Policy proposals 5.4 MAXIMISE ALL RESOURCES AVAILABLE, ESPECIALLY AS PART OF THE GREEN TRANSITION EU-CEE countries are entitled to an enviable amount of finan­cial support relative to non-EU countries in CESEE. In recent years, Hungary has netted around 4 percent of its gross na­tional income per year from the EU budget. Some of the cur­rent funds are tied to the pandemic and, therefore, will only last for a couple of years, but structural and cohesion funds are more permanent. Significant resources are also being made as a part of the green transition in the EU. EU-CEE should: – Understand where they are in the transition: EU­CEE countries are behind in some ways but are not ex­treme laggards. The divide is not necessarily between east and west or old and new, but rather between a handful of advanced countries in Northwest Europe and the rest, including Southern Europe. Therefore, EU-CEE is not particularly disadvantaged in the EU context. – Focus on the energy transition: The majority of GHG emissions can be attributed to the energy sector. Tran­sitioning from coal and improving the energy efficiency of existing installations are sensitive topics. Programmes such as the Just Transition Fund should be extended, and more help should be offered to compensate the costs of switching to cleaner energy. – Don’t miss the bandwagon: As we showed above, even in recent years, the EU commitment to the green transition has strengthened, and huge resources have been made available. Especially for EU-CEE, this is not necessarily a threat but an opportunity, with material potential growth in markets and jobs as a positive result. It will be better to focus on making the most of these opportunities rather than trying to resist. Governments in EU-CEE should identify companies, including SMEs, with high potential for innovation, work to create R&I capacities in large firms and adjust higher education to create expertise in the green economy. Special attention should be put on identifying sectors where there is »leap-frogging« potential. This should be done as soon as possible to avoid divergence between member states. – Develop expertise early to prevent the emergence of»green factory economies«: EU-CEE must try to avoid the functionalist specialisation trap from emerging in the green economy. A more active and domestic-ori­ented industrial policy, as part of a more sophisticated NIS, would certainly help the region get closer to the fron­tier in select technological niches. The region’s apparent strength in pharmaceuticals may point in this direction. 5.5 TURN WEAKNESSES INTO STRENGTHS The demographic challenges facing EU-CEE are undoubted­ly tough, and it is fairly easy to spin this into a negative sce­nario for the region. As Holmes and Krastev(2020) write, »why should a young Pole or Hungarian wait for his country to become one day like Germany, when he can start work­ing and raising a family in Germany tomorrow?« The fact that mostly younger and better-educated people leave both reinforces the negative impact on the economy of outward migration and reduces the share of people in the population likely to vote for non-populist parties. EU-CEE countries have four main options to counter these challenges: in­crease a) productivity(relying heavily on automation), b) im­migration, c) activity rates, or d) fertility(Leitner et al. 2019). All of these are already being tried to a certain extent across EU-CEE. The first three are feasible solutions to this prob­lem. However, our contention is that automation is by far the most promising. There is a lot of alarmism about automation in EU-CEE; specifically, people fear that many jobs will disappear. A 2019 study by the OECD found that around two-thirds of jobs in Slovakia are at either high or significant risk of au­tomation(OECD 2019a). However, combining the informa­tion about demographic and automation trends, it is possi­ble to create a much more positive narrative. In a sense, negative demographic trends can even stimulate automa­tion, as a shortage of workers leads to tighter labour mar­kets, higher wages, and more incentives for firms and the public sector to invest in labour-saving technologies. More­over, automation is not only a solution to demographic de­cline but can be much more ambitious in forming a core el­ement of much more sustained per capita income conver­gence with Western Europe, and therefore part of a gener­al improvement in productivity and living standards in the region. However, ensuring that the outcomes are socially and economically positive will require governments to: – Encourage automation via higher minimum wages: The process of automation cannot be left to demograph­ic and market forces alone. Scandinavia offers a powerful and practical example of how higher minimum wages discourage the extensive use of low productivity labour and force firms to automate these tasks. In his recent book The Economics of Belonging, Martin Sandbu uses the illustrative example of comparing car washing be­tween the US and Norway(Sandbu 2020). In the US, this is done by hand, whereas in Norway, car washing has been automated since the 1970s. In the US, wages are so low that it still makes sense to have this extremely low productivity job carried out by humans. In Norway, a high minimum wage means that it makes no sense for a human to wash a car. Firms simply automate this process. – Target a minimum wage at a relatively high share of the median wage: This will make it highly unattrac­tive to keep paying people to do very low productivity work. This is clearly an issue in EU-CEE at present; Eu­rostat data show that over 25 percent of workers in Lat­via earn less than two-thirds of the median wage, and over 20 percent do in Romania, Lithuania, Poland, Cro­atia, and Estonia. Meanwhile in Sweden, the share is 3.6 percent. Maybe surprisingly, the UK(a country with many of the same issues as those in EU-CEE in this re­53