Regards, Ivan
Posted on 10/11/2002 12:28:59 AM PDT by MadIvan
Europe’s finance ministers have abandoned plans to balance their budgets by 2004, after bitter wrangling about the stability-and-growth pact. The setback comes as the European Commission announces that ten applicant countries should be ready to join the European Union in 2004
IT IS, to say the least, unfortunate timing. In a meeting that went on until the early hours of October 8th, finance ministers from the euro area found themselves bickering—yet again—about their budgetary policies. That’s not a spectacle likely to reassure the ten countries that were told by the European Commission on October 9th that they can plan on being invited to join the European Union (EU) in 2004. At the very least, it is a reminder that the club they have waited so long to join is no longer the dynamic economic hub it once appeared to be.
Europe’s economic slowdown is unlikely to dissuade the successful applicant countries that have got this far. In the past, enlargement of the EU has often been politically driven—used partly to consolidate democracy in Greece, Spain and Portugal, for instance—and political objectives are once again central as the EU prepares to extend eastwards. Existing members of the Union see great advantage in welcoming the former communist states that make up the bulk of the first wave of applicants (see map).
So does America, which has started to put pressure on the EU to give Turkey some sign that its application to join will eventually succeed. Turkey’s EU ambitions long pre-date the collapse of communism, and the country has recently made strenuous efforts to meet the EU’s membership criteria—including the abolition of capital punishment. America sees Turkey as a key strategic ally, especially given the situation in Iraq, and sees EU membership as a way of reinforcing the country’s links with the West. The EU still thinks Turkey has further to go before formal accession negotiations can start, but even those member states least friendly to the Turks have been making conciliatory noises: on October 10th, the foreign minister of Greece, Turkey's traditional adversary, said he saw no reason why the EU should not set a date for accession talks with Turkey at its December summit in Copenhagen.
Yet embracing the principle of enlargement has been easier for most existing members than embracing the prospect of a 25-nation (and rising) EU. It is now 13 years since the Berlin Wall came down, and nearly 11 years since the Soviet Union collapsed. The accession countries feel, with some justification, that the EU has been dragging its feet about admitting new members. The delay has been so long that in some countries, such as Poland, public enthusiasm for EU membership has started to fade.
It is the very thing that most attracts the new countries to the EU that, in turn, makes many EU members most anxious about enlargement: the prospect of unfettered access to a market of some 375m people. Firms and farmers fear competition from countries that are economically less advanced, but have the advantage of cheaper labour costs.
The large agricultural sector in many of these countries, especially Poland, also threatens to tip the EU’s already expensive Common Agricultural Policy (CAP) into bankruptcy. The solution—to exclude new members from most of the CAP provisions while working to reform the policy of agricultural subsidies—was hardly something to be welcomed by the accession countries. With reform now, at best, delayed until at least 2006, thanks to successful French lobbying of the Germans (the CAP’s principal paymasters) the new members will be even less enthused by the two-tier approach.
A market in the mire
Even that large European market looks a lot less attractive these days. Europe’s economic performance has been disappointing and looks set to remain sluggish. There are complaints—from the International Monetary Fund and others—that the European Central Bank (ECB) should have done more to cut interest rates and stimulate growth. Wim Duisenberg, president of the ECB, rejected that charge again on October 8th. “We regard the monetary-policy stance as appropriate at the moment,” he said. It thus surprised no one that the ECB’s governing council decided to leave interest rates unchanged at its meeting on October 10th.
Mr Duisenberg has also implicitly criticised the compromise reached by euro-area finance ministers at the October 8th meeting. This sets back the deadline for balancing budgets by two years, to 2006. But the delay in implementing that part of the EU’s stability-and-growth pact is little more than a recognition of the inevitable. Germany, the main architect of the pact, is already close to breaching the current ceiling (a budget deficit of no more than 3% of GDP). Portugal has already burst through the limit, and both France and Italy look like doing so soon. France, to the intense irritation of some of its partners, has made it clear it will not even start to bring down its structural deficit (which excludes variation due to the economic cycle) towards balance until after 2003.
Few economists outside the ECB think that fiscal, as well as monetary, loosening would help European growth at the moment. But most believe that EU countries need to press on with structural reforms—to which they are, in principle, committed—if European performance is to improve over the long term. More flexible labour and capital markets, for instance, are essential if Europe is to benefit from the productivity improvements seen in America in recent years. The target of making the EU the most competitive region on earth by 2010, set at a summit in Lisbon two years ago, already looks far too ambitious.
The EU has not been shy of demanding structural economic and political reform in applicant countries, which must meet strict accession criteria. On some measures, some of the members-in-waiting are already more closely integrated with the EU than several existing members. Once in, the new members are likley to want to see a stronger commitment to economic reform than certain euro-area countries have so far demonstrated. They will be dealing with experts in the art of procrastination.
Regards, Ivan
As you can see, the EU is in the doldrums.
Regards, Ivan
Regards, Ivan
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