WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

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By Maeve Mahoney & Andreas Knapp

On 31 May, the Vienna Institute for International Economic Studies (wiiw) hosted its annual Spring Seminar, which welcomed scholars, journalists and speakers from around the world. This seminar focused on Ukraine and the war’s adverse effects on Europe and the Ukrainian people. The next day, on 1 June, wiiw hosted a celebratory event to mark its fiftieth anniversary. This included presentations from economic partner institutes in Central, Eastern and Southeastern European (CESEE) countries about their recent work. The event will be covered in a forthcoming article.

The Spring Seminar 2023 started with a welcome address by the wiiw president, Hannes Swoboda, which emphasised the changing nature of the relationship between Europe and Russia, as the attacks on Ukraine continue.

Welcome address by Hannes Swoboda

Keynote by Misha Glenny – Europe after the invasion of Ukraine

The welcome address was followed by a keynote address by Misha Glenny, journalist and rector at the Institute for Human Sciences (Institut für die Wissenschaften vom Menschen – IWM), who specialises in CESEE.

The address emphasised the need to deal with the Russo-Ukrainian war in terms of issues that the European Union faces, such as migration, the green transition and the recent arrival of artificial intelligence, which poses a threat to middle-class jobs. Glenny highlighted the notion that, in all these issues, there are too many imponderables for us to predict the future; but regardless, the EU would be better off forging closer relations with other countries across the globe.

Panel 1: The future of European integration in the wake of the invasion of Ukraine

The first panel was composed of several experts in European economic relations: Debora Revoltella, director of the Economics Department at the European Investment Bank; Maria Demertzis, senior fellow at Bruegel in Brussels; Cengiz Günay, director of the Austrian Institute for International Economic Affairs; and Florian Bieber, professor of Southeast European History and Politics at the University of Graz. The panel was moderated by Michael Landesmann, senior research associate and former scientific director of wiiw. It used the Russo-Ukraine war to frame its discussion of the European Union’s intrastate and interstate positioning and affairs. The panellists discussed issues that the EU will face in the future: international competitiveness and the position of its economies in an increasingly competitive international environment, which is characterised more and more by protectionism and the rivalry between the US and China.

The international competitiveness of EU countries was severely damaged by the energy price shock caused by the war in Ukraine. However, the European countries have adapted remarkably well to the new situation and have reduced gas imports from Russia much faster than expected, while imposing an embargo on Russian oil. The energy shock has helped fuel the green transition, with renewable energy gaining in importance. The panel then shifted onto the topic of EU enlargement, with regard to Ukraine. The historical precedent of the Western Balkans contributes to the EU’s cautious attitude towards enlargement: despite far-reaching promises from the EU, only one state in the region has been admitted over the past decade (Croatia).

According to some participants in the discussion, Ukraine differs from other Eastern European states in that it is quite adamant about its desire to join. While the moral argument for admitting Ukraine to the EU is compelling, it is countered by political and economic considerations, as well as by enlargement fatigue in some key member states. Panellists suggested that, on the question of the admission of Ukraine, the EU is largely just paying lip service to the idea – not unlike the situation with the Western Balkans, which over time have lost faith in the EU. The panel closed with a discussion of Europe’s identity crisis and of its strategy regarding the war in Ukraine.

The world’s governments are increasingly falling into disarray and becoming more authoritarian, and the EU has failed to come up with an effective foreign policy to respond to this. Within the EU itself, right-wing nationalism is becoming more pervasive – something that jeopardises European unity at a time when that is more important than ever before. Although the internal and external threats to liberalism in the EU will present major challenges over the coming decades, they also provide an opportunity for the EU to respond effectively and to emerge in a strong global position.

The reconstruction of Ukraine – presentations from wiiw and Bertelsmann Stiftung

Our seminar next welcomed several pundits on the CESEE region, who presented research and forecasts on the reconstruction of Ukraine. They included Miriam Kosmehl, senior expert for Eastern Europe and EU Neighbourhood from Bertelsmann Stiftung; Richard Grieveson, deputy director of wiiw; Olga Pindyuk, Ukraine country expert at wiiw; and Veronika Movchan, academic director of the Institute for Economic Research and Policy Consulting in Kyiv.

The presentations highlighted the changes in Ukraine’s recent past, in order to frame the discussion about the future of Ukraine, the war and how it will affect Europe. For example, in the past 30 years, Ukraine has seen an inexorable rise in the number of its citizens who want a democratic, European society. Together, they form a community of people who demand that the government protect their civil rights, which boosts their sense of European identity. Panellists asserted that Ukraine is proving resilient in the face of Russian aggression, in terms of both its spirit and its economy generally. Despite Ukraine’s progress on the battlefield, a military victory over Russia would not remove Moscow as a threat to the European project. Some panellists claimed that this geopolitical consideration offers a strong incentive for Ukraine to be granted EU membership, given its capable army, its military experience and its vast territory. However, even before it is admitted to the EU, Brussels should support Ukraine through such economic measures as providing it with complete access to European markets.

