FES

No integration without differentiation : on the strategy for a scaled Eastern enlargement of the European Union
/ by Michael Dauderstädt and Barbara Lippert. - [Electronic ed.]. - London, 1996. - 30 S. = 58 Kb, Text
. - (Europe 2000)

Electronic ed.: Bonn: EDV-Stelle der FES, 1997

© Friedrich-Ebert-Stiftung

London Office

The Friedrich-Ebert-Stiftung, founded in 1925, is a political
non-profit making, public-interest institution committed to the
principles and basic values of social democracy in its educational
and policy-orientated work.

The London office of the Friedrich-Ebert-Stiftung aims to
contribute to the knowledge and understanding of current political,
economic and social issues in Anglo-German relations and to promote
contacts between our partners in both countries.

The views and opinions expressed in publications of the Friedrich-Ebert-Stiftung
London Office do not necessarily represent the views of the Foundation
but are those of its respective authors.

Friedrich-Ebert-Stiftung London Office

22/23 Gayfere Street, London SW1P 3HP

Michael Dauderstädt is Research Officer in the Department
of Industrialised Countries, Friedrich-Ebert-Stiftung, Bonn

Barbara Lippert is Deputy Director of the Institute for
European Politics, Bonn

This is an updated version of a working-paper by the same
authors published by the Friedrich-Ebert-Stiftung, Bonn under
the title "Differenzieren beim Integrieren" 1995.

Published February 1996 by the Friedrich-Ebert-Stiftung London
Office

Translation by Brigitte Puhl

Printed by MGA Advertising, 2 Vincent Street, London SW1P
4LD

Contents

Foreword 3

1. Summary 4

2. Germany_s interest 8

3. The position of the EU and the member states
10

4. The position of Central and Eastern Europe
14

5. Accession strategy 16

6. Cooperation on politics and security 22

7. Pre-accession aid through partnership in transformation
25

Foreword

So far, the European Union (EU) has absorbed new members and more
than doubled its membership from the original six signatories
to the Treaty of Rome. This has not been done without difficulties.
But it has been done without radical changes to the institutional
structures of the EU. Generally, the existing members have shared
a common historical, political and economic culture and the framework
of the EU has been able to accomodate the tensions which have
inevitably existed. The recent accession of Austria, Sweden and
Finland have challenged the EU but did not necessitate changes
in the relationship between, and the structure of, the institutions
by which it is governed.

This will not be true for future enlargements of the Union. The
smooth continuum witnessed so far will not be possible in the
future. The decision to enlarge the European Union to the Eastern
European Countries (EEC), which has effectively been taken, will
challenge the existing arrangements to a greater extent than any
enlargement undertaken so far. And it seems far from certain
that the existing institutional framework of the European Union
will be able to meet this challenge unchanged.

So, substantial reforms of the European Union are required. This
includes, above all, adapting the mechanisms for the governance
of the Union as well as coping with the adjustment costs of accession.
Besides that, far-reaching political changes are neccessary in
areas like Common Agricultural Policy and Common Foreign and Security
Policy. But how these reforms can be achieved is still an open
question in the ongoing debate within the EU of exactly how to
accomodate new Eastern European members.

This paper discusses the benefits and problems of enlargement
from a specific German perspective and analyses the political
and economic interests of both the EU and the EEC. Its publication
will hopefully inform and contribute to the debate on enlargement
specifically in Britain.

Heinz Albert Huthmacher
February 1996

Director

Friedrich Ebert Stiftung

London Office

1. Summary

A scaled enlargement of the EU is in the interest of the
Federal Republic of Germany. But it can and should only be realised
in the medium-term together with - and not against the wishes
of - the EU partners. In the forseeable future it can only apply
to the three to five Central and Eastern European (CEE) countries
which have succeeded in implementing profound transformations.

It can only be achieved through a parallel reform strategy
which on the one hand needs to advance reform within the EU, and
on the other transformation within the Central and Eastern European
countries. In addition the EU must give meaning to its partnership
with Russia.

The German Interest

Politically and economically Germany will profit greatly from
an expansion towards the East. She stands to benefit most from
stability in the CEE countries and their economic integration.
Destabilisation would constitute a direct threat. EU membership
provides the best opportunities for stability and integration.

If it were not for an Eastern enlargement, Germany probably would
- and maybe should - try to promote stability and integration
in the Central and Eastern European Region (CEER) through national
action. This would create a politically dangerous situation for
the Federal Republic of Germany within Europe. With a view to
her existential economic and political links with the West, the
Federal Republic can pursue its Eastern policy only in line with
her EU neighbours and - particularly when it comes to security
policy - with the United States.

Framework conditions

A rapid Eastern enlargement without taking into account the progress
of internal reform within the EU will be counter-productive due
to likely political and economic 'boomerang' effects. Should the
EU maintain its current institutional rules and provisions, its
agricultural policy as well as its structural and cohesion funds,
an enlargement towards the East would have dramatic effects on
the budget and the decision-making process within the Union. On
the other hand, the EU constitutes the only anchor providing stability
and integration for the CEER.

A European Union inclusive of the CEER would require profound
institutional reform as well as an enhanced identity for its member
states in the fields of foreign and security policy. Only a Union
which in the course of its debate on enlargement manages to achieve
clarity as to its 'final orientation' will be able to attempt
seriously to tackle - and maybe solve - the problems involved
with an enlargement towards the East.

