Two decades in the European Union: How have they been for the Visegrad Four states?
This article compares how the Visegrad Four states (the Czech Republic, Hungary, Poland and Slovakia) have performed in the two decades of their EU membership. First, we will look at the progress they have made in economic convergence towards the EU average, in particular in terms of real GDP per capita, and the price level and wage level achieved. We will then examine how successful the individual states have been in terms of allocating European money to projects co-financed by the EU. Yet the main focus of our article is to serve as a reminder that the greatest benefits for the V4 states and the EU as a whole are the four freedoms, i.e. the free movement of goods, services, capital and people. Finally, we look at the V4 states through the lens of the regular “report card” issued by rating agencies.
The V4 states and the EU: The China Anniversary
The EU’s fifth – and largest – enlargement took place 20 years ago. Ten states became full-fledged members of the European Union in 2004, a historic moment not only for them, but for the whole of Europe. The new members included the Visegrad Four (V4) – the Czech Republic, Hungary, Poland and Slovakia. This was the fulfilment of their ‘return’ to Europe, set out by the post-revolutionary political representatives in the then still federal Czechoslovakia, Hungary and Poland. They are thus commemorating this important anniversary together with the other six accession states[1] that joined the EU on 1 May 2004 (Chart 1). At the same time, this is a great opportunity to reflect on the successes and challenges that these states, as well as the enlarged EU, have witnessed over the past two decades.
Chart 1 – EU enlargement in 2004
Source: Sochorek.cz
Joining the EU community was the crowning achievement of many years of political and economic transformation efforts following the fall of communism at the end of the 20th century. For the Visegrad states, this step not only symbolised their final anchoring in European institutions and structures, but also opened up new opportunities for economic integration and achieving a higher standard of living. After all, this reason, i.e. the creation of a common market for building economic prosperity in Europe, was one of the three fundamental reasons[2] for the creation of the EU itself.
EU membership offers greater opportunities. Two decades of EU membership have enabled the Czech Republic, Hungary, Poland and Slovakia to benefit from unprecedented access to the single market, structural and investment funds, and a wealth of new industrial, technological and educational opportunities. Significant economic growth, improved infrastructure, and an increase in citizens' living standards are just some of the most visible benefits. In addition, throughout the period under review, these states have been net recipients of money from the EU budget. However, in our opinion, this should not be held up as the main argument for defending the benefits of EU membership.
The 20th anniversary celebrations are therefore more than just a reminder of the past[3] - they are an opportunity to take stock of the achievements and to focus on a common European future. It is also worth remembering that, overall, “Europe” opened up to us faster and earlier than we, the new Member States, opened up to “Europe”. The EU accession treaties provided for transitional periods. These were arranged differently for each acceding state, e.g. there were restrictions on the right of EU citizens to acquire real estate, temporary exemptions in the setting of VAT rates and other specific transitional periods in the areas of the environment, energy and agriculture. The EU states, in turn, negotiated two main transitional periods for themselves – namely a temporary restriction on the free movement of labour in some EU states and the gradual integration of the new Member States into the common agricultural policy.
Everyone converges in their own way
EU membership has brought the V4 states both real and price convergence with the rest of the EU, but differently and at a different time for each of them. While the Czech Republic and Slovakia approached the EU average in terms of real GDP, especially in the first years of their membership, Hungary and Poland only did so in the years after the global financial crisis (Chart 2). The Polish economy was the weakest of the Visegrad Four when it joined the EU, yet was the only one in the EU that managed to grow even during the financial, eurozone and COVID crises. In terms of GDP per capita, it overtook Hungary in 2017, and in 2018 Slovakia, whose convergence stalled in the 2010s. On the other hand, Slovakia caught up with the EU fastest in price level terms – up to 86% in 2022. It is similarly expensive in the Czech Republic, but it reached this level by leaps during the recent inflation wave. Meanwhile, Hungary and Poland remain well below the EU average in terms of prices. They also experienced higher inflation on average than the EU, but this was largely offset by the weakening of their currencies.
Chart 2 – Price and real convergence have taken different courses in the V4 states
(horizontal axis – GDP per capita at purchasing power parity, vertical axis – final consumption price level, % of the EU27 average)
Source: Eurostat
Note: The relative price level shows how much more or less goods and services (from their consumer basket) the people in one economy would have to sacrifice to acquire goods and services in the other economy that provide the same utility there (based on the local consumer basket).
