THE EUROPEAN UNION’S EASTWARD EXPANSION

Anthony Gooch
Spokesman for the European Commission Delegation to the United States

Charles J. Pilliod Lecture Series
Kent State University

Cleveland, 12 November 2003

 

Ladies and Gentlemen:

Let me begin by thanking Professor Ron Stolle, Kent State’s College of Business Administration, for their kind invitation to come and speak here today. 

Having only recently taken up my new responsibilities as Spokesman for the European Commission here in the US, it is a particular pleasure for me early on to get to know parts of this enormous, diverse and complex country that I had yet to discover. A couple of weeks ago I visited Pittsburgh to address the hot, not to say “molten” issue of steel—we will no doubt broach it further at the end of my remarks. Although I’m still a relative newcomer, it was hard to remain oblivious to the links and the consequent rivalry that exists between Cleveland and that part of the world, be it as steel heartlands, in the academic sphere, or on the football field. So it was important to make sure I evened things up quickly with a visit to Ohio, and I’m grateful to Kent State for providing me with an early opportunity to do so. 

The subject I have been asked to address you on today, that of the Enlargement of the European Union, is all the more topical here, given the huge importance in Ohio’s history of immigration from Central and Eastern Europe in the nineteenth and early twentieth centuries. 

Immigrants came here from all parts of the declining Austro-Hungarian Empire: from Hungary, Poland, what is now known as the Czech Republic and Slovakia, from the three Baltic states of Lithuania, Latvia and Estonia and from Slovenia, all of whom will join the EU as fully-fledged members in May 2004. Immigrants also came here from the Balkan region, what are now the separate entities of Serbia, Croatia and Bosnia, from Romania and Bulgaria. Consequently, Ohio has a stronger link and interest than most in the USA, in what is happening back in the “auld countries” in Europe. 

That link with Europe is not only demographic and historical but also very tangible and relevant to the daily lives of Ohioans in 2004, and it is far from limited to the “new entrants” into the EU.  

The European Union, as it currently stands with fifteen member states, is the biggest foreign direct investor in Ohio with $21 billion invested, accounting for well over 50% of FDI in the state. This investment comes from all over the EU: Britain, Germany, Sweden, Belgium, France and the Netherlands in particular; and in a variety of sectors: energy, chemicals, electrical appliances, cars and trucks, high-tech, aluminium and steel are just some examples. Only seven other US states get more investment from Europe. The investment translates itself into 146,000 jobs. 

Europe is also highly important for Ohio as an export market. Last year, about one in five of Ohio’s exports went to the EU, a total worth somewhere in the region of $5 billion, accounting for some 45,000 jobs. In today’s harsh economic climate and in the light of recent transatlantic tensions, those figures are impressive, important and a testament to how interdependent the EU and the US are in the global economy. 

If that’s the way things are today, then how are things shaping up for the future? Well one of the biggest global geo-political changes will shortly take place in Europe. This makes today’s subject so topical, so that you here in Ohio are aware of the changes that are coming, changes that we have been working since 1989 with the fall of the Berlin Wall that precipitated the end of communist regimes throughout Central and Eastern Europe. Changes that we in the EU firmly believe will strengthen us as a Union and strengthen our relationship with the United States. 

So…what happens in May 2004? 

In some six months, on 1 May 2004, to be exact, ten new countries will join the EU as fully-fledged members. I mentioned eight earlier but we must not forget Cyprus and Malta. Some 80 million people will join the existing 370 million making the EU the biggest single market in the world at 450 million. 

To give you an idea of the magnitude, it’s rather like a United States of North America (USNA) being created, stretching from Canada all the way down to the Panama Canal. But we’re not talking here about a Free Trade Area “à la NAFTA” or even the CAFTA that’s currently being negotiated between the US and Central America. By the way, the EU did that with Central and Eastern Europe back in the early 1990s and with the Balkans more recently. No…. we’re talking about a situation where all members would be part of a fully-fledged customs union where they would negotiate all trade agreements, be they regional or in the WTO, as one block. All members would be subject to the same anti-trust rules and internal market rules. And these rules would be administered by a supranational USNA authority, say in the shape of a Mexican anti-trust czar with an office in Ottawa. All members would also subject themselves to the jurisdiction of the USNA Court of Justice composed of independent judges called upon to interpret disputes based on a body of USNA law. Their headquarters could be, say, in Panama and presided over by a Canadian.  

And further still, the USNA Federal Reserve based in Mexico and chaired by….oh what the heck….an American, would set interest rates for the region!  To cap it all, the more developed and affluent members of the USNA, the US and Canada for example, would transfer funds for, say, infrastructure development, to help raise the levels of economic development of their fellow Union members! Furthermore all citizens of the USNA would enjoy freedom of movement for their goods, services and capital in addition to their own personal freedom of movement within this Union to live and work.