Strategy

The Eastern enlargement must be achieved through a scaled approach
and in the medium term. An 'emergency accession' of the countries
of the Central and Eastern European Region would only be acceptable
in a true crisis (e.g. a reactionary change in Russia).

After the decision during the summit in Essen to extend association
to the Baltic States and Slovenia, there is hardly any reason
not to conclude European Agreements (EA) with Albania and later
the successor states of Yugoslavia as long as they pursue a democratic
domestic policy and a peace-oriented foreign policy. On the other
hand it is necessary to differentiate within this group of states.
In any case, for the foreseeable future Germany should limit herself
to advocating the entry of the potentially eligible neighbouring
Visegrad countries plus Slovenia rather than risking losing her
credibility by supporting big bang enlargement options.

The formula should read: The EU supports reform processes in all
of the CEE countries. Towards the most successful countries it
follows a pre-accession strategy that links aid towards reforms
with the promise of membership, and below the level of full membership
it stengthens cooperation links by opening perspectives for an
overall European internal market and the promotion of regional
cooperation.

New accents

It is in Germany's interest to pursue a parallel reform strategy
involving a reform of the EU plus enabling the CEER to achieve
successes in its transformation process. Only after considerable
progress with their reforms can the EU membership for the CEE
countries be successfully concluded. Thus preparing the CEE countries
for EU membership will prove very costly for the EU even before
the enlargement. If the EU wishes to exclude the possibility of
a 'discounted membership' of the CEE countries it will have to
contribute to the costs of restructuring before membership and
thus prove it means business when it declares an interest in enlargement.

Priority should be given to the EU's institutional reform and
its economic prowess. Continuously high unemployment and a lack
of competitiveness impede progress in the deepening as well as
the widening of the Union. Enlarging the EU to include the Visegrad
countries does not require the existence of a CFSP.

For the CEE countries EU membership means an increase in security.
This is still true if the development of a common defence policy
in the wake of the CFSP reform takes place only after an enlargement
towards the East. EU membership is a stepping-stone towards membership
within the WEU, but not within NATO. For security reasons it would
also be feasible for the CEE countries who do not yet fulfil the
economic preconditions for EU membership to merely become members
in the WEU (or NATO) and thus enjoy the support of the WEU (or
NATO) partners. It is particularly in this field that transitional
arrangements which are flexible enough to adapt to the state of
security in the whole of Europe as well as policies strengthening
other organisations are far more appropriate than a strict link
of EU and NATO membership.

Implementing a parallel reform strategy will meet with difficulties.
The CEE countries react with scepticism to all strategies which
assume patience. As far as many of the partners within the EU
are concerned the challenge of the 'Eastern enlargement' does
not provide sufficient arguments for the required far-reaching
reforms within the EU. For this reason the Federal Republic of
Germany needs to provide additional incentives for a deepening
of the EU with a view to the inter-governmental conference in
1996. A Franco-German initiative as well as cooperation during
the Inter-Governmental Conference are called for.

2. Germany's interest

Vital interests and a special vulnerability

Germany has a vital security interest in an economic recovery
in the CEER and the strengthening of its democratic structures.
Out of all EU member states, her geographical position provides
Germany with the greatest opportunities for economic and trade
involvement with the CEER, while at the same time it makes her
more vulnerable should there be political instability and economic
decline in the region.

Against this background one can easily understand the special
interest in a preventive policy which, very early on, recognises
and tackles 'spill-over-risks', such as a continuous migration
from East to West. Other risks, e.g. catastrophes in power plants,
would equally affect both Germany and Western Europe, however
this type of threat is much more vividly perceived in Germany.

It is for her own interest that Germany pursues an active preventive
policy within the EU combined with a number of bilateral consultation
and support measures - a policy for which she needs the acceptance
by the EU partners for political reasons and a sharing of the
burden with the G 24 states for financial reasons.

In addition there are far-reaching political statements in which
the Federal Republic of Germany recognises her particular responsibilty
and in which she undertakes - frequently on the basis of treaties
- to show strong political as well as economic involvement in
the societies in transformation and to advance their participation
in the European integration process.

Amongst other things, Germany's support becomes evident in the
granting of financial aid to the tune of 37.5 billion DM since
1989 which far exceeds that of other countries. Also when it comes
to trade and direct investments, Germany ranks top in the EU,
and out of the OECD countries Germany is the most important trading
partner with ca 50% of CEER-EU trade. For these reasons the EU
partners consider a reunited Germany as the prime benificiary
of the present association and future enlargement policy of the
EU.

Germany neither can nor does she want to shy away from economic
and political involvement with the CEER, but she has to proceed
on the basis of Western integration. With a view to the concerns
relating to Germany going it alone and the formation of a German
sphere of influence in the CEER, an EU enlargement towards the
East could consitute a confidence-building measure vis-à-vis
both the East and the West.

A parallel reform strategy

Due to structural economic problems and political divergencies
the political and economic environment for pursuing an optimal
strategy, i.e. to deepen the integration process in order to be
able to widen the Union, has become considerably more difficult.
However, the arguments in favour of such a strategy are still
relevant. Yet it needs to be defined by concrete steps over a
prolonged period of time and to be linked to a parallel reform
strategy. The intergovernmental conference of 1996 needs to be
set against the backdrop of such a parallel reform strategy. The
EA states could be offered observer status during the conference.
If nothing else, multilateral dialogue in the framework of structured
relations between the EA states and the EU institutions could
provide a forum for the voicing of interests and proposals.

