4. Societal Stability and EU Accession

Greater western integration would be the best way to prevent these scenarios. Both the reform elites in East-Central Europe (including the Social Democratic reform Communists) and foreign policy makers in Western Europe see EU membership as offering a significant contribution to the stabilisation of these countries. The applicant countries have underlined the urgency of their hope to join the EU by largely accepting both EU requirements regarding adoption of the acquis communitaire and that the level of transfers and protection customary to previous rounds of expansion will not be forthcoming. They are correct, however, in not wanting to justify the urgency of their desire to join the EU and or NATO by invoking such risk scenarios. This is all the more so, as the EU only accepts democracies that are already stable, not countries in the first difficult phase of democratisation. The experience with Spain and Portugal shows this, as they were only admitted in 1985, despite earlier applications.

Yet this strategy of rapid enlargement, which seems advisable because of low cost and great political benefit, represses all realistic analysis and debate of the actual effects as well as of the necessary policy in order to assure that stabilisation does indeed occur. While concerns about the effect of enlargement on the Union itself do exist among the makers of European policy, considerations of the consequences for East-Central Europe hardly take place. Yet an EU accession under current conditions would exacerbate a number of the above outlined potential crises - and even more so should the EU reform its agricultural and structural policies by reducing their cost. Appropriate measures to avoid such a destabilisation need to be taken. In this context, it should be recognised that the relative speed and direction of transformation and integration will determine both the paths of economic development and the way in which social and political constellations of interest form and are affected[21].

During the southern expansion, the new members all developed large trade deficits with the EU, which they financed through transfer funds from the EU budget and through increased direct investment. The same can also be expected for East-Central Europe. Stabilisation of the export-oriented sectors will thus coincide with increased pressure on import-competing sectors. In this context, they will not only have to compete against imports from the EU, but also against those from third countries with similarly low wages as in East-Central European countries (e.g. ACP states and Southeast Asia). As EU members, the East-Central Europeans will have to apply the EU's tariffs vis-a-vis third countries. At the same time, EU protectionism against various hi-tech imports (autos, information processing, capital goods), which harm producers in the old EU member countries but not in the applicant countries, could increase import costs for the applicant countries. This problem is already apparent in the auto industry, where Western investors pushed through higher tariffs to protect their new ventures in East-Central Europe.

The competitive advantage of East-Central Europe has up to now been based primarily on low costs due to low wages and weak currencies. Yet in a single market, the prices of tradable goods and thus also of living costs and wage costs must equalise. As such, the competitive advantages will tend to disappear. The significance of intra-industry trade - an indicator of the position on the scale between a complementary periphery economy and a competitive member economy - between the EU and East-Central Europe is somewhere between that of the trade with the Maghreb and that of the trade with Southeast Asia[22]. Further modernisation requires policies to strengthen systemic competitiveness through the interplay of the private sector, society and the state. Protection and promotion of domestic suppliers, e.g. through subsidies, frequently require the approval of the EU. Thus, a selective industrial policy, such as that practised by the East Asian countries in the pursuit of catch-up industrialisation, will be difficult, if not impossible.

The East Asian modernisers also were characterised by a relatively egalitarian income distribution. Yet this aspect of a successful catch-up strategy is only possible in a limited way in East-Central Europe because of the EU context with its liberalised markets and harmonised policies. The liberalisation of the labour market could lead to rising incomes on the part of more highly skilled workers with a resulting cost pressure on the firms. The liberalisation of the capital markets will undermine the cosy relations between firms, investment funds, banks and the state that have created by privatisation. It forces a further increase in productivity, which will likely increase unemployment. Foreign investors apply "best practice" standards and drive up the price of important but scarce inputs.

The situation of the agricultural sector, where demand collapsed after prices were freed, is particularly critical. Privatisation and an uncompetitive foodstuff industry have led to significant drops in employment of around 30 percent. The input costs, above all for energy, have risen. While an EU purchase guarantee at high EU prices would be a gold mine for East-Central European agriculture, this is an unpayable and illusory option. Depending on the design of the reformed Common Agricultural Policy, the rural economies of the applicant countries will probably be confronted with additional adjustment pressures from the significantly more modern EU food production industry.

The Western border areas will profit the most from EU accession, thus exacerbating further the already existing regional disparities in development. Interregional conflicts increase the need for mediation and participation mechanisms beneath the level of the central state, yet these are particularly absent in East-Central Europe.

In terms of economic policy, the prospect of accession limits the manoeuvring room of an active modernisation policy. Transfers from EU structural funds will bring enormous amounts of money - in the unlikely event that current regulations are applied. But they will also significantly restructure the national budgets, as they require a 50 percent co-financing from the recipient country. In the case of transfers at 3 to 4 percent of the recipient country's GDP, this would mean around 12 percent of public spending, which would probably be more than the entire amount they spend on public investment. The Maastricht criteria require priority for stabilisation in the form of low inflation, low budget deficits and a relatively declining public debt. Using the exchange rate as a protective measure through devaluation or under-valuation is only a very limited option.

Some of the required adjustments resulting from the accession process merely require policies that are anyway necessary to the economic development of the countries. This includes for example a sound monetary and fiscal policy. But in the context of potential political instability, economic logic is less important than social consequences and the political legitimacy of the measures. The latter might be made easier through reference to Brussels, but potentially at the price of strengthening anti-European sentiment.

Most economic risks fall on those societal groups and classes that already belong to the losers (farmers, workers, above all branches and regions with only small export chances) of reform that has occurred. Thus, anti-European sentiment threatens to combine with the already existing scepticism towards reform. The high support for "Europe" seen in East-Central Europe is probably due to significant ignorance regarding the conditions and effects of full EU membership as well as to the (false) assumption that membership will quickly bring about West European standards of living for all. This supposition is backed up by opinion polls that show pro-European sentiment to clearly be more prevalent than sentiment in favour of democracy and market economy (in 1992[23], 80 percent of those asked wanted to enter the EU, whereas only 60 percent supported market economies and barely 30 percent were satisfied with democracy). Many East-Central Europeans distrust the West European model and desire a path of development based on their own values and traditions (63 percent in the Czech Republic, 58 percent in Slovakia, 63 percent in Hungary)[24]. The division of Czechoslovakia confirms socio-cultural preferences for national isolation, not economically rational integration models[25].

In their pursuit of EU integration, the Eastern-Central European governments have chosen to limit their own manoeuvring room - as repeatedly described above. This exacerbates the legitimisation problem already in existence in view of national value orientations and weak economic performance. EU membership also poses an additional problem specifically related to democracy: the democracy deficit of the EU's multi-level policy[26], which removes a growing spectrum of supranational decisions from democratic control. This allows the governments to avoid responsibility at home by referring to Brussels or - -selectively - to claim credit themselves for European successes. The intergovernmental decision-making process in Brussels, with its extensive monopoly on information, benefits governments more than parties and societal groups. This situation is as seductive for governments and political elites as it is dangerous for their legitimacy and for the acceptance of decisions taken on the basis of this system. West European governments painfully experienced this during the referenda on Maastricht.

Consequently, the question of EU membership also threatens to polarise the political spectrum in East-Central Europe. In the process of cleavage alignment, the reform losers, nationalists and advocates of an interventionary state, all seeing their interests and values equally endangered, could unite in order to oppose EU membership.