Prague - Central Europe is becoming an island of prosperity. The economies of Germany and Poland grew 4 percent in the second quarter of 2010, the Slovakian economy grew even one percent faster.

However, the Czech Republic's economic growth lags behind with its 2.2 percent growth. For the first time since 1999, the German economy grows faster than the Czech economy.

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No job, no consumption

In both Germany and the Czech Republic, the industrial production grew by one tenth and exports by one fifth, mostly thanks to exports of cars and computers.

However, Germans managed to add something Czechs couldn't. In the first half of 2010, German households have started to spend more, while Czech households spend less than in 2009.

Germans can spend with more ease because in June 2010, there were 77 thousand more employed Germans than two years ago when the crisis started. In the Czech Republic, there are 122 less employed people than two years ago.

The economic recovery in Germany shadowed the similar process in Poland, which as the only European country managed to avoid slipping into recession in 2009, with its economic growth only decelerating to 1.1 percent. The Polish economy was saved by the solid household consumption, which increased by 2 percent in 2009, and this year is going to grow on the same pace.

The unemployment rate in Poland is now back on the level of spring 2008.

In addition, German and Polish firms are investing more than in the previous year. In the Czech Republic, investments of firms into real estates have decreased drastically.

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Export trap?

In spite of the good numbers, German economists warn against over-dependence on exports, especially in a situation when the growth in the USA and China - which import German products - is getting weaker.

"Other European economies rely on continuous growth with stable internal consumption and larger investments," said Mathias Ohanian from Financial Times Deutschland, adding that in the following months, Germans will have to rely merely on the growing household consumption.

The Czech Republic's economic situation is more similar to that of Slovakia - its unemployment has increased, consumption decreased, and investment rate remains unchanged. In spite of this, Slovakia is growing on the fastest pace in Europe, and the country shows that economic growth in fact can be based mainly on exports. Thanks to its exports, Slovakian firms produced one third more goods than in 2009, and with less number of workers.

Greek scare

However, the Slovakian model is going to be put to the test in the following months. Slovakia, as well as all other states of the Central European region, has been helping its economy and households by massively increasing budget expenses. However, while the other countries have slowed down and now spend no more than 2 percent more than in 2009, Slovakia has increased its expenses by 6 percent, and its deficit is nearing 8 percent of the Slovakian GDP. This forced new Slovakian Finance Minister Ivan Mikloš to announce hard austerity measures that include increasing some taxes.

Unlike its Czech counterpart Miroslav Kalousek, Mikloš has already announced the end of all tax exemptions.

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Mikloš's austerity measures can further debilitate household spending and threaten the economic growth. However, Slovakian experts believe that the unemployment will decrease in fall 2010 which will prevent the looming economic growth drop.

So far, the Czech government has not described its cost-cutting measures in detail, it has only declared that the budget spending will not increase in 2011.

The German government prepared its reform package in spring 2010, when they announced for example increased taxes for large corporations or laying off state employees. However, after the numbers showing record economic growth were released, German politicians are starting to have second thoughts, and Timo Pache from Financial Times predicts that the German reform package is threatened.