programmes and instructions in an effort to bring their institutions, laws, regulations, practices and civil services up to a minimum standard compatible with those of the Union. The applicants, in turn, pressed as hard as they dared for assurances that they would have free access to EU consumers, while defending their domestic market from being overwhelmed by more attractive and efficient goods and services from the West.
The struggle was decidedly unequal. Whereas the EU was the longstanding and openly avowed object of Eastern desires, the putative new members could offer little in return except the promise of good behaviour. And thus it was agreed that while the new members would be accorded a few limited concessions—among them temporary restraints upon foreign purchases of land, a sensitive political issue—they would have to accept that the EU, despite its commitment to a single market, was going to impose considerable restrictions upon their own export of goods and, especially, people.
In response to wildly exaggerated estimates of likely population flows (one European Commission report published in 2000 prophesied an annual exodus of 335,000 from the ten eastern accession states if the frontiers were opened without restriction), most of the Western member-states insisted on quotas being placed on the number of eastern Europeans who could move to the West—in blatant disregard of the spirit and indeed the letter of a decade of proclamations and treaties. Germany, Austria and Finland imposed strict limits for two years with an option to extend these for a further five. Belgium, Italy and Greece followed suit. Only the UK and Ireland declared their willingness to conform to the ‘open door’ principles of the Union—while announcing that welfare benefits for work-seekers from Eastern Europe would be kept to a minimum.
The eastward extension of agricultural subsidies and other benefits was also placed within strict limits. In part, as the Commission’s
By the time the negotiations were complete, the terms agreed and the 97,000 pages of the Union’s
By the early twenty-first century, foreign investment in former Communist Europe was actually tailing off. Ironically, this was largely a result of the coming EU enlargement. Once they were inside the Union it would certainly be easier to do business in and with countries like Poland or Estonia. And they in turn would be able to sell more to the West: Poland expected to double its food exports to the EU within three years of joining. But these were the fruits of relative backwardness. Once they were inside the EU, wages and other costs in the countries of Eastern Europe would begin to rise to Western levels. The region’s cost advantage over factories in India, or Mexico, would be lost. Profit margins—at least in the manufacturing sector—would start to fall.
Meanwhile, thanks to the heavy cost of unraveling the Communist economies, East Europe on the eve of accession remained far behind the countries of the EU. Per capita GDP even in the most prosperous new member states was far below their Western neighbours: in Slovenia it stood at 69 percent of the EU average, in the Czech Republic at 59 percent, in Hungary 54 percent. In Poland it was just 41 percent, in Latvia, the poorest new member, 33 percent. Even if the economies of the new EU states kept growing on average 2 percent faster than those of the existing members,[365] it would take Slovenia twenty-one years to catch up with France. For Lithuania the time lag would be fifty-seven years. The citizens of former-Communist states had no access to such data, of course. But most had few illusions about the difficulties ahead. When Czechs were asked, in a series of opinion polls in 2000, how long they thought it would be before their situation ‘improved’, 30 percent of respondents answered ‘within five years’; 30 percent answered ‘in ten years’; 30 percent answered ‘fifteen years or more’; and 10 percent said ‘never’.
Nonetheless, for all the justified skepticism of the beneficiaries, the formal implications of the EU’s ‘big- bang’ enlargement were real enough. When the accession treaty, signed in Athens in April 2003, came into force on May 1st 2004, the European Union grew at a single stroke from fifteen to twenty-five members (Bulgaria and Romania were held back, their accession anticipated for 2007). Its population increased by one-fifth (though its economy was expanded by less than 5 percent); its land mass by almost as much. And the frontiers of ‘Europe’, which as recently as 1989 had reached no further east than Trieste, now extended into what had once been the USSR.
At the dawn of the twenty-first century the European Union faced a daunting range of problems: some old, some new and some of its own making. Its economic troubles were perhaps the most familiar and in the end the least serious of its concerns. With or without the new member states the EU continued to spend—as it had done from the outset—hugely disproportionate sums of money on its farmers. Forty percent of the Union’s budget—or $52 billion in 2004—went on politically motivated ‘farm support payments’, many of them to large mechanized agri-businesses in France or Spain that hardly needed the help.
Even after agreement had been reached to reduce these subsidies and cut the Common Agricultural Program it was anticipated that farm price supports would still constitute over a third of the EU’s total expenditure well into the second decade of the new century, placing an intolerable burden upon the budget. The problem was not that the Union was poor. Quite the contrary: the collective wealth and resources of its members were comparable to those of the US. But its budget, in the words of an independent report commissioned by Brussels in 2003, was a ‘historical relic’.
The European Union had started out, half a century before, as a customs union—a ‘common market’— bound together by not much more than a common external tariff. Its pattern of expenditure was driven and then constrained by negotiated agreements on tariffs, prices, subsidies and supports. Over the years its ambitions had expanded into the realms of culture, law, government and politics and it had taken on—in Brussels and elsewhere—many of the external trappings of a conventional government.
But whereas conventional governments are free to raise money to meet their anticipated costs, the European Union had and has very few revenue-raising capacities of its own. Its income derives from fixed rates of customs duty, agricultural levies, a Union-wide indirect sales tax (VAT) and, above all, contributions from member-states capped at just 1.24 percent of Gross National Income (GNI). Thus very little of the EU’s income is under the direct control of the Union’s own administration—and all of it is vulnerable to political pressures within the separate member-states.
Most of the latter are recipients of EU largesse rather than contributors to its budget. In 2004, following its enlargement to the East, nineteen of the Union’s member countries received from Brussels more than they paid in. The cost of running the Union was in practice met by net contributions from just six member states: the UK, France, Sweden, Austria, the Netherlands and Germany. Ominously for the Union’s future prospects, all six countries petitioned the Commission in December 2003 to have national contributions to the EU budget reduced in future from 1.24 percent of GNI to just 1 percent.
The Union’s budget, tiny in comparison to that of even the smallest member-state and mostly spent on structural funds, price supports and the EU’s own costly administration, is thus a permanent hostage to the interests of its contributors and recipients alike. The levers of the Union’s economic machinery depend for their efficiency upon the consent of all its constituent parts. Where everyone more or less concurs on the principle and benefits of a given policy—on open internal borders, or unrestricted markets for goods and services—the EU has made remarkable progress. Where there is real dissent from a handful of members (or even just one, particularly if it is a major contributor), policy stalls: tax harmonization, like the reduction of agricultural supports, has been on the agenda for decades.
