The wrong benchmark for Eastern Europe
by Katinka Barysch
In November last year, Anders Aslund, a long-time observer of transition economies, rang the alarm bells over Eastern Europe. In an FT article he talked about “Central Europe’s political malaise” and warned that budget profligacy and reform fatigue would keep the new members from catching up with the West.
The tone was very different at last week’s Euromoney’s East European investment conference in Vienna. Bankers and politicians extolled the virtues of a fast-growing, open and stable region. The tenure of most speeches was: “We may have problems in the East, but on many fronts were are already better than the ‘old’ EU (or at least bits of it)”.
That’s certainly true for growth. In the last five years, the 12 new members recorded an average growth rate of 4.5 per cent, well above the EU-15’s 1.6 per cent. But the comparisons go further. “We are much faster reformers than the West Europeans” beamed one Serbian representative in Vienna. Romanians and Croatians were proud that the World Bank – in its annual ‘Doing business in 2007’ survey – put them into the group of fastest-reforming countries. Only one of the ‘old’ EU countries (France) made it into the list.
Romanians and Bulgarians also stressed that they came far ahead of long-standing EU members Italy and Greece in the World Bank’s overall ranking (which assesses the ease of starting a business, getting a loan, paying taxes and so on). Czechs and Slovenes have less unemployment than France, taxes in Slovakia are lower than in Germany …
Stop! These comparisons may be uplifting for countries that have struggled for more than a decade to join the EU club. But they miss the point. Eastern Europe gains nothing by benchmarking itself against the worst-performing EU-15 countries. This breeds complacency, which is not something that Romania, Poland or even the booming Baltics can afford.
The new members are doing well now. But they are in a rather uncomfortable spot between a high-tech Western Europe and low-cost emerging Asia. When it comes to skills, innovation and flexibility, the new members are miles away from the top EU performers. When it comes to wages, they cannot (and should not) endeavour to compete with China. The average Chinese worker earns $1.60 an hour, according to estimates from the Economist Intelligence Unit, while Chinese productivity has grown by 5 per cent a year over the last half-decade. In Hungary, wages are 5-6 times higher while productivity growth is half that of China. Further east, wages are still lower, but they are rising fast: Romania’s real wage growth exceeds 10 per cent.
China’s current export success rests largely on labour-intensive, mass-manufactured goods and consumer electronics. Most of the ‘old’ EU (perhaps with the exception of Portugal and Greece) has long moved out of the production of T-shirts or television sets, and into sophisticated manufacturing and services that do not directly compete with China. But the new member-states rely on the kind of low value-added goods and consumer electronics that China is specialising in.
There is no need to panic. The East European countries retain many advantages over China: geographical proximity, million of highly skilled, relatively low-cost workers, a business environment that is very similar to that in the ‘old’ EU, and full integration into the EU’s single market.
But competition from China and other emerging economies will force the new member-states to run ever faster just to stand still. They will have to move quickly into higher-value added goods and services. For this, they need vastly better education and training systems, more flexible labour markets and a truly entrepreneur-friendly business environment. In other words, it is Europe’s best performers – Denmark, Sweden, Ireland – that they need to compare themselves too, not the laggards.
Katinka Barysch is chief economist at the Centre for European Reform.
Thursday, January 25, 2007
Tuesday, January 23, 2007
The world in 2020
by Mark Leonard
By 2020, according to the Economist Intelligence Unit, the Chinese economy could overtake the US to become the largest in the world, at least when measured using purchasing power parity (PPP) exchange rates. India is expected to grow rapidly to become the third biggest economy. Alongside these Asian giants, a series of smaller powers – such as Iran and Russia – will increasingly be able to exploit their nuclear weapons and energy to increase their say in world affairs.
This shift in economic power could be all the more significant, as it is overlaid with an ideological struggle over the shape of world order. Many of the new poles of 2020 will not simply be great powers pursuing their national interest, but networks of countries united by ideas about how the world should be run. In the 1990s it seemed prophetic to talk of the ‘end of history’. Francis Fukuyama’s famous thesis was not that power struggles or even wars would end (in fact, he thought they would continue), but that the great ideological battles of the 20th century would end with “the universalisation of western liberal-democracy”. However, although the differences between major powers are less stark today than during the Cold War, the big story in international relations seems to be history’s dramatic return.
By 2020 we will most likely not see a new world order, but at least four. Already the contours of a new ideological map are emerging that splits the world across two axes. One is domestic: between democracy and autocracy. The other is about philosophies of global order: between those who want to see the world governed by law and international institutions and those who want to see it governed by power. These divisions could give rise to a quadripolar world.
To Europe’s west, the most powerful bloc will continue to be the American World, underpinned by the dollar, popular culture, and the prevalence of the Washington consensus. The goal of US foreign policy is to build a ‘balance of power that favours democracy’. Instead of seeing international institutions as the ultimate foundation of a liberal order, US foreign policy will increasingly seek to maintain US primacy, and the power of key democratic allies such as Japan and India in East Asia.
To Europe’s East, Russia and China. Although they will continue to be suspicious of each other, they are united by their autocratic systems of government, and they will increasingly use international law and institutions to protect the sovereignty of states from western interference. Together, China and Russia could turn the Shanghai Co-operation Organisation into an anti-NATO of countries that are repressive. They will also use their seats in multilateral institutions such as the United Nations to contain the United States.
To Europe’s south will be a stateless world of faith – defined neither by democracy nor the rule of law. While some countries in the Middle East – Lebanon, Palestine, and Turkey – may develop a new strain of ‘Muslim Democracy’, many won’t manage to change their politics quickly enough to keep up with social demands.
And that leaves the fourth zone. An expanded EU will share a belief in democracy with the Americans – but be alienated from them because of its belief in multilateralism and international law. Around its core, the ‘Eurosphere’ will include another 70 countries that are deeply dependent on the Eurosphere for trade, aid, investment. These will gradually be drawn into the European way of doing things, through the European neighbourhood policy that links market access to compliance with European standards on human rights, the rule of law, migration and proliferation.
Not all countries will fit neatly into one sphere or another. This will lead to a global battle to co-opt ‘swing countries’ in South-East Asia, Central Asia, the Caucasus and the Middle East. The biggest swing-state will be India.
