And You Thought the Economy Was Scary?

Over in Eastern Europe, the recession is threatening fragile governments and alliances, promising the kind of chaos not seen since the '30s.

The global economic crisis has thrown up the unlikeliest of European marriage counselors. As the financial storm threatens to capsize some of the weakest economies in Eastern Europe, it is Robert Zoellick, once George W. Bush’s deputy secretary of State and now president of the World Bank, who has become the most outspoken defender of a united Europe. Last month, he warned EU bankers and politicians that they had a responsibility toward keeping the 20-year-old East-West European marriage intact.

“It’s 20 years after Europe was united in 1989,” Zoellick said, arguing in favor of a joint World Bank and IMF $31 billion bailout package for the region. “What a tragedy if you allow Europe to split again.”

Multiply the consequences of the current American recession several times and you have an idea of what lies in store for Eastern Europe.

Give or take the odd Balkan war, the “end of history” (as coined by Francis Fukuyama) has lasted 20 years in Eastern Europe. But today, it’s the resurrection rather than the death of history that has cast its shadow over the region. Those dark clouds on the Eastern horizon are the impending storms of economic collapse. The political and economic situation in much of Eastern Europe—particularly in Latvia, Hungary and Romania—is about to turn very nasty. Multiply the consequences of the current American recession several times and you have an idea of what lies in store for much of the region.

It’s happened before, of course. The impact of today’s global meltdown on the region is raising all the ghosts of the interwar period of the 20th century—those dreadfully dark years in Eastern Europe when a similarly dramatic global monetary meltdown triggered economic depression, mass unemployment, and the rise of autarky, authoritarianism, and xenophobia. The end result was the destruction of democracy everywhere outside Czechoslovakia and the emergence of popular fascist movements in Austria, Romania, Hungary, and, of course, Germany.

Yet history never fully repeats itself—not even in Eastern Europe. In comparison with the fragile new states that emerged out of the peace treaties of Versailles and Trianon, today’s Eastern European democracies are much stronger, their economies more robust, and their laws and bureaucracies more legitimate. The EU exists today of course—incorporating all of Eastern Europe except for the Ukraine, Belarus, Albania, and most of the former Yugoslavia. Most significantly, the ethnic and cultural heterogeneity of interwar Eastern European countries has been replaced, through the death camps and the population transfers after the Second World War, by relative homogeneity.

That said, just as in the '30s, the global liquidity crisis has decimated the demand for many of Eastern Europe’s primary products, such as Romanian steel or Hungarian metallurgy. Most of the region’s currencies, even the relatively strong Czech koruna and the Polish zloty, have taken a pummeling. Most ominously of all, the highly leveraged economies of Hungary and Latvia have become so indebted to German and Austrian banks as to flirt with national bankruptcy.

German Chancellor Angela Merkel tactfully describes the situation as an “extraordinary international crisis.” The reaction of the Eastern European street has been less circumspect. With its economy shrinking 15 percent in the last year, Latvia has experienced the country’s worst political disturbances since the magical year of 1989. There have been riots too in Lithuania, Greece and Bulgaria as well as daily demonstrations against governments in Ukraine, Montenegro and Serbia.

And it’s not just the World Bank’s Zoellick who has recognized the rebirth of history in Eastern Europe. Hungarian Prime Minister Ferenc Gyurcsany warned that “we should not allow a new Iron Curtain to be set up and divide Europe.” The problem, however, is that—just as in the '30s—the most corrosive political divisions are within Eastern Europe itself, both between EU members and outsiders. The region is split on how to confront the crisis, between a relatively prosperous east-central manufacturing export zone (Slovakia, Czech Republic, and Poland) and its generally non-EU eastern and southern periphery (the Balkans, the Baltic states, Hungary, Ukraine, and Belarus). Thus, Poland and the Czech Republic both broke ranks and objected to last weekend’s unsuccessful request to Brussels by Gyurcsany for the EU to spend over $241 billion in supplementary aid to the whole region.

Unlike 1989, there isn’t a Vaclav Havel to articulate a collective regional response to the crisis. This may change. With Putin’s Russia staring menacingly westward and a Western Europe lacking the will to look firmly eastward, Eastern Europe can’t rely on Robert Zoellick to counsel its relationship with the West. It would indeed be a tragedy if Europe splinters apart as it did in the interwar period. American foreign-policy boffins need to dust off their atlases. The mosaic of history has, unfortunately, returned with a vengeance.

Andrew Keen is the author of the bestseller Cult of the Amateur, which has been translated into 15 languages. Known as the Antichrist of Silicon Valley, he is the most hated person on the Internet. He twitters at @ ajkeen.com.