At long last, the message is getting across that, as far as the financial crisis is concerned, it makes no sense to view the ex-communist countries of central and eastern Europe as one homogenous bloc. European Union policymakers, both in Brussels and at national level, have been trying to make this point for some months. Only now, perhaps, is it really sinking home.

For example, a report by Moody’s credit ratings agency on Tuesday drew a clear distinction between various countries in the region. Some, such as Hungary, rashly allowed a huge expansion in credit in recent years, much in the form of foreign currency-denominated mortgage loans. Others, such as the Czech Republic, did not. The first group is more vulnerable, even if much will ultimately depend on the willingness of western European banks to continue supplying funds to the regional banks they own.

The erroneous idea that you can lump everyone in central and eastern Europe together in one pile comes, of course, from the communist era. But anyone familiar with the region in those times will tell you that even in the 1970s and 1980s there were big differences.

Poland, with its powerful Roman Catholic church and private agriculture, was nothing like Romania, with its megalomaniac dictator Nicolae Ceausescu and its discontented ethnic Hungarian minority. The three Baltic states, which were part of the Soviet Union and enjoyed not a shred of independence, were in still another category.

All the more disappointing, then, were the remarks of Hungarian Prime Minister Ferenc Gyurcsany at the March 1 informal summit of EU leaders in Brussels. Referring to what he saw as a lack of western European solidarity with the EU’s new member-states, he said: ”We should not allow a new Iron Curtain to divide Europe into two parts.”

This irresponsible soundbite went down nicely with many media organisations covering the summit. It simplified a difficult story into “selfish west” and “dumped-on east”. “Everyone at home will understand that,” you could hear them sighing with relief.

Gyurcsany picked his words for this very reason. He wanted to stir up criticism of the EU’s actions so far, and to generate support for his idea of an across-the-board rescue plan for central and eastern Europe.

In one sense, he succeeded. The phrase “new Iron Curtain” appeared on many of the next day’s front pages. But not in the Financial Times, because the FT understood that the real story was how the Czechs, Poles and others - including German chancellor Angela Merkel - had refused to take Gyurcsany’s bait and box the whole of central and eastern Europe into one group.

In another sense, Gyurcsany failed, because all he achieved was to confuse understanding of the true state of affairs in the region.

That is the problem with soundbites - you get a headline, but you mislead the world.

When I lived in Poland in the mid-1980s, I was once given a one-zloty coin for Christmas. This was no ordinary one-zloty coin, however. It was stamped on one side with an image of the Lenin shipyard in Gdansk, the birthplace of the Solidarity independent trade union. Poland’s Communist authorities had suppressed Solidarity under martial law in December 1981. Underground Solidarity activists used to take away the coins, stamp them with the shipyard’s image and then put them back into circulation as a way of reminding Poles that the movement had not disappeared altogether.

Today Poland’s government is keen to switch from the zloty to the euro. Like other governments in the region, it sees early eurozone entry as a way of protecting its economy against the world financial crisis. Poland envies Slovenia and Slovakia, which qualified for eurozone membership ahead of other new European Union member-states. They are now reaping the rewards of belonging to a large and - whatever the tensions generated by the financial crisis - broadly stable single currency bloc.

The question is whether Poland would be taking too big a gamble by aiming for quick eurozone entry. Under EU rules, a candidate member must spend at least two years in the so-called ERM-2 exchange rate mechanism, ensuring the stability of its currency, before it can adopt the euro. At their summit in Brussels on Sunday, some EU leaders indicated they were open to the idea of shortening the two-year preparation period. But they took no decision, and it is far from clear that the European Central Bank would favour such a step.

The zloty has lost about a third of its value against the euro since last July, part of a much wider picture of exchange rate turbulence in central and eastern Europe in recent months. Perhaps joining the ERM-2 would deter speculators from betting against the zloty. Or perhaps Poland would suffer the fate of Britain in 1992, when the pound was ejected from the first ERM. With so many Polish companies and households having borrowed in euros, another run on the zloty could trigger a disastrous debt emergency.

In the end, Poland would survive in the ERM-2 if financial markets judged that its economy was fundamentally healthy and competitive. But a lot would depend on what band was set for the euro-zloty exchange rate. Part of Britain’s problem in the early 1990s was that the pound’s rate against the German mark was unrealistically high. In any case, the words of Miroslaw Gronicki, a former Polish finance minister, are worth bearing in mind: ”It’s an axiom that you don’t switch to a less flexible currency regime in a crisis.”

Almost 20 years after the end of the Cold War, it is sobering to see how military and security policy decisions taken in Washington and Moscow can still shape the fate of Europe. Take the European Union’s Lisbon treaty, which sets out to reform the EU’s institutional arrangements.