Germany generally advocates an EU enlargement even if her vital
interests are not immediately obvious, as is the case for the
Baltic states. This kind of policy brings about a credibility
problem as she cannot grant the membership wishes of CEE countries
without the approval of her EU partners but at the same time it
compounds concerns about German dominance within the EU and Europe.
Germany's interest in individual CEE states is much more differentiated
than her general advocacy for membership leads to believe.
A 'Realpolitik' perspective advocates a pivotal function
for Germany as an EU member in order to relay the interests of
the CEE states to the EU and at the same time to underline their
dependence on the EU to provide an anchor for modernisation and
stabilisation /stability. What is needed is to place a stronger
accent on reform aid in order to improve the CEER's eligibility
for membership. The pressure to carry out the enlargement will
decrease in line with the success of reforms in the CEER before
membership.

With a view to an Eastwards expansion not all the integration
steps relating to all of the three pillars are equally important.
In this connection, too, Germany would need to revise her catalogue
of demands and proposals for the Inter-Governmental Conference
and to set priorities.

The main priority for Germany's European policy remains the drive
to deepen the integration in which the cooperation of France has
to be harnessed. A single-handed approach or an isolated position
by Germany on Eastern enlargement would be dangerous. What Germany
needs is a balanced European strategy which advances reforms within
the EU in parallel with supporting CEE reforms towards democracy
and a free market economy. The Eastern enlargement is first and
foremost an investment in the future viability of EU-Europe for
political (and security) reasons. Should the EU prove unable to
come up with sustainable solutions for the CEER the far-reaching
political project of 'European Union' would increasingly lack
credibility.

3. The position of the EU and the member states

The policy of the EU, and in particular that of the Commission,
more or less coincides with the German interest in a rapid integration
of the CEE states. The summit in Essen met most of Germany's wishes.
However, one can see that the initial efforts have been concluded
with the summit and that the Latin presidencies show a greater
dedication to the problems surrounding the Mediterranean. From
a German perspective such an involvement must not be at the expense
of Eastern enlargement.

The EU's main instruments in the relations with the CEER remain
the European Agreements (EA) opening a perspective for membership
as promised in Copenhagen and Essen. The EU Commission acts as
the motor for the activities to implement and complement the association
agreements. The EAs operate within an organic structure which
assumes the successive integration of the CEE countries as democracies
according to the OECD profile.

In the medium term, all rules and provisions within the economic,
legal and political communities of the EU are to be applied to
the most successful reform states without exception. By adding
a multilateral level to the bilateral association relations (Copenhagen
1993) which affect the EA states without privileging the Visegrad
countries, the EU operates with a type of safety net. The complexity
as well as the amount of interaction give rise to enormous problems
of coordination and management when it comes to achieving optimum
efficiency and effectiveness in the measures taken. Incremental
improvements can only be successful if - beyond stategic objectives
- both parties have agreement on and confidence in the willingness
to implement the relevant measures.

The EU's policy to conclude treaties is differentiated on the
basis of geostrategic aspects according to which the so-called
PHARE recipients (11 at present, potentially 15) are all dealt
with equally - with the exception of Russia and the Ukraine (and
eventually all the other CIS republics) with whom partnership
and cooperation agreements have been signed and to whom a special
programme of technical aid (TACIS) applies.

From a trading perspective the CEE region does not play a major
role for the EU despite the export successes in recent years.
The commercial exchange between the CEER and the EU corresponds
to that of the EU with Switzerland. Things have not changed since
the EFTA states became members of the EU. Only Austria, with about
9% exports to and 5.7% imports from the CEER, has the same trade
interests in the region as Germany whose trade volume is higher
compared to Austria. Finlands 'former COMECON trade' is mainly
geared to Russia, while Norway and Sweden have no considerable
trade interests apart from perhaps with the Baltic countries.

Most advanced are the association relations between the EU and
the four Visegrad states. One of the potential newcomers in the
group of the successful reform states is Slovenia. When it comes
to implementing the European agreements the coherent application
of a number of EU instruments is indispensable:

- e.g. PHARE; trade, competition, economic and monetary policy,
as well as environmental and social policy, etc. (EU competences/
pillar 1);

- e.g. political dialogue, joint measures; harmonisation on CSCE
and UN level as well as other international conferences (CFSP/
pillar 2);

- e.g. asylum and immigration policy; fight against crime (coopeartion
in matters of domestic policy and justice/ pillar 3 of the EU
including intergovernmental cooperation).

When it comes to operational matters the association bodies are
particularly useful.

Problems of consensus with the member states

With a view the Eastern enlargement there are several cleavages
within the EU states which would either have to be balanced internally
- as has traditionally been the case - or decided unilaterally:

- The North-South cleavage confronts the Southern countries with
the potential new net recipients from the East in the fight for
limited resources from the structural and cohesion funds.

- The 'finalité cleavage' characterises the dissent surrounding
the identity of the European Union and runs between the 'Intergovernmentalists
vs the Integrationists', between the supporters of the internal
market and free trade vs the Unionists who strive for an EU which
ressembles a nation state.