The shift from a unipolar to a multipolar world could be almost as significant for global politics as the end of the Cold War. Like the events of 1989, it will force European strategists to change their mental maps of the world, and develop relations with countries that were outside the EU’s sphere of influence.
So what should European leaders do?
Their most urgent challenge should be to prove my predictions wrong. By pursuing a ‘disaggregation strategy’ of engaging the relevant forces in each of the other blocs, they could prevent the ‘quadripolar world’ from coming into being. For example, there are strong forces in favour of the international rule of law and international co-operation at a federal and state level in the United States, that the EU could engage with on climate change and international trade. Russia and China have major differences on energy and proliferation that could be exploited, in order to prevent these great powers from becoming a cohesive force. And in the Middle East, the EU should do all it can to play off the differences between Iran and Syria, and Hamas and Hizbollah, through policies of conditional engagement. The alternative to breaking down these emerging blocs could be a permanent sense of frustration, and a gradual shrinking of European influence in the world.
Mark Leonard was director of foreign policy at the Centre for European Reform until November 2006. In early 2007 he will set up and direct a new pan-European initiative of the Soros foundations network, to promote the EU as a model for an open society.
by Mark Leonard
By 2020, according to the Economist Intelligence Unit, the Chinese economy could overtake the US to become the largest in the world, at least when measured using purchasing power parity (PPP) exchange rates. India is expected to grow rapidly to become the third biggest economy. Alongside these Asian giants, a series of smaller powers – such as Iran and Russia – will increasingly be able to exploit their nuclear weapons and energy to increase their say in world affairs.
This shift in economic power could be all the more significant, as it is overlaid with an ideological struggle over the shape of world order. Many of the new poles of 2020 will not simply be great powers pursuing their national interest, but networks of countries united by ideas about how the world should be run. In the 1990s it seemed prophetic to talk of the ‘end of history’. Francis Fukuyama’s famous thesis was not that power struggles or even wars would end (in fact, he thought they would continue), but that the great ideological battles of the 20th century would end with “the universalisation of western liberal-democracy”. However, although the differences between major powers are less stark today than during the Cold War, the big story in international relations seems to be history’s dramatic return.
By 2020 we will most likely not see a new world order, but at least four. Already the contours of a new ideological map are emerging that splits the world across two axes. One is domestic: between democracy and autocracy. The other is about philosophies of global order: between those who want to see the world governed by law and international institutions and those who want to see it governed by power. These divisions could give rise to a quadripolar world.
To Europe’s west, the most powerful bloc will continue to be the American World, underpinned by the dollar, popular culture, and the prevalence of the Washington consensus. The goal of US foreign policy is to build a ‘balance of power that favours democracy’. Instead of seeing international institutions as the ultimate foundation of a liberal order, US foreign policy will increasingly seek to maintain US primacy, and the power of key democratic allies such as Japan and India in East Asia.
To Europe’s East, Russia and China. Although they will continue to be suspicious of each other, they are united by their autocratic systems of government, and they will increasingly use international law and institutions to protect the sovereignty of states from western interference. Together, China and Russia could turn the Shanghai Co-operation Organisation into an anti-NATO of countries that are repressive. They will also use their seats in multilateral institutions such as the United Nations to contain the United States.
To Europe’s south will be a stateless world of faith – defined neither by democracy nor the rule of law. While some countries in the Middle East – Lebanon, Palestine, and Turkey – may develop a new strain of ‘Muslim Democracy’, many won’t manage to change their politics quickly enough to keep up with social demands.
And that leaves the fourth zone. An expanded EU will share a belief in democracy with the Americans – but be alienated from them because of its belief in multilateralism and international law. Around its core, the ‘Eurosphere’ will include another 70 countries that are deeply dependent on the Eurosphere for trade, aid, investment. These will gradually be drawn into the European way of doing things, through the European neighbourhood policy that links market access to compliance with European standards on human rights, the rule of law, migration and proliferation.
Not all countries will fit neatly into one sphere or another. This will lead to a global battle to co-opt ‘swing countries’ in South-East Asia, Central Asia, the Caucasus and the Middle East. The biggest swing-state will be India.
The shift from a unipolar to a multipolar world could be almost as significant for global politics as the end of the Cold War. Like the events of 1989, it will force European strategists to change their mental maps of the world, and develop relations with countries that were outside the EU’s sphere of influence.
So what should European leaders do?
Their most urgent challenge should be to prove my predictions wrong. By pursuing a ‘disaggregation strategy’ of engaging the relevant forces in each of the other blocs, they could prevent the ‘quadripolar world’ from coming into being. For example, there are strong forces in favour of the international rule of law and international co-operation at a federal and state level in the United States, that the EU could engage with on climate change and international trade. Russia and China have major differences on energy and proliferation that could be exploited, in order to prevent these great powers from becoming a cohesive force. And in the Middle East, the EU should do all it can to play off the differences between Iran and Syria, and Hamas and Hizbollah, through policies of conditional engagement. The alternative to breaking down these emerging blocs could be a permanent sense of frustration, and a gradual shrinking of European influence in the world.
Mark Leonard was director of foreign policy at the Centre for European Reform until November 2006. In early 2007 he will set up and direct a new pan-European initiative of the Soros foundations network, to promote the EU as a model for an open society.
Friday, January 12, 2007
Why the UK needs to back Commission energy plans
by Katinka Barysch
The reactions to the Commission’s energy package – widely leaked before its official publication date on January 10th – were predictable. Environmental campaigners deplored a lack of ambition while the big eurozone countries recoiled at the Commission’s call to break-up national energy champions.
The package offers little that is fundamentally new: the EU has had targets for energy market liberalisation, renewable energy use, CO2 emissions and so on for years. The Commission wants the member-states to become more ambitious in some areas (for example in saving energy), but in others it is just reinforcing objectives that EU countries have signed up to a long time ago. Energy market liberalisation is a case in point.
It is ten years since the EU decided to create a single European market for energy. EU countries were supposed to liberalise wholesale markets by 2004 and those for consumers by mid-2007. Yet the reality is very different.
In the gas sector, the incumbents still controls more than 80 per cent of the national gas market in Germany and France, as well as Denmark, Italy, Hungary and Poland. In the UK, the country that has gone furthest with gas sector liberalisation, the share is just one-quarter.