The treaty, rejected by Irish voters last June but still viewed in official EU circles as an absolute necessity, is perhaps the last foreign policy issue on the mind of either Barack Obama or Vladimir Putin. But the US president and Russian prime minister are making overtures to each other on Europe-based missile and anti-missile shield systems that may damage the treaty’s prospects of ever coming into effect. Most EU leaders would see that as a great loss: they fear Europe won’t be able to project its influence effectively on the world stage unless the Lisbon reforms are in force.

A Russian military official said last week that the Kremlin would drop its threat, made in November, to deploy short-range missiles in Kaliningrad. For it sensed that US was in no hurry to set up an anti-missile system, first proposed by George W. Bush’s administration, in the Czech Republic and Poland.

Some people in Europe read this announcement as a “conciliatory” Russian gesture to Obama and his new team. Maybe. But others would say it looked like the old Soviet tactic of making a disproportionately bellicose threat, then withdrawing the threat and expecting it to be treated as a statesman-like act of diplomacy. It is also worth noting that Moscow is pressing on with plans for military, naval and air bases in South Ossetia and Abkhazia, the territories it stripped last August from Georgia.

Be that as it may, the Russian declaration put the cat among the pigeons in the Czech Republic, where the Lisbon treaty has yet to be ratified. The minority Czech coalition government had hoped to strike a deal with the Social Democratic opposition, under which the Social Democrats would back the missile defence plan in return for government agreement to push the Lisbon treaty through parliament.

This compromise will clearly be in danger of collapse, if the US postpones deployment of the anti-missile system. And there are excellent reasons for the Obama administration to go for a postponement: the financial crisis, the anti-missile shield’s divisive impact on Nato, and the possibility of working more constructively with Moscow to contain Iran’s suspected nuclear weapons programme.

All of which explains why it is proving so difficult for the Czech Republic to ratify the Lisbon treaty. It is, in fact, alone among the EU’s 27 member-states in not having managed to hold a parliamentary or popular vote on the document. Given that the Czechs hold the EU’s rotating presidency, this is all getting rather embarrassing. It will take political courage and ingenuity to find a way forward.

I am in snowy Vilnius, the capital of Lithuania and a city that reminds me of a communist-era joke that I first heard in Poland in 1980.

A Frenchman visits Warsaw, so the story went, and is so shocked by the bleak buildings and empty shops that he thinks he must have arrived in Moscow by mistake. Meanwhile, a Russian visits Warsaw and is so pleasantly surprised by the colour and the range of goods on sale that he thinks he must have arrived in Paris.

Political and economic conditions in Vilnius in 2008 are light years from those in Warsaw in 1980 - Lithuania wasn’t even an independent country back then, but rather a Soviet republic that was almost totally closed to western visitors.

In some ways, however, the old Polish joke still applies. Switch on your television in Vilnius, and you get easy access to Russian and Belarusan networks.  But poke your head out of the window and you hear the chimes of Catholic church bells; as in Poland or Ireland, Catholicism is in Lithuania’s DNA. Truly, this is a country precariously poised between east and west.

It is a point well illustrated by the story of the main thoroughfare in Vilnius, Gediminas Avenue, where the government buildings are located. Between 1922 and 1989, when Vilnius was under the successive rule of Poland, Nazi Germany and the Soviet Union, this street was named first after Adam Mickiewicz, the great 19th century Polish-Lithuanian poet, then after Adolf Hitler, and then after Vladimir Lenin and Josef Stalin.

“Who knows what will happen in the future? Life is so hectic,” a Vilnius tour guide said to me, looking over the park where a statue of Lenin used to stand.

It wasn’t exactly a thundering expression of faith in Lithuania’s long-term independence. but if you think about what’s happened to the country over the past 100 years, you can see her point.

Surprises galore at the European Union summit that opened in Brussels on Wednesday. The heroes of the hour are turning out to be Gordon Brown and Nicolas Sarkozy. Angela Merkel and Silvio Berlusconi are still recovering from poor performances in the run-up to the summit. And as for the leaders of Poland … the least said, the better.

First, Brown. Eyes popped out when Brown showed up in Brussels, hours before the summit started, for a conversation with European Commission president José Manuel Barroso and an appearance before the media. Could this really be the same UK prime minister who, less than a year ago, deliberately arrived late for an EU summit so that he wouldn’t be seen signing the bloc’s Lisbon treaty at the same time as the other leaders?

With his poll ratings improving thanks to his bold action in the financial turmoil, carefully co-ordinated with other EU leaders, perhaps Brown sees previously hidden advantages to being a “good European”.

As for Sarkozy, his habit of summoning summit after summit to address the EU’s various problems  is starting to pay dividends. First there was the September 1 summit to tackle the EU’s response to Russia’s invasion of Georgia. Then there was last Sunday’s summit of eurozone leaders - plus Brown - to address the threatening financial catastrophe. Both were pretty successful. Four months ago, other EU leaders were fretting about Sarkozy’s “hyper-activity” and “unpredictability”. He’s made them look rather foolish.