The question of Eastern enlargement could become a potential cleavage
for latent 'historical' dissent. The question as to 'whether'
and 'how' the Eastern enlargement will take place can define the
'final orientation' of the EU framed in much more absolute terms
compared to previous enlargements. Here lies the historical dimension.
However, the arguments about Eastern enlargement can also lead
to the EU impeding itself which would postpone setting the agenda
- perhaps even permanently. The latter option would be in line
with the history of integration up to now.

An opinion poll in May 1994 showed that in most EU member states
there was a majority of 60% in favour of accepting the Visegrad
countries (V 4). Even in the countries where those in favour were
clearly below the 50% mark (as in Denmark, Greece, Portugal and
Luxembourg), those voting against were in a clear minority.

For the EU an Eastwards expansion means a severe shift towards
Central Europe which will strengthen Germany's political, economic
and geographic role in the centre. On the other hand on the Southern
flank, the EU member states around the Mediterranean have a growing
concern relating to developments in the Islamic Maghreb countries.
The Union can afford less and less to close its eyes to such developments.

In case of an Eastern enlargement the EU would gain low output
countries on the periphery and lose homogeneity. With the membership
of the four Visegrad countries (V 4), particularly Poland, the
Union would assume traits of a development community. France especially
could see herself as being marginalised. The present EU countries
on the periphery - Portugal, Spain, Greece and Ireland - are concerned
about their income from EU transfers and fear the competition
from low wage countries in the East.

Germany's European policy tries to counteract this perception
through initiatives like the 'Weimar triangle'. The interests
of all 15 EU states converge in general political and security
interests. However, implementation deficits in the EAs show that
cost-intensive measures need to be constantly renegotiated within
the EU. The German strategy on the development and the deepening
of the Union must take into consideration the reform requirements
resulting from an enlargement towards the East.

4. The Position of Central and Eastern Europe

Eastern and Central Europe was and still is a heterogeneous region
which now comprises 15 states. From an eligibility for membership
point of view each of the now associated 10 countries has its
particular portfolio of problems. Slovakia, Bulgaria and Romania
are at the bottom end of the top group for economic and political
reasons. Due to its size and the importance of its agricultural
sector (1/4 of all wage-earners) Poland causes institutional as
well as structural problems for the EU. Different levels of progress
in the reforms as well as different economic backgrounds give
rise to a broad variance in macro-economic indicators (inflation,
growth, unemployment, etc.) as well as in competitiveness in the
sense of a modern structure of companies which are viable in the
world's markets.

Three motives drive the CEE states to an EU membership:

1. EU membership symbolises entry into the Western wealth and
security community and thus provides a guarantee against a return
to Russia's influence. The security dimension becomes the more
important as the possibility of membership of NATO against Moscow's
wishes becomes more remote.

2. EU membership is the best way to secure access to the EU's
internal market. It is true that association and membership of
the European Economic Area provide the same type of access but
not in an irreversible way as full membership does which also
includes the right to participate in decision-making. Tying-in
with the EU enables the CEER to find a way out of its relative
underdevelopment and to become integrated into the world economy.
From the perspective of the CEE states there is no alternative
to the EU as an anchor for modernisation.

3. The governing élites see EU membership as a political
guarantee against an end or a revision of the reforms towards
'democracy plus market economy', a concept which is of fundamental
interest to Germany as well as the EU. A rejection by the EU would
weaken the Western oriented forces in the CEER and strengthen
the nationalists who seem to be gaining influence due to the growing
disappointment with the reform process in the CEER.

What the young democracies need is economic success. For this
reason they call for fair treatment as economic and trade partners
as well as membership of the Union as equal partners. As EU members
the CEE countries will strengthen the 'Intergovernmentalists'
rather than the 'Integrationists'.

Initiatives for regional cooperation set up after 1989 are very
much limited in their present impact as well as in their potential.
They do not constitute an alternative but merely a sensible addition
to a linking to the EU or to integration. The EU member states
and/or the EU Commission as well as the EFTA states do participate
in some of the cooperation organisations as is the case in the
Baltic Sea Cooperation Council and the Initiative for Central
Europe. Within the framework of Visegrad Cooperation, the Central
European Free Trade Area (CEFTA) has been agreed which contains
complementary provisions to the free trade arrangement within
the EA framework.

However, not even the four CEFTA member states share the same
integration philosophy. Moreover, at the present moment they do
not have any plans to extend CEFTA membership to the associated
CEE countries Bulgaria and Romania. This is however something
that the EU should promote.

EU membership will further divide the Eastern and Central European
area and it potentially creates new frontiers between poor and
rich, secure and insecure countries farther east. Each type of
expansion policy needs to deal with this very problem and find
ways to avoid a destabilisation of the rejected CEE countries
and to offer them appropriate alternative forms of relations with
the EU.

5. Accession strategy

Criteria for accession

During the Council meeting in Copenhagen the EU quoted the following
criteria for accession:

- stable democracy (human rights, rule of law, etc);

- ability of the candidate to fulfil the requirements laid down
in the acquis communautaire;

- functioning market economy;

- agreement with the aims of the Political, Economic and Monetary
Union;

- competitiveness within the European Union;

- ability of the Community to take in the candidate without endangering
the dynamics of the integration within the Union.

What is remarkable about this list - which otherwise the Union
could have also presented to other candidates - is the fact that
it contains a criterion concerning the EU's ability to absorb
new members - something which concedes the need for reforms within
the Union. With a view to foreseeably long deadlines before accession
and open developments regarding EU integration the CEE candidates
are concerned that they are unable to predict the kind of Union
they will eventually join.