Power markets look similarly closed. Electricite de France has three-quarters of the French electricity market; Spain has just two dominant operators; and Germany’s lucrative power market has been carved up between five big companies. In the UK, nine companies compete on relatively even terms.
Cross-border competition remains severely limited. In the gas sector, the big European companies tend to sign long-term bilateral deals with gas producers, most notably Russia’s Gazprom. In the electricity sector there are still very few interconnectors between national grids, and those that do exist are chronically congested. Partly as a result of this, wholesale gas and power prices vary widely between the different EU countries.
Neelie Kroes, the EU’s competition commissioner, has spent the last two years trying to find out why competition has remained so limited. She has launched dawn raids on various European power companies suspected of collusion, and she promises closer scrutiny of future energy mergers. But, as the energy paper rightly points out, competition policy alone cannot create a well-functioning European energy market. National governments and European energy companies need to play ball.
The Commission says that the fact that Europe’s big energy companies still control both production and distribution of energy is a serious impediment to competition. It therefore wants gas and electricity companies to sell their networks and pipelines. Knowing that this is controversial, it suggests an alternative option: a legal and de facto separation that actually works (unlike the current weak legal controls). Since regulation is key to making this second option work (and since a number of national regulators are rather too cosy with their clients), the Commission wants to shift regulatory powers to Brussels.
The comments from Paris and Berlin ranged from “unnecessary complications” to “expropriation”. So what are the chances that EU leaders will adopt the Commission’s package, or parts of it, at their March summit?
Germany, as the EU president in the first half of 2007, is chiefly responsible for brokering a deal. But Germany – with its big and powerful energy companies – is hardly suited to play the role of an ‘honest broker’. Worse still, Germany itself is divided about what to do. The environment ministry wants tough targets for emissions of greenhouse gases. Chancellor Angela Merkel backs this stance, not least because an intra-EU agreement would allow her to shine when the issue comes up at the G8 summit in June. The economics minister, Michael Glos, fears that higher environmental standards could erode German industrial competitiveness. But he will compromise – provided that German power producers can retain their cosy national oligopoly.
In an FT interview on January 12th, Glos said he would not completely rule out the Commission’s suggestions of ‘ownership unbundling’ and centralised regulatory powers – but only after all other options have been exhausted. So he is effectively defending the current system of (weak) legal unbundling and co-operation between national regulators. Germany is also having fierce internal debates about most other aspects of the EU energy agenda, ranging from the ‘right’ stance towards Russia to energy saving targets for cars and buildings. Chances are that Merkel will arrive at the EU spring summit perched precariously on a fragile national compromise.
But even if her hands were not tied, she would struggle to persuade pre-election France that energy market opening is a good idea. The merger between Gaz de France and Suez is still one of Paris’ pet projects. Unlike other big European gas companies, Gaz de France owns few production assets. Stripping out the French gas pipe network would make Gaz de France unattractive to Suez. EdF is one of Europe’s more efficient power producers, and with its strong home base it would do well in a more liberalised European market. However, EdF also provides pensions and welfare to several hundred thousand workers. It is highly unlikely that either of the big parties would risk a blow to national prestige and / or a showdown with the trade unions just ahead of presidential and parliamentary elections.
This leaves the UK as the only big country that could push hard for the Commission’s package – provided the British government can overcome its traditional dislike for the Commission. The UK is in a strong position since it has already done its homework on opening local power and gas markets, and since most Brits want tougher action climate change. Yet, London will face an uphill struggle to persuade the Germans and the French that open and flexible markets, rather than national champions, are the best guarantee for secure energy supplies.
Katinka Barysch is chief economist at the Centre for European Reform.
by Katinka Barysch
The reactions to the Commission’s energy package – widely leaked before its official publication date on January 10th – were predictable. Environmental campaigners deplored a lack of ambition while the big eurozone countries recoiled at the Commission’s call to break-up national energy champions.
The package offers little that is fundamentally new: the EU has had targets for energy market liberalisation, renewable energy use, CO2 emissions and so on for years. The Commission wants the member-states to become more ambitious in some areas (for example in saving energy), but in others it is just reinforcing objectives that EU countries have signed up to a long time ago. Energy market liberalisation is a case in point.
It is ten years since the EU decided to create a single European market for energy. EU countries were supposed to liberalise wholesale markets by 2004 and those for consumers by mid-2007. Yet the reality is very different.
In the gas sector, the incumbents still controls more than 80 per cent of the national gas market in Germany and France, as well as Denmark, Italy, Hungary and Poland. In the UK, the country that has gone furthest with gas sector liberalisation, the share is just one-quarter.
Power markets look similarly closed. Electricite de France has three-quarters of the French electricity market; Spain has just two dominant operators; and Germany’s lucrative power market has been carved up between five big companies. In the UK, nine companies compete on relatively even terms.
Cross-border competition remains severely limited. In the gas sector, the big European companies tend to sign long-term bilateral deals with gas producers, most notably Russia’s Gazprom. In the electricity sector there are still very few interconnectors between national grids, and those that do exist are chronically congested. Partly as a result of this, wholesale gas and power prices vary widely between the different EU countries.
Neelie Kroes, the EU’s competition commissioner, has spent the last two years trying to find out why competition has remained so limited. She has launched dawn raids on various European power companies suspected of collusion, and she promises closer scrutiny of future energy mergers. But, as the energy paper rightly points out, competition policy alone cannot create a well-functioning European energy market. National governments and European energy companies need to play ball.
The Commission says that the fact that Europe’s big energy companies still control both production and distribution of energy is a serious impediment to competition. It therefore wants gas and electricity companies to sell their networks and pipelines. Knowing that this is controversial, it suggests an alternative option: a legal and de facto separation that actually works (unlike the current weak legal controls). Since regulation is key to making this second option work (and since a number of national regulators are rather too cosy with their clients), the Commission wants to shift regulatory powers to Brussels.
The comments from Paris and Berlin ranged from “unnecessary complications” to “expropriation”. So what are the chances that EU leaders will adopt the Commission’s package, or parts of it, at their March summit?
