Did Austerity Manage to Save Eastern Europe?

CNBC went on the road this week to Central and Eastern Europe, a region that a year and a half ago was sending shockwaves through markets as some analysts were predicting its collapse.

So how is the region doing, some IMF and EU bailouts later?

Central and Eastern Europe is an economically diverse place. Our tour left us marvelling at the export prowess of the Czech Republic, humbled by the ‘take-it-on-the-chin’ attitude of the Latvians and hoping the Romanians can finally return to growth amid the gritty beauty of Bucharest.

Countries that have linked their economies to the German export machine really do seem to be doing very nicely, thank you. Exports make up 80 percent of GDP in the Czech Republic and much of that goes to Germany. But it’s not the German consumer they have to thank. They have forged a role for themselves in supplying German exporters.

Many Central European countries no longer consider themselves to be ‘emerging’. They have emerged, and, as a result, don’t expect to see the same asset and currency bubbles that high-growth nations in Asia and Latin America fear. In fact, many countries in the region fear that they will miss out on much needed foreign capital as it seeks higher yields elsewhere.

No country makes the decision to call in the IMF lightly. Romanians have seen wages in the public sector cut by 25 percent and big pension reforms are coming. Austerity measures have been so severe that GDP has turned negative again. But Romanian private sector business says these reforms are well overdue.

In Latvia, hospitals and schools have closed and local people worry the young will all move away to find work. In both countries governments seem, perhaps surprisingly, committed to fiscal reform: they know where their next meal is coming from. A visit to this region really brings home the importance of doing everything you can independently to avoid the ruthlessness of the IMF men in suits.

You simply can’t have Western prosperity overnight. The aftermath of a boom and bust cycle can be devastating and no amount of consumer credit can take the place of gradual structural reform.

The euro is still popular. Admittedly, the central European countries that have benefitted from weak currencies in recent years are a little cool on the idea of joining, but generally the region still believes in the project. They still want to join - if the door is ever open to them.