The criteria lay down qualitative conditions, whose evaluation
is a question of discretion and negotiation. Institutional solutions
such as the evaluation by the joint association bodies on operational
matters seem to be appropriate. Thus for example full membership
in the Council of Europe provides democratic legitimacy.

As to the economic criteria, it seems to be more feasible to use
quantitative indicators such as the degree of privatisation or
the share of non-administered prices as an indication for progress
in setting up a market economy, or in the current account on goods
and services, the external value of the currency, productivity
and per capita income as indications of competitiveness. Here,
too, there are problems in measuring these data as national statistical
offices can easily manipulate data for political reasons. However,
these indicators could give a first indication as to the economic
situation and thus, indirectly, to the structural problems within
the CEER and the possible costs arising for the EU. The decisive
factor would be whether the CEE countries are eligible for membership
in the EEA (European Economic Area) which can be measured by the
extent to which the provisions laid down in the internal market
project - which also have to be adhered to by the members - have
been taken up. The treaty of Maastricht, too, raises similar requirements
for the members of the Economic and Monetary Union (EMU) in connection
with inflation, the budget deficit and the public sector borrowing
requirement.

The Visegrad countries do accept these criteria in principle.
However, they consider the political ones to be fulfilled, and
as for the economic ones they emphasise that it is not a question
of the level of income but of the 'health' of the economy. The
Visegrad States underline the progress made in macro-economic
stability while the EU has turned the micro-economic essentials
for an internationally competitive economy into a criterion for
eligibility. The CEE countries call for an evaluation by 1996
in order then to be able to start immediately with the membership
negotiations. While the Visegrad countries want to carry out part
of the structural changes after becoming members, the EU insists
that these are a precondition for membership.

Costs and benefits of an Eastern enlargement

Assuming an expansion on the basis of predominantly unchanged
EU rules, the costs for the Eastern enlargement would arise in
different areas:

- Direct costs for the EU budget result from the new member countries'
access to structural funds and their membership of the Common
Agricultural Policy. According to current estimates (House of
Lords 1992; CEPR 1992; study on behalf of the EU Commission) transfers
to the CEER would amount to ca 13 billion ECU (= ca 26 billion
DM) for the six presently associated countries and 86 billion
ECU (= 172 billion DM) for the CEER plus the CIS. With a German
net contribution to the EU budget of 30% this would mean an additional
expenditure of 20 to 55 billion DM. However, there would be a
reduction for the German budget to the extent of which bilateral
aid to the CEER would become obsolete. Yet considering that aid
towards the South of the EU is twenty times as high as the PHARE
volume, savings would not be substantial. In the case of an increase
in structural funds in the wake of a more intensive EU cohesion
policy this amount could increase even further. On the basis of
the experience with the Southern enlargement it is likely that
there will be special programmes for weaker member countries (e.g.
Slovakia) as was the case with PEDIP and PEDAP for Portugal. It
is safe to assume that the EU would have to pay these types of
transfers for a number of decades to come.

- Adjustment costs for EU producers occur in areas where CEE countries
push into the market. However, these costs are not a direct result
of membership as they already arise in connection with the opening
of the markets envisaged in the association and trade agreements.
All in all, the trade volume is rather low (below 5% of all EU
imports) and only one third of CEE exports consist of sensitive
products such as steel, coal and textiles. The costs in the agricultural
sector are considerably higher. Modernisation of agriculture in
the CEER would put pressure on agricultural prices. Adapting the
CEER's agricultural markets and their order to the Common Agricultural
Policy (CAP) would constitute a destructive development. The white
paper on CAP reform, which the EU Commission is to table by the
end of 1995, should be used to initiate an EU-wide discussion
on structural changes which have been dragging on for a long time.

- Freedom of movement and of residency could lead to mass migration
due to great differences in income between the countries. There
will be additional costs relating to unemployment benefit in those
countries of the EU where migrating or commuting CEE citizens
push EU citizens out of their jobs. Moreover, this would lead
to considerable social and political problems.

- The EU institutions which after the EFTA enlargement have become
rather unwieldy would need to be drastically reformed in order
to avoid overburdening them. Council, Commission and Parliament
in the EU of the '15 plus' would need new rules as well as new
composition and decicion-making processes. It would take even
longer for the presidency to rotate. A decrease in Community institutions'
efficiency as well as in their ability to generate decisions and
policies will undermine their legitimacy in the medium term.

The benefit of an EU enlargement towards the East is rather of
a qualitative nature and can be largely achieved through association
without full membership:

- Due to high transfers to the CEE states their possible contribution
to the EU budget would be negligible.

- The economic advantages for the EU would be quite considerable.
Up to now there has been enormous growth in exports and with successful
development in the region they will further increase. Favourable
terms of trade create welfare gains for EU consumers. By employing
cheap CEE labour, companies can lower their costs and thus increase
their competitiveness. In the case of full membership it would
be even easier to invest in the CEER and - to a large degree -
hedge against political interference.

- Political benefit is the decisive factor. Unlike association,
full membership can be expected to stabilise and to secure democracy
in the CEER. (After having been associated in 1961 Greece became
a dictatorship in 1967). However political stability needs to
be created before membership. A country is not stable because
it is a member, rather it is a member because it is stable.
It is characteristic that the EC did not take the Southern
Europeans in during the turbulent phase after the fall of the
dictatorships but only in 1985 when the democracies had already
strengthened. And finally from a geostrategic perspective, an
Eastern enlargement would avoid creating a grey area between the
CIS and the EU. The Central European countries have clearly committed
themselves to look to the West - something which membership of
the EU would cement.

