Europe is managing to combine slow Can the EU absorb the East? growth with social regression. National austerity policies and deregulation, the Single Act and the Maastricht Treaty have come together to make the European Union a low-growth region. After the 1993 recession, there was a limited recovery in 1994 and early 1995. But the recovery lost steam during the course of 1995, first of all in France and Germany: both countries experienced negative growth in the last trimester of 1995, and economic forecasts for 1996 have been revised downwards. In Germany, GDP growth is officially forecast at 0.8 percent, and at 0.5 percent by the five "wise men" assigned to do an annual report for the government. In France, the growth rate was 2.2 percent in 1995 (as opposed to the 2.9 percent forecast), and the forecast for 1996 was set early in the year at 1.3 percent (although the 1996 budget was based on a forecast of 2.8 percent growth). These slow European growth rates obviously have something to do with the limited buying power of wages and benefits, which cuts effective demand, and something to do with • I high real interest rates resulting from central banks' one-sided fear of inflation.
Neither France nor Germany meets the Maastricht criteria for EMU LAUNCH 28 International Viewpoint by Catherine Samary THE LEADERS OF EVERY CENTRAL AND Eastern European country repeat at every occasion that their country's future lies within the European Union. The eleven Phare countries already have association agreements with the EU. "We'd rather be the poorest in town than the richest in the village" say the more realistic partisans of rapid integration. Many others naively believe that integration into free-market Europe will bring them •Western' living
The Polish intellectual Karol Modzelewski warns that even Germany, "the richest country in Europe... could not stop the collapse... of the Eastern Länder, when the socialist economy was attached, overnight, to the western economic system. The Germans might have enough resources to construct a completely new economy on the ruins of the German Democratic Republic (East Germany). But the other post-Communist countries cannot dream of doing the same". 3
But the extent of the failure of the "socialist" countries, and the absence of any credible left alternative to Maastricht, are powerful arguments against remaining outside "the only show in town". So does the 1995 entry of Austria, Sweden and Finland into the EU. Unless and until some new monetary or socio-political crisis reshuffles the cards, the "pro-European" sentiment of the decision-makers in Eastern Europe legitimises their policies of "structural adjustment" inspired by the Maastricht convergence criteria.
Enlargement of the EU to the East would bring new problems, at an unprecedented price to the existing members. This is not just a result of the quantitative "backwardness" of the various candidates, nor the important role agriculture plays in many of them (agricultural subsidies consume a large part of the EU budget). Integrating the central European countries as members would involve the EU much more closely in the unique mutation process which is underway in the region.
There is, of course, already a relationship between EU membership and "the transition to the market economy"— the restoration of capitalism. The perspective of membership accelerates the rate of change. Can the EU integrate hybrid societies? To what extent? And at what price? Would integration stabilise, or destabilise these societies?
The Hungarian economist Janos Kornai has called the 20-50% drop in production across the region since 1989 the "crisis of transition". But it does seem that the countries bordering on Germany and Austria are coming out of the tunnel. Poland's economy has grown consistently since 1992. In 1994 all the economies of central and Eastern Europe grew, apart from Bulgaria, which did however stop contracting
The return to power, via elections, of the former Communist parties is a sign of stability: there is clearly a possibility of alternation without challenging the new rules of the game. In Poland, Kwasniewski's socialists are continuing the privatisation programme. In Hungary, the ruling Socialis Party has imposed a particularly harsh austerity programme, and accelerated the privatisation of key sectors, like energy. The Czech Republic was the first post-Com
turope: supranational state?
munist country to enter the "rich countries' club", the OECD.
All these factors underpin the increasing number of optimistic forecasts, suggesting that these countries have escaped from the chaos and disruption which afflicts the rest of the former "Soviet bloc" Things are not so simple.
Beyond their legal appearance, privatisation and restructuring often hide remarkably familiar structures of decision-making. There has certainly an impressive "small privatisation", with the continued creation of new shops, service companies and small workshops. But the major industrial enterprises still face one central difficulty the newly-forming bourgeoisie, with its roots in the nomenklatura and the middle classes, has very little real capital at its disposition.4
And yet, the process of privatisation, monetisation, price liberalisation, and the development of market relations requires that these means of production leave the state-owned sector and become "capital."
This means exposing these enterprises to the risk of bankruptcy, and workers facing the threat of redundancy and unemployment. Managing such a situation requires new management techniques, in a framework of new social relations. We are a long way from this in the region's major industrial enterprises, and in entire regions of central and Eastern Europe.
