Overall, New Europe has regularly attracted more than twice as much direct foreign investment (FDI) as the former Soviet states. In the first 13 years after the fall of communism, the Czech Republic, with ten million people, has seen more than five times as much FDI as Russia, with a population of 145 million. Most of the FDI that has gone to the former Soviet republics has been devoted to production of energy and other commodities in Russia, Azerbaijan, and Kazakhstan. In New Europe, the FDI is much more diversified; manufacturing, information technology, and business and consumer services have all benefited.

Reorientation and Rehabilitation

By almost every measure and in markets of all kinds—manufactured goods, capital, labor, tourism and other services—the New Europe has rapidly joined the orbit of old Europe. The International Monetary Fund (IMF) estimates that over US$3 billion has been sent home by Albanians working abroad in the last decade—and this to a country of a bit over 3 million people with a GDP of less than US$6 billion. Albania is not the only New European country benefiting from exporting labor to Western European countries. With falling birthrates and high wage rates, most Western European countries need immigrants to fill in jobs from waiters and farm workers to software writers and engineers.

In little more than a decade, the new European trade has dramatically reoriented itself from the Soviet bloc to old Europe. In 1988, more than half of their trade was with the Soviet Union and the other Comecon countries; less than a third was with the European Union. Today, about three fourths of their exports go to the European Union.

In the past four years, both Russia and Ukraine have seen rapid economic growth, the former seeing 6 percent growth in the past year, and the latter almost as much growth. But these improvements have been driven largely by the benefits of the ruble’s devaluation after the 1998 financial crisis and the current high price of oil. The benefits are real, but not necessarily sustainable—they are still far behind the New European countries.

While Russia, Ukraine, and the others are struggling to repair their economies and to integrate with the West, New Europe already has economically bounced back and is largely locked into Western institutions already. For New Europe, convergence with “Old Europe” is going hand in hand with divergence from their eastern neighbors.

Another arena in which New Europe is diverging from its eastern neighbors in the former Soviet Union is democratic political development. On this measure, the New European nations are very close to the Old European mainstream. Freedom House annually rates all the countries in the world on their respect for freedom of speech and of the press, free and fair elections, and other key elements of a democratic society. In its most recent report, Freedom House gave 11 of the 15 new Europe states its highest rating: “free.” Eight score as well as the United Kingdom, Spain, Italy, Germany, France, and Belgium, and better than Greece. The other four—Albania, Bosnia, Macedonia, and Yugoslavia—are rated “partly free.” The average ranking for New Europe is 2.3 (on a scale of 1 to 10), “free,” while the average ranking for the former Soviet republics is 5.9, “partly free.” Russia scores 5.5.

In the former Soviet space, it is hard to find much democracy that citizens of the United States or of Old Europe would recognize. Countries such as Belarus, Uzbekistan, and several other nations are ruled by dictators. In Putin’s Russia, speech is free, but the television is government-dominated and political competition limited.

In 2000, my last year as US Ambassador to Romania, I spent substantial time traveling to towns and villages across the country, holding open town meetings with ordinary people to listen to their concerns and to explain US interests in Romania. This was within a year after the European Union had extended the invitation for Romania to begin negotiations for accession. And at each town meeting, I would mention that one of the good things that had happened to Romania in the past year was the invitation from the European Union. From the first village where I mentioned the EU invitation to the last, the crowd broke out in spontaneous applause. These were not the coffee houses of Budapest nor the corporate boardrooms of Warsaw. These were poor middle-aged farmers, as well as pensioners, who voted for the former Communist Left in every election from 1990 through 2000. And they were applauding wildly because the US Ambassador said they were going to join the European Union.

Why does the European Union generate such enthusiasm, while the IMF or even the World Bank, which are pushing policies quite similar to the European Union, generate at best indifference and at worst fear and hostility? I think the answer is the difference between a bank and a family. To most of us, a bank is controlled by someone else and is looking out for its own interests. We want to take advantage of its loans, but we want to be out of debt as soon as we can. We are happiest when we have paid off the loan and are out from under their restrictions. That is the way people look at the IMF and World Bank. In contrast, when we marry, we are joining a family as a partner, not as a supplicant. We see the relationship as permanent, rather than transitory. And we see it primarily as a social transaction, rather than an economic one, even though it has substantial economic components. That is the European Union. It is a family, and a prosperous one at that.

The Psychological Impact of EU Accession

The EU accession process is both a result and a cause of the New Europe’s relative success in making the political and economic transition from the Soviet bloc. Part of the reason why they have been invited to join the European Union is that they have done well in creating democratic states and re-orienting their economies to the marketplace. But, equally, part of the reason why they have done as well as they have is their expectation of EU membership.