East Europe balks at helping indebted richer West

December 14, 2011 - 10:45 AM
Poland East  Helps West

- A woman looks through garbage in Warsaw, Poland, Wednesday, Dec. 14, 2011. Poland still faces many economic problems despite strong growth since in joined the European Union in 2004. People across central and eastern Europe are balking at a request that they provide loans to the International Monetary Fund to help indebted countries using the euro. Many argue that they should not have to sacrifice to help people in the West, who enjoy a much higher standard of living even though their states are crushed by mountains of debt. (AP Photo/Alik Keplicz) - POLAND OUT -

WARSAW, Poland (AP) — Of all the twists in Europe's debt crisis one of the oddest must be this: Poles, Czechs and other eastern Europeans, long the recipients of massive amounts of Western aid, are being asked to contribute to an emergency fund for indebted Western European states.

That plan, decided at a European Union summit Friday, is sparking resistance — and some outrage — from eastern Europeans who see a huge injustice in being asked to sacrifice for countries that still enjoy much greater wealth, even with mountains of state debt.

Czech and Slovak leaders have spoken out against the plan — sentiment also being voiced in more emotional language by people across the region.

"This must be some kind of bad joke," said Jonas Vaicys, a math teacher in Lithuania, an ex-Soviet state still recovering from a huge hit taken in the financial crisis of 2008-09. "Lithuania itself is on the verge of asking for international help, not donating money to some fund."

The plan is one of several measures that EU leaders agreed to as they struggle to pull Europe out of its debt crisis. It involves EU members providing up to euro200 billion in loans to the International Monetary Fund to empower it to bail out indebted states. The bulk would come from eurozone members, but even those members who don't use the shared currency are being asked for help.

Hungary and Romania won't contribute because they are still paying the IMF back for past bailouts. And Bulgaria — the EU's poorest member — says its has nothing to offer.

But several other ex-communist countries now face an obligation to make reserves from their central banks available to the IMF as loans.

This marks quite a change for a part of Europe that has depended for years on Western aid to overcome the crippling economic legacy of communism. That their help is now sought signals just how far they have come after years of investment and high growth.

Some in this region argue that gratitude alone should prompt them to contribute to the fund without complaining.

But despite years of economic progress, the standard of living across central and eastern Europe still lags far behind the West, and many are loath to go along with the IMF plan.

Poland, for instance, has a debt load much lower than that of Greece and Italy — but this is also because the state simply doesn't provide the generous welfare benefits to its people that many take for granted in the West. Wages, jobless benefits and baby bonuses are all just a fraction of what they are in much of the West.

Now, asking these countries to spare funds for indebted eurozone members could create a popular backlash against any governments that contribute — especially as their own economies are already feeling the pain from the broader European crisis.

Czech Prime Minister Petr Necas said he is personally against contributing the roughly 90 billion koruna (euro3.5 billion; $4.6 billion) his country has been asked for. But he also said more analysis is needed before his government reaches a decision.

"It's a serious situation and a very complicated financial problem," Necas said Tuesday. "A considerable amount of money is involved."

In Slovakia, Jozef Kollar, a leader of Freedom and Solidarity — a center-right party in the government — said he has an "overall negative" view of the plan. He called it a "weird transaction" pushed through by German and French leaders to get more money for an EU rescue fund without going through their parliaments.

The mood is different in Poland, where the pro-EU government of Prime Minister Donald Tusk and the central bank favor contributing. Leaders in Warsaw hope to adopt the euro one day, and argue that the survival of the eurozone — a source of large EU subsidies and a key trade partner — is crucial to Poland's own continued growth and modernization.

"A collapse of the eurozone would be an economic disaster for us," central bank president Marek Belka said Tuesday.

Poland, the largest of the new EU members, is also trying to establish itself as a leading European power — and therefore simply wants to be in the game.

The popular view is different, however.

Poland's leading tabloid, Fakt, has tried to stir up a sense of outrage over what it depicts as an absurd injustice. It carried front-page stories Tuesday and Wednesday that compare the low wages in Poland — which it put at 1,400 zlotys ($410) a month for minimum wage work — with salaries two or three times as high in Greece and Italy.

"And we are supposed to pay for their luxuries?" the paper asked in big letters across its front page Tuesday.

Emotion aside, other arguments against contributing to the fund are also coming up.

Tomas Vlk, an analyst with Patria Finance in Prague, worries that participation could "worsen the Czech position in the eyes of rating agencies."

That, in turn, could make it more expensive for Prague to finance its own state debt.

Czech President Vaclav Klaus, known for his skepticism of the EU, said he opposes contributing because. He argued that doing so would add to the country's own debt problems — even though central bank loans to the IMF do not come from government budgets, and do not have a direct effect on state debt.

"In this situation, it would be irresponsible to increase our debt by providing more loans to the countries with extreme debts, which would only allow them to further delay real solutions," Klaus said Monday on Czech public radio.

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Janicek contributed from Prague, Czech Republic. Associated Press writer Liudas Dapkus also contributed from Vilnius, Lithuania.