Letters by a modern St. Ferdinand III about cults

In March 1998 the EU formally launched the process of enlargement to Eastern Europe. There are 10 countries to be admitted by 2005 or later: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia. This enlargement is without precedent in terms of scope and diversity: the number of candidates, the area (increase of 34%) and population (increase of 105 million), and the wealth of different histories and cultures. The EU positions the enlargement as beneficial to its current membership, forging a stable democratically based Europe open to non-EU firms and investments.

Key Stats: EU vs. Accession countries

Among the ten countries expected to join the EU, only Cyprus and Slovenia have a level of income similar to that of any current EU member. In the other eight countries, GDP per capita ranges from 33 percent of the EU average in Latvia to 59 percent in the Czech Republic. Among all the countries taking part in the European Comparison Program, Bulgaria, Romania and Turkey have the lowest level of income as measured by GDP volumes. In these countries, GDP per capita is about one quarter of the EU average (1).

Eastern expansion is thus fraught with many issues including; its impact on the Euro by extending the Euro zone range to far poorer fiscally less stable countries, the necessity of increased regional support to alleviate income equality and the impact on Western states of increased legal and illegal migration. It remains to be seen how effective EU institutions will be in resolving critical labour and market issues within the current membership of 15 while at the same time trying to redress pressing economic and social problems with the admission of 10 poorer nations.

As well the Eastern enlargement will call for significantly faster rates of inter-industry labour reallocation in current EU members, but past evidence indicates that it would be hard for their labour markets’ institutional configurations to accommodate this. In Germany, for example, apprenticeship-based training and industry-level wage bargaining have historically resulted not only in high productivity at the industry level, but also in remarkably low rates of worker mobility across employers, and especially across industries and occupations. Indeed, Europeans generally tend not to change jobs frequently: on average, in 2000 only 16.4 percent of the working population had been with their employers for less than one year, compared with around 30 percent for the United States.

The latest negotiations between the European Commission and the CEE countries on migration suggest that the Eastern enlargement will involve the free movement of labour only after a transitional period lasting up to seven years. Hence if the first candidates join in 2005, citizens of the new members will only be free to move and work in the current EU in 2012. The idea of a transitional period is dictated by politics. The European Commission has to take into account the concerns of many EU citizens who believe that enlargement will lead to mass migration from the East which will create labour market tensions, social cohesion problems, and high crime.

At present about 300,000 nationals from the 10 CEE countries work in the EU-15, corresponding to 0.2 percent of the workforce in the EU-15. Migration from the CEE countries is concentrated in the neighbouring countries and regions: around 66 percent reside in Germany and 14 percent in Austria, and the proportions of the workforce that they constitute are, respectively, 0.5 percent and 1.1 percent. These small figures reflect tight restrictions on migration into the EU-15. Since 1990 several studies have tried to assess the migration potential associated with the Eastern enlargement (2).

Most studies predict that the long-term migration potential will be at about 3 percent of the current population of the 10 CEE countries, or about 3 million to 4.5 million individuals (3). They envisage annual flows of around 300,000 people a year, two-thirds of whom would go to Germany, falling to 150,000 within a decade of accession. At 0.8 percent and 1.2 percent of the EU’s population and labour force, respectively, these proportions are not huge, yet they are substantially more than the immigration that followed the EU’s southern enlargement. The reduced labour mobility then was due in part to relatively small income differentials; increased unemployment benefits; and flows of public capital to develop basic education, health, and transport infrastructure in the poorest regions of Greece, Portugal, and Spain (4).

The CEE countries are substantially poorer than the EU average (at most 35 percent of the EU’s purchasing power parity-adjusted GDP per capita and 12 percent in nominal terms), and in 41 of the 53 regions of the CEE countries, per capita income is significantly below the EU average. In addition to the average low level, the dispersion of per capita income in different regions of the CEE countries is striking. Current per capita income levels in Prague are 115 percent of the EU average, while per capita income in most regions in Bulgaria and Romania is less than 30 percent of the EU average. Moreover, even in some regions of Poland per capita GDP is 26 percent of the EU average.

