But politically, the enlarged EU seems to be on the brink of a crisis, with the French threatening to reject the Union’s constitution, while ‘old’ and ‘new’ member states are at odds over the liberalisation of services. The 15 old states suspect the new of unfair competition via low wages and the ten new are afraid that the old states are trying to prevent them from reaping the benefits of EU membership.
The French people’s opposition to the constitution is partly a symptom of the indigestion of enlargement. France’s political establishment and its citizens feel that the balance of power between supporters of a free market economy and the social market economy, has changed.
They feel that enlargement has reinforced the free-market camp, which was, before the latest enlargement, in a minority.
Past predictions that eastern enlargement would strengthen Germany’s position in the EU, because of its strong ties with its eastern neighbours, have failed to materialise. Germany did not become a pole of attraction for the new member states, because it failed to provide a model for them. Germany’s economy has been in crisis since the mid-1990s, with reunification badly managed and structural reforms long delayed.
Since no country models itself on a country that is in crisis and struggling with existential questions about where it should go, the new member states chose instead the Irish example. They sought to replicate Ireland’s giant leap from one of the poorest to one of the most prosperous and dynamic economies in the EU. Since Ireland had followed the UK’s economic example, Britain became, indirectly, a pole of attraction for the new member states.
When the UK and Ireland joined the EU, their free-market economic model was the exception, but now it represents roughly half of the EU member states – although most of them are small.
The new member states are accelerating structural economic reforms in Europe – and that pressure is being perceived negatively in most old member states.
The ten newest EU members are in the reformers’ camp. Ministers, members of the European Parliament or commissioners from the new member states often find themselves pursuing strongly reformist agendas. That is because they know what price will have to be paid if they cancel or put off reforms. That price has been paid by Bulgaria and even more so by Romania, which just signed their accession treaty and in the best case scenario will join the EU on 1 January 2007.
The ‘Lisbon scoreboard’ assessing the member states’ economic reform performance, drawn up by the London-based Centre for European Reform, found that many new member states were ‘heroes’ in reforms ranging from business incentives to innovation or market openness, while many old member states figured among the ‘villains’. Enlargement has spurred reforms because it forces the larger economies to implement badly needed adjustments. Germany has over the past 12 months adopted reforms of its labour market and social security systems that years of tormented debate failed to deliver. It has also slashed its corporate tax rate from 25% to 19%. Austria, under intense competitive pressure, cut its corporate tax rate from 34 to 25%.
In the long run, such reforms will benefit the larger eurozone economies, which were under pressure to reform anyway. But in the short term, they are perceived as a painful consequence of the eastern expansion of the Union. They have turned EU15 citizens against enlargement and, in France, against the EU.
Handled differently, the referendum on the EU constitution in France might have provided politicians with the occasion to explain the benefits of expanding the EU. The case has been insufficiently made and infrequently heard. But even if the constitution falls, Europe will continue to draw enduring benefit from its historic expansion.