Total savings in the region represent no more than 20% of the sum needed to buy the enterprises which are being privatised, even at the knock-down prices being asked. And many individuals would prefer to invest in something more stable and profitable than their country's industrial sector. In Hungary, foreign capital has played a key role in privatisations so far.5. Elsewhere, foreign money is marginal, either because the local markets do not offer sufficient profitability and security, or because local authorities have tried to protect certain sectors from for-
To legitimise the transfer of public property to the private sector, and to "capitalise without capitalists", the Czech Republic pioneered the mass distribution of virtually free privatisation coupons to the population, enabling the purchase of shares in companies, or indirect investment through a private or bank-managed Privatisation Investment Fund. The state, and the major banks, still have a dominant role in the effective management of these funds, but a part of this potentially lucrative sector will surely pass, sooner or later, into foreign
The "coupon privatisation" enabled zech Premier Václav Klaus to announce i privatisation is over, since more than the GDP is now produced by non-state owned enterprises. In fact, the extent of effective privatisation, and the future of the "stability" Klaus and Kwasniewski are so proud about, depend on the social relations behind "popular privatisation", and the balance of forces between the new social classes. Where market discipline is imposed, growing unemployment will continue to increase the size of public deficits. Liberal economic orthodoxy will continue to squeeze the social and cultural budgets, with the Maastricht convergence criteria the "Mexicanisation" of central Europe is not the same as its "stabilisation". Agriculture: a delicate question
Agriculture is a problem for everyone. For the rulers, it is a central, apparently insoluble dossier in the process of integration into the European Union. For households already hit by declining real wages, food and drink is consuming an increasing part of the family budget. Any further increase in food prices (which are still significantly lower than in the EU) could have explosive social effects.
If central and East European and EU agricultural markets were integrated, the Eastern countries would represent 12 to 30% of total production. This would not only complicate the continent's persistent overproduction, but put sever strains on the extensive quota and subsidy system.6
The "destructive" phase of the transformation of the region's agriculture has caused an unprecedented peacetime fall in production, particularly in Poland, Bulgaria and Hungary (which is no longer selfsufficient, and is suffering from a growing trade deficit as a result of food imports.)
"Transition" has also been marked by a legal traffic-jam, caused by the "restitution" of certain categories of state and collective property to certain categories of former private owners. The average parcel thus distributed is very small (under 2 ha in Rumania, Albania and Bulgaria). Many former collective farmers are extremely reticent about the supposed values of individual responsibility
The larger co-operatives and state farms have been "privatised" in the same unclear way as many state companies. And some cooperatives have been maintained, at least in
This is probably in contradiction with the logic of the EU's Common Agricultural Programme, "which does involve a high degree of intervention... but in the context of a market economy, without monopoly, and with control over transfer payments... How could one distribute aid per hectare or per head of cattle in state farms, in production co-operatives, or in the numerous cases where land ownership is very imprecise?"
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At the other end of the scale, is the EU willing to give subsidies to the mushrooming numbers of micro-farmers? Don't forget that the existence of this rural employment sector dampens the pressures towards social explosion, by enabling a degree of self-sufficiency in the countryside, and providing the capacity to integrate a certain number of the unemployed or under-employed Free trade hypocrisy
Agriculture is linked to another sensitive questions: trade relations with the EU.9. There has been a massive reorientation of central and east Europe's trade towards the EU over the last five years, as a result of the dismantling of the old price system, opening the economy to foreign trade, and the abolition of the Council for Mutual Economic Assistance ("Comecon"). Apart from Slovenia and the Czech Republic, all the countries of the region developed trade deficits with the EU in 1990-1993. Exports to the EU increased by 60%, but imports from the EU increased by more than 90%!
A rapid decline in exports to the EU in 1993 revealed the region's extreme vulnerability: a modest recession in the West of the continent had an immediate, significant effect on the export capacities of the Eastern
Meanwhile, the new imports from the EU have not, essentially, contributed to the modernisation of the means of production. Instead, the import boom reflects the consumption of Western consumer goods, at prices which most of the central and Eastern European population cannot afford.
The most dynamic sectors of the region's economy are already the sectors most dominated by EU companies, who have subcontracted a large amount of production to the region. 10 Central/eastern Europe's clothing and shoe exports doubled between 1988 and 1993, mainly through the relocalisation of West European companies sub-contracting facilities from Asia to Eastern Europe. A similar process is under way in the machine tools sector, which represented 21.8% of the region's exports in 1993, compared to only 14.3% in 1988.
Western companies have preferred to
International Viewpoint 29
* Europe: supranational state?
concentrate their sub-contracting in the most advanced countries in the region. In 1993, 80% of identifiable sub-contracting exports from central and eastern Europe came from the "Visegrad Four", Poland, Hungary, and both halves of the former Czechoslovakia.
These sectors were less touched by the export collapse of 1993 than the region's other, traditional export sectors like steel and agriculture, which are subject to particularly strict protective measures where import to the EU is concerned.
The Association Agreements with the EU have liberalised access to EU markets.' But there is a long list of exceptions, subject to special restrictions; textiles, coal, steel, certain raw materials and "sensitive" foodstuffs. These are precisely the sectors where the East European countries have a comparative advantage
EU restrictions allowed under these protectionist amendments caused a 10% fall in imports of East European steel and foodstuffs in 1993. A double discourse, and a double policy in "free" trade, it seems. Eastern Europe is obliged to suppress its protective legislation, while the west maintains its powerful protectionist measures.
