OVERCOMING THE CRISIS
Support from the EU's newcomers will be crucial to recovery
Summer 2009
Europe’s ‘big bang’ enlargement to 27 countries was a win-win deal for all, says EBRD chief Thomas Mirow. But with the recession bitting deeper, he calls for renewed solidarity with the countries of central and eastern Europe
This could have been a year of joy for Europe. We’ll be commemorating the twentieth anniversary of the fall of the Berlin Wall in November, and it's five years since the ‘Big Bang’ enlargement of the European Union. The post-World War II division of Europe is well and truly over, and that’s reason for real celebration. But instead of letting off fireworks, the European Union is itself under fire. The global economic crisis is confronting us with the greatest challenge we’ve seen since those historic days of 1989. After years of strong growth and remarkable resilience, the new member states in the east, where the EBRD works, are now being hit hard by the economic turmoil which started in the west.
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MATTERS OF OPINION |
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Joint action, yes – the euro, no
Only a minority of EU citizens believe that the euro has mitigated the crisis: 39% across the 27 EU member states, compared to 44% who believe it has not.
Not surprisingly, there was more appreciation for the benefits of the single currency in those countries that have adopted it. In all but two eurozone countries, most people said that the single currency had mitigated the negative effects of the crisis. Only France and Germany among eurozone countries bucked this trend, with more citizens taking an opposite view. In Spain the views were equally divided. One in six EU citizens (17%) did not answer the question.
Eurobarometer | Integration into the global economy, which had been a crucial source of capital, stability and innovation, has now become a threat to many of the countries in eastern and south eastern Europe. This is true both of the financial sectors and the region’s real economies
The EBRD has responded to this challenge by increasing investments and designing tailor-made packages for the financial and enterprise sectors. But the tough question that has to be asked is whether the current crisis could lead to the unravelling of European integration? There are four key issues that need to be tackled if we are to ensure that Europe emerges strengthened from the present turbulence:
The first of these concerns the continuation of enlargement. The EU’s enlargement has indisputably been a success. The EU is today the largest integrated economic area in the world, accounting for more than 30% of the world’s GDP and more than 17% of world trade.
Even with this year’s marked contraction of the economies of some central and eastern European countries, their accession to the EU has given a significant boost to growth; the European Commission estimates that at an extra 1.75% for the new member states in the period 2004-2009. For the pre-Big Bang EU-15 enlargement significantly contributed to their growth too through investment opportunities and increased demand for their products: 7.5% of the exports of the older member states went to the newcomers in 2007, compared with only 4.7% in 1999. By 2007, central and eastern Europe had become the second most important export destination for the eurozone countries.
But EU membership has always been about more than economic integration and trade flows. The prospect of “returning to Europe” as the former Czech President Václav Havel once put it has provided the backing for essential if sometimes painful economic, social and political reforms. In the present circumstances, this is a more powerful incentive than ever.
Right now the EU has – in its own terminology – three “candidate countries” (Croatia, FYR Macedonia and Turkey) and five “potential candidate countries” (Albania, Bosnia and Herzegovina, Kosovo under UN Security Council Resolution 1244, Montenegro and Serbia). These countries are increasing their efforts to get ready for EU admission, and the European Union must not shut its doors on them but must remain open to finalise this historic enlargement process. The economic crisis has clearly demonstrated that the EU cannot afford black holes on the map of Europe.
The second key issue concerns the EU’s own internal structure. The Lisbon treaty offers a fundamental redesign of how it works, but despite the pressing need to enhance the mobility and flexibility of the EU institutions it is still awaiting ratification. The economic crisis makes it more important than ever to introduce these reforms, as does the growing role of the EU as a global player. The multitude of voices and opinions coming out of Europe tend to hide this, but beneath the surface it is possible to detect growing convergence on such questions as the future system of financial regulation. And the European model of social market economies is now more respected and accepted than ever.
Third, there is the euro. The 12 new member states that joined the EU in 2004 and 2007 committed themselves to adoption of the single European currency, with no set date. Expansion of the eurozone has therefore been slow, especially in central and eastern Europe, where to date only Slovenia (2008) and the Slovak Republic (2009) have implemented the steps that allowed them to become members of the single currency.
The financial and economic crisis has, however, clearly demonstrated the benefits of being part of this currency union. Ten years after the euro’s introduction, the 16-member eurozone has the world´s second most important currency, accounting worldwide for more than a quarter of all central banks’ foreign exchange reserves and having overtaken the dollar as the currency of choice for international bond issues.
The euro’s increasingly important role brings stability, something that is never more important than in times of upheaval. The EBRD therefore encourages all new EU member states that have not yet started doing so to draft credible and convincing plans to be admitted to the eurozone. But there must be no softening of the criteria for joining the euro.
My fourth key question concerns European solidarity. EU enlargement unquestionably brought greater prosperity, with living standards improving throughout the EU, and most significantly of course in the new member states themselves. But many of the older member states also benefitted, and not only in ways that are measureable in economic terms. The growing together of people, regions and countries is underpinning the foundations on which Europe rests.
The EU’s newcomers have adopted growth models that rely to varying degrees on foreign capital to finance domestic investment, and on banking systems that are largely owned by western European banks. It is a model that served new and old member states well: Investors from the EU-15 committed €37.2bn in central and eastern Europe in 2006, just about double the €19.1bn spent there in 2004. Over the past five years, foreign direct investment in the new member states has topped the €100bn mark.
This process enabled western European companies and banks to expand into new markets with higher growth rates and so satisfy pent-up demand and tap unrealised potential. This created jobs in central and eastern Europe and prosperity in the older member states. So it would be at our own peril if we were to turn our backs on the east during this crisis; this would have serious economic ramifications which could lead to highly unwelcome further developments.
The EU drew the right conclusions when it stressed that national bank rescue packages must not be designed in ways that starve subsidiaries, and also by doubling to €50bn the crisis funds available to EU countries outside the eurozone. These are the right signals. 20 years after the “Solidarity” movement played a crucial role in bringing down communism in Poland, and then in the rest of eastern Europe, the EU must not stand aside when solidarity is again needed.
The European Union has been on the receiving end of some heavy criticism for its reactions to the crisis. Rebuking Brussels has become something of a national pastime right across Europe. Whenever there is a problem, the EU’s central institutions in Brussels, with the European Council and the European Commission in the front line, get the blame. That way the EU ends up in a no-win-situation: If it takes a pro-active stance it is pilloried for interference, over-regulation and for plotting the creation of a European superstate; but when it takes a more cautious approach, critics lambast Brussels for its alleged passivity or its failure to act decisively.
We must take this very seriously, and I say “we” advisedly. For it is we as European citizens who shape and represent the European Union. That’s why I can detect something positive in the fact that a Hungarian peasant, a Portugese fisherman and a German taxi driver may be united in moaning about the EU. It means that a European identity is emerging.
The challenge is to make this identity a positive one. It is possible because the EU has so much to say for itself. The crisis offers an opportunity to show that the EU can provide stability, support, and solidarity. By taking the right steps now, the Union is laying the foundations that enable it to emerge from today’s difficulties strengthened and more united.
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The fourteenth edition of Europe's World is out. We feel it's fair to say that few if any publications in the field of international relations and policy debate have grown as fast or widened their scope so remarkably as Europe's World. Table of contents of Issue 14. The search is on for 'global governance' solutions to the world's economic and political problems. The trouble is, of course, that there's not much agreement across Europe or around the world on what sort of policy instruments, institutions and rules would open the way to a fairer international system serving the needs of North and South, East and West while avoiding the pitfalls that led to the global crisis. Read more |
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