Germany, as the EU president in the first half of 2007, is chiefly responsible for brokering a deal. But Germany – with its big and powerful energy companies – is hardly suited to play the role of an ‘honest broker’. Worse still, Germany itself is divided about what to do. The environment ministry wants tough targets for emissions of greenhouse gases. Chancellor Angela Merkel backs this stance, not least because an intra-EU agreement would allow her to shine when the issue comes up at the G8 summit in June. The economics minister, Michael Glos, fears that higher environmental standards could erode German industrial competitiveness. But he will compromise – provided that German power producers can retain their cosy national oligopoly.
In an FT interview on January 12th, Glos said he would not completely rule out the Commission’s suggestions of ‘ownership unbundling’ and centralised regulatory powers – but only after all other options have been exhausted. So he is effectively defending the current system of (weak) legal unbundling and co-operation between national regulators. Germany is also having fierce internal debates about most other aspects of the EU energy agenda, ranging from the ‘right’ stance towards Russia to energy saving targets for cars and buildings. Chances are that Merkel will arrive at the EU spring summit perched precariously on a fragile national compromise.
But even if her hands were not tied, she would struggle to persuade pre-election France that energy market opening is a good idea. The merger between Gaz de France and Suez is still one of Paris’ pet projects. Unlike other big European gas companies, Gaz de France owns few production assets. Stripping out the French gas pipe network would make Gaz de France unattractive to Suez. EdF is one of Europe’s more efficient power producers, and with its strong home base it would do well in a more liberalised European market. However, EdF also provides pensions and welfare to several hundred thousand workers. It is highly unlikely that either of the big parties would risk a blow to national prestige and / or a showdown with the trade unions just ahead of presidential and parliamentary elections.
This leaves the UK as the only big country that could push hard for the Commission’s package – provided the British government can overcome its traditional dislike for the Commission. The UK is in a strong position since it has already done its homework on opening local power and gas markets, and since most Brits want tougher action climate change. Yet, London will face an uphill struggle to persuade the Germans and the French that open and flexible markets, rather than national champions, are the best guarantee for secure energy supplies.
Katinka Barysch is chief economist at the Centre for European Reform.
Tuesday, January 09, 2007
The Tories and human trafficking: Don’t play politics
by Hugo Brady
The British Conservative party kicked off the New Year saying they wanted to sign Britain up to a 2005 European convention that grants rights to the victims of human trafficking. Odd that the Conservatives should suddenly develop such a concern for humanity: only a few months before they wanted to scrap UK legislation giving effect to a related European convention on human rights for all British citizens.
Both conventions are products of the Council of Europe, a 46-country assembly that promotes democracy and human rights in Europe but does not have the EU’s legal and institutional muscle. The human trafficking convention calls for better national laws to prosecute the criminal gangs that engage in this modern form of slavery, and to protect the victims. So how come Britain is not already signed up? The reason is a clause in the convention requiring signatory countries to let the victims of trafficking stay in the country for 30 days, to recover from their ordeal and decide whether they will help police prosecute offenders.
British officials worry that some immigrants will falsely claim to be the victims of traffickers (the same way some file bogus asylum claims) so they can stay in the country. They worry this will create an immigration pull factor towards Britain. The Conservatives say such fears are exaggerated. Hardly a typical Conservative stance: illegal immigration is a subject of great concern amongst core Tory voters. The Tories want their support for the convention to help convince mainstream UK voters that they are the ‘nasty party’ no longer nor against international co-operation in principle.
The Conservative party should resist any temptation to play politics with this issue. Human trafficking is a savage form of modern slavery that generates massive profits for international criminal gangs. In Europe alone, over 100,000 victims are trafficked each year, mostly to where thriving markets in sexual exploitation exist in Austria, Belgium, Britain, France, Germany, Greece, Italy, the Netherlands and Spain. Gangs deceive, pressure or abduct their victims (mainly young girls) in their home countries and sell them on to be sexually exploited or, at best, used as slave labour abroad. The most unfortunate are raped, tortured or demeaned by various methods of disorientation such as being passed between several ‘owners’ to break their resistance to prostitution. And business is depressingly good. Human trafficking is the fastest growing criminal activity on the planet. A recent estimate from the UN Office on Drugs and Crime estimates that traffickers make annual profits of $7-$10 billion worldwide.
If the Tories are really serious about cracking down on this crime, they should support the more substantial work of the EU as it develops its crime-fighting role (which they oppose on instinct). In 2005, for example, Europol – the EU’s police office – helped to smash the biggest ever people-smuggling ring in the UK, led by ‘untouchable’ gang leaders Ramazan Zorlu and Ali Riza Gun. This gang smuggled tens of thousands of Turks and Iraqis into the UK. In 2006, a year later, phone tap evidence secured by Eurojust, the EU’s unit of prosecutors, from Belgium, Italy, the Netherlands and Austria, helped to put Zorla, Gun and the other big gang leader behind bars for a very long time. The Conservatives concern about the victims of trafficking is laudable. But they should have the courage and honesty to acknowledge where the real progress is made: in the EU.
Hugo Brady is a research fellow at the Centre for European Reform.
Thursday, December 21, 2006
Has Germany been Finlandised (and has Britain)?
by Charles Grant
During the Cold War, Finland was a prosperous, liberal democracy. But its leaders felt unable to criticise the Soviet Union, particularly on questions of foreign policy. They were scared of what their big neighbour might do to them, especially since it had invaded them in the Second World War. People living further from the Soviet Union, in comfortable Western Europe, sneered about ‘Finlandisation’ – the inability of a small and relatively weak country to criticise a big and potentially hostile neighbour. But maybe the Finns were the best judge of how to handle the Soviets.
Under Chancellor Gerhard Schröder, German foreign policy became very pro-Russian. Schröder is proud of his friendship with President Vladimir Putin, and has refused to criticise the roll-back of democratic freedoms in Russia during the past few years. Chancellor Angela Merkel, from the CDU party, takes a slightly different line: when she has met Putin, she has made a point of raising concerns over human rights in Russia. But overall German policy remains very pro-Russian. The SPD-controlled foreign ministry, in particular, is very reluctant to criticise Russia.
Germany has good reasons for wanting close relations with the Russian government. Much of its gas comes from Russia, which is also an important export market. Germany’s big businesses lobby hard, and effectively, to deter the government from becoming too critical of the Putin regime. And of course, given the Second World War, and the many millions of Germans and Russians who died fighting each other, there will always be a special relationship between these two countries. There are very many reasons why Germany and Russia should be friends, and co-operate together on dealing with a whole host of common problems.
