VIEWS FROM THE CAPITALS

Autumn 2009

by András Inotai

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Hungary, like most other new EU states in Eastern and central Europe, is ruefully looking at the balance sheet of its membership in the light of the economic crisis. And the political price that may have to be paid one day for this rising dissatisfaction is anyone’s guess. During the long years these formerly communist countries spent asserting their right to be fully-fledged members of the European Union, any talk about “second-class” status was dismissed by Hungarian and other political leaderships as populist, anti-EU and groundless. The transitional arrangements agreed at the time of accession five years ago were emphasised to be purely temporary measures, each with a timetable for completion or clear conditions to be met. From agriculture to the eurozone, labour mobility to the Schengen system, the accession treaties laid out the route to full participation in all aspects of the Union.

Today, there is a real threat that central and eastern Europe is being relegated to second-class membership by the short-sighted and nationalist responses of EU countries to the financial, economic and social crises unfolding across Europe. National responses to emergencies always tend to accentuate the differences between member states, and that is certainly the case now they are using different legal instruments and unequal financial resources to combat recession. And member states are not all playing by the same set of rules; some are running budget deficits well above Maastricht’s 3% of GDP limit, while others are being forced to stick to that. Very different terms are also being applied to getting public spending back on track. The inequalities between new and older member states are becoming substantial.

Recession is also making migrant workers more vulnerable to redundancy than local employees, so people from central and eastern Europe have fewer legal rights, different contracts and lack the support of trade unions enjoyed by their native counterparts. This discrimination is likely to be further aggravated if the economic slump lasts so long that it delays the free circulation of labour beyond the deadlines scheduled in the Accession Treaties (after 2011 for the 2004 intake and 2014 for Bulgaria and Romania).

In the banking sector, the seeds of inequality were sown well before last autumn’s financial meltdown. Western European banks have become the dominant players in almost all new member countries, and at one point earned the lion’s share of their global profits in central and eastern Europe. Yet instead of shaping an EU-level response when the banking crisis hit, most countries tried to bail-out their “own” banks and left some of their most profitable foreign subsidiaries out in the cold.

On the bright side, transnational companies could yet level out the economic playing field if they act rationally when deciding where to cut surplus capacity during the global downturn. Most newly created subsidiaries in central and eastern Europe are technologically advanced, low-cost facilities which should be kept open. But companies can be bullied by governments to retain less competitive sites in “old Europe”. Not only would that damage central and eastern economies still further, it would reduce EU competitiveness in the post-crisis period.

All this flies in the face of the basic principle that all EU member states are equal, even if they are at different stages of socio-economic development. The problem has hitherto been how to close the development gap without sacrificing the competitive advantages of economic integration. In practice, this dilemma led to different “circles” of states within the EU-27, which was fine so long as the system remained flexible and open. However, the current situation may end up creating and then consolidating genuine second-class membership for the less developed EU economies.

If a two-tier system were to become entrenched, the consequences would stretch far beyond the internal functioning of the Union. It would provide ammunition for extremists and nationalists who oppose the EU and capitalism. Not only would that undermine the transformation of Europe seen over the past 20 years, including the gains in central and eastern Europe, it could even threaten the future of the entire post-1945 system of peace and stability.