However, convergence criteria other than GDP are crucial for the perceived well-being of the population. For example, while the Czech Republic is the region's top performer with a GDP per capita purchasing power parity of 91% of the EU average, much of the income generated belongs to foreign investors in the Czech Republic, who own many of its most successful companies. A better indicator of Czech employees’ and entrepreneurs’ purchasing power is therefore the disposable income of Czech residents, which adjusts GDP for payments to non-residents and takes into account income from abroad (including EU subsidies). This shows 5 pp lower convergence towards the EU average, at 86%. Domestic final consumption, another indicator of living standards, is at 82% of the EU average. Employees' hourly earnings are only 70%, due partly to the still fairly low labour productivity (77% of the EU average) and partly to the income distribution in the economy, which is more favourable towards entrepreneurs and less towards employees than in the EU (employee incomes are 44% of GDP compared to the EU average of 47%).[4] Charts 3 and 4 show that most of this also applies to Slovakia, Poland and Hungary, albeit to different extents across indicators.[5]
Chart 3 – Profits for foreign investors drive a wedge between GDP and the disposable income of V4 residents
(columns – GDP and consumption in 2023, disposable income in 2022; diamonds – GDP and consumption in 2004, at purchasing power parity, % of the EU27 average)
Source: Eurostat, DG ECFIN, author calculation.
Chart 4 – Czechs lead Slovaks in convergence due to the number of hours worked – productivity is similar
(GDP, productivity, hours worked and hourly earnings; circles show 2023, triangles 2004; at purchasing power parity, % of the EU27 average)
Source: Eurostat, author calculation
Note: Productivity is GDP per hour worked. Hourly earnings include all compensation to employees, including social security, etc.
The gap between the relatively low productivity and high GDP in the Czech Republic is filled by high employment and long working weeks. Although one hour of work in the Czech Republic generates only 77% of the value added by one hour of work in the EU, the Czech economy generates 91% of the EU economy’s value per capita. How is this possible? The Czech Republic compensates for lower labour productivity with a higher volume of work done. The average inhabitant of the Czech Republic works 17% more hours per year than the average EU citizen. This is due on the one hand to higher employment (a larger share of the population works) and on the other to the average employee working more hours. The average Polish citizen spends 22% more time working than the average EU citizen, while in the case of Hungary this is 9%. By contrast, the inhabitants of Slovakia work 9% fewer hours than the EU average. In terms of GDP per capita, they are therefore the furthest from the EU average among the V4 states, yet in terms of labour productivity, they are ahead of the Czech Republic by a narrow margin (Chart 4). They also narrowly “beat” the Czech Republic in terms of the purchasing power of employees' hourly earnings. As Chart 4 shows, in this indicator, Slovaks have moved 20 pp closer to the EU average over the 20 years of EU membership, while the Czech Republic has moved 10 pp, Poland 13 pp and Hungary practically not at all, as the convergence in labour productivity has been fully offset by a decline in the share of employees in the income generated.
Net position of the Member States vis-à-vis the EU budget
After entering the EU in 2004, the Member States were given the opportunity to draw their full allocation from the European structural and investment funds and other thematically focused EU programmes. These additional funds for domestic infrastructure, agriculture, social affairs, education and research support economic growth and have a cross-border spillover through joint EU projects. On the other hand, the states contribute to the EU budget, which finances all EU policies and activities. Since their EU entry, all V4 states have been net beneficiaries, i.e. they have a positive net position in relation to the EU budget. Their income from the EU budget thus exceeds their mandatory contributions to the EU budget. Poland is the greatest net beneficiary from the EU budget in absolute terms, followed by Hungary, the Czech Republic and Slovakia – see Chart 5. However, when comparing the net position in relation to gross national income (GNI), the position of the states changes, and on average is the greatest net beneficiary is Hungary (3%), then Poland (2%), Slovakia (1.7%) and the Czech Republic (1.3%).
Chart 5 – The net position of PL, HU, CZ and SK vis-à-vis the EU budget
(in EUR millions)
Source: EU Budget Financial Report, European Commission.
In all the V4 states, the largest volume of EU funds was spent on structural actions (Chart 6), the majority being investments in the general government sector. Individual structural action projects are financed from the national cohesion allocation set for the seven-year programming period, which reflects the size of the economy and its economic maturity within the EU. Chart 1 thus presents two complete programming periods: 2007–2013 with the possibility of drawing cohesion funds until 2015, and 2014–2021 with the actual end of drawing in 2023. The drawing of the cohesion allocation based on national thematic operational programmes usually peaks at the end of the programming period, leading to a significant increase in the net position. Given that investment from these EU sources represents a significant share of national investment in the general government sector (Chart 7), the phase of the programming period also affects the aggregate value of investment in the economy as a whole. On the other hand, agricultural subsidies are drawn continuously as they are directly linked to the agricultural sector and their beneficiaries are known in advance. They are, as a rule, completely exhausted. EU programmes managed directly by the Commission are used only to a limited extent by the V4 states. These are mainly programmes where a certain amount of funds is reserved for individual states (e.g. the Connecting Europe Facility and the Erasmus+ programme).
