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From Labour Focus on Eastern Europe, No. 59, 1998

Peter Gowan

EU Eastwards Enlargement: the Uncertainties Remain

President Chirac has made the idea of Europe as a large family fashionable, with his suggestion last year that all 10 of the East European states applying for membership should be brought together for 'a family photograph' with their rich uncles, cousins and aunts in the West. But if Europe is really in the process of preparing for a family reunion, at present the arrangements look set to produce either embarrassments, or disappointments or even family recriminations. For the EU's enlargement process is reminiscent of nothing so much as rich relatives who feel obliged to invite distant and poor relatives to come to stay, but wishes they wouldn't come, is divided over how much hospitality to provide, does not wish to incur extra expenses and is even toying with the idea of making the poor cousins pay the entire cost of the stay. Meanwhile after a long and unpleasant journey, the poor cousins wait on the cold doorstep while those inside claim unconvincingly that they are trying to open the door but are being prevented, by one problem after another with the keys, from unbolting it.
On the face of it, the Luxembourg EU Council meeting was a success for the applicants. A date was finally fixed for starting negotiations with 5 of them plus, in principle, Cyprus: March 31st, 1998. The five are Poland, Hungary, the Czech Republic, Slovenia and Estonia. And the applicants who had been placed at the back of the queue were given seemingly more generous treatment than the Commission's opinion, published in the summer of last year, could have led them to expect: their progress in meeting the so-called 'acquis communautaire' will be reviewed annually and they could, as a resul5t, be brought forward to the front of the queue and be offered actual negotiations for membership. This element of flexibility was pushed for especially by Sweden and Denmark (with some German support) and gives hope especially to Lithuania's government that it might join the top group of applicants.
Yet progress on all the main substantial issues blocking Eastward enlargement -- issues which have now been on the agenda for nearly five years (since the Copenhagen Council of May 1993) -- has been all but negligible. These are the problems of reform within the EU itself.
EU spokespeople like to suggest that the great problem of enlargement is to make sure that the applicant states have really managed to achieve the legal and institutional changes necessary to harmonise with the 'acquis communautaires' -- the existing institutional and policy arrangements of the EU. But this is best described as power discourse which is very far from reality. In truth, the EU member states have no intention of granting the full acquis communautaires to the new members in the East. Instead, and as a precondition for enlargement they are going to change the existing acquis or try to ensure that the full rights contained in the existing acquis are not extended to the new members. These issues are the really important obstacles to swift enlargement. And if anything, the December Luxembourg Council marked a retreat from tackling these problems.

