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- The global economic crisis has hit the former East bloc badly

Mosonmagyaróvár is thriving. This Hungarian town, the history of which dates back to 1046, to the time when an imposing castle stood at the centre of this settlement, is today a case study in the unfolding but serious impact of the global economic crisis on eastern and central Europe.

The failure of capitalism as we know it — especially after greed became the dominant feature of the free market in the almost two decades following the collapse of communism worldwide — is leading to a new Iron Curtain across Europe. This new Iron Curtain, which is slowly, but surely, coming up in Europe, is made of economics, unlike the old one that was created by politics after World War II. But the national boundaries along which the new Iron Curtain is rising are more or less the same as the ones that divided the Continent for almost half-a-century in our time: between rich western Europe and the poorer, new democracies of eastern Europe.

In India, because of our obsession with the Wall Street and the City, with the Dow and the Footsie, the emerging divisions in Europe that could have a profound effect on the diplomacy of the next government have received little attention among those who shape public opinion.

Mosonmagyaróvár typifies the new crisis in Europe. This town of just over 30,000 people is doing brisk business in retail, real estate and in its traditional field of dentistry as if the economic crisis is ravaging another planet. A Citroën showroom with new French models continues to be the showcase of business on the approach to the town centre. Restaurants were full and bars erupting in merriment last Saturday when this columnist was there.

What is unreal about this in today’s Mosonmagyaróvár is that this town is now an island of such thriving business in Hungary, which emerged from communism just short of two decades ago to reform itself. Hungary, in fact, is in deep crisis, triggered by its march towards unfettered capitalism of the American type. Mosonmagyaróvár’s window-dressed prosperity has been fuelled by neighbouring Slovaks and Austrians, who are flocking to this town to take advantage of the near collapse of the forint, Hungary’s currency.

In the parking lot at the huge Tesco hypermarket in Mosonmagyaróvár’s city centre, the bulk of the cars belong to Slovaks, who have made a short 25-kilometre drive across the border from Bratislava, their capital. But it is obvious from the number-plates of cars on the roads that Slovaks are coming across not only from Bratislava, but also from distant areas of Slovakia.

In Rajka, a small village on the Hungarian side of the border with Slovakia, there are still the remnants of the forbidding security apparatus that was in place to control the movement of people during four decades plus of communism, which were reinforced after the 1956 revolt to free Budapest from Soviet control and the shortlived “Prague Spring” that dawned in Czechoslovakia in 1968 when Alexander Dubcek came to power. But the signs in Rajka at the site of a property development are not in Hungarian, but in Slovak. Hungarians, with their crumbling economy, can no longer afford new houses: Slovaks, who gave up their national currency, the koruna, on January 1 this year and joined the Euro zone of 15 other better-off European Union states are the ones lapping up real estate.

German-looking Austrian women in their expensive fur coats were driving around Mosonmagyaróvár’s streets in their showy Jaguars and BMWs on Saturday, looking for bargains. Vienna, Austria’s historic capital, is a mere 84 km from Mosonmagyaróvár. For decades, Austrians in search of cheap, good dental care have crossed the border to Mosonmagyaróvár, which has the highest number of dentists per capita in the world. According to one Hungarian government figure, 160,000 Austrians come to their country every year seeking dental care. Like Slovakia, Austria too is in the Euro zone and because of the plunging prices in Hungary’s markets caused by the forint’s exchange rates, everything in Mosonmagyaróvár is a bargain for Austrians.

Last year, in the early stages of the crisis, Hungary became the first EU country to appeal to the International Monetary Fund, which gave Budapest $27.2 billion to avoid a default. Ferenc Gyurcsány (picture), Hungary’s long-embattled prime minister, announced last week that he would finally bow out of office. Gyurcsány has ruled under a state of siege since he was exposed as a liar in 2006, after a speech he made at a party meeting — admitting to falsifying the state of the economy to win elections — was leaked and broadcast to a stunned nation.

Although Gyurcsány announced his decision to resign last week, he tried to remain the kingmaker in Hungarian politics by getting himself re-elected as chairman of his party, but it was an untenable move given the gravity of the country’s economic crisis. On Saturday, Gyurcsány announced that he would give up the party post too. At least five per cent of Hungary’s economy may be shaved off by the crisis in 2009 over and above what is already gone.

But Budapest is not the only capital in the former East bloc where there is a realization that Western-style capitalism is not the answer to their lack of growth during the years under communism. All over those parts of Europe, where Soviet power and Marxist economics once provided stability and freedom from hunger but not a lot of wealth or glamour, governments are falling like packs of cards, victims of the global crisis.

Also last week, in Prague, the government of the prime minister, Mirek Topolanek, was toppled, adding to the woes of Czechs, whose industrial output went down by a whopping 23 per cent in January. A month earlier, the rightwing government in Latvia, which led the former Soviet republic in its headlong leap towards the free market and the scrapping of social protection, was forced out after widespread rioting. At the end of last year, Lithuanians voted to reject their government which had brought the country to the brink of recession, but they are not happy with their new government either. Police resorted to teargas to deal with demonstrators who attacked the parliament to protest cutbacks in social spending.

In terms of international fallout, it is the collapse of the Czech government that is serious. The defeat of Topolanek in a parliamentary vote came when the country is in the middle of its rotating EU presidency. It came only days before the American president, Barack Obama, was to arrive in Prague for his first meeting with the heads of all 27 EU member countries. Topolanek’s fall has raised questions about American plans to build a missile shield in the Czech Republic.

At the beginning of March, in the first clear sign that the Iron Curtain is not a relic of history, nine EU countries, which were all once on the communist side of the old Iron Curtain, held an unprecedented breakaway EU summit to discuss the economic crisis they were facing in post-Cold War Europe. Here, Gyurcsány became the first European leader to use the politically incorrect expression of a “new Iron Curtain” in their midst. “We should not allow a new Iron Curtain to be set up and divide Europe in two parts. This is the biggest challenge for Europe in 20 years,” he said, arousing people to the reality that clocks may have to be put back on further unification of the Continent.

All across Europe, there is talk of millions of east Europeans flooding western Europe as unemployment and social unrest spread through the former Soviet bloc, whose neo-capitalist leaders naively believed that an end to communism meant that they had to do unto Washington what they used to do unto Moscow under Josef Stalin and Leonid Brezhnev. Central European states like Slovakia and Slovenia, which have small populations, have so far escaped the worst of the economic contraction that is sweeping their region, but the crisis is certain to eventually catch up with them too.

France’s mercurial president, Nicolas Sarkozy, may have taken tentative steps to light the fuse of Europe’s emerging crisis when he recently announced an aid of three billion Euros to French car-makers in exchange for unstated assurances that these automobile giants would not move their production to cheaper locations in eastern or central Europe and cause unemployment in France. Topolanek was livid and accused Sarkozy of “beggar(ing) thy neighbour” with protectionism, which went against the very idea of integrating the former East bloc states into a united Europe.

West Europeans have also angered their eastern counterparts by “conspiring” to invite Spain and the Netherlands to this week’s G-20 summit in London while keeping out Poland, the biggest East bloc state in the EU. The Czech Republic is the only former East bloc EU state to be invited to the summit of what is effectively now the G-22, but the Czechs will be there only because they hold the rotating EU presidency.

The east Europeans suspect that their rich western neighbours are putting their eggs in the G-22 basket — instead of the EU with beleaguered easterners — in their search for solutions to the economic crisis, and fear being left out of any rescue. All of which should provide a welcome diversion at the London summit for the Indian prime minister, Manmohan Singh, in the form of new games of international political economy, away from the tensions of an election back home.

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