Chart 6 – Accumulated net positions of PL, HU, CZ and SK for the 2004-2023 period
(in EUR bil.)
Source: EU Budget Financial Report, European Commission.
Chart 7 – Share of investment from EU sources in total government investment
(in %)
Source: ECB data portal
Free movement of goods
The free movement of goods is one of the four cornerstones of the European Union's internal market. The free movement of goods is based on the fact that products originating in one Member State can be freely traded in all EU Member States without any other internal barriers. These include, in particular, customs duties and differences in national requirements for a given product. The theory is that the free movement of goods promotes mutual trade, thereby stimulating the performance of firms, resulting in a positive effect on gross domestic product. From an economic point of view, the free market also means more players on the market, which leads to more competition and thus improved quality and lower prices. All this leads to greater economic prosperity for all the participating states, which is the main reason why it makes sense to strive for a free market. However, we must not forget that the common market also provides better protection for producers, as there are common rules for infringements of regulations.
However, the single market does not have the same impact on all its participants. If we want to assess the benefits of the common market, it is important to look at the initial situation, i.e. how much the states already trade with each other. If the level of mutual trade is high, removing barriers will bring clear benefits, whereas if the states do not trade with each other, simplifying trade may not bring them much benefit. However, it should be added that trade barriers may actually be the reason for the absence of mutual cooperation. Chart 8 shows that some Member States are more oriented on extra-EU trade (e.g. Ireland and Greece), with about half their exports leaving the EU, while at the other end of the imaginary scale lie all the V4 states we analysed, as well as Luxembourg, as the vast majority of their exports go to other EU Member States.
Chart 8 – Share of internal and external trade of EU Member States
(in %)
Source: Ifo institute
Free movement of services
From the point of view of economics, services are classified as “non-tradables”, i.e. non-tradable goods. This is because we buy services at the place of provision – we go to a restaurant, to the cinema, to the barber. So, what does the free movement of services mean? Services can also be provided across borders, through branches, e.g. you buy a tour from a foreign travel agency or order a subscription from a foreign provider. The provision of tourism-related services is also important, with tourists purchasing services abroad. The share of trade in services in GDP has been growing significantly over time, as illustrated in Chart 9. Currently, trade in services (their import and export) accounts for almost one third of the EU's GDP, compared to around 15% at the beginning of the millennium. Similar to goods, every state benefits differently from opening up trade in services. Chart 10 shows the growth in the volume of services imported and exported over the last decade for each EU state. Ireland has seen the biggest increase in the volume of services, but it is clear that the new Member States have also now seen rapid growth in trade in services.
Chart 9 – Share of trade in services in EU GDP
(in %)
Source: IMF
Chart 10 – Growth in imports and exports of services in EU states
(in %)
Source: Eurostat, 2013–2022 data.
Free movement of capital
The third fundamental freedom for the functioning of the EU is the free movement of capital, which not only gives firms new investment opportunities, but also strengthens the single market. A larger and stronger market allows for more efficient capital investment, which supports economic growth. However, free movement of capital is also necessary for the further development of the monetary union – the euro area. The free movement of capital simplifies and increases investment opportunities for small retail investors, which are households. Chart 11 shows the evolution of the V4 countries' international investment positions in terms of investment abroad by residents of the given countries, but also by foreign investors in the given country. This investment is generally increasing relative to GDP, suggesting that the links between the countries and the rest of the world are growing. The exception is Poland, where the international investment position of the rest of the world has been falling gradually over the last ten years. After 2022 a decline was recorded in Poland, Slovakia and the Czech Republic, but the situation is stable from the perspective of foreign direct investment.
Chart 11 – International investment position
(in % of GDP)
Source: central banks, Refinitiv
Note: Asstes = Investments of residents abroad, Liabilities = Invvestments Investice of non-residents in a given country.
However, the quantification of the importance of free movement of capital is much more common through the effects of foreign direct investment. Foreign direct investment is seen as a key source of economic growth, especially in emerging economies, as not only capital is transferred but also technology and overall know-how, leading to productivity growth in the target country. The V4 countries are trying to attract foreign investors with various incentives but also invest more abroad. The volume of investment by V4 residents abroad increased more than the volume of non-residents’ investment in these countries. The highest increases were recorded in the Czech Republic and Poland.