The question of EU expenditure
The first major problem here is the size and distribution of future EU expenditure. The Eastern applicants are all very much poorer (especially after the large falls in GDP that they have experienced in the 1990s) than the EU average. Slovenia, with the richest per capita GDP of all the applicants, stands at only 59 per cent of the EU average. They should therefore have a very substantial slice of Structural Fund money. The bulk of this money at present goes to so-called Objective 1 programmes which are devoted to regions with the lowest per capita GDP. Without a change in the funding criteria or in the total funds there would therefore by a very large transfer of funds from the Mediterranean and Ireland (as well as from very poor regions in the UK) to the CEECs.  Since the CEECs all have significant agricultures (especially Poland and Hungary of the 5 states at the top of the queue) and their agricultural output is in sectors on which the CAP spends heavily they should also gain a substantial chunk of the available CAP funding if the system remains as it is. Thus settling the overall size of the budget simultaneously settles how much policy reform there needs to be to prevent losses of income to existing budget recipients among the member states. If the budget does not expand, there should be deeper reform; if it does expand, the reforms could be less radical.
In its Agenda 2000 document relating to enlargement, the Commission projected that the EU budget should remain governed by its present formula: 1.27 per cent of total EU GDP. At the same time, the Commission hopes for 2.5 per cent GDP growth per annum thus providing some additional budget funds from that growth. This approach would not supply sufficient revenue to fund the adhesion of the first five applicants while maintaining the existing level of funding to existing recipient member states. Yet even this Commission attempt to stick to the status quo in the Budgetary field was not endorsed by the Luxembourg Council: it pointedly failed to confirm that the EU budget formula would remain at 1.27 per cent. This should not be taken as a positive sign that the budget formula may be increased: on the contrary it indicates that it may even be reduced since the German government is ever more reluctant to maintain its level of spending on EU programmes.  In this stance the German government is supported by the UK and by most of the other net contributor states to the budget and their stance will only be strengthened by the extreme fiscal strains caused within their own states by the convergence criteria involved in Monetary Union.  Thus enlargement means radical policy reform in the CAP and the Structural Funds unless the new members are denied access to these policy areas (and their associated funds) for a substantial transition period.
As a result, the most immediate political tensions over enlargement fall in the area of Structural Funding. This whole policy area is in any case to be revalidated in 1999 because the present arrangements have force only until then. So already the battle is being joined over the future of the  Structural Funds and both the Spanish and Portuguese governments have made it very clear at Luxembourg that they will block any enlargement that entails a loss of Structural Fund allocations to their countries. The Irish government is also very concerned.
The current British Presidency is attempting to push forward reform in this area with the aid of two (at least on the face of things contradictory) guidelines: that all member states should share the burdens of reform equally; and that states which will lose money should be provided with adequate transitional periods to enable them to adjust. But these 'principles' have not been enough for the Mediterranean countries and the expected agreement on guidelines for Structural Fund Reform did not take place in Luxembourg: the final resolution simply remains silent on the issue. British Foreign Secretary Robin Cook has indicated that he sees this as the most difficult current issue affecting the enlargement process.
We can nevertheless expect that some reform in this area will eventually be agreed over the next year. A much more difficult problem is likely to arise over agriculture and CAP reform. Here the social groups directly affected within the EU are much more strongly organised and more politically powerful than the end users of the Structural Funds. And they are concerned not only about finance but also about the new competitive economic consequences of having Polish and Hungarian producers within the EU. On the other hand, some further reform is called for as a consequence of the completion of the Uruguay Round and the requirements of the WTO and efforts are being made by the commission and a number of member states to enlist political muscle from environmental movements for CAP reform. The broad approach to reform will be to replace price support with support for farmer incomes and one effect of that should be to reduce food prices within the EU towards those in the world market -- thus giving a basis for gaining consumer sympathy for the changes.
Nevertheless, opposition from some member states remained strong enough at Luxembourg to prevent agreement on even the most general guidelines for reform. Instead, the final resolution talks rather ominously about the necessity to preserve the so-called "European agricultural model" -- which implies a weakening of the existing system rather than basic structural reform. While there is broad support across the political spectrum in the UK for radical CAP reform, strong opposition can be expected not only from France but also from Germany and other countries (including Spain). It is extremely unlikely that any significant movement towards reform will be initiated until after the German elections towards the end of 1998. And the outcome of the campaign for CAP reform cannot be predicted.

Political institutions
Yet although attention in the enlargement debates is currently mainly focused upon these financially-related policy issues, the most serious and intractable problem to be overcome before enlargement occurs is almost certainly that of reform of the European Union's political institutions. The Maastricht Treaty had envisaged that institutional streamlining would be achieved at the 1996 Intergovernmental Conference. This has taken place and has given birth to the Amsterdam Treaty signed last year. Yet the Amsterdam Treaty has side-stepped the central issues it was supposed to have addressed.
The institutional problem at its most basic level is about how much political clout each member state should have in decision-making. This in turn involves both decision-rules and voting strengths: should decision making in the Council of Ministers and in the European Council become overwhelmingly by qualified majority voting rather than reserving all the big questions for a unanimity decision-rule? How much voting strength in qualified majority voting should each member state have? And how big should the blocking minority be when qualified majority votes are taken?
With the possibility of 11 extra members of the Union -- and even with the possibility of 5 -- these issues cannot be evaded. And they will be addressed in a context in which the existing rules give larger weight to the small member states than their population size should merit and give smaller weight to Germany than its population size (not to mention its budgetary contribution) would justify. Eastward enlargement will bring into the union another large batch of small states and if they demanded the same voting rights as the existing small members, the disparity between size and clout would be overwhelmingly strong. enlargement without reform of the decision-making institutions will mean gridlock.
Thus, enlargement poses a direct and inescapable challenge to the EU to define its constitutional identity. If major institutional reform does not take place, the EU will in effect become a Monetary Union and Single Market, with power passing out of the Council of Ministers into whatever body steers the politics and economics of the Monetary/security zone. Normal EU business in the Council of ministers will be confined to matters of market management. But if a rationally justifiable and workable institutional reform does take place it will entail majoritarian voting principles which will make the EU more than ever a centre of political authority over the member states. For this very reason, as well as because of the immense tensions involved in shifting power balances between big and small states to achieve rational solutions, this issue of institutional reform is enormously difficult. There is little wonder that it was completely ignored in the IGC that was supposed to tackle it.
The Luxembourg Council meeting confirmed what was already indicated in the Amsterdam Treaty: before any enlargement eastwards can occur there has to be yet another IGC on institutional reform. No date has yet been set. It will surely be a fateful IGC and if it occurs against the current background of the long economic stagnation and rising xenophobia and far right nationalism in many West European states, no positive outcome can be assured. Much will also, of course, depend upon how Monetary Union is faring when the IGC is at work. At Luxembourg, the French government was the most insistent upon making this IGC's successful outcome a precondition for Eastward enlargement. The UK government is likely, under Blair as under Major, to resist a rational constitutional solution. And it is unlikely to be alone.
These question marks over basic issues on the future nature of the EU create major problems for  the CEECs in the negotiations which are due to start on 31st March: they can hardly negotiate a deal on agriculture or the structural funds when the EU has not decided what these policy pillars of the EU are going to be. They cannot discuss their place in the institutions when these are also going into the melting pot. Indeed, the EU itself has so far failed to produce a definitive list of the acquis communautaires when the applicants will have to meet in order to be able to join. As a result, the applicants risk imagining that they have met the acquis only to be confronted sometime during the negotiations with extra acquis to be achieved to pass the entrance examination.

