Tuesday, 2 September 2003

New Europe's EUphoria

Those interested in the development of the European Union and its effects on economic conditions — free trade, redistribution of property and regulation of economic activities — are finding new food for thought as the bloc’s historic enlargement approaches.

Rapidly developing Central European countries are one-by-one making their final decisions to join the club. The most essential question is, of course, how these “yeses” in popular referendums will affect the future of the old and new EU members. This is difficult to predict, and much will depend on how the bloc develops. What are and will be the positions of those new member countries that will have their own votes in making common decisions? It’s important to consider how public opinion about joining the EU is being molded and what new expectations are being created.

Obviously, the current EU club is much richer than the group of countries about to join. The reasons are quite evident: Western Europe has been a market zone and Central Europe a zone of planned economy. But looking at the new dynamics, we find that accessing countries are growing while the “old” EU is stagnating: GDP growth in the EU is 1 percent; in the countries about to join, 2.8 percent; and in my beloved Lithuania, 6.7 percent. The reasons, I’m afraid, are for the most part the same: Central European countries have become more market-oriented than their western neighbors.

This offers two marginal possibilities after the expansion of the EU: either free market advocates inside the EU will become stronger, or new members will become less market-oriented (even keeping in mind that most of the existing European regulations are already implemented in accessing countries). The issue is very complex and the answer depends mostly on whether you are optimistic or skeptical about national and European government.

Unfortunately, looking at how a government-sponsored referendum campaign was conducted recently in Lithuania, it is apparent that the advantages of the common market were not the key point. Quite the contrary. Expectations of more social guarantees and more redistribution were built and strengthened. “There is no poverty in the EU”, “Structural funds will reach everyone” — these were the main slogans of EU propaganda. Everyone explaining the benefits of joining the EU started with figures on how much Lithuania will get through structural and other funds of the EU. The fear of isolationism in the case of not joining and the need to join “either the West or the East” were also leading features of the campaign. In fact, a strong “EUphoria” was created. It looked as if a life or death question had been put out on referendum.

Of course, every successful campaign makes people vote for something they want to have, but not for reality (it’s like in good art: everyone hears and sees what’s important to him). In fact, Lithuania and other countries are voting in favor of joining the EU, but the goal is not the same for separate individuals. The fear is that most people in Central European countries who vote for the EU are casting their vote for a new form of cozy and mild socialism. It’s a particularly attractive option because you are going to be the one who will benefit from redistribution; someone else will pay the bill (at least during the next three to five years).

Those who hope to get rid of the remaining signs of central planning economy will be disappointed because one step forward will offer two steps backwards. A part of those who are already planning for how to use the money coming from the EU will be also unhappy because no one will be able to satisfy unlimited needs. Demand for centralized funds will go up, while abilities to fulfill this demand will become increasingly limited. This is not very optimistic. It looks as if the economy of the EU states and the well-being of their people will be weakened. This may be the case even if EU institutions become stronger. It is likely that in the enlarged EU we will have more redistribution, more regulations, more bureaucracy, and more protectionism. The only hope is that people from both “old” and “new” European Union countries will understand that benefits of globalization and unified markets cannot be connected with centralized government and unified regulation.

Remigijus Simasius

Remigijus Simasius is a senior policy analyst specializing in privatization at the Lithuanian Free Market Institute.