But a strange event earlier this month suggests that the ‘Finlandisation’ of Germany may be going too far. Sabine Christiansen presents the most influential television programme in Germany, and has interviewed everybody from Bill Clinton to Tony Blair to George Bush. In one recent programme she interviewed half a dozen studio guests about the situation in Russia, in the light of the murder of Alexander Litvinenko, and other recent news. She had invited Garry Kasparov, former world chess champion, and now a leader of the liberal opposition in Russia, to take part. Then the invitation was withdrawn at the last minute. The reason, according to the Financial Times of December 16th, was that the Russian ambassador to Germany said that he would not take part in the show if Kasparov was there. According to the FT piece, two people who work on the Sabine Christiansen programme confirmed the story. However, both the presenter herself and the Russian embassy in Berlin deny that Kasparov was cancelled because of Russian government pressure.
If the FT piece is true, it is alarming that an influential TV programme seems so unwilling to annoy the Russian government. But Germany may not be the only country to be have been Finlandised. Britain has not been so uncritical of events in Russia as has Germany. However, the British government is very nervous about what happens in Russia, mainly because of the massive investments made by Shell and BP. If British-Russian relations took a major turn for the worse – and with the Litvinenko affair, they have already deteriorated in recent months – the security of those investments would be called into question. That is why the British government has handled the Litvinenko affair with kid gloves. Ministers are loath to suggest that anyone linked to the Russian state could be involved in the murder of Litvinenko. They wish the affair would just go away.
Smaller EU countries tend to be more outspoken on human rights questions in places like Russia and China. It is easier for them to be outspoken, for they often have fewer commercial interests at stake. Foreign policy is inevitably a messy business, in which principles have to be balanced against the national interest. So if a government refrains from criticising malpractice in countries such as Russia or China, it may be understandable. But if a top television programme in a leading EU country tries to limit debate on a controversial current affairs topic, for fear of annoying a foreign government, it is surely unacceptable.
Charles Grant is director of the Centre for European Reform.
by Charles Grant
During the Cold War, Finland was a prosperous, liberal democracy. But its leaders felt unable to criticise the Soviet Union, particularly on questions of foreign policy. They were scared of what their big neighbour might do to them, especially since it had invaded them in the Second World War. People living further from the Soviet Union, in comfortable Western Europe, sneered about ‘Finlandisation’ – the inability of a small and relatively weak country to criticise a big and potentially hostile neighbour. But maybe the Finns were the best judge of how to handle the Soviets.
Under Chancellor Gerhard Schröder, German foreign policy became very pro-Russian. Schröder is proud of his friendship with President Vladimir Putin, and has refused to criticise the roll-back of democratic freedoms in Russia during the past few years. Chancellor Angela Merkel, from the CDU party, takes a slightly different line: when she has met Putin, she has made a point of raising concerns over human rights in Russia. But overall German policy remains very pro-Russian. The SPD-controlled foreign ministry, in particular, is very reluctant to criticise Russia.
Germany has good reasons for wanting close relations with the Russian government. Much of its gas comes from Russia, which is also an important export market. Germany’s big businesses lobby hard, and effectively, to deter the government from becoming too critical of the Putin regime. And of course, given the Second World War, and the many millions of Germans and Russians who died fighting each other, there will always be a special relationship between these two countries. There are very many reasons why Germany and Russia should be friends, and co-operate together on dealing with a whole host of common problems.
But a strange event earlier this month suggests that the ‘Finlandisation’ of Germany may be going too far. Sabine Christiansen presents the most influential television programme in Germany, and has interviewed everybody from Bill Clinton to Tony Blair to George Bush. In one recent programme she interviewed half a dozen studio guests about the situation in Russia, in the light of the murder of Alexander Litvinenko, and other recent news. She had invited Garry Kasparov, former world chess champion, and now a leader of the liberal opposition in Russia, to take part. Then the invitation was withdrawn at the last minute. The reason, according to the Financial Times of December 16th, was that the Russian ambassador to Germany said that he would not take part in the show if Kasparov was there. According to the FT piece, two people who work on the Sabine Christiansen programme confirmed the story. However, both the presenter herself and the Russian embassy in Berlin deny that Kasparov was cancelled because of Russian government pressure.
If the FT piece is true, it is alarming that an influential TV programme seems so unwilling to annoy the Russian government. But Germany may not be the only country to be have been Finlandised. Britain has not been so uncritical of events in Russia as has Germany. However, the British government is very nervous about what happens in Russia, mainly because of the massive investments made by Shell and BP. If British-Russian relations took a major turn for the worse – and with the Litvinenko affair, they have already deteriorated in recent months – the security of those investments would be called into question. That is why the British government has handled the Litvinenko affair with kid gloves. Ministers are loath to suggest that anyone linked to the Russian state could be involved in the murder of Litvinenko. They wish the affair would just go away.
Smaller EU countries tend to be more outspoken on human rights questions in places like Russia and China. It is easier for them to be outspoken, for they often have fewer commercial interests at stake. Foreign policy is inevitably a messy business, in which principles have to be balanced against the national interest. So if a government refrains from criticising malpractice in countries such as Russia or China, it may be understandable. But if a top television programme in a leading EU country tries to limit debate on a controversial current affairs topic, for fear of annoying a foreign government, it is surely unacceptable.
Charles Grant is director of the Centre for European Reform.
Friday, December 08, 2006
Beware a weak dollar!
by Simon Tilford
When Claude Trichet, president of the European Central Bank, announced yesterday’s increase in eurozone interest rates, he did not even mention the threat a weaker dollar could pose to the outlook for the eurozone economy. At the current exchange rate between the euro and the dollar, his apparent complacency may be right. In trade weighted terms, the euro has only strengthened very gradually over the last 12 months. However, European policy-makers are being too sanguine about the implication for Europe of a sustained fall in the dollar. As a result, they risk repeating the mistakes of early 2001, when they dismissed the threat posed to the European economy from a weaker dollar.
