Enlargement and Wider Europe
It was with great pleasure that I accepted the invitation to give this Schuman Day lecture in Oslo.
I have taken as my subject ‘Enlargement and the Wider Europe’. This was not done with the intention of underlining that Poland will be an EU member before Norway!
As the Union expands, it is clear that its relationship to those parts of Europe which are not members must develop and change. This is particularly the case with eastern and south-eastern Europe.
Poland is of course particularly interested in these changes, as we will have an external frontier of the Union with three different countries, Belarus, Russia and the Ukraine. We are also interested in the Union developing into a pan-European area of peace, stability and prosperity, in which not all countries have to be members of the Union but in which all countries work together constructively.
After the current enlargement (and excluding the remaining candidate countries, Bulgaria, Romania and Turkey) there will be three types of countries in Europe which are not members:
These three groups are of course very different, both within and between the groups, but they have one thing in common - none of them can escape the influence of the European Union. The enlarged EU next year will have over 450 millions people out of just over 800 million Europeans.If the remaining candidates are added, this rises to almost 550 millions. In terms of GDP, the enlarged Union will represent between 80% and 90% of European GDP. It provides the main market for most of ‘wider Europe’.
However perhaps the most significant impact on wider Europe comes through the progressive adoption of EU regulation. This is of course most obvious for a country like Norway, a member of the European Economic Area. For those countries aiming to join the Union it is clearly a necessity to adopt the Community acquis. But even in the Eastern European countries, EU regulation is beginning to penetrate both through their interest in internal market regulation and through the changes imposed by justice and home affairs regulation.
Of course these facts should also put a responsibility on the Union to take into consideration the interest of ‘wider Europe’ when it is developing policies and legislation. The European Commission in its recent Communication on ‘Wider Europe’ wrote:
‘The EU has a duty, not only towards its citizens and those of the new member states, but also towards its present and future neighbours to ensure continuing social cohesion and economic dynamism’. There is almost certainly room for the European Conference, which includes all the countries of Europe and which meets once a year, to seriously discuss the problems raised by the ‘Europeanisation’ of the Continent and to go well beyond the usual political generalities which are raised in such international meetings.
I would like to look first at the impact of enlargement on these different regions of ‘wider Europe’ and then conclude with a few words on the future of our contractual arrangements with them.
The immediate impact on those countries like Norway which have so far not been willing to join even though they meet the criteria will be very limited. Economically our interdependence is rather low, though we do have close relationships with Norway both in energy and fish – the latter we discovered when we came to consider the new arrangements for the European Economic Area.
Politically of course it may raise the pressure on governments to apply for accession to the EU. After accession there will be 25 EU members, 3 candidates, and 2 or 3 countries which have applied for membership – roughly 30 EU states. Apart from the very small states there will only be 9 remaining non-EU countries in Europe. In these circumstances even Norway may begin to feel lonesome!
For the countries of the western Balkans, enlargement will bring certain economic advantages, though they are likely to be rather limited as trade already faces rather low tariffs. The main advantage is likely to be the increase in stability perceived in the region as neighbouring countries (Slovenia, Hungary) become full members of the Union.This may well encourage investment in the region, particularly in the leading countries.
For eastern Europe - by far the largest part of the Continent not to join the EU - the consequences of enlargement are more difficult to appreciate. The Common External Tariff will now apply to imports from Eastern Europe to the new member states of the Union. This will be of importance to exporters of manufactured goods in eastern Europe. It may encourage more inward investment into these countries from western Europe and the United States. However at present the vast bulk of exports to the enlarged Union from this region consist of raw materials, which enter the new member states at rather low tariffs. Exports of manufactured goods are rather limited.
At the local level, economic effects of the new external frontier of the Union will be rather severe. In Poland, Hungary the Ukraine, Belarus and Russia (Kaliningrad), the new border dissects rather poor regions. The inhabitants of these border regions have lived for many years partly from cross-border trade, which is now threatened by the need to impose stricter Schengen border controls. Poland has tried to mitigate this situation by offering its neighbours agreements whereby their citizens can obtain visas to visit Poland free of charge. This has been accepted by the Ukraine.
Nevertheless this is not the ideal solution as we have gone from a regime where movement was relatively free to one which is strictly regulated. This is not just an economic question; the border also disturbs families which have members on both sides of the border. I hope that over time the regime can be improved to allow the same sort of movement across the frontier that we established after 1989.
For all the ‘wider Europe’ countries, it is the stimulus to growth which enlargement might give which promises the greatest benefits. With good macro-economic policy and support from the structural funds, the new member states should be able to increase growth rates and maintain them over a decade or more. There is no reason why Poland and Hungary for instance should not achieve a growth rate of 5% annually over the medium-term, if we run sensible economic, financial and structural policies. This growth will draw in imports from eastern Europe and improve the situation of producers located there.
The enlarged Union obviously has an incentive to work towards greater economic integration with eastern Europe in particular because it is from here that much of our future energy supplies will come in the next decade. Of course countries like Poland will diversify their sources of energy and sign contracts with other suppliers like Norway, but overall in the enlarged Union eastern Europe will come to dominate.
For Russia and other countries in the region, the European Union is both a source of capital for the development of oil and gas resources, and other raw materials as well, and also a major market for its raw material output.
This relationship of mutual interest exists independently of the enlargement of the Union.However in other areas, enlargement may play an additional role in developing these relationships. It is relatively easier for east European enterprises to deal with the new member states than with the old, for many cultural, personal, business and even linguistic reasons.They may wish therefore to build up their presence in the Union in the new member states as a more comfortable way of entering the Union.In Poland we have noticed the beginning of interest from Russia in investments in our country and I think this is true for some other new member states. In 2002 Gazprom was the sixth largest investor in my country.