Free movement of persons in the EU
The free movement of persons is another fundamental freedom of EU citizens based on EU law. European integration allows all EU citizens and their family members to move freely, but also to live freely within the territory of the Member States, whether for work, business, study or tourism. A milestone for the full exercise of the right of free movement of persons was the abolition of checks on all persons crossing internal borders, i.e. the creation of the Schengen Area. However, in the beginning, when the European Economic Community was founded, the concept of free movement of persons did not actually represent complete freedom, but rather the right of movement of workers and their establishment as employees. However, the introduction of EU citizenship has brought real freedom and mobility to all citizens of the Member States. Yet different conditions apply to different categories of persons, with economically active persons having the most rights, e.g. compared to students or retired persons. The free movement of persons also applies to the EEA countries, i.e. Norway, Iceland and Liechtenstein and, through a bilateral agreement, also Switzerland, in addition to the EU Member States (MLSA, 2024).
Free movement of workers is at the heart of the free movement of persons. This is because European integration began with this group of people, with the creation of the single market. EU citizens have the right to seek work in another Member State and then work there, without the need for a work permit or other restrictions. In general, they must be treated equally to nationals of the host state, be it in terms of working conditions for jobseekers, social and tax benefits, or pay and dismissal. The mutual recognition of professional qualifications is also an important part of this freedom (European Parliament, 2023).
The number of citizens exercising their right to reside and work in another EU Member State has been increasing over the long term. This fact is also evidenced through a statistical study by Eurostat, according to which 3.3% of EU citizens of working age (20 to 64) were mobile citizens in 2019, compared to 2.4% in 2009. Within the V4, Slovaks leave their state of origin most, while Czechs are the least mobile, showing only a minimal increase in mobility (Chart 12). However, when looking at the absolute numbers, the largest group of mobile citizens are Poles, with only Romanians being more mobile in the EU as a whole. Germany is clearly the most popular destination state. However, according to the European Commission’s 2023 annual report on labour mobility within the EU, the number of working-age migrants has remained relatively stable over the past five years, and was around 10 million people, mostly male, in 2022 (Chart 13).
Chart 12 – Mobility of EU citizens by citizenship
(share of the home state's population)
Source: Eurostat
Note: These are people of working age (20 to 64).
Chart 13 – Mobile citizens in the EU by gender
(in thousands)
Source: Eurostat, Annual Report on Intra-EU Labour Mobility 2023
Note: These are people of working age (20 to 64).
The characteristics of “mobile” citizens, from gender and age to level of education, are important. It has already been mentioned that men are more mobile. In general, it seems that young people prefer to move to other EU Member States at the beginning of their careers. As far as the level of education of mobile people is concerned, it is slowly and steadily increasing (Chart 14). In fact, almost one third of mobile citizens had completed higher education in 2022, while the decline of people with completed secondary education was notable. As regards EU statistics in general, but also the V4 being examined here, it is necessary to highlight the Czech Republic, which had the lowest share of mobile people with low educational attainment in 2022. Globally, based on the above-mentioned statistical study by Eurostat, it can be said that EU citizens with higher education are more mobile than the rest of the population. As far as the employment rate is concerned, in most EU Member States it is higher for mobile citizens than for residents of the respective state. According to the mentioned EC report, the employment rate for mobile EU citizens was 77% in 2022, surpassing the 2019 level. This means that mobile people were more successful in employment opportunities than nationals (75%). According to the Eurostat study, employment in all V4 states was above the EU average, with mobile Hungarian citizens being the most employed and Czech citizens the least.
Chart 14 – Share of mobile EU citizens by educational attainment
(in %)
Source: EU labour force survey 2022, Annual Report on Intra-EU Labour Mobility 2023
Note: These are people of working age (20 to 64).
EU citizens' views on the free movement of labour are generally positive. The EC's 2022 survey on post-pandemic labour mobility within the EU showed that a majority of EU citizens have a positive view of the free movement of labour, with almost one in five Europeans planning to work abroad in the future. Most are interested in permanent employment, but seasonal work is also growing in popularity. In addition, almost half of EU citizens believe that they can do their jobs better abroad. According to the survey, people with higher education are much more likely to live and work abroad as they are better equipped to cope with the transition to another state (e.g. overcoming language barriers) and are therefore more mobile, as mentioned earlier. However, the survey also finds that the majority of those considering working abroad would like to return to their home state within five years. Based on previous experience of the V4 states, the most Czechs (18%) and the least Slovaks (11%) have been working in another state for more than five years. Czechs (48%) have had the most experience with a work stay of up to one year, and Hungarians (29%) the least. Compared to the EU average, the V4 states are generally more inclined to a shorter working stay abroad and less to a longer one.