The enlargement of the EU to the East will, sooner or later, force the EU to make a choice about central and east European agriculture. One European Commission report to the member states suggests accelerating the reduction in EU food prices, bringing them closer to east European, and world levels, but without increasing subsidies to EU farmers to compensate.!2 This could be the first step towards dismantling the Common Agricultural Policy (CAP). 30 International Viewpoint
Clouds on the horizon
Extending the EU to the East seems to be the only possible strategy. But it will increase the tensions which an already weak union must face.
The reality is that privatisation has made the central and east European countries poorer, and sometimes less industrial and more agricultural, than they were in 1989.13 This regression increases the potential cost to the EU's CAP and regional development funds, if these countries are allowed into the Union. These funds would have to double in size if Central and Eastern Europe was integrated tomorrow. 14
Much depends on the timetable for integration. Will these countries be considered as a bloc? Should Slovenia and the Baltic countries be treated with Eastern Europe, or later, with the rest of former Yugoslavia and the ex-USSR? If some countries are to be on a "fast track" towards integration, which ones? And how to choose them? What will be the consequences of such a "downgrading" of Slovakia compared to the Czech Republic, or Rumania or Bulgaria, which formally have the same association agreements as Poland or Hungary?
Those in the EU who are opposed to an "over-selective" differentiation of the treatment of the eastern countries warn that such division of the region would encourage the growth of nationalist, far right tendencies. But this apparently open and egalitarian approach to the region may hide a deeper truth: a broad, but necessarily shallow extension of the EU to a wide range of countries in the East could only occur if the EU itself became more of a simple free-trade zone, with a consolidated DM-zone integrating the most developed parts of central and Eastern Europe.
But what is the alternative for the European powers? To delay the integration of these countries indefinitely, so as to concentrate on the consolidation of "fortress Europe", or its core countries?
As Poland's Karol Modzelewski has argued, the left in the East and West of Europe should warn against the effects of unprotected integration into a capitalist world where efficiency is directly related to the dismantling of the social gains of the working population, and companies become more productive by disposing of more
The problem is, obviously, that opposing the membership applications of the East European countries would mean identifying ourselves with those in the West who, in reality, wish to build a "rich man's Europe" The only way to avoid falling into such a trap is to develop proposals for the construction of another Europe, combined with a radical critique of the "efficiency" criteria of global capitalism.
First published in Avancées démocratiques, Originally the EU's "Poland and Hungary Aid for the Reconstruction of the Economy" programme, Phare has since been enlarged to cover the Czech Republic, Poland, Rumania, Bulgaria, Albania, Slovenia, Lithuania, Estonia and Latvia. This is a rough selection of the most credible candidates for integ2Karol Modzelewski, Quelle voie après le communisme, L'Aube, 1995, p.87 4 In the previous system, money was an income (one could buy consumer goods), but it was never capital (it could not be used to gain control of the means of production, nor could it accumulate into capital-money. The partial market mechanisms which existed did not impose budget discipline on enterprises. In the USSR, the most extreme case, most enterprise managers did not even know the balance sheet of their company's "profits 5 Half of investment into the region since 1989 has gone to Hungary. This sum, about $20 bn., is about ten times higher than total foreign investment into Russia, but ten times lower than total external investment into the Länder of former East Germany. 6Except in Poland and ex- Yugoslavia, this sector controlled more than 80% of arable land. From 12% (Czechoslovakia) to 30% (Rumania) of the population was employed in agriculture, producing 15-30% of GDP. 7See LP.Mahé, J.Cordier, H.Guyomard, T.Roe, "L'agriculture et l'élargissement", Economie internationale, n°62, 1995, and RECEO. 1995, n°3, Edith Lhomel : AGRAEUROPE nº1851, July 1995.; cited by Pierre Lenormand, "Relations sociales et acteurs sociaux dans les campagnes de l'Est paper presented at the IRM seminar called Relations sociales et acteurs sociaux à l'est, held in Paris on 25-26 8 Economie internationale, Op.cit, p.249 9 Françoise Lemoine, "La dynamique des exportations des PECO vers l'UE" omie Internationale, Op. Cit, pp;145-171. 10 Cf. Françoise Lemoine, Op.cit, p.161. 11 These accords propose the creation of a free trade zone between the EU and Poland. Hungary, the Czech Republic, Slovakia, Rumania and Bulgaria by the year 2002. The June 1993 European Council meeting agreed to accelerate the process. 12Cf. Philippe Lemaitre, "T'élargissement de l'UE à l'Est imposera de nouvelles baisses des prix agricoles", Le Monde, 28/11/1995. 13 The GDP of the central and east European countries only represented 4% of the size of the 12 original members of the EU. Agriculture represented 12% of the region's GDP in 1989, which makes it 2050% of the size of the equivalent EU sector. Per capita GDP varies from $1,130 in Rumania to $2,970 in Hungary, compared to $8,000 in Greece, and an EU average of $17,000. However, if we compare actual buying power, the difference is smaller. The average EU citizen has a buying power of 16.500 ECU. compared to 8.000 ECU in Slovenia, 6,800 ECU in the Czech Republic... but only 1,400 ECU in Albania 14Cf. Bertrand Saint Aubin, "Le coût budgétaire de l'adhésion des PECO" Economie internationale, n° 62, 1995,
Europe: supranational state