What has changed since 2001 to make European policy-makers such as Mr Trichet so relaxed about the impact of a fall in the dollar on the European economy? One argument is that the eurozone economy has become less dependent on exports for growth. There are at last signs that the German economy could start growing under its own steam rather than depending on exports for external stimulus. However, it is far from clear that the recovery would remain on track if exports took a big hit.
In fact, the trade dependence of most EU economies has, if anything increased since 2001. For example, German exports as a percentage of GDP have risen rapidly in recent years. The proportion of total exports accounted for by the US may have declined, but that ignores the fact that a sizeable proportion of the growth has been accounted for by rising exports to countries whose currencies are effectively tied to the dollar, notably China.
Another argument is that the reforms made by European economies over the last five years have boosted their competitiveness and left them better able to cope with a weaker dollar. The competitiveness (and profitability) of German industry in particular has certainly improved, with the result that German companies will be relatively better able to cope with a weak dollar than five years ago. The same cannot be said of other eurozone economies. The competitiveness of the Italian and Spanish economies has deteriorated very sharply since 2001.
If the Chinese and the other East Asian central banks were to allow their currencies to rise in response to a fall in the dollar, then the European economy would not have to bear the full cost of adjustment of a decline in the value of the dollar. So far, there is no indication the East Asians intend to allow their currencies to rise against the dollar. In the event of a run on the dollar, European companies are likely to experience a loss of competitiveness not just in the US, but in fast growing Asian markets as well as in third markets, where US and Asian companies will be much more competitive.
In any event, a focus on the direct trade impact risks underestimating the scale of the threat. When measuring the vulnerability of the EU economy to a fall in the dollar and downturn in the US economy direct trade flows are a relatively small part of the story. The importance of the direct trade with the US is far outweighed by indirect links. For example, the sales of British and Dutch-owned companies in the US outweigh exports from the Netherlands to the UK many times over. Even in export-dependent Germany, sales from German-owned companies in the US are five times higher than the value of German export to the US. Declining profits from the US affiliates of European businesses would hit business confidence and investment in Europe hard.
The ECB should not rush to raise interest rates further. Of course, a stronger euro will present benefits as well as impose costs. Import prices will fall, especially those of commodities priced in dollars, such as oil. This will lower inflation pressures in Europe and reduce the likelihood of further interest rate rises. However, the European economy is not as resilient as many are assuming. A rise in the value of the euro to €1.50:$1 or €1.60:$1 – a very plausible assumption – would not just be shrugged off. Indeed, it would in all likelihood put an end to the long-awaited eurozone recovery, which is currently not powerful enough to absorb the shock of a much weaker dollar.
Simon Tilford is head of the business unit at the Centre for European Reform.
by Simon Tilford
When Claude Trichet, president of the European Central Bank, announced yesterday’s increase in eurozone interest rates, he did not even mention the threat a weaker dollar could pose to the outlook for the eurozone economy. At the current exchange rate between the euro and the dollar, his apparent complacency may be right. In trade weighted terms, the euro has only strengthened very gradually over the last 12 months. However, European policy-makers are being too sanguine about the implication for Europe of a sustained fall in the dollar. As a result, they risk repeating the mistakes of early 2001, when they dismissed the threat posed to the European economy from a weaker dollar.
What has changed since 2001 to make European policy-makers such as Mr Trichet so relaxed about the impact of a fall in the dollar on the European economy? One argument is that the eurozone economy has become less dependent on exports for growth. There are at last signs that the German economy could start growing under its own steam rather than depending on exports for external stimulus. However, it is far from clear that the recovery would remain on track if exports took a big hit.
In fact, the trade dependence of most EU economies has, if anything increased since 2001. For example, German exports as a percentage of GDP have risen rapidly in recent years. The proportion of total exports accounted for by the US may have declined, but that ignores the fact that a sizeable proportion of the growth has been accounted for by rising exports to countries whose currencies are effectively tied to the dollar, notably China.
Another argument is that the reforms made by European economies over the last five years have boosted their competitiveness and left them better able to cope with a weaker dollar. The competitiveness (and profitability) of German industry in particular has certainly improved, with the result that German companies will be relatively better able to cope with a weak dollar than five years ago. The same cannot be said of other eurozone economies. The competitiveness of the Italian and Spanish economies has deteriorated very sharply since 2001.
If the Chinese and the other East Asian central banks were to allow their currencies to rise in response to a fall in the dollar, then the European economy would not have to bear the full cost of adjustment of a decline in the value of the dollar. So far, there is no indication the East Asians intend to allow their currencies to rise against the dollar. In the event of a run on the dollar, European companies are likely to experience a loss of competitiveness not just in the US, but in fast growing Asian markets as well as in third markets, where US and Asian companies will be much more competitive.
In any event, a focus on the direct trade impact risks underestimating the scale of the threat. When measuring the vulnerability of the EU economy to a fall in the dollar and downturn in the US economy direct trade flows are a relatively small part of the story. The importance of the direct trade with the US is far outweighed by indirect links. For example, the sales of British and Dutch-owned companies in the US outweigh exports from the Netherlands to the UK many times over. Even in export-dependent Germany, sales from German-owned companies in the US are five times higher than the value of German export to the US. Declining profits from the US affiliates of European businesses would hit business confidence and investment in Europe hard.
The ECB should not rush to raise interest rates further. Of course, a stronger euro will present benefits as well as impose costs. Import prices will fall, especially those of commodities priced in dollars, such as oil. This will lower inflation pressures in Europe and reduce the likelihood of further interest rate rises. However, the European economy is not as resilient as many are assuming. A rise in the value of the euro to €1.50:$1 or €1.60:$1 – a very plausible assumption – would not just be shrugged off. Indeed, it would in all likelihood put an end to the long-awaited eurozone recovery, which is currently not powerful enough to absorb the shock of a much weaker dollar.
Simon Tilford is head of the business unit at the Centre for European Reform.
Friday, November 24, 2006
Segolene's crushing victory: Good or bad news?
by Aurore Wanlin
Segolene Royal’s victory in the socialist party’s (PS) presidential primary last week was widely expected. The scale of her triumph, however, came as a surprise. With 61 per cent of the votes, her popularity can no longer be dismissed as a mediatic bubble. There is more behind Ms Royal’s success than most of her opponents have recognised so far.What does her victory say about the way French politics and her party are changing?
