The euro zone's obsession with its debt crisis means the bloc is fading as a beacon for newer and potential EU members, raising the risk they soft-pedal or even reverse reforms, the European Bank for Reconstruction and Development (EBRD) said on Thursday.
With the EU's enlargement process largely on hold, former eastern bloc countries are losing the drive to make the reforms needed to join the bloc. Their growth prospects are dimming as a result, said the EBRD's chief economist, Erik Berglof.
That anchor, the sense of direction that European Union entry and then euro zone entry created - that's being lost, he told Reuters at the World Economic Forum in Davos, Switzerland.
I think the additional remaining reforms that bring about growth will be postponed.
Europe's focus on dealing with the debt crisis means governments in the bloc have little time for working on EU enlargement.
Potential EU members were losing some heart, Berglof said, citing the example of Serbia, which last month saw EU leaders put the granting of its EU membership candidate status on hold.
From the countries' side, they don't think there will be any change in the relationship between them and the European Union any time soon, Berglof said, adding that the euro zone was pre-occupied with itself.
People are willing to make sacrifices if they know there is some higher objective coming out of it, he said. When that sense of direction disappears, it's much harder to do these structural reforms.
The experience of Hungary - which has drawn international criticism for law changes that consolidate the ruling party's hold on power - shows that reforms can also be at risk in countries already in the EU but not yet in the euro zone.
Berglof echoed the concern of billionaire investor George Soros, who said his native Hungary is a harbinger of what's to be expected in the rest of Europe.
Hungary's government has changed rules to increase its power over the media, the central bank and courts, and - its opponents say - make it difficult for the ruling party ever to be removed from office.
Berglof said Hungary's experience is partly a result of having been hit particularly hard by the economic downturn.
I think that's the reason why Hungary was hit first and maybe also the reason why these kind of tendencies that Soros worries about struck Hungary before others - it was hit very badly by the crisis.
Berglof said Hungary was still a bit of an outlier, but the concern of Soros that other European countries could follow the same path was something we really should watch, he added.
(Writing by Paul Carrel; Editing by Peter Graff)