Types of membership

EU accession could be achieved in various forms. Already in the
past the accession process has been carried out in different forms
and at different speeds:

- As to the Southern enlargement, several years elapsed between
application and negotiations as the Community doubted the eligibility
of the applicants. In the case of Portugal it even set up a special
programme for pre-membership aid. After the accession there were
long transition periods (in some sectors of up to 10 years). Apart
from aid through regular funds, Portugal received aid in the form
of special programmes for the modernisation of its industry and
agriculture. However, in principle the Community did not depart
from the demand that new members had to transpose the acquis
communautaire in full.

In contrast, hardly any time elapsed between the applications
of the EFTA countries from the beginning to the conclusion of
the negotiations as their eligibility was never in doubt. However,
Austria's application of 1989 was not processed until the EFTA
accession round started. As members of the EEA, the EFTA countries
had to bring about only minor structural changes. And yet there
were lengthy negotiations over a period of two years about questions
of agriculture, fishery and transit.

The European Economic Area extends the internal market to the
EFTA countries and sets up special institutional and decision-making
structures. It does not amount to partial EU membership and does
not give access to EU institutions and decision-making. It is
the eligibility to participate in the internal market which is
the biggest hurdle for the CEER. The EEA constitutes an alternative
for those states desiring market integration without political
integration.

Given the structural problems and the relative poverty of most
CEE economies, an accession process in line with the Southern
accession seems more likely. Should formal accession be accelerated
for political reasons one needs to assess to what extent the EU
should move away from insisting on a complete adoption of the
acquis communautaire ('discounted membership'). In turn
the Union could demand an accession country initially to give
up some of the principal rights of full membership (e.g. freedom
of movement) which again would create a more even balance between
rights and duties. In fact such a 'discounted membership' would
be tantamount to partial membership.

Such a partial membership would be important for the CEE countries
as it goes beyond the current structures of their relations with
the EU. It would allocate rights and duties which would meet the
interests as well as the abilities of the CEE countries without
affecting EU interests. Thus one might envisage CEE states participating
in various Union bodies (Parliament, Council Committees on economic
and social affairs) with their status varying from body to body
(e.g. observing, consulting, limited voting). However, concrete
implementation of participation on the various levels and in the
different units (groups, committees, COREPER, etc.) could prove
rather difficult. CEE countries with a stable currency could be
tied into closer monetary cooperation.

A proposed accession deadline for the CEE countries - e.g. by
the year 2000 - might exert certain pressure on both sides to
carry out necessary reforms, it is however not very realistic.
If important interests stand to be violated no-one will feel bound
to such a date. A better slogan would be: 'As rapidly as possible,
as slowly as necessary'. Connected to the question of timing is
the issue of which CEE countries could and should become members.
Should there be no major setbacks one can easily imagine Slovenia
or the Czech Republic becoming members by the end of the decade.
The Balkan and the Baltic states will certainly need a great deal
more time.

Apart from the accession of Greece, all 'enlargement rounds' have
taken place in groups of countries. This approach makes sense
if the applicants have close economic links and political ties
- even though they might be in competition in which case the EU
does not want to advantage or disadvantage anyone. This seems
to be the case for the CEE countries although their trade relations
and regional integration appear to be rather weak. Parts of the
political élite in the Visegrad countries see themselves
caught in a race for membership of the EU. Accepting a single
country would certainly overshadow the relations to other - temporarily
-rejected countries. A procedure of single accessions would delay
the overall process and strengthen the negotiating position of
the EU.

6. Cooperation on politics and security

Key players and their CEE strategies: EU, WEU, NATO

The EU, the WEU and NATO are the central players in the cooperation
on politics and security with the CEER. Even after the Budapest
summit the OSCE is still equally under-used by both the Western
states and the CEE countries and needs to be developed from an
operational point of view. The principles laid down in the Charter
of Paris are, however, the most far-reaching codex for security
and cooperation in Europe which covers the largest number of states.

Relating to the CEE countries, the EU, WEU and NATO pursue a policy
of involvement through special arrangements and by keeping the
option for membership open which needs to be decided on the basis
of the future division of roles and tasks between EU, WEU and
NATO. Up to now the EU has entered into the most far-reaching
commitment towards membership, while the 'Partnership for Peace'
initiative and cooperation within NACC and the WEU Consultative
Forum are clearly geared to a long-term interim solution.

Under the two primordial strategies to secure peace - collective
security and democratisation - the EU, as a civil power, offers
largely instruments and forms of cooperation which aim at democratisation
through welfare development and political involvement. The stability
pact is an important tool of the EU's preventive security policy
which lends itself to an intensive Franco-German cooperation.

The WEU, as an 'integral part of EU development' and the security
component of the CFSP, grant the CEE countries access to the Western
European assistance pact from which Russia will remain excluded.
Neither these institutions nor the member states have a clear
understanding of the future relations between EU and WEU. The
problem lies in the different composition of the two institutions
and in the status of EU members within WEU and NATO. While all
members of the former EU of the 12 (apart from Ireland and for
the WEU apart from Denmark) belong to NATO, the NACC, the WEU
and the WEU Consultative Forum, the three new EFTA members neither
belong to WEU nor NATO. In contrast all Baltic and associated
CEE countries form part of NACC and the WEU Consultative Forum.