While for current EU members importing unskilled labour and exporting capital will improve economic efficiency, such outcomes are unlikely to be palatable to their citizens. According to a Eurobarometer survey, most Europeans favour zero immigration and are worried about the possibility of migrants abusing the welfare state. Certainly in Austria, Belgium, Denmark, Finland, France, and the Netherlands non-EU citizens are over-represented in the pool of unemployment benefit recipients, even after controlling for personal characteristics, for example, when comparisons are made with reference to low-skilled workers with the same number of dependent children. The 2002 Eurobarometer survey further indicates that opposition to Eastern enlargement is concentrated among the unemployed, those with lower levels of education, and the elderly, while ideological factors play a much less important role.

The implication is that the EU-15 cannot allow the CEE countries to implement beggar-my-neighbour policies, but at the same time they cannot impose high welfare standards on them and demand that they bear all the costs. This would slow their convergence to the EU average and reduce their economic efficiency at a time when productivity growth was vital. The imposition of high taxes to pay for a more generous social safety net may also backfire by simply expanding the already large informal sectors in the CEE countries. Thus current EU members, while making accession conditional on the existence of a decent social safety net, should contribute to the costs via structural funds. Accession can be made conditional on progress by appropriate interpretation of the Social Charter. In the new wave of accessions, part of the structural funds can be targeted at building an appropriate level of social infrastructure.

Enlargement – A Neo-liberal analysis:
In the neo-liberal perspective, the international system is characterized by complex interdependence (5). Due to increasing international interdependence, military power is losing its effectiveness and fungibility as a means to achieve state objectives. At the same time, survival ceases to be the primary concern of states. As a consequence, security is not the only and not even the main benefit that states seek by forming and expanding international organizations. Instead of relative losses, states worry mostly about maximizing their absolute (welfare) gains under conditions of (primarily economic) interdependence in a variety of issue-areas. International institutions are created because they help states to manage interdependence and to increase their gains from international cooperation. Accordingly, the core neo-liberal proposition concerning enlargement is that as the EU expands its members expect net absolute gains from the process.

According to Moravcsik’s liberal inter-governmental analysis of European integration, “patterns of commercial advantage”, especially the “interests of powerful domestic producers”, and “the relative bargaining power of important governments”, an effect of their asymmetrical interdependence and divergent preference intensities, determine the substantive decisions of the Community (6). Regarding expansion this would have to be true if one considers German industry’s significant investments in Eastern Europe and their concern to protect these investments (by the rule of law) and in fact create unencumbered market access to both buy and sell goods and services. This concept is favoured by economists who mostly agree that trade integration with the CEE region will benefit the EU economies in the aggregate. It opens a new market for Western European exports in their close proximity. In addition, the supply of cheaper resources and cheaper but qualified labour as well as economies of scale will reduce costs and strengthen European competitiveness on the world market (7). However, this positive outlook has to be qualified in several ways.

First of all any studies which look at the long-run output, employment, and welfare effects of increased CEE-EU trade in the EU commonly conclude that the overall impact will remain relatively minor compared the aggregate EU GDP (8). Whereas trade with the EU accounts for approximately 40-65% of the total trade of most CEE countries (9) , trade with the CEE region does not amount to more than 5% of the total trade of EU members. We see much the same effect between US-Mexico trade. Critic’s who complain that domestic industry in the EU will be supplanted by cheaply produced goods in the CEE region, are incorrect. In general, the pattern of economic interests in East and West created a highly asymmetrical interdependence in favour of the EU.