Merkel is a puzzle. Brussels is still in shock at the way she unilaterally announced a blanket guarantee for German savers’ deposits 10 days ago, without apparently forewarning any of her EU partners. She’s making up ground now, though, by backing the calls for a grand redesign of the world’s financial institutions.

Berlusconi has never been fully at home in EU circles - and even less so after a bizarre episode last week, when he suggested all the world’s financial markets might be temporarily closed. He withdrew that statement pretty fast, but now he’s haring down another unhelpful track by saying Russia should join the EU.

What about Donald Tusk and Lech Kaczynski, Poland’s prime minister and president? It seems too farcical for words, but Kaczynski is arriving for the summit separately because Tusk wouldn’t let him use a government aircraft.  While the world has been teetering on the edge of the financial abyss, the two Polish rivals can’t agree on anything, even on who should represent Poland at an EU summit.

So, in the spirit of the times, it’s sell Tusk, Kaczynski and Berlusconi, hold Merkel, and buy Brown and Sarko!

The demographic forecasts contained in a new report from Eurostat, the European Union’s statistical agency, are worth a good look. Everyone knows the EU’s rapidly ageing population and shrinking workforce are making its task of promoting prosperity and job growth ever more difficult. But we don’t often see the hard numbers behind the general trend.

What I found most striking were the predictions for the big EU-6. In terms of their current populations, these are Germany (82.2m people), France (61.9m), the UK (61.3m), Italy (59.5m), Spain (45.3m) and Poland (38.1m).

By 2060, the order will have dramatically changed. In first place, says Eurostat, will be the UK (76.7m people), followed by France (71.8m), Germany (70.8m), Italy (59.4m), Spain (51.9m) and Poland (31.1m).

In other words, Germany and Poland are forecast to suffer catastrophic population falls of 13.9 per cent and 18.3 per cent respectively over the next 50 years. From being the EU’s largest country with more than 20m people than second-ranked France, Germany will tumble into third place. Poland, not far behind Spain today, will fall way back, with 20m fewer people than Spain in 2060.

It is hard to believe that such massive changes, which Eurostat says will take place in spite of immigration into the EU, would not have a big impact on the distribution of power in the EU. For example, the Lisbon treaty - which, of course, may never come into force - recognises Germany’s present pre-eminence by allocating Germany more European Parliament members than any other country. But that arrangement surely could not last if Eurostat’s forecast were to prove accurate.

As for Poland, its leaders cited its population size last year as an argument for more weight in the EU’s institutions. But if its population were to shrink as much as Eurostat predicts, it would be difficult to make the case that Poland deserves the same influence as, say, Spain.

Meanwhile, the UK would find itself in the remarkable position of being the largest country in an organisation that it has never seemed entirely sure it wants to be part of. Of course, the secession of Scotland (with just over 5m people now) from the UK would make a difference.

One glaring omission from the Eurostat report is Turkey, an official candidate for EU membership. Hostility to Turkey’s bid in countries such as Austria and France stems partly from the objection that Turkey is already so big (more than 70m people) that its admission would fundamentally change the EU’s nature. But I see that, according to a recent United Nations Population Fund forecast, Turkey will keep on growing and have over 100m people by 2050.

Given what Eurostat is saying about population trends in existing EU member-states, it would seem that opposition to Turkey’s admission will just get stronger and stronger.

Oh, the magic of democracy! Three European election results have lifted spirits in Brussels: Poland’s parliamentary vote of October 2007, the Serbian presidential ballot of February 3, and the first round of Cyprus’s presidential election last Sunday.

In each case, the winners stood for better relations with the European Union and a co-operative approach to solving European diplomatic problems. The losers were prickly, obstructive nationalists and the opposite of everything the EU likes to think it stands for.Whether these three results will be enough to wipe out the painful memory of the Dutch and French referendums of 2005 that killed off the EU’s experiment in constitution-building remains to be seen. But for many in Brussels, the message from Poland, Serbia and Cyprus is that democracy not only works, but strengthens the EU and the cause of European integration.

In other words, don’t be afraid of the voters - they can be trusted, in the end, to get it right. In Poland, the October election produced a whopping defeat for Jaroslaw Kaczynski, the prime minister who had achieved the reckless feat of simultaneously irritating Germany and Russia, Poland’s far more powerful neighbours. The winner was Donald Tusk and his pro-European, pro-business Civic Platform party.

In Serbia, the pro-European Boris Tadic scored a victory over the ultra-nationalist Tomislav Nikolic that was narrow but just enough to let the EU claim that Serb voters had chosen a European path over the road of darkness.

Most intriguing of all was Sunday’s result in Cyprus. Continue reading "Cyprus renews EU’s faith in magic of democracy"