Money and mentality are the main motives for moving abroad. A higher salary would be motivation for more than 60% of the survey respondents. In general, the existence of opportunities and better careers or better education are the drivers. However, the motivations are changing to some extent: while the importance attached to salaries is falling slightly, aspects like adherence to the culture or mentality of the given state are becoming more relevant. Interestingly, according to the latest data, the number of people returning to their home state is increasing, partly as a result of growing cross-border commuting, while this phenomenon is significant within the V4 (see Table 1). One possible explanation is that the more the states are converged with their neighbours, the lower the incentive to migrate or commute to work, as the standard of living is similar.
Table 1 – Main states of origin of cross-border workers in 2022
| Member State | Total number of workers |
|---|---|
| France | 235 |
| Germany | 179 |
| Poland | 180 |
| Belgium | 127 |
| Romania | 115 |
| Hungary | 84 |
| Czech Republic | 64 |
| Slovakia | 44 |
Source: EU labour force survey 2023
Note: Only Member States with at least 40,000 cross-border workers are listed.
Who can benefit from this freedom and what are the resulting advantages? According to the European Commission survey, almost 60% of EU citizens say that moving between EU Member States is beneficial for the labour market, while public support has increased over time. Free movement is beneficial from the point of view of efficiency – and not just of the single market – as people can move from states with higher unemployment rates and thus not remain unemployed, or find better and more suitable employment. The pandemic made people realise that free movement is a great benefit (22%), while labour mobility is important for the economy to function (19%).
Conclusion
Twenty years in the EU have brought the V4 states visible economic improvements and convergence with other European states. There is no clear leader or loser in this figurative convergence competition in the V4 group. So far, all the states have been net beneficiaries of EU money, yet the main benefits have been those related to the movement of goods, services, capital and people. The developments described in this article can be supplemented by the views of the rating agencies, which regularly issue “report cards” to individual states assessing the sustainability of their long-term commitments. Table 2 shows that the ratings of all the V4 states have improved visibly during their EU membership. As usual, the Czech Republic has the highest rating of the V4 states.
Table 2 – Ratings of V4 countries
| Member State | Agency | Rating 2004 | Rating 2024 |
|---|---|---|---|
| Czech Republic | Moody's | A1 | Aa3 |
| S&P | A- | AA- | |
| Poland | Moody's | A2 | A2 |
| S&P | BBB+ | A- | |
| Hungary | Moody's | A1 | Baa2 |
| S&P | A- | BBB- | |
| Slovakia | Moody's | A3 | A2 |
| S&P | BBB+ | A+ |
Source: Trading Economics.
Written by Martin Kábrt, Luboš Komárek, Petr Polák, Michaela Ryšavá and Pavla Netušilová. The views expressed in this article are those of the authors and do not necessarily reflect the official position of the Czech National Bank.
References
European Commission (2022): Eurobarometer: Intra-EU labour mobility after the pandemic, December, 2022, https://europa.eu/eurobarometer/surveys/detail/2671
European Commission (2024): Annual report on intra-EU labour mobility 2023, March 2024, https://ec.europa.eu/social/main.jsp?langId=en&catId=89&furtherNews=yes&newsId=10788
European Parliament (2023): Free movement of workers, October, 2023, https://www.europarl.europa.eu/factsheets/en/sheet/41/free-movement-of-workers
Eurostat (2021): EU citizens living in another Member State – statistical overview, July, 2021, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_citizens_living_in_another_Member_State_-_statistical_overview&oldid=517533
Ministry of Labour and Social Affairs (2024): Free Movement of Workers in the Member States of the EU, the EEA and Switzerland, March, 2024, https://www.mpsv.cz/web/en/free-movement-of-workers-in-the-member-states-of-the-eu-the-eea-and-switzerland
Keywords: foreign exchange reserves, monetary policy, inflation targeting, financial crisis
JEL Classification: E58, F31, F41
[1] The others were the Baltic states (Estonia, Lithuania and Latvia), Slovenia, Cyprus and Malta.
[2] The other reasons were to secure peace in Europe and eliminate political and economic nationalism.
[3] On the other hand, the anniversary also provides an opportunity for an open debate on challenges such as political differences between older and newer EU Member States, issues of national sovereignty and national identity, and a discussion about the future direction of the European Union. However, such issues are beyond the scope of our article.
[4] Employees’ lower share of income generated in the less advanced economies is mainly related to the lower capital endowment, which makes the marginal product of capital relatively higher and the marginal product of labour relatively lower.
[5] For example, final consumption in Poland and Slovakia is closer to the EU average than their GDP – both these economies have lower saving rates than the Czech Republic which, on the other hand, is more similar to the German economy in terms of consumer prudence.