Experts issue caution on East Europe boom - by Vanessa Gera
WARSAW, Poland -- As foreign companies flood into Eastern Europe -- making available everything from attractive jobs to Hugo Boss suits and iPods -- those new European Union members are poised to boast 2006 growth rates that dwarf those in Western Europe. But some economists are warning that economic expansion in Poland, the Czech Republic and their neighbors masks structural problems and, most dangerously, takes pressure off governments to make the reforms needed to ensure sustained growth. "Central Europe is benefiting from an inflow of business because of its accession to the European Union. But it's just a peak on an international boom," said Anders Aslund, an analyst at the Peterson Institute for International Economics in Washington. "Apart from this single year, central Europe is not catching up at all with Western Europe," he said. "And there's no reason it should catch up at all."
According to this line of thought, several of the former communist countries that joined the EU in 2004 are setting themselves up for future decline by failing to dismantle their systems of high taxes, expensive welfare systems and rigid labor markets -- legacies of state control of the economy during communism. Symptoms include high government budget deficits, an unwelcoming environment for small and medium-size businesses and delays in adopting the euro everywhere but tiny Slovenia, which will make the switch on Jan. 1.
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