The ongoing debates about the EU’s competition policy have predominantly focused on Western Europe, overlooking the dynamic growth and unique challenges of Central and Eastern Europe, write Maciej Bernatt and Kati Cseres. This oversight risks deepening economic disparities and undermining the EU’s goals of unity, democracy, and innovation-driven growth.
Over the past months, there have been many discussions, reports, and manifestos from a large variety of stakeholders on what the future direction and vision for the European Union’s competition law and policy should be. Perhaps most prominent was former European Central Bank president Mario Draghi’s report on how the EU’s competitiveness and its competition policy should be shaped.
Many of these commentators emphasized continued strong enforcement of the EU competition rules, while refocusing on innovation and growth for Europe. They posit that an effective industrial policy as well as a refocus of state subsidies at the EU level should be pursued. Moreover, a prevailing focus is put on active application of the EU’s new digital tools, such as the Digital Market Act (DMA) taking priority in the current debate above all other issues.
However, most of these discussions were dominated by commentators from Western European countries (Draghi, former Italian Prime Minister Enrico Letta, French President Emmanuel Macron), and did not account for developments and challenges from Central and Eastern Europe (CEE), which includes the following countries: Poland, Czechia, Slovakia, Hungary, Estonia, Latvia, Lithuania, Bulgaria, Romania, Croatia and Slovenia. Crucially, they did not articulate a vision that could bridge the pertinent East-West divide in Europe.
Failing to acknowledge and address the specific challenges of CEE countries is problematic politically, economically and legally. Omitting the CEE countries from the processes of re-thinking the EU’s future policies reinforces Europe’s core and periphery relations. It raises questions about such policies’ legitimacy while undermining the goal of creating economic sovereignty and security for the EU.
Not least, ignoring the challenges in CEE countries carries the risk of overlooking the broader functions of EU competition policy that are deeply connected with competition law’s pro-democratic role, as well as the EU’s foundational values such as the rule of law and its core economic principles.
New vision for the future direction of EU competition policy
The Western-Europe focus of the debate on the future of EU competition policy is well illustrated by Draghi’s report, which has been criticized for its clear Eastern-European deficit. CEE ministers have described it as reviving an “old Europe” mindset by ignoring the strength and growth potential of CEE member states and proposing solutions which reinforce the gap between Western European and CEE countries. Among others, it is argued that there is a risk that the limited resources so much needed for pro-innovative investments in CEE will be channeled to Western European leading economies.
Indeed, Draghi’s report characterizes the EU as economically stagnant. However, available data shows that the CEE countries are experiencing dynamic economic growth. Real GDP growth for all CEE economies was 5.3% for 2022 and 2.0% for 2023. Meanwhile the data for the Eurozone, which does not include the biggest CEE countries, are 3.6% for 2022 and 0.5% for 2023. Therefore, some have argued that CEE “have the potential to become a much stronger engine of Europe’s growth,” and hence, “their specific needs and opportunities must be taken into account in EU-level decision making.”
However, while CEE countries have experienced impressive economic growth over the past two decades, especially in the Visegrád countries (i.e. Czechia, Hungary, Poland and Slovakia), this dynamic development, and their growth model dependent on foreign direct investments and EU funds, has been unable to catch up to the GDP level of the core economies of Western Europe. Research shows that convergence with Western Europe has slowed since 2007, and the CEE countries’ current growth model is reaching its limit.
Like Western Europe, CEE countries have been challenged by the twin green and digital transitions, as well as Russia’s invasion of the Ukraine, but their needs and priorities are not inevitably in line with wealthier Western member states. Their growth model faces considerable pressure from technological, demographic and ecological developments. For example, while the green transition needs to be accelerated in CEE countries, the level of digitalization of industry is above the EU average. However, and crucially for our discussion, most strategic decisions are being taken by Western European capital owners with limited transfer of research and development (R&D) activities to EU-CEE countries, which continues the region’s development challenge
CEE Countries: Dependent growth models with a rule of law deficit?
The focus of Draghi, Letta, Macron, and other European government officials on the economies of Western Europe overlooks economic developments and challenges in CEE countries. It also overlooks the flipside of CCE dynamism, namely that many of these countries have experienced institutional weaknesses and democratic backsliding, which have their own impact on that can affect competition law enforcement on the ground. For example, economic policies in Hungary and Poland under the Fidesz and Law and Justice (PiS) parties, respectively, took on an interventionist and nationalist turn and drastically reshaped these countries’ economic policies. Both governments enacted policies that resulted in a stronger role of the state in the economy, centralization of economic policymaking, privileged positions of domestic economic insiders at the expense of outsiders in selected sectors, and politicized central banking and media. Such changes went hand in hand with dismantling of key elements of constitutional democracy, in particular rule of law. In Poland, legal reforms undermined the independence of judiciary and created new, politically-shaped judicial fora, what adversely affected legal certainty and legal safeguards within which markets operate. The risks of corruption and collusion in public procurement increased as well. In Hungary, rule of law backsliding enabled the Hungarian government to intentionally use economic regulation to restructure markets (e.g. telecommunications, energy media) and to override market mechanisms. National policies openly prioritized the “strengthening of national sovereignty” in strategic sectors of the national economy. The drastic transformation of the constitutional system has fabricated a “new” economic governance framework that systematically undermined key legal rules and independent institutions of the functioning Hungarian market economy. The lack of competition across various sectors of the Hungarian economy has been well documented, especially in public procurement markets. Setting aside or underenforcing competition law instruments, such as merger control, that aim to disperse economic power have been systematically set aside for political purposes.