To start with the PS, the process that led to Segolene Royal’s victory marks the beginning of a renewal. The primary has provided the party with both new blood and a new intellectual dynamic. Over the last months, the PS has gained many new members, eager to choose their candidate. The contest between the three main contenders – Laurent Fabius, Segolene Royal and Dominique Strauss-Kahn – has revived the internal debate on a wide range of issues, from education to security or the 35 hour week. Each of them, although relying on the same official programme, has managed to define a specific political line. Although there is a risk that the PS has difficulties to mend its divisions, Segolene now benefits from an indisputable legitimacy. On the other side of the spectrum, some in the UMP regret that they have not had a similar opportunity to discuss the party’s line and choose its champion.
Segolene’s victory also means that the party might shift back to the centre, distancing itself from a more radical rhetoric, hostile to the liberal economy. Unlike most other European left-wing parties, the French socialists have never done their so-called 'Bad Godesberg'. After each electoral failure, the PS, far from choosing a more liberal line, has tended to go back to what it saw as true socialism. Last year’s popular rejection of the EU constitution brought into light the depth of the socialists’ hostility to a liberal Europe. Ms Royal’s victory over Laurent Fabius, former leader of the No camp, as well as her desire to look at what other countries such as Spain or the UK have done, might signal that change is on the way.
But a lot will depend on Ms Royal herself. Key to her success is that she seems different. Not only because she is a woman, nor because she does not belong to the establishment – she does. But because she has a different approach to politics. Her main concern is to reconcile the French with politics, by giving them a say. Take her position on Turkey’s accession to the European Union: the French will decide. Her website, the citizens’ jurys all have a similar objective: give the people the sense that she listens to them. That pragmatic approach has its advantages. Ms Royal knows to talk concretely on issues that matter most to the French.
However, there is a danger that Ms Royal appears as an anti-party candidate. Her success carries a certain vote of sanction. Segolene Royal is right to try to address France’s democratic malaise: populism has been on the rise for several years, social frustrations run high and the French distrust their political class. As a democartic leader whose main concern is to increase citizens’ participation in the political game, she appeals to the French. But as an anti-party candidate, Ms Royal will find it much harder to bring her party back to the centre by giving up the anticapitalist and antiliberal rhetoric that has been so detrimental to it. Her biggest challenge will be to combine her concerns for more direct democracy with an audacious political programme palatable both to the traditional socialist supporters and to voters in the centre. This will not be easy to achieve; but Ms Royal has already shown that she should be not underestimated.
Aurore Wanlin is a reasearch fellow at the Centre for European Reform.
by Aurore Wanlin
Segolene Royal’s victory in the socialist party’s (PS) presidential primary last week was widely expected. The scale of her triumph, however, came as a surprise. With 61 per cent of the votes, her popularity can no longer be dismissed as a mediatic bubble. There is more behind Ms Royal’s success than most of her opponents have recognised so far.What does her victory say about the way French politics and her party are changing?
To start with the PS, the process that led to Segolene Royal’s victory marks the beginning of a renewal. The primary has provided the party with both new blood and a new intellectual dynamic. Over the last months, the PS has gained many new members, eager to choose their candidate. The contest between the three main contenders – Laurent Fabius, Segolene Royal and Dominique Strauss-Kahn – has revived the internal debate on a wide range of issues, from education to security or the 35 hour week. Each of them, although relying on the same official programme, has managed to define a specific political line. Although there is a risk that the PS has difficulties to mend its divisions, Segolene now benefits from an indisputable legitimacy. On the other side of the spectrum, some in the UMP regret that they have not had a similar opportunity to discuss the party’s line and choose its champion.
Segolene’s victory also means that the party might shift back to the centre, distancing itself from a more radical rhetoric, hostile to the liberal economy. Unlike most other European left-wing parties, the French socialists have never done their so-called 'Bad Godesberg'. After each electoral failure, the PS, far from choosing a more liberal line, has tended to go back to what it saw as true socialism. Last year’s popular rejection of the EU constitution brought into light the depth of the socialists’ hostility to a liberal Europe. Ms Royal’s victory over Laurent Fabius, former leader of the No camp, as well as her desire to look at what other countries such as Spain or the UK have done, might signal that change is on the way.
But a lot will depend on Ms Royal herself. Key to her success is that she seems different. Not only because she is a woman, nor because she does not belong to the establishment – she does. But because she has a different approach to politics. Her main concern is to reconcile the French with politics, by giving them a say. Take her position on Turkey’s accession to the European Union: the French will decide. Her website, the citizens’ jurys all have a similar objective: give the people the sense that she listens to them. That pragmatic approach has its advantages. Ms Royal knows to talk concretely on issues that matter most to the French.
However, there is a danger that Ms Royal appears as an anti-party candidate. Her success carries a certain vote of sanction. Segolene Royal is right to try to address France’s democratic malaise: populism has been on the rise for several years, social frustrations run high and the French distrust their political class. As a democartic leader whose main concern is to increase citizens’ participation in the political game, she appeals to the French. But as an anti-party candidate, Ms Royal will find it much harder to bring her party back to the centre by giving up the anticapitalist and antiliberal rhetoric that has been so detrimental to it. Her biggest challenge will be to combine her concerns for more direct democracy with an audacious political programme palatable both to the traditional socialist supporters and to voters in the centre. This will not be easy to achieve; but Ms Royal has already shown that she should be not underestimated.
Aurore Wanlin is a reasearch fellow at the Centre for European Reform.
Friday, November 17, 2006
Climate change:
Western business can help China and India
by Katinka Barysch
We Europeans are proud pioneers in combating climate change. But what we do at home is almost irrelevant unless we persuade and help China and India to limit emissions.
European countries are doing more than most to reduce emissions at home, according to report presented to the UN’s climate change conference in Nairobi this week: 15 of the world’s ‘greenest’ countries are in Europe. And the EU wants to go further. The European Commission has just published a plan to extend the EU’s pioneering emissions rights trading (ETS) scheme to cover more sectors and pollutants.
European climate policies matter – as examples for the rest of the world and as a testing ground for new technologies and policies. But to stop global warming we need a global approach.
In the US – the single biggest source of greenhouse gas emissions – the consensus is slowly shifting in favour of tougher policies. While the Bush administration has ruled out ratifying the Kyoto Protocol, a large number of State governments have adopted emission reduction targets or joined regional ‘cap and trade’ schemes.
