VW's Strike in Slovakia Exposes a European Divide

Eastern Europeans feel their countries are being treated as colonies, and that's a danger to the European project.

They want what Germans have.

Photographer: VLADIMIR SIMICEK/AFP/Getty Images

Slovakia is in many ways the poster child for East European integration into the European Union. But the strike taking place now at Volkswagen's Bratislava plant says a lot about how disunited Europe looks from the European Union's eastern edge. Eastern Europeans often feel their countries have turned into Western Europe's colonies, and that sense may be a more serious threat to the EU's unity than Brexit.

Unlike most of its neighbors, Slovakia adopted the euro and hasn't suffered for it, though many predicted it would. In 2010 through 2016, its economic output in constant prices grew an average of 2.9 percent a year. The impressive growth has been possible thanks to Slovakia's increasing specialization as the EU's car assembly hub.

In 2005, the country produced about 200,000 cars a year. In the last two years, it passed the million mark. According to the Organization for Economic Cooperation and Development, which released a detailed  of the Slovak economy on Wednesday, the sector accounts for 40 percent of Slovakia's industrial output and one-third of exports (which go mostly to the rest of the EU), but only 4 percent of the value added: Slovakia is well integrated into the European car industry's sprawling and its ultra-fast production chains.

In the country's west, where most of the car factories operate, unemployment is below 5 percent and workers feel empowered. They compare themselves with people doing the same jobs in Western Europe and even in more affluent parts of the former Communist east, and they get the impression that they're treated unfairly. Zoroslav Smolinsky, the labor leader at Volkswagen's Bratislava factory, wrote in a recent blog post that though the workers there make decent money by Slovak standards, it wasn't fair that salaries weren't even comparable with VW's flagship factory in Wolfsburg, Germany. Indeed, the average gross monthly pay in Wolfsburg is about 2.5 times higher than at the Bratislava plant. (Of course, the cost of living in Wolfsburg is also higher than that in Bratislava, but that is usually not mentioned.)

The Slovak workers at VW make relatively cheap VW Up! cars, but also ultra-luxury models such as the Porsche Cayenne and the Bentley Bentayaga. It's the luxury cars that drive up VW's profit margins, and those are the vehicles Bratislava workers stopped creating when they walked out on Tuesday, rejecting the management's offer of a 4.5 percent pay raise (they're holding out for 16 percent).

This is no ordinary industrial action. The country's populist leader, Prime Minister Robert Fico, has strongly backed the workers. His description of the conflict on Tuesday was even more aggressive than labor leader Smolinsky's:

Our western friends do not understand when we ask them why a worker in Bratislava, in a firm that has the highest quality, high productivity and manufactures the most luxurious cars, has a salary half or maybe two thirds lower than a worker in the same firm 200 km westwards, in any western country, where the work has lower quality, lower productivity and manufactures lower-quality products.

This political angle is not unique to Slovakia. Eastern Europeans as a group feel they're being short-changed by their Western neighbors. They accuse multinational companies of selling cheaper, poorer-quality versions of brand-name food in their countries. They claim that the EU, in allocating so-called convergence funds to its post-Communist member countries, is helping Western corporations as much if not more as the poorer countries. Zoltan Kovacs, spokesman for the Hungarian government, wrote in a letter to the editor of Politico recently:

In exchange for receiving cohesion funds, less-developed member countries have opened up their markets to companies from all other EU countries. More than a few German companies have profited handsomely from that deal, enjoying unfettered access to new markets, new sources of high-quality labor and, in the case of Hungary, the lowest corporate tax rate in the EU at 9 percent.

Slovakia, Poland, Hungary, the Czech Republic and Slovenia all joined the EU 13 years ago; some might argue they've come a very long way in that short time and more patience is required to reach standards of living built over more than half a century in the west. And yet, their citizens have long forgotten the Communist past and are only too aware that living standards are still far from those of the EU's core members. In terms of incomes, Eastern European countries have caught up just a tiny bit with Spain, but not with Germany.

Convergence? What Convergence?

Average annual wages in 2016 U.S. dollars using purchasing power parity

Source: OECD

In response, Westerners could point out that labor costs have been rising faster in Eastern Europe than in the West, and in that sense the less-developed EU member states are rapidly catching up.

Convergence in Labour Costs

Labor costs index (2012 = 100)

Source: Eurostat

So far, those arguments aren't holding sway. As Eastern Europeans are increasingly fed up with being  poorer cousins, they tend to lean toward populist parties that insist on more national sovereignty. Such forces have already come to power in Hungary and Poland.

In response, the core states -- notably Germany and France -- appear to be increasingly in favor of a so-called two-speed Europe, in which some member states integrate their economic and legal systems faster than others.  That makes sense from a Western European perspective, but not from the Eastern European one. That's why Germany is increasingly seen as too powerful in the East, especially in Poland. 

There is a risk for Eastern Europe in pushing the demands too far. If Volkswagen accepts that labor costs at its Bratislava operation must converge with those in Germany -- and they are already on that trajectory -- it won't make as much sense to move high-margin products to the Eastern European location. Much of the East's remarkable recovery from the poverty of the Communist era comes thanks to precisely the corporates they now criticize.

But the West too must play its cards carefully. Populists in Eastern Europe may be vulnerable to censure and economic punishment. But they are unlikely to start losing as consistently as they have recently in Western Europe until there is more demonstrable economic convergence, and until Eastern Europeans lose their colonial complex. It would be unwise to give them more cause to rebel -- and also unpopular. A recent Chatham House survey shows that solidarity with the economically weaker countries is a key EU value: 77 percent of the European elite (defined as "individuals in positions of influence") and 50 percent of the general public believe that the wealthier member states should financially support the poorer ones.

Integration was and remains a worthy goal. Core EU governments shouldn't lose sight of it. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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