Now this may seem totally outlandish to this audience, inconceivable even. Well THIS, this is what the enlargement of the European Union entails. And when you realize that the 80 million coming in, some 20% of the existing EU population, will bring only 5% of the GDP of those already there, you begin to see the magnitude of the undertaking. With enlargement, the gap in income distribution within the EU25 will rise by about 20%--twice as much as the increase when the EU went from nine to twelve in the 1980s! Remember that the EU already did a mini-enlargement overnight in 1990, bringing in the old East Germany, and the effects this had on the German and European economy as a whole are still being felt.

With entry into the EU, the ten new members will be represented in all the European institutions through Commissioners at the European Commission, Members of the European Parliament and their seats as individual members in the European Council of Ministers, the ultimate decision-making body of the EU. They will immediately be part and parcel of the decision-making process, enjoying the same rights and obligations as the existing fifteen. 

How did we get to this point? 

The hard work involved in getting to this point can be easily forgotten so let’s cast our minds back, to see how far we’ve come. 

At Yalta, the European continent was divided into two. For forty-five years Central and Eastern European countries lived under Communist regimes as part of or in the shadow of the Soviet Union under the Warsaw Pact. During this period, with enormous help from the United States through the Marshall Plan, the Western half of Europe set about a unique global and political experiment that began in the 1950s when six countries decided to take steps to integrate their economies and societies so as to ensure they would never repeat the terrible wars that had torn them apart for so long, paving the way for prosperity and peace and underpinned by pluralist democracy. Over time this experiment saw the original Coal and Steel Community evolve into a Common Market, then a European Economic Community, a European Community and now a European Union. The original six increased to nine in the 1970s, to 1twelve in the mid-1980s and to the current fifteen in the mid-90s. The more successful and prosperous the European experiment became, the more it shone out as a beacon of hope for those in Central and Eastern Europe in search of a better political and economic model. With the fall of the Berlin Wall in ‘89, the newly liberated countries had two priorities. The most pressing understandably was the desire to fill the security vacuum left by the demise of the Warsaw Pact with NATO membership. But the ultimate ambition of all was to become part of the European Union—synonymous with stable, plural democracy and the respect for human rights and liberal, market economies capable of ensuring a high standard of living for their citizens. 

And the European Union’s ambition, duty and obligation were to show the necessary solidarity with its neighbours and prepare the ground to make this dream a reality.  

And so in 1993, a clear set of political and economic criteria were drawn up to serve as the road map for accession. In the early ‘90s we quickly negotiated preferential trading access for these countries to the EU through Free Trade Association Agreements that would serve as essential building blocks for full membership. To get from where we were in the early ‘90s to today, the acceding countries have undertaken enormous efforts and sacrifices to transform themselves politically and economically. Political cultures built upon decades of authoritarianism and corruption had to evolve swiftly towards plural democracies based on free and fair elections. Centuries old conflicts between neighbours, border disputes and minority problems have been settled. Economies based upon centralized, state-controlled structures had to adapt to free-market principles and privatization. Seen from this perspective, their achievement in little over a decade is nothing short of remarkable. 

Industries and banks have been privatised, markets and prices liberalised, new administrations to ensure fair competition and regulate the market have been created. Today, the banking sector in the Czech Republic enjoys a higher degree of privatisation than that of Germany, energy markets in Poland are more liberalised than those of France! Judicial systems have been reformed and the considerable EU legal framework of the EU developed over the last fifty years has been incorporated.

Crucially, this has all been carried out with the support of public opinion in these countries. The EU after all is an entity you choose to join. And so once the detailed negotiations on terms of entry for each country were completed last year with a symbolic signing ceremony in Athens, the results have progressively been put to the people for their approval. Recent referenda, in Estonia and Latvia, produced overwhelming support for EU membership, underlining the attractiveness of European integration for still young democracies in Central and Eastern Europe, which is as strong as ever before.

Whilst its true that accessions have never been as well prepared as this one, this does not mean it’s all been plain sailing: as the recent reports on the state-of-play among the accession candidates show, further reforms of the civil service and the judiciary are necessary, the battle against corruption has not yet been won, industrial restructuring in big industries such as steel, that is a condition of accession, still needs to be completed. Consequently, all the Accession Treaties provide for detailed and comprehensive monitoring processes to ensure as smooth a transition as possible.

Enlargement is also a very big deal for the current European Union to prepare for and adapt to. Never before have so many accessions taken place simultaneously. To address the logical concerns that an EU enlarged to twenty-five would come to a grinding halt, we have set about taking a good hard look at the European House and deciding on all the extensions, home improvements, refurbishments and changes in the way we operate, in order to be able to welcome ten new members in without the whole place collapsing on us!  Taking a leaf out of the US’s book, we started work on producing a fresh set of “house rules” that will take the form of Europe’s first Constitution that will replace the unfeasibly complex series of Treaties that began in Rome in the ‘50s and ended in Nice 2000.

