By Andrés Rodríguez-Pose London School of Economics Oxford University Press ISBN 0-19-874286-X THE EUROPEAN UNION: ECONOMY, SOCIETY, AND POLITY.

by Andrés Rodríguez-Pose

London School of Economics

Oxford University PressISBN 0-19-874286-X

THE EUROPEAN UNION:ECONOMY, SOCIETY, AND

POLITY

Part III

POLITY

Chapter 6

Enlargement

Introduction

• The fall of the Berlin Wall in November 1989 marked the beginning of the end of the post-WWII polarized world

• Countries to the East of former the Iron Curtain looked immediately towards the prosperous and democratic West

• Membership of the EU became an indicator of future stability and prosperity for central and eastern European countries (CEECs)

• The EU, despite a warm welcome, was somewhat slow to react:– Because of the economic, social and political situation of countries in

CEE– Because of the degree of internal restructuring needed in order to

accommodate new members

Change in central and eastern Europe

• The fall of the Berlin Wall in November 1989 symbolically marked the beginning of a process of radical transformation in CEE

• This process entailed different types of transition– Political transition: From one-party states to democratic

regimes– Economic transition: From centrally planned socialist

economies to capitalist systems– Identity transition: Represented by changes in national

allegiances– Diplomatic transition: Integration or reintegration into a

‘Western-dominated’ international system

Different transitions in central and eastern Europe

• Political transition:– From communist one-party states to democratic

regimes• Successful in the Czech Republic, Hungary, Poland,

Slovenia, and, increasingly, Slovakia • Baltic states close to that stage (question marks about

the treatment of minorities)• Right track, but early stages: Bulgaria, Romania, and,

increasingly, Croatia• Still far away: Russia, the Ukraine, Yugoslavia, Albania• Plain dictatorships: Belarus

Different transitions in central and eastern Europe (II)

• Economic transition:– Mammoth economic changes– Serious difficulties in the passage from centrally-

planned to free-market systems• Wholesale reform of how the economy is run• Change in the attitudes and habits of economic agents• End of central planning, of state support and subsidies to basic

industries• Introduction of market institutions such as competition and

profit• End of full employment and employment for life• Introduction of ‘real’ trade

Different transitions in central and eastern Europe (III)

• Economic transition (II):– Two alternative approaches to economic transition:

• Shock therapy: Rapid demise of socialist economic institutions and their replacement by market institutions (Poland and Hungary, to a lesser extent)

• Gradual and incremental transition: step by step change of institutions (Czech Republic)

– No system has yielded magical results• Loss of economic weight of most CEECs

– Severe recession in the early 1990s – Steep rise in unemployment

• Transition to capitalism has often implied the loss of one generation’s worth of income (Fischer, Sahay, and Végh, 1997)

Different transitions in central and eastern Europe (IV)

• Economic transition (III):– Weak economic situation across CEECs

• The republics of the former USSR have been especially hard hit• Although candidate countries, Turkey and the European republics of

the former USSR together have a population which is similar to that of the EU-15, the size of their economies put together represents less than the joint size of the Dutch and Spanish economies

• The GDP per capita of candidate countries is lower than that of the poorest member states in EU-15

– Economic transition is proving more complicated that political transition• Few CEECs have managed to achieve a full transition to a market

economy

Evolution of GDP

-25

-15

-5

5

15

1991 1992 1993 1994 1995 1996 1997

EU15

CZE

EST

HUN

POL

SVN

-35

-25

-15

-5

5

15

1991 1992 1993 1994 1995 1996 1997

EU15

BGR

LVA

LTU

ROM

SVK

-35

-25

-15

-5

5

15

1991 1992 1993 1994 1995 1996 1997

EU15

BLR

MDA

RUS

UKR

-10

-5

0

5

10

1991 1992 1993 1994 1995 1996 1997

EU15

TUR

‘First wave’ countries ‘Second wave’ countries

Ex-Soviet countries Turkey

GDP in CEECs with respect to the EU 1991 1994 1997

EU15 100.00 100.00 100.00

‘First wave’ 2.73 2.73 2.96 Czech Republic 0.63 0.58 0.61 Estonia 0.08 0.06 0.06 Hungary 0.56 0.53 0.54 Poland 1.24 1.35 1.53 Slovenia 0.22 0.22 0.23

‘Second wave’ 1.07 0.88 0.88 Bulgaria 0.17 0.15 0.12 Latvia 0.14 0.08 0.08 Lithuania 0.14 0.08 0.09 Romania 0.40 0.37 0.36 Slovakia 0.22 0.20 0.22

Turkey 1.83 1.91 2.21

Ex-Soviet 9.16 5.87 4.96 Moldova 0.08 0.04 0.03 Belarus 0.35 0.25 0.24 Russian Federation 6.67 4.40 3.84 Ukraine 2.06 1.19 0.85

Source: Own elaboration with World Bank World Development Indicators (2000) data.