The increasing levels of economic prosperity and the rejection of democratic rule and liberal values in Central-Eastern Europe reveal an important paradoxical link. While many Western member states have benefited from Eastern enlargement and an extended single market, they have ignored or even enabled democratic backsliding, and, hence, contributed to the unequal distribution of resources within member states.
Accordingly, and while it is imperative for CEE countries to transition to a more innovation-driven, new growth model, enabled by a comprehensive industrial policy, they must improve state capacity and quality of institutions that have been deteriorating over the past years to varying degrees across the CEE countries.
The role of competition law in CEE
Against this background, any reimagining of competition law in the EU must take into account CCE economic historical challenges and how competition law protects democracy and the rule of law, especially as it applies to CEE countries. Indeed, competition law does not only correct market failures but, by promoting free media and preventing special interest capture or the state promotion of politically connected firms, protects democracy and the rule of law. In other words, it has a pro-democratic role to play. Modern competition laws in CEE countries first arose in the 1990s as a de-monopolization tool in former centrally-planned economies and aimed to create functioning market economies and enable free competition to work. For example, the Polish anti-monopoly statute of 1990 empowered the Polish competition authority to divide or dissolve state enterprises. In addition, competition authorities enforced prohibition of anticompetitive agreements and anticompetitive unilateral conduct against incumbents: state-owned enterprises and the legal successors of state enterprises. This enforcement complemented privatization movements and other reforms to open up markets to new entries, including foreign firms.
Several CEE countries such as Hungary, Lithuania, Poland and Romania managed to establish in the 1990s and 2000s well-functioning competition law regimes characterized by intense enforcement. For example, recent studies reveal the existence of a significant track record of enforcement in the region against trade associations’ collusive practices.
This is not to say that there were no challenges and that all CEE competition law regimes succeeded. For example, in some Balkan countries, such as Croatia, the small size of the national economy and the post-communist cooperative paradigm of its organization (rather than a competitive one) limited the development of effective competition law regimes. More generally, insufficient funding of competition authorities imposed limits on what CEE national competition authorities (NCAs) could achieve, in particular after the 1990s when national market economies matured and easy to detect anticompetitive practices disappeared.
Since 2010 in Hungary and 2015 in Poland, democratic backsliding spurred by new right-wing, populist governments have stymied the development of national competition regimes and enforcement. NCAs have faced challenges in enforcing competition law against firms linked to the ruling government. In the case of Hungary, the government has captured media markets as a result of series of takeovers by private government-linked capital and used its influence to promote itself through advertisements. These governments have undermined the competence of the NCAs. For example, in the case of Hungary, the NCA was deprived of power to review key mergers (i.e. so-called transactions in the national strategic interest). In Poland, the rule of law crisis adversely affected judicial review of NCA’s decisions. So far the EU has ignored the erosion of competition enforcement in the CEE countries and its effect on democratic backsliding. As a result of these processes, a pro-democratic role of competition law got circumvented.
This overview suggests that a more nuanced vision of competition law and policy emerges in Central-Eastern Europe that requires different strategies than what are debated in Brussels. While enforcement against digital platforms is equally relevant for the CEE economies (which is also illustrated by CEE NCAs’ own enforcement), other challenges require a broader perception of the role of competition law in the EU. This broader perception must address the CEE countries’ fundamentally different historical, legal and economic legacies and trajectories over the past decades, including the paradoxical link between economic prosperity and welfare and illiberal state politics. Crucially, it must address institutional capacities of competition authorities, and enforcement challenges in all Member States as an indispensable infrastructure for the enforcement of EU competition law. Competition law backsliding in one Member State weakens or even harms competition across the whole EU and affects enforcement of competition law in Europe. The changing role between states and markets is an essential dimension of competition law enforcement in CEE, but also an important challenge for Western countries. Neglecting such issues entails risks, also for the EU, which depends on NCAs for effective enforcement of EU competition law.
The experience of post-transition CEE countries must stand as a reminder that competition law in Europe is more than a technocratic legal field injected with economic insights about competitive, innovation-driven markets. It is very much about democracy and the rule of law, which are key values of the EU’s legal and economic order.
Author Disclosure: the authors report no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