Yet at the same time, the EU has now produced a new 'acqui' which is not yet actually an EU acqui but is at least  a new precondition for membership: namely that Poland and the other first group of applicant states accept the Schengen regime and  restrict border crossings from countries further East, by  requiring visas from Ukrainians, Belarussians, and presumably Romanians, Bulgarians and others. Only some of the current EU member states currently adhere to the Schengen framework, but this is goal of restricting migration into Germany from the East is a very important German requirement. Thus, in this field politics is more important than legal notions of 'acquis' and the German government points out that  these requirements are should form part of the EU's acquis by 1999. This is a difficult issue: for Poland and other first rank applicants  to restrict traffic across their Eastern borders would have a serious economic impact because of the very large cross-border trade involving thousands of small traders and businesses. The restriction also entrenches a political gulf between first rank applicants and the others and will generate serious political resentments in the excluded countries.
31st March is thus the start of a rather peculiar set of accession negotiations whereby most of the real advantages of membership which the CEECs would want to fight for in the negotiations will not actually be available for negotiation. Instead, the negotiations will be swung round to all the things the EU wants the CEECs to do before it will allow them in. And in this context, the Luxembourg summit has produced another hare for the CEECs to chase in the form of a new 'screening process' to check just how well the CEECs have harmonised with the acquis. The applicant states can be forgiven for thinking that such screening was exactly what the Commission had been doing during 1996-97 before producing its opinion in Agenda 2000, indicating the 5 countries ready for negotiations on membership. But perhaps the Commission's screening was to see whether the applicants really meet the acquis. The new screening will determine whether they really, really meet them! And in the meantime, we await from the EU the actual list of acquis! But the form of the proposed screening process suggests that its purpose is as much delay as enlightenment: it is proposed to conduct it collectively, with each applicant government being offered the opportunity, presumably, to explain how much more it has done to fulfil and perhaps over-fulfil its harmonisation with the acquis in comparison with the other applicant governments present. In such a setting, there is no danger that one of the governments could complete this screening process early and thus demand a swift conclusion to its negotiation. It will have to sit through the speechifying and interrogation of all the others.
In this context, the main issues on which negotiations can concentrate during 1998 will be adherence with the Single Market -- something which is being left out of the screening process (on the grounds that the Commission did look thoroughly at this aspect in its earlier screening procedure). The Polish government has already indicated that it is going to place one aspect of the Single Market at the top of its negotiating agenda: the principle of free movement of labour. Yet extending this principle to the CEECs is causing concern to EU member states. The Austrian government has insisted Austria should be exempted from implementing free movement of labour. On the other hand, the Polish government is demanding that free movement should be fully granted without qualification at the start of negotiations.

