ECONOMY

Bitter truths of EU enlargement

When the 10 newcomers to the European Union applied to become members, what lured their peoples to the idea was quite different from what they are set to face in the coming years. Europe then was full of luster. Its coffers were full, ready to support generous programs of subsidies to farm products and structural adjustment. The EU was also shining as a geopolitical power, relatively independent, relatively large, certainly historic and usually democratic. The luster has worn off, however, and the Union is facing difficulties. Its economy has been running out of steam for some years now, with the result that the European Commission’s aim to raise its budget to 1.24 percent of the Union’s gross domestic product (GDP) by 2016 is facing very strong reactions – probably nearer 1 percent, say the big members, which today fork out 1.1 percent of their GDP. But then again, the new members may not be in for such a bad deal after all. If one looks at the identity and the characteristics of the new perimeters that the EU – and Germany in particular – is acquiring, one will notice the following interesting facts: Most of the new members are first and foremost strong Atlanticists. Even the two islands, Cyprus and Malta, former members of the non-aligned movement, are both ready to enter NATO and tap into their traditional ties with Britain. Before becoming EU members on May 1, most of these countries had become members of the North Atlantic Treaty. Russia not only lost some satellites of the old Soviet Union, but also precious intermediate stations in its contact with the West. All this points to dangers and opportunities for Greece. Already, three of the new members are in a better position than we are, as well as having the right to participate more dynamically in the next round of allocation of European resources. But even worse for us is the practical interest and aptitude they are showing in the sectors that define the dynamics of modern states, education, public administration, their contacts with the European center, and their adaptability to upheavals on the international front. What is certain is that the 10 new commissioners in Brussels will not have Greece as a model for their future; more likely, we’re an example to be avoided. By contrast, we have yet to draw the right conclusions from our experience in the European Union after nearly a quarter of a century. The direction toward which the 10 new members are looking is the country at the extreme west of the Union, which will receive them in Dublin in its capacity as current president. No one among the 10 wishes to become confused with the complex and inefficient welfare state that has taken shape through the repeated turns between Left and Right, corresponding to the long and once-powerful social democratic tradition. The large countries (Germany, France and Italy) have not drawn the attention of the new populations, not even – fortunately – as hopeful labor markets. As Europe has been enlarged without any prior serious steps toward acquiring «depth,» competition – fortunately not on the scale of the Chinese – will be a prime concern for the new members. On the whole, they are well armed for their new long-term venture, with well-trained labor forces, disciplined state apparatuses, doors wide open to foreign investors and the taxation of profits (and incomes) much lower than those of the old members, including Greece. But not all is rosy, of course. The new members will need to pursue adjustments in order to be able to abandon their national currencies and join the eurozone. The Greek experience in this is useful and is already being studied and disseminated by the «strict» European Central Bank. Until they achieve this goal, the dangers lurk. Their economies are likely to come under attack from international money markets each time they hesitate to proceed with the necessary reforms. Having already achieved an overhaul of their institutions in the last 15 years or so, the political leaders and peoples of most of the newcomers are well placed to assess the cost of high-speed adjustment processes. They have no time to lose and each wrong step will necessitate further, more competitive measures. Whether these concern their currencies or the level of their tax rates, Greece will be losing out and will come under pressure to use its one and only weapon for facing the new «enlarged» reality – to improve its performance in internal European competition.