths, weak­nesses, opportunities, and threats explicitly. In Chapter 5, we give our policy proposals, and in Chapter 6, our conclu­sions. 1.3 IS THERE AN ALTERNATIVE OUTSIDE THE EU? In EU-CEE, just like in Western Europe, the 2008 crisis and its aftermath had important political effects. One of these seems to have been that it exposed a feeling of a sec­ond-class relationship between EU-CEE and older EU mem­ber states. Tooze(2018) argues that the 2008 crisis funda­mentally altered EU-CEE countries’ relationships with Western Europe by explicitly demonstrating that rich parts of Europe would only support the states selectively. 7 Holm­es and Krastev(2020) argue that»2008 had such a shatter­ing ideological, not merely economic, effect.« They sug­gest that 2008 not only demonstrated a lack of solidarity with EU-CEE in Western Europe but also broke the idea that Western Europe was something to be emulated:»be­7 Whereas Sweden and Denmark received swap lines from the ECB, »Poland and Hungary were fobbed off with repo arrangements that treated them no better than stressed commercial banks in need of extra liquidity«(Tooze 2018). Hungary had to go to the IMF, naturally with a lot of austerity:»In 2010 the right-wing Fidesz part would reap the benefits«(Tooze 2018). Meanwhile, Germany shot down Austrian and Hungarian initiatives for a common support fund.»Not our problem,« Peer Steinbrueck announced. 7