However just as Poland’s success in the European Union will depend largely on the quality of Poland’s domestic economic policy, the same is true for eastern and south-eastern Europe. Higher growth will draw in imports from eastern Europe only on the condition that goods and services of an adequate quality and at a competitive price are being offered. This means that there will have to be further economic transition in the east as a precondition for realizing some of the economic advantages of enlargement.
Economic transition must also tackle the problem of the investment climate in the region. In all east European countries, attention has to be paid to the business environment. While not everything is perfect in the new Member States (or indeed in the old ones too), there remain grave problems of bureaucracy, legal uncertainty and criminality which must be tackled if the potential flow of foreign investment is to be realized.
Here I think the Union should provide assistance to accelerate this process and therefore the integration of our Continent. All the new member states have the experience of transforming the business environment in former planned economies and this experience could be put to use in eastern Europe.
EU Integration, partial or full, is of course a way of improving the perception of the investment climate. It was clearly a factor in the rise of foreign investment in Poland and the other new member states. We still expect a further increase in foreign investment when we join the Union next year, even though this represents only a relatively small reduction in country risk for investors.
Let me then finally look at the development of integration of the ‘wider Europe’ with the Union.
I do not need to say anything Norway, Switzerland and Iceland. Here it is a question of hoping that one day you all or individually manage to join the Union with which you are so closely integrated already.
In south-eastern Europe, the Stabilisation and Association Agreements hold out the prospect of accession to the Union. ogically for the most advanced countries there need not be any other step between the implementation of the SAA and accession to the Union. The SAA require a very considerable alignment of domestic regulation to that of the Union as well as institutional adjustment to the needs of Union membership. Croatia has already applied for membership and the EU Council of Ministers has asked the Commission to begin the process of preparing its opinion on that application.
The essential difference between the SAA and the Association Agreements, which countries like Poland signed with the Union, is the ‘stabilisation’ elements. For the Union, the wars in ex-Yugoslavia were a nightmare and the objective of recent Union policy has been to ensure that the successor states develop mutually supportive relations. The prize of ultimate accession to the Union for these countries is a prize for which it is worth burying past enmities and starting anew. Generally speaking this approach has been a success and stabilization and cooperation have become important elements of policy in the region.
Of course there remain enormous weaknesses in the region and it may be many years before all these countries join the Union. It would however be an extremely promising sign for south-eastern Europe if one or two of the former Yugoslav Republics, apart from Slovenia, could meet the conditions for accession to the Union and actually accede. I hope that further progress will be registered when the European Council meets in Thessaloniki.
In eastern Europe the partnership and cooperation agreements (PCA) appear no longer adequate for the purpose of bringing increased mutual cooperation and economic integration. The Russian Government has proposed that there should be freedom of movement across the eastern border of the EU and that the article proposing a future free trade area in the PCA should be implemented. The Commission has proposed that there should be new ‘Neighbourhood Agreements’ with eastern Europe but the contents of such new agreements have been left vague.
In Poland we are obviously very keen to see the development of relations with eastern Europe and we submitted a paper to the EU outlining a whole series of steps which we would like to see taken. For us it is important to improve our relations on all levels in order to realize the aim we have had since 1989 of establishing a region of peace and stability in central and eastern Europe.
In my view the discussion of the content of neighbourhood agreements with the countries of central and eastern Europe should include the adoption of certain elements of the acquis communautaire, which are in the interest to both sides. At the very least the aim should be to reach a compatibility between our different business environments, in order to facilitate investment and trade. The development of the free trade are should also be dealt with as well as the promotion of investment.
I am also a great believer in the influence of contact between government officials as a way of developing friendly relations. In this way problems which could develop into major rows can often be solved at the level of officials and not do any serious damage to relations between the countries. So I would hope to see the development of committee structures in these agreements which bring together in a very regular way officials from both sides. In Poland we are doing our best in this area by arranging bilateral discussions on a whole range of subjects with the Ukraine.
Finally I would like to see a large number of EU programmes extended to eastern European countries as well as more finance devoted to improving the conditions in frontier regions.
My final thought however is rather different. The best thing that the Union can do for the ‘wider Europe’ is to restart its economy so that trade grows again and the Union becomes the economic motor which it once was. The EU is the main market for most of wider Europe. Growth there helps all to grow.
Poland’s economic policy must be aimed at high economic growth combined with macro-economic balance. This is the aim of course of all governments and difficult to achieve. For Poland it is particularly important because we have many structural challenges in front of us, including the restructuring of several key industries, including agriculture. Structural change is much easier in a dynamically expanding economic environment.
We therefore need further reform at the national level but we, like our neighbours in the ‘wider Europe’ need it also internationally and especially in the European Union. Those who expect Poland to be a blocker of reform in the Union, be it in the Common Agricultural Policy, trade policy or competition policy and state aids should think again. We cannot progress adequately without reform in our main trading partners in Europe. We therefore have to be in favour of the Lisbon Agenda on economic reform.
Europe can only overcome its current deep economic problems through a courageous reform agenda, which countries do not simply sign up to but also implement. All signed up to the Lisbon Agenda but few have implemented much of it.
For Poland this is great disappointment. But as members of the Union we can throw our weight behind reform and hopefully make rapid progress in the process of catch up.
This would also be the best way in which we could help our neighbours.