Whether the US supports a post-Kyoto regime will critically depend on whether China and India come on board. China is already the second biggest emitter of greenhouse gases, mainly because it relies on coal – the dirtiest of fuels – for two-thirds of its power generation. Coal in China is cheap and plentiful. The country still has reserves to last it about 200 years, and the price of producing energy with coal is a fraction of any alternatives. India is a similar story: it relies on coal for more than half of its energy needs and is the fourth biggest source of CO2 emissions in the world. The International Energy Agency assumes that 70 per cent of additional coal demand until 2030 will come from India and China.
The Kyoto protocol almost pales into insignificance in comparison. In 2004, the Christian Science Monitor reported that China was on course to build 562 additional coal-fired power plants by 2012, more than half of the world’s total. Together with planned new plants in India (213) and the US (70 or so), these will emit 2.7 billion additional tons of carbon dioxide. Compare that with the (maximum) 480 million tons that Kyoto countries have promised to cut from their CO2 emissions by 2012.
Coal is not the only problem. China is already the second biggest oil consumer in the world, after the US. It used up 5.5 million barrels of oil a day in 2005, and India an additional 2 million. Both countries’ needs will continue to grow fast as people get wealthier and more mobile. More than three million new passenger cars were registered in China last year. But still only 11 out of 1,000 people have their own vehicle. In a developed country like the UK, more than half of all people have a car.
Improving the EU’s ETS is important. But our priority must be to persuade and help China and India to limit greenhouse gas emissions.
The Chinese and Indian authorities say they take climate change seriously. But they insist that economic growth has priority and only rich countries can afford to combat climate change. China and India account for only 10 per cent of the fossil fuel CO2 accumulated in 1850-2004. The EU, the US and Russia together account for 70 per cent. Getting Beijing and Delhi to sign up to a tough post-Kyoto regime will be as difficult as it will be essential. In the meantime, are there other things we in Europe can do?
At a workshop on India, China and climate change – which the CER ran together with the German-British Forum on November 14th – we explored how the private sector could help China and India to become greener.
The transfer of Western technology is helping to make these countries more energy efficient. But change is slow: 15 years ago, Chinese power plants typically operated at a level of efficiency that was 35-50 per cent of that of German plants. Since then that share has crept up to 50-60 per cent. A step change is needed.
Many people put their hopes into clean coal technologies. These capture the CO2 produced by coal burning and bury it under ground. So far there are only a few pilot plants in places such as Norway and the UK. But even if the West managed to make the technology commercially viable, it would remain too expensive for China to roll it out on a grand scale.
Western governments and the EU give China some money to encourage the adoption of clean technologies. But it is not enough to make a difference. Perhaps market mechanisms are more promising. Business is certainly interested. There are now 80 environmental companies listed in London’s AIM (alternative investment market) alone. Mainstream companies from Goldman Sachs to Virgin have earmarked billions of dollars for green investment schemes. There are now more than 100 funds that solely invest in clean energy and other environmental technologies.
Under Kyoto’s ‘clean development mechanism’, rich-world polluters can keep within their target by investing in environmental projects in those developing countries that have no targets themselves. In theory, therefore, Western businesses have an incentive to invest in energy savings technologies, clean coal plants and renewables in China. In practice, however, the clean development mechanism is clunky and complicated. Its effectiveness also suffers from Kyoto’s limited lifespan. Most green investments, such as new power station or windfarms, have long lifespans. So investors have to make an assumption about long-term trends in carbon prices. At the moment, they don’t even know whether there will be a carbon market after Kyoto runs out in 2012.
China itself is not exactly making it easy for Western companies. Widespread disregard for intellectual property rights makes investors reluctant to transfer the cutting edge technologies that are often needed in environmental projects. Moreover, regulatory frameworks are uncertain or badly enforced. Take renewables as an example. Both India and China have ambitious targets but since burning coal is cheaper than building dams or erecting wind turbines, regulation is needed to encourage investment. In 2004, the Chinese authorities announced that 30 Giga-watts should come from wind power by 2020 (a modest target: experts assume that China’s potential for wind-powered energy is at least ten times that). However, when the government finally released the relevant regulation in 2006, potential investors withdrew in frustration: local content requirements of 70 per cent and an overly competitive market framework would make it almost impossible for western companies to turn a profit. The big winners would be incumbent Chinese energy giants.
Western investment can help China and India to limit their greenhouse gas emissions. But these countries also need to help themselves by building an attractive regulatory and business environment for green investments.
Thursday, November 09, 2006
On November 8th, the European Commission published its new strategy report on enlargement. A non-event: drafts had been widely leaked to the press; and the most explosive question – whether accession negotiations with Turkey should by wholly or partly suspended because of Cyprus – has been put off until December.
The Commission tries to be upbeat. It talks about progress in the candidates and the EU’s will to keep its enlargement promises. But it cannot paper over the fact that today enlargement fatigue on the part of the EU meets accession pessimism on the part of the member-states.
Perhaps the most interesting part of the strategy paper is hidden in an annex on “absorption capacity”. The EU’s nappy test, Nick Watt of the Guardian calls it half-jokingly. But the question of absorption capacity is dead-serious. It is not only, as the Commission paper argues, a question of how many interpreters we need in Brussels or how much Turkish farmers could cost the EU budget. It is the question of whether enlargement helps the EU to become stronger and more prosperous.
The EU’s concern about absorption capacity is neatly summed up in the following quote:
“The prospect of further enlargement at a time when the full consequences of the preceding one have not yet been absorbed must give rise to concern. The Commission considers therefore that any further enlargement must be accompanied by a substantial improvement in the efficiency of the Community s decision-making processes and strengthening of its common institutions.”
This is not from the 2006 strategy paper. It’s from the Commission’s 1976 opinion on Greece’s membership applications. The EU has always been worried about the effect that newcomers would have on its institutions, its budget and policies, its identity and standing in the world. This is legitimate. An overstretched, gridlocked or internally divided EU would be bad for its existing members and unattractive for newcomers.
However, absorption capacity is a vague and politically charged term. A new House of Lords report on enlargement (to be released on Novmeber 23rd) argues that it could become a dangerous tool