In any event as with any liberalising trade agreement the effects of trade integration will be distributed unevenly among sectors and countries. EU agriculture, textile and leather as well as metalworking industries will be exposed to stiffer competition as a result of eastward expansion. It is mostly the Latin EU member countries that specialize in such resource-intensive industries and these countries are already lobbying for increased structural fund and re-training budgets (10). Some experts such as Weise et al. expect political problems because the “burdens of adaptation are mostly concentrated on specific sectors in which actors are easy to mobilize politically. Profits, however, are spread more widely and, therefore, less transparent”. Those (mostly Northern) countries that will benefit most from trade integration will, in turn, face migration pressures for which there is a high potential due to geographical proximity, high unemployment in the East and high wage differentials (11).

Although the benefits of economic integration with Central and Eastern Europe are distributed very unevenly among EU members, the overwhelming interest of EU member states lies in intra-EU trade. Even Germany, which is clearly the most important beneficiary of economic integration with the East, has more self-interest in intra EU trade than CEE integration. Its trade with Central and Eastern Europe comes to 9% of its total external trade and around 45% of total EU trade with this region (12) (although its economy accounts for only around 25% of the EU economy in terms of GDP). Nevertheless, its economic stakes in the East are small compared to those in the common market and its political policies will be dictated by such realities (13).

However critics of this liberal approach to eastern expansion point out that EU members are able to acquire the benefits of trade integration without granting the CEE countries full membership in the EU. Under the current association regime, economic integration has progressed de-facto towards a free-trade concept. These critics feel that Western corporations could benefit from advantageous terms of trade especially since the EU has realized each year a trade surplus with its Eastern neighbours. Direct investments in the region are growing without political and institutional deepening. What is more, association allows the EU to protect the sectors in which it is particularly vulnerable to competition and to prevent migration more effectively than it would be possible after enlargement. These critics also maintain that the budgetary costs that would follow from Eastern enlargement add to these disincentives. It is obvious that all CEE countries would become structural net recipients. For the foreseeable future, EU transfers to these countries will outweigh by far their contributions to the EU budget. This mainly results from the effects of enlargement on the CAP and the Union’s structural and regional policies, which together comprise around 80% of the Community budget.

According to Tangermann, the CAP would be seriously affected because the CEE associates, producing only 3% of the EU GNP, would possess 44% of the EU productive land and attain 30% of the level of EU agricultural production. He expects that agricultural production will increase rather than diminish as a result of economic recovery, and that participation in the CAP would give the CEE countries an additional incentive for agricultural production because EU prices in many areas of agriculture are well above world market prices (14).

Furthermore, due to their low levels of wealth and income, the CEE countries would benefit enormously from the structural funds. If these policies remained unchanged, the community budget would have to increase by 20% to 67% of its current volume depending on the scenario and the calculation (15). Therefore, a reform of the CAP and the structural policies is an indispensable pre-condition of enlargement. National budgets are too constrained by decreasing tax yields and by EMU debt limits to permit a generous expansion of Community revenue. Any reform, however, will inevitably lead to income reductions for the EU farmers as well as to either lower transfers to the comparatively disadvantaged EU regions or to fewer regions eligible for financial support.

The Neo-Realist Approach to Eastern Enlargement:
The neo-realist analysis of international politics starts from the assumption that the international system is an anarchical self-help system in which states must be primarily concerned with their security if they want to survive and protect their autonomy (16). Therefore states are sensitive to changes in the distribution of power in the international system. They worry about relative gains of other states and seek to defend their position in the international power structure (17). In principle, states prefer not to accede to international organizations because institutional commitments reduce their freedom of action and entail the risks of long-term losses in autonomy and relative power. Such organizations are only formed out of necessity, i.e. if states are not capable of maintaining their autonomy and of defending their position in the international power structure on their own. When this is the case, states align with each other in order to balance the threat caused by other states or alliances (18).

From this perspective economic resources are regarded as an indispensable component of the national power base, and the state pursues foreign economic policies in order to maintain and strengthen its autonomy, security and position in the international power structure (19). Economic organization, then, serves the same purposes as military alignment. According to Gilpin, “regional arrangements are essentially inter-state alliances whose primary purpose is to strengthen the position of individual states in an interdependent and highly competitive global economy” (20). Thus, the core realist proposition concerning enlargement can be summarized in the following conditional expectation: the EU expands if enlargement is a necessary and efficient means in order to balance superior power or perceived threats.

