The spectacular economic growth of 10 countries that joined the EU two decades ago — most of which had been on the other side of the Iron Curtain during the cold war — makes them one of the continent’s clearest success stories.
But these countries now need to find new sources of growth to avoid losing their competitive edge, policymakers and economists say, after the early gains from joining the EU start to fade and living standards catch up with their western neighbours.
The clear economic benefits of the bloc’s expansion on May 1, 2004 have not always been matched by political gains, with the rule of law and support for the EU weakening in several of the newer members.
What is undeniable is that the largest cohort of countries to join at once — dubbed the “Big Bang” of enlargement — have enjoyed a rapid convergence of income levels towards those in the rest of the bloc. Once part of the single market, Cyprus, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Malta, Poland, Slovakia and Slovenia benefited from a surge in trade, investment and spending.
On average their gross domestic product per capita has risen from just below half the level in the EU in 2004 to above three-quarters today, according to FT calculations based on IMF data, which is adjusted for inflation and currency moves.
“When these countries opened up and joined the single market, the large multinational companies brought in the latest technology and that improved productivity dramatically,” said Zuzana Zavarská at The Vienna Institute for International Economic Studies.
The most obvious example is Slovakia, where carmakers including Volkswagen, Peugeot, Kia and Jaguar Land Rover have built factories, lifting annual vehicle production from close to 200,000 in 2004 to more than 1mn. This made the country the world’s highest producer of cars per capita in the world, with almost 20 vehicles made each year for every 100 Slovaks.
Another major positive driver has been the hundreds of billions in EU funds paid to newer EU members. Ivan Bartoš, deputy prime minister of the Czech Republic, told the Financial Times that cohesion funds from Brussels helped the country close the economic gap with older member states and attract investment. “It is a powerful tool,” he said. “The policy really works.”
Almost all of the 10 countries have doubled their GDP per capita in the past two decades, boosted by the influx of investment and surge in exports. Lithuania stands out as the star performer, more than trebling its GDP per capita in the past two decades.
Gediminas Šimkus, governor of the Lithuanian central bank, attributes the country’s strong performance to its entrepreneurial spirit. “We always look to come out of a crisis stronger,” he told the FT, recalling how it bounced back from a deep recession after the 2008 financial crisis and the sanctions that stopped exports to Russia in 2014.
Even countries such as Cyprus that have been hit by numerous setbacks have closed the gap on their neighbours. “Despite the local financial crisis in 2013, Covid-19 and now sanctions against Russians, Cyprus still manages to grow faster than the EU average,” said Fiona Mullen at Sapienta Economics.
The European Bank for Reconstruction and Development has credited “an EU accession bonus” with helping the eight central and eastern European countries (CEE) that joined the EU in 2004 to increase their GDP per capita more than twice as fast as other equivalent emerging market economies.
House prices in most of the newer member states have risen much faster than in the rest of the EU, notably in Estonia where they have more than trebled since 2004, compared with an average rise across the bloc of close to 70 per cent.
Wages in many of these countries have outperformed the EU’s average 83 per cent rise in the past 20 years, more than trebling for Polish, Czech and Slovakian workers, while rising between four and six times in Hungary and the Baltics.
Beata Javorcik, chief economist at the EBRD, said the financial gains have been matched by a “remarkable” improvement in the quality of life.
The proportion of people in the eight CEE countries saying they are in good health has risen to 62 per cent, up from 44 per cent two decades ago. “People in these countries feel as healthy as people in G7 countries up to the age of 70,” Javorcik said.
Education has also improved in many of these countries, with teenagers in the EU joiners from 2004 outperforming the OECD average on tests.
Estonia has shot to the top of the OECD’s rankings for mathematics, reading and science among European countries, overtaking the likes of Finland and the Netherlands in recent years.
The “ongoing success” of these countries could provide a model for Ukraine’s future, according to Holger Schmieding, chief economist at German bank Berenberg. “Once the destructive war is over, a free and pro-EU Ukraine could enjoy a rapid rise in living standards,” he said. Kyiv applied for EU membership after Russia’s full-scale invasion in 2022.
Yet as these economies converge with the rest of the EU, analysts say they risk losing momentum. “A lot of the low hanging fruit from EU accession has been picked,” said Zavarská, pointing out that job creation from greenfield investment has slowed sharply in recent years, along with labour productivity.
Javorcik said several of the CEE countries were looking to shift from being cheap manufacturing locations for western companies to developing more advanced, high-tech sectors. “The foreign direct investment they are now targeting has shifted towards services like R&D, software, biotech, and digital industries,” she said.
After they joined the EU, many of these countries suffered a “brain drain” as younger and more ambitious people left to study and work in western Europe. But in recent years the net migration of these countries’ citizens has shifted, with more returning than leaving, helping to ease the labour shortages that have built up in recent years.
“People realise they can get a more or less comparable salary in Lithuania but we have a cheaper cost of living, plus we speak their language and they have family here,” said Šimkus. “We’ve never had it this good.”
There are, however, signs that economic progress has not been matched by improvements to governance standards or political support for the EU in some of the newer members.
Hungary, Poland, Slovakia, Cyprus and Malta have all slipped down the World Bank’s index of governance indicators in the past decade. Both Budapest and Warsaw have clashed with Brussels over the rule of law and have had some of their EU funding frozen for several years.
Equally, support for the EU has been eroded in a number of these countries. Public trust in the EU has fallen since 2004 in Hungary, the Czech Republic, Slovenia and Cyprus, according to the annual Eurobarometer survey.
Bartoš said rising Euroscepticism among Czechs and other countries in the region reflects the fact that governments blame the EU for problems. “Politicians say the trouble is Brussels. This narrative is very strong and is being used for disinformation. It helps the extremes,” he said.
But these countries may also resent being made to feel like second-class members of the EU, despite their increased prosperity.
Kaja Kallas, prime minister of Estonia, said the bloc’s newer members still have to fight for respect from the “big countries”, even though “we have been in the EU long enough to be treated as equals”.
Additional reporting by Eleni Varvitsioti
Data visualisation by Keith Fray, Ray Douglas, Amy Borrett and Clara Murray
This article has been corrected to reflect that, according to the Eurobarometer survey, public trust in the EU has fallen in Hungary, the Czech Republic, Slovenia and Cyprus since 2004, not 2023 as originally stated