The applicants' weak hand
In trying to tackle these problems, the CEEC applicants have a very weak negotiating hand. They have already given away two of their main high cards. First, market access has been granted through the Europe Agreements. These essentially harmonise the CEECs with the EU single market rules and provide very full access for EU goods and investment, without giving the CEECs any influence over the design or implementation guidelines of the rules of the Single Market. Thus EU business operators already have most of what they want in the CEECs. The EU now exports  to the CEECs -- 69.5 billion ECU-worth in 1996 and 39.7 billion for the first half of 1997 -- double its exports to  Japan and Latin America  combined and enjoys a substantial surplus in that trade: 20billion ECU's-worth in 1996 and 11.7 billion in the first half of 1997. Germany alone now exports more to the CEECs than it exports to the USA. Business is unlikely to make further significant gains from trade through accession itself.
Secondly, the EU member states' security requirements (above all for Germany) have largely been settled through NATO's enlargement. As that proceeds, the external policies of the CEECs  will be harmonised on all important issues with the objectives of the main Western states.  A third card might have been a measure of solidarity amongst the applicants themselves, but, because this is almost non-existent,  any single applicant trying to bargain toughly with the EU risks being put to the back of the queue.
But the greatest weakness of these countries lies in the fact that they have nowhere else to go other than the EU, because of the continuing economic and political weakness and instability further East. They are already overwhelmingly dependent upon the German economy for their trade and payments and this situation is unlikely to change dramatically in the near future.
Thus they enter the negotiations only with two major assets: the EU member states know that a rejection of membership or a long postponement would cause a political upheaval within the CEECs themselves; and secondly, they can hope for support from the Clinton administration, since the US government has been a consistent supporter of EU enlargement. Yet neither of these  strengths gives them much leverage in the negotiating process. The EU is not likely to give an outright rejection -- it will simply shift the costs onto the new members and restrict or delay the full rights of membership through transitional derogations. And as for the Clinton administration, it may be willing to use its influence in relation to Polish concerns to seek derogations to ensure that its Western territories are not subject to too strong a German influence (eg by maintaining control over foreign direct investment -- a very sensitive political issue for Polish-German relations. But otherwise it is unlikely to be focused upon the detailed substance of the negotiations.

Enlargement and the social model
Furthermore US pressure for swift enlargement is linked to the Clinton administration's bipartisan drive to use enlargement to undermine the European social model. In this it has an ally not only in the Blairite British government with its drive for 'flexible labour market', but also from business lobbies in the EU, such as the European Round Table of multinational companies and UNICE, the European Employers' Federation. Both have expressed themselves strongly in favour of rapid enlargement. But their motives seem to be connected to using the CEECs as site for social dumping and Maquilladora-style assembly operations, using cheap labour and low levels of social protection to strengthen their profitability at the expense of West European labour.
And this business drive is generating  widespread concern amongst EU trade unions and socialist parties that enlargement could lead to a strong trend for business to relocate investment in the Visegrad countries, making use of very low wages, weak labour rights and inadequate environmental standards, thus engaging in what  is  known in Western Europe as 'social dumping'.
Thus a rather broad coalition of interests is ranged against a swift and successful enlargement that would strengthen the unity of Europe, while those forces in Western Europe favouring rapid enlargement are dedicated, in the main to undermining the social and political cohesion of the European Union.

An alternative approach
Breaking this log-jam could nevertheless be possible through a policy that reconfigured these cleavages. Labour across the union has everything to gain from a larger EU budget and a stronger element of redistributed spending. |It has also a great deal to gain from a reformed CAP that supplied decent pension rights and income support for the poorer small farmers in the Union while cheapening the costs of food. And a form of enlargement which is geared to raising employee incomes, social protection and environmental standards among the applicant states could command majoritarian support both in the EU and among applicant states. The Maquilladora-style of dual economy will be no better for Poland or Hungary than it is for Mexico. And a greater development-orientation for the enlargement project could also be achieved at zero financial cost to the EU by allowing derogations from a number of aspects of the Single Market for the new entrants, until their GDP per capita has reached, say, 80 per cent of the EU average: derogations on limits to state aid for industries, derogations on competition policy, and on the rapid deregulation of banking systems, financial services and international movements of hot money. Measures to tackle the serious payments problems without having to do so through  deflationary retrenchment could also easily be found.
Of course, the efforts of the Commission are geared to ensuring that the Single Market is treated  like the holiest of holies. But a viable, sustainable enlargement in the interests of the populations of Europe should take precedence over the mindless drive for every larger oligopolistic scale economies. Of course, this change of direction will require political leadership. No doubt it is naive to hope that a social democratic victory in Germany, combined with the centre left governments in Italy and France, could re-orient the EU's enlargement strategy by the end of this year. But at least naiveté is more energising than cynicism.