Keynote by Daria Kaleniuk – Reforming Ukraine during the war and after military victory

Daria Kaleniuk, executive director of the Anti-Corruption Action Center in Kyiv, delivered a passionate keynote address about the future of Ukraine after the war – which, Kaleniuk is convinced, will end in Ukrainian victory. She discussed the causes of Russia’s aggression, which began when Ukraine launched anti-corruption initiatives that threatened Russia’s ability to control the Ukrainian government. Despite Russia’s goal of weakening Ukraine’s sovereignty, the High Anti-Corruption Court is the only court to have remained functioning since April 2022; as she pointed out, its values constitute a big part of Ukrainian identity. Ukrainians, in Kaleniuk’s opinion, must therefore continue even during the war to address such internal problems as corruption in the government, so that when its military victory comes, the country is ready to adjust. An integral part of reform in Ukraine after the war will be the payment by Russia of reparations that will allow Ukraine to rebuild itself. Furthermore, Ukraine envisages both global recognition of Russia’s wrongs and its own admission to the EU, as it recovers from the war. Kaleniuk offered some compelling arguments for Ukraine’s admission, including its unique defence capabilities and its experience of tackling government corruption.

Panel 2: Time for new solutions to tackle inflation in Europe?

The second panel of the Spring Seminar 2023 was held in conjunction with the Financial Times and hosted several experts on inflation in the euro area. These included Julia Wörz, head of the CESEE Analysis Unit at Österreichische Nationalbank; Helene Schuberth, chief economist at the Austrian Trade Union Federation; Sandra Švaljek, deputy governor of the Croatian National Bank; and Phillip Heimberger, an economist at wiiw who specialises in macroeconomic policy. It was chaired by Claire Jones, business editor of the Financial Times.

The panel first discussed the high inflation rates seen in Europe since mid-2021. Although inflation does seem to have peaked at the end of 2022, the panellists agreed that it is important to monitor further developments, especially energy prices. According to them, some policy measures have proved effective at stabilising energy prices (such as decoupling electricity and gas prices or introducing price controls). Some politicians and economists argue that this period of costly energy is only the beginning, since prices will continue to rise throughout the transition to clean energy. Regardless of the type of energy used, efficiency is one of the most important ways of minimising usage. For example, buildings alone represent about 40% of the EU’s energy usage, but energy-efficient buildings that utilise new technology would help reduce that dramatically.

Phillip Heimberger discussed the issue of energy prices rising across the board, especially when compared to the US. While some of the disparities between the US and the EU in terms of energy inflation can be attributed to the stronger labour market in the US, it is also worth pointing out that Europe imports most of its energy, whereas the US is an energy exporter. Targeting inflated energy prices with higher interest rates has proved difficult, explained Heimberger, because high interest rates drive down investment in renewable energy. This is likely to affect price stability in the long term.

Although the EU is experiencing inflation in various goods and services, Croatia is a special case, having recently adopted the euro as its national currency. According to Sandra Švaljek, some companies attempted to take advantage of the switch from the kuna (the old currency) to the euro to raise prices disproportionately. The government responded by requiring shops to display their prices in both euros and kunas, so that shoppers could gauge the value of the new currency. This led to some prices in retail chains actually falling, as they became aligned with euro prices in other countries. Furthermore, Croatia used price controls for nine essential foodstuffs. For a consumer on average income, these items account for about 4% of the food basket; for lower-income consumers, they make up about 10% of the food basket, a much greater share than for the middle class. This move helped poorer individuals adjust more easily to the euro, as they were better protected against food price inflation than people on higher incomes.

Panel 3: Rethinking Central and Eastern Europe after the invasion of Ukraine

The third panel was a discussion in cooperation with the Central European University (CEU) in Vienna. It was moderated by Mario Holzner, executive director of wiiw. He welcomed experts on the region – Cathrin Kahlweit, correspondent for Central and Eastern Europe of Süddeutsche Zeitung; Paul Lendvai, a Vienna-based journalist and author; and Caroline De Gruyter, Europe correspondent of the Dutch newspaper NRC Handelsblad.

The panellists discussed the past and the future of Central and Eastern Europe, where the Russian presence in Ukraine threatens other countries of the region. In particular, the discussion tackled the situation of Moldova, an immediate neighbour of Ukraine and a former Soviet republic that is engaged in a decades-old conflict with Russia over the breakaway region of Transnistria. The strong Russian influence in the country was massively reduced when reform-oriented, pro-Western political forces came to power a few years ago. Since the Russian invasion of Ukraine, the country has lived in constant fear of becoming Putin’s next victim. Up until the start of the Ukraine war, the country was neglected by the EU, explained Cathrin Kahlweit and Mario Holzner, and the pro-Western reformers did not receive adequate support.

In general, the panel reflected the perspectives of CESEE member countries of the EU – especially the fact that they are often ignored and overshadowed by larger, Western states, leading to tension between countries on either side of the old Iron Curtain. Some panellists were optimistic that the war in Ukraine could lead to Central and Eastern European states having a greater say in the EU. As far as support for Ukraine is concerned, this has already partly come about: one need only think of the leading role played by Poland and the Baltic states in this effort. However, the panellists pointed out that many countries of the region are not wrong when they claim that the non-admission of Ukraine so far is proof that the EU has not really changed its negligent attitude towards the CESEE region.