Enlargement would be necessary if the EU was not capable of balancing, by autonomous efforts, the superiority or threat of competing economic powers. It would be efficient if the accession of CEE countries improved the power position of the EU vis-à-vis these competing powers. It would appear that such expansionism at least for those in the European Commission and for the powerful nation states within the EU, meet these criteria. The main neo-realist argument for enlargement is the one that Joseph Grieco referred to with regard to the internal market and currency union projects: “Neo-realists might argue that the European nations, concerned not about their immediate security but as a matter of paying prudent attention to their relative position in the world economy, elected in the mid- to late 1980s to revive the EC in order to counter the continuing economic challenge of the United States, and especially the new and even more acute challenge of Japan.(21)”

Some neo-realist critics of eastern enlargement argue that the EU does not need to enlarge. They cite that the internal market program has been successful, and the currency union is proceeding forth and that eastern expansion is more of a distraction than an addition as the Euro program begins to take effect. Even if the EU had felt the need to strengthen itself through expansion, these critics argue, it does not need to have chosen Eastern enlargement. Instead of increasing the EU’s common power, the CEE economies will remain a drain on its resources for the foreseeable future once they become full members. These critics maintain that the CEE nations are not capable of improving the global power position of the EU vis-à-vis the United States or Japan. They also contend that at the same time, the EU does not have to fear that Central and Eastern Europe could come under the control of its global competitors. Even if they had that interest, the region’s economic dependence on Western Europe could hardly be substituted by such geographically distant economies as the American or the Japanese.

While some of this may be true, it should not be underestimated that eastern enlargement provides cheap labour, and begins the long process of building Eastern European economic and political stability which is in the long term self interest of the EU. It is difficult to rationalise how Eastern Europe without EU trade, investment and restructuring funds, will make the transition to a system of market based democratically based societies. Unstable societies on the EU’s eastern fringe would be a security and economic threat. Immigration, upheavals, and economic dislocations would be more easily controlled and held accountable within a stable EU framework. As well, economic resources specifically in agriculture, mineral commodities and secondary industries such as steel, might well add value to the EU’s overall economic position.

From this perspective the EU expansion eastwards is driven by a combination of factors both domestic and exogenous. As with most regimes external stimuli and action is oftentimes easier to effect than domestic change and reform. Instead of reforming its welfarist centric doctrines and limiting state appropriation of wealth and economic freedom, the EU is making a conscious decision to bolster its economic weight in the IPE through expansion. Resources, labour, market access and economic potential in the East weigh heavily in this decision. Bargaining power, social stability and secure frontiers buttress this economic takeover of neighbouring states. It is not expected, with the exception of institutional voting, management and policy setting, to significantly alter the statist construction of the EU but will most probably expand its future potential.

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(1) - See A. Marques and E. Soukiazis, Study on Per Capita Income Convergence, 1999.
(2) - See Eurostat, EU Commission.
(3) - For instance see IEA and Eurostats analysis.
(4) - See ESA, Review 14:2 Spring, 2001, and BEC 06-09-02.
(5) - Keohane and Nye, 1977
(6) - Moravcsik, 1998, 3
(7) - Von Hagen, 1996, 6
(8) - Von Hagen 1996, 6
(9) - Eurostat 2000 data
(10) - Von Hagen, 7
(11) - Weise et al. 1997, 18, 26
(12) - Eurostat 2000
(13) - Moravcsik, 1998, p. 65
(14) - Tangermann 1995, 485
(15) - Baldwin 1994, 161
(16) - Waltz 1979
(17) - Grieco 1998
(18) - Waltz 1979, 127
(19) - Frieden and Lake, 1995, 12-13
(20) - Gilpin, 1996, p. 19
(21) - Grieco, 1996, 284