Bottom line first

German Mittelstand reaps dividend of Eastern European autocracy

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Hans-Jörg Otto is looking forward to his meeting with the president of Poland. Despite complaints elsewhere about threats to democracy in Warsaw, the German businessman plans to congratulate the Polish leader, Andrzej Duda, on how well things are going. “Poland’s image may have gotten worse, but a lot more things have improved,” says the 61-year old entrepreneur, whose cable manufacturing company El-Cab employs 600 people in western Poland.

Mr. Otto’s view differs strongly from German media coverage of Eastern Europe, which emphasizes nationalism, populism and Euroskepticism. The four countries that make up the Visegrád Group — Poland, Hungary, Czech Republic and Slovakia — are depicted as hotbeds of autocracy, turning their backs on liberal democracy less than 30 years after their liberation from communism.

There is much truth to this account. All four Visegrád countries have seen growing hostility toward the European Union and frequent disregard for liberal values, including separation of powers and freedom of the press. Hungary’s government has indeed clamped down on the media. The Czech prime minister, billionaire businessman Andrej Babiš, stands accused of fraud. The Polish government is severely restricting abortion and taking control of the judiciary.

While the European Union has spoken out against these developments, German executives and business owners in Eastern Europe say lectures from the West are unwelcome. Instead, they vocally support local governments. Preferring to speak about balance sheets rather than democratic norms, they repeatedly return to the bottom line. For them, it is simple: Eastern European economies are booming, and German companies there are doing very well indeed.

Autoindustrie Polen – VW in Poznan (Posen)
Polish sales, German profits. Source: dpa

Mr. Otto’s criticisms of Poland’s right-wing government are not of its controversial control over judicial appointments. Rather, he complains that Warsaw introduced a range of new social measures, pushing up labor costs. But he praises new public investment in infrastructure, digitalization and e-mobility, and hails a new optimism in the country.

Among German companies in Hungary, the mood is similarly upbeat. The German-Hungarian Chamber of Commerce said 95 percent of German businesses are happy with the economic situation. Marie-Theres Thiell, the CEO of Innogy Hungary, acknowledges that the country’s reputation has taken a hit under right-wing Prime Minister Viktor Orbán. “But in economic terms, Hungary is doing very well again,” she says, pointing out that cuts to corporation taxes and labor costs have fueled growth.

Bernard Bauer, head of the German-Czech Chamber of Commerce, says negative coverage of the country has neglected the successful economy, which has more than 4 percent annual GDP growth and the lowest unemployment in Europe. “Ultimately, politics is not that important for businesspeople. Order books are full: That’s the main thing,” says Mr. Bauer.

Politicians in Berlin and Brussels take a different view, emphasizing the threat such populism poses to democratic values. Some of these concerns are shared by large German corporations, such as Siemens and Volkswagen, who do not want to seem weak on liberal values and hurt their international profiles. Nonetheless, they are quietly enjoying abundant profits from Eastern European operations.

Executives of smaller companies can speak more freely about politics. Uwe Schneider-Kühn is head of quality management at the medium-sized German industrial firm Siebtechnik. He praises Mr. Orbán’s business-friendly policies, although he adds he doesn’t fully agree with the Hungarian leader’s foreign policy. Jan Mainka, editor in chief of the German-language newspaper Budapester Zeitung, is more straightforward. “If German executives could vote, 90 percent of them would go for Orbán,” he said.

Gabriel Brennauer, the head of the German-Hungarian Chamber of Commerce, says small companies have an advantage: They have fewer worries about stakeholders and more leeway to speak and act. “Purely business-related decisions are more important to smaller firms than political ideologies,” he says. “Satisfaction levels are higher than they have ever been.”

Arne Gobert agrees. The corporate lawyer has spent much of the last two decades in Hungary mediating foreign investment. He knows the country well. “The rule of law continues in Hungary, and Orbán is a democrat,” he insists. Real understanding of Hungary is lacking in Germany these days, he complains, and this has forced Mr. Orbán to seek out new alliances with Austria and others. “It’s a new epoch – a new reality,” he emphasizes.

Economically, Eastern Europe is nearly as important to Germany as Britain or the US.

Mr. Orbán’s alliances are meant to pressure the European Union to make concessions on migration and other questions. So far, Hungary and other Eastern European nations have refused to bow to German pressure to accept quotas of Middle Eastern refugees for resettlement.

Their position is backed up with considerable economic weight: Economically, Eastern Europe is almost as important to Germany as Britain or the United States. The four Visegrád countries combined are the third-largest recipient of direct foreign investment from Germany, not to mention key import and export markets. Poland alone did over €100 billion ($122 billion) in trade with Germany last year.

But relations cut both ways. About 80 percent of Hungary’s foreign trade is with the European Union. Mr. Orbán may talk tough in the run-up to April’s parliamentary elections, but it is not in Hungary’s interests to leave the EU or to alienate foreign companies. Poland’s ambassador to Germany also surprised many recently by indicating that compromises may be possible on the EU-opposed controversial judicial reform.

Even German admirers of the region’s autocratic governments know that too much tension can be bad for business. They’re keen for reconciliation rather than further divisions. Michael Kern, head of the Polish-German Chamber of Commerce, acknowledges that some investors have been put off. His counterparts in Hungary say foreign investment has slowed down in the country. Autocracy only becomes a problem, it seems, when it hits the bottom line.

A version of this article appeared in the business weekly Wirtschaftswoche, a sister publication of Handelsblatt Global. To contact the author: simon.book@wiwo.de

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