GDP per capita in CEECs 1980 1986 1992 1996 1997

EU15 100.00 100.00 100.00 100.00 100.00

‘First wave’ Czech Republic - 64.68 51.16 51.94 50.70 Estonia - - 25.19 23.41 25.28 Hungary 43.96 43.55 35.50 34.26 34.73 Poland 38.51 33.39 27.34 30.58 31.45 Slovenia - - 53.72 56.72 56.92

‘Second wave’ Bulgaria 27.37 29.19 24.96 21.41 19.34 Latvia 34.00 35.73 21.74 18.28 19.01 Lithuania - - 26.68 19.97 20.36 Romania 34.00 34.76 21.50 23.01 20.79 Slovakia - - 36.09 37.40 38.16

Turkey 27.37 28.31 30.32 29.88 30.63

Former Yugoslavia Croatia - - 23.70 23.80 25.32 Macedonia - - 20.55 15.94 15.48

Ex-Soviet Moldova - - 13.16 7.42 7.24 Belarus - - 31.27 21.66 23.40 Russian Federation - - 33.35 21.71 21.08 Ukraine - - 23.29 11.25 10.56 Source: Own elaboration with World Bank World Development Indicators (2000) data.

Different transitions in central and eastern Europe

(V)• Identity transition:

– From being citizens of a state to being citizens of another (in some case with little or no historical tradition):• Former East Germans, becoming citizens of a united Germany• Former Czechoslovakians, becoming Czech and Slovak citizens• Former Soviets citizens, being divided into 15 independent

republics. • Collapse of the former Yugoslavia

– National identity still not well defined:• Especially in states with little historical tradition (Belarus,

Bosnia-Hercegovina, Macedonia, Moldova)• In states with large minorities

Different transitions in central and eastern Europe

(VI)• Diplomatic transition:

– Failure of regional co-operation after the collapse of communism:• Lack of success of regional co-operation: the Central European

Free Trade Area (CEFTA) never really got off the ground• Commonwealth of Independent States (CIS) in the former USSR

with little economic and political clout

– Integration or reintegration of CEECs into a ‘Western-dominated’ international system:• From the Warsaw Pact to NATO• Integration in international organizations with economic content:

IMF, OECD, WTO• Membership of the EU as the ultimate goal

Enlargement and European integration

• EU engaged during the 1990s in the widening vs. deepening debate:– Deepening: Steaming ahead with greater economic

and political integration and reform before opening the gates to new members• Consequences: It becomes more difficult for candidate

countries to join, as the acquis communautaire expands considerably

– Widening: Allow candidate countries in first and then undertake reforms• Consequences: The consensus to proceed with economic and

political integration becomes more difficult

Enlargement and European integration (II)

• The position each country adopted has depended on their future vision of the EU, as well as on internal political considerations– France, Benelux, Spain, and Portugal on the deepening side– Britain on the widening side, because of the deeply-rooted

Euroscepticism in the country– Germany, Italy, and Greece in two minds: pro-widening, but wanting

at the same time to deepen the EU– Admission of Austria, Finland, and Sweden in 1995 reinforced the

pro-widening camp

• Initial decisions favoured the deepening agenda– Process of enlargement has been slow and relatively ad hoc– Introduction of criteria in the 1993 Copenhagen summit

Enlargement and European integration (III)

• ‘Copenhagen criteria’ 1993:– stable institutions guaranteeing democracy, the rule of law, the

protection of minorities, and human rights;– a functioning market economy, capable of coping with an increasingly

competitive market pressure– an institutional framework capable of assuming the obligations of the

acquis communautaire in its entirety.

• Enlargement, however, played second fiddle to economic and political integration until the implementation of the single currency

• It is only since the arrival of the Euro that enlargement has become the EU’s greatest priority

Enlargement for candidate countries

• For candidate countries the EU is regarded as guaranteeing:– Democratic stability– Economic prosperity

• But it also implies:– Swallowing the bitter pill of thorough economic, institutional,

and political reform– Economic reform may have important implications for

economies that are, as a general rule, much poorer that previous candidates

– Greater need for adjustment than in previous enlargements as a result of the growth of the acquis communautaire in recent years

Enlargement for the EU

• Enlargement will increase the heterogeneity of the EU and therefore requires a rethinking of European institutions and policies– The Treaty of Rome was originally devised for six member states,

enlargement to twenty five or more members implies a thorough revision of the Treaty…

– And a thorough revision of the current institutional framework…– And of the decision-making rules– Enlargement has also important budgetary implications

• Thorough revision of main EU policies (agricultural, structural, and cohesion)

– Enlargement may revive the large flows of east-west migration of the early 1990s

Conclusion

• Enlargement will transform the EU– It will increase political and economic stability across Europe– It will increase the budgetary burden on the EU if no thorough

reform of current policies is undertaken– It may lead to institutional paralysis without thorough reform– It will tilt the balance of power in the EU, probably in

Germany’s favour

• A successful enlargement requires a thorough reform of:– The economies, policies, and institutions of applicant countries– A thorough institutional and policy reform in the EU itself