These incongruities, too, stand in the way of a link between EU
and NATO enlargement from a point of view of time as well as content.

Perspectives

Only EU membership provides a security gain even without a defence
component within the EU. With a view to bringing the applicants
closer to a CFSP, the special WEU status ('associated partners')
for the six EA states and the Baltic states (Kirchberg Declaration)
can constitute a sensible and confidence-building step. It is
important for EU members to create a common identity in foreign
and security policy. The criteria for full membership of the WEU
must be that the automatic commitment to assist one another is
credible in relation to a new member. For the CEE countries EU
membership will entail membership in the WEU as has been implied
for the EFTA members within the EU.

While CFSP eligibility for the CEER is by and large uncontroversial,
the position on Russia could cause conflict between the old EU
members and the CEER members. The CEER and the EU have a common
interest in partnership and cooperation with Russia in matters
of foreign and security policy but not at the price of a veto
for Russia. For this reason the EU has declared that a CEE involvement
- and perhaps membership - in the WEU forms part of the EU association
process and not the enlargement of the Western alliance.

The picture changes when it comes to NATO membership which most
CEE countries strive for and consider a matter of priority. CEE
membership in NATO becomes a problem for the EU once they have
become members of the EU. Everyone's interests would be best served
if the WEU (as a part of the EU) were to develop into the European
pillar of NATO providing a clear identity for the EU and NATO.
These questions will be raised for the first time as of 1995 when
the new neutral members have a say in CFSP and indirectly in the
direction the WEU will take.

7. Pre-accession aid through partnership in transformation

Apart from security cooperation, trade and aid will form the central
areas of cooperation between Western Europe and the CEER. In both
areas the EU will need to change its priorities if it wishes to
promote a sustainable transformation in the CEER.

Opening of the market and pan-European internal market

Since 1989 the EU as well as the CEE countries have considerably
lowered their trade barriers and increased trade. The aims of
trade and economic policy should be to strengthen further the
growth in trade. In this context a further removal of trade barriers
seems less important than accelerating and simplifying the administration
of import procedures impeding the exchange. Both sides should
avoid petty protectionism (as has been the case for Polish cherries).
The European Agreements provide the opportunity to agree accelerated
procedures to settle trade conflicts.

In this respect an expansion of the internal market to the CEE
countries might be beneficial. However, it would need to carried
out asymmetrically, as the CEER is not yet equipped for open competition.
Nonetheless, the CEE countries could quickly transpose EU rules
on the internal market into their national laws. As a consequence,
CEE products which satisfy these rules would have to be treated
like EU products on the EU market. In line with the preparation
strategy the EU Commission has been working out a restructuring
schedule.

In coordination with the CEER such a step-by-step pan-European
market could also liberalise trade between the CEE states. The
rules of origin laid down in the European Agreements allow for
an accumulation of added value in different CEE states when exported
to the EU, but do not stipulate it for trade within the region.

The Central European Free Trade Area (CEFTA) only covers the four
Visegrad countries (Poland, Hungary, the Czech Republic, the Slovak
Republic) and Slovenia. Other associated countries like Bulgaria
and Romania remain excluded. Without wanting to force an artificial
integration in the region, the EU should keep a close eye on how
the more advanced Visegrad countries treat their less competitive
neighbours. They can hardly expect to be treated better by the
EU.

More important are measures which increase trade volume in the
medium term:

- From a general economic point of view, trade volume increases
with general growth. Due to the recession CEE exports into the
EU have decreased since 1992. 1% more growth in the EU helps CEE
more than a 1% reduction in tariffs. Moreover when the
cake gets bigger it is easier for EU producers to leave a bigger
slice to the CEE competitors without calling for protectionist
measures.

- Leaving trade with third countries aside, the CEE countries
- in the long run - cannot import more from the EU than they export.
Hence it must be in the EU's self-interest to see imports from
the CEER grow. The CEER must laboriously finance each EU export
surplus by higher indebtedness or by export surpluses with the
rest of the world.

- The CEE countries must strengthen their export promotion systems.
They lack institutions and policies for financing and insuring
trade as well as for marketing (information on markets, exhibitions,
etc.). In contrast the EU members dedicate a large part of their
'aid' to CEE to de facto export promotion.

- Transport and communication infrastructures need to be extended
in order to cope with higher trade volumes. In this context opposition
by environmentalists against large scale projects such as motorways
is to be expected.

Ultimately, trade growth depends on the cooperation of companies
with the CEER. As is the case for international trade as a whole,
trade between the EU and the CEER will be governed by supply relations
within transnational production networks. Direct foreign investments,
supply structures, subcontracting, production under licence and
other forms of cooperation with the CEER countries are not yet
developed.

These cooperations could contribute a great deal to the modernisation
of the CEE economies. In the few successful reform states, the
reform process to date has merely led to macro-economic stability,
a market economy order and first moves towards privatisation (but
many countries have not even achieved that). However, these reforms
have hardly changed production structures, applied technologies,
capital resources or management structures. Yet it is on these
factors that the urgently-needed increase in productivity and
competitiveness depends.

