According to Coeuré, countries formerly under Soviet rule are still trying to catch up with the West. Now, more than 30 years since the fall of the Iron curtain, if there is no credible prospect of lower-income countries catching up soon, their citizens will start to question the very value of the EU or eurozone membership, added Coeuré.
The falling trust in the EU is evident in Hungary, Bulgaria and other countries. Coeuré believes the main issues are the big drop in productivity growth, the lack of capital and partly the fact that the drop in foreign direct investment may very well be permanent. Due to rising wages, companies rely more on automation that can replace labor.
Coeuré sees three ways for how Europe can help these countries. It can provide the market that allows for the development of new industries to be profitable, it can channel funds to sectors where they could be used most productively, and it can also provide direct financial assistance to foster convergence and support national reform efforts.