The year-long work of the Convention presided over by Giscard d’Estaing having produced a concrete result, it’s now up to the twenty-five members, current and future, to agree on it and sign, seal and deliver before May 2004. The Constitution will simplify decision-making procedures and incorporate fundamental citizens’ rights. New members having all agreed to join the Euro will participate in the EU's economic policy co-ordination and surveillance rules from day one. They will need to achieve a high degree of sustainable convergence, in order ultimately to enter the Eurozone.

Future Enlargement and the Wider Europe

Whilst negotiations with ten countries have been completed, those with Bulgaria and Romania continue and are expected to conclude in 2007. The decisions on whether to start negotiations with Turkey will be taken in the autumn of 2004. And whilst some countries such as those in the Balkan region are expected to seek membership of the EU in the medium term, the EU is working to establish the right framework with near neighbours for whom membership is not in the cards. Our new Neighbourhood Policy  is based on shared values of liberty, democracy, respect for human rights and fundamental freedom. The “Wider Europe” concept is designed to provide solutions to the questions posed by proximity and neighbourhood, as distinct from EU accession. It concerns our neighbours in Eastern Europe and the Southern Mediterranean, from Russia and the Ukraine to Egypt and Morocco, aiming to develop new, sophisticated ways to share the stability, security and prosperity we have created within the enlarged Union, through a differentiated approach to each individual partner country concerned. In practical terms we will work towards creating the conditions for the free movement of goods, services, capital and persons. To strengthen the co-operation in the fight against common threats, to strengthen our co-operation in conflict prevention and crisis management and to integrate transport, energy and telecommunication networks, to promote human rights and step up the dialogue between our respective cultures.

So what’s in it for the US?

Okay, I hear you say, this is all very well, but what does it mean in concrete terms for you in Ohio? Why is it important and relevant to you? Well, beyond the obvious advantages of spreading peace and safeguarding democracy and the rule of law, its great news for Ohio and the US at large economically and crucially: it’s for free!

Enlargement brings new economic opportunities: growth rates of between 5% to 8% of GDP in the acceding countries are far outstripping those of the EU15 and are likely to do so for the next decade, and this without taking account the micro-economic effects to be derived through economies of scale and greater competition. Over the next two years alone, the EU has earmarked EUR 20 billion to improve infrastructure in the new member states.

Thanks to the prospect of enlargement, the new member states have seen a steady improvement in their credit ratings rather like Mexico as it has progressively integrated economically with the US. They have also enjoyed an “accession premium” with bonds trading at tighter spreads than equally rated countries from other parts of the world. All of this taken together is good news for US investors and investor confidence. It’s not for nothing that, while 2002 saw a sharp decrease in world FDI, investment flows into the acceding countries increased by 2%.

The enlarged EU will account for 20% of world trade, 46% of world outward FDI and 24% of inward FDI. As of the day of accession the new member states will adopt internal market rules and the guarantees for US economic operators that these provide. New members will implement the EU´s trade policy regime in full: a single set of trade rules, a single tariff and a single set of administrative procedures will apply. This will greatly simplify the dealings that US companies have within the ten new members. In adopting the EU’s Common Customs Tariff upon accession, the new member states will slash import tariffs on industrial goods by two-thirds—from an average of 9% to the 3% applied by the EU15. US services providers will benefit from the same treatment in Slovakia as they are used to in the UK. Exporters will know the "one standard for all" principle on technical regulations will apply.

So all in all, good news for the US.

And good news we hope for the transatlantic relationship—the healthiest and most important trading relationship in the world, with total two-way trade reaching EUR 432 billion in 2001 and significantly accounting for some six million jobs divided pretty equally on both sides of the Atlantic.

And whilst the benefits both for the EU and the US are undeniable, I hope I have managed to impress upon you what a big deal this enlargement business is. What has been achieved so far is nothing short of miraculous, and there is every reason to hope that the long-term effect of the new members joining will be to inject a new dynamism for the European Union for years to come. The dream will have become reality and whilst, as always, that brings with it certain reality checks, it remains an enormous source of pride and satisfaction for all concerned. The European experiment that is only fifty years young is on the brink of its biggest transformation to date.

All of which makes me wonder whether it doesn’t provide food for thought on this side of the Atlantic. What price indeed a United States of North America in the medium term?  What price a reappraisal of the “rules of the American House” established well over 200 years ago at a very different time and when America was a very different place? One thing is for sure, when the grandsons and ‘daughters of those immigrants who left Central and Eastern Europe for Ohio all those years ago go and visit the “auld countries,” they will be proud to see what has been achieved and surprised at what is possible now. Once there some of them, dare I say it, may even want to stick around and get a piece of the action. And on that deliberately provocative final note, I trust there will be no shortage of comments and questions!

Thank you.

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