To the present day direct foreign investments have contributed
only modestly towards modernisation. Despite the large number
of joint ventures only little capital has been genuinely invested.
In the majority of cases existing companies have been taken over
in order to maintain and secure markets. 'Green field' and export-oriented
investments clearly play only a minor role. The overall investment
volume is rather modest: only ca 5% of German foreign investment
has gone to the CEER (including the former Soviet Union).

Nonetheless, a shift of production towards the CEER due to the
recession endangers jobs both in Germany and the rest of the EU.
Considerable wage gaps (1:15) cause companies to move labour and
wage intensive production steps to the CEER. This lowers the costs
for the overall production and helps secure their other high wage
jobs. However, on balance jobs for less qualified labour in the
EU are lost - the same group which is also exposed to commuting
and migrant workers.

Within the EU present low wage countries on the periphery like
Portugal, Ireland and Spain must feel threatened when these simple
production processes are moved to the CEER. Off setting growth,
e.g. in the investment goods industry, rather benefits Germany
and other central economies. Without stronger growth in general
there will be a net redistribution of production and jobs at least
from the periphery to the CEER.

On the one hand such a division of labour might enhance Europe's
competitive position as it will entail a lowering of costs. The
EU could enter into a division of labour scheme similar to the
ones which already exist between the US and Mexico, and Japan
and South East Asia. On the other hand the EU would need to accompany
such a process with measures which at least partially compensate
the disadvantaged regions and segments of the labour force.

In order to facilitate the political as well as social acceptance
of such a new division of labour it would be useful to undertake
a continuous revision of the economic policies which:

- limit the undervaluation of CEE currencies;

- link increases in productivity to increases in wages;

- combine incentives for direct investments (e.g. risk insurance)
with securing the rights of workers and trade unions.

Aid in need of reform

Western aid up to now has concentrated on the promotion of its
exports to the CEER. Other important measures were writing off
debts (Poland) as well as balance of payments support or loans
to achieve macro-economic stability, all of which - at least as
a side effect - also strengthen the CEER's ability to import.
A large part of 'aid' consisted in loans which increased the CEE's
indebtedness. The resulting scepticism on behalf of the CEE recipients
is probably one of the reasons why only a small portion of the
committed funds have been absorbed. A sincere 'partnership for
transformation' must replace this kind of aid.

Apart from EIB loans, EC/EU aid has been characterised by the
fact that it has consisted of grants which were used to finance
technical aid and consultancy. The volume of the PHARE programme
increased from 500 million ECU in 1990 to over 785 million ECU
in 1991 and 1 billion both in 1992 and 1993. Aid programmes were
coordinated with the receiving states and put to public tender.
Thus in principle they meet requirements and demand, and are in
line with competition.

The present criticism of PHARE is based on the slow movement of
funds, lengthy appropriation and implementation processes as well
as high fees for Western consultants. As is the case with development
aid, this type of criticism does not really address the problems.
Rapid flows of funds and superficial project assessment often
generate projects which have unwanted or only minor effects. Frequently
the practice of granting aid is caught somewhere between criticism
of bad projects and laborious procedures.

Rapid and meticulously planned aid is probably the best recipe.
All inputs should be procured as cheaply as possible and - if
available in good quality - in the CEE countries. Comprehensive
consulting reports without applicable results are too expensive
at any price. It would be helpful to link the PHARE and TACIS
units with experienced sectorial departments within the Commission.

More relevant is the criticism relating to the composition of
aid. Some recipients are now talking about 'overconsulting' and
expect further investments or at least a link between consulting
projects and investments. On occasions, PHARE has cooperated with
investors like the EIB or the EBRD and could continue to do so
in further pilot projects. In addition one might consider earmarking
funds for insuring the risks of private investors. In doing so
one must however avoid Western investors shuffling off their risks
to state budgets ('moral hazard'). An EU-wide harmonisation of
incentive rules should counteract a race for subsidies as has
been known for export incentives in the past.

In the region aid should reach out from the capitals into the
'provinces' as the capitals are already foci for contacts and
financial flows. Transborder projects could contribute to a closer
cooperation between the CEE states. The EU should link its regional
and sectoral distribution of aid to transparent criteria which
have been agreed with the partners.

Given the criticisms voiced, there should be priority for types
of cooperation which can be more easily justified in the West
and which meet with less criticism. For some countries writing
off their debts would be more useful than new loans. This should
however be linked to political conditions. Non-repayable financial
aid should be geared to projects which immediately serve German
and European interests: i.e. stabilising democracy, reactor safety,
environmental protection, energy conservation, the fight against
nuclear proliferation.

Direct subsidies geared to the social networks might aid social
and political stability. It seems appropriate to link Western
payments to the CEE's progress in democratisation. Yet such a
policy can be counter-productive if nationalists in the CEER are
able to denounce their democratic opponents as 'mercenaries of
the West'.

Each aid programme uses up scarce resources, each step towards
opening the markets costs jobs in sectors which are vulnerable
to imports. The West would be better advised to invest in its
own restructuring through employment and industrial policies as
opposed to granting questionable large scale loans to CEE governments.
If the West concentrates in putting its own house in order it
will destroy the paralysing notion for the East that the West
might be able to solve the East's problems. Less Western interference
will also counteract anti-Western tendencies in the CEER which
fight against too much influence from abroad. Ultimately, it is
a prospering Western Europe which benefits the CEE countries most.

© Friedrich Ebert Stiftung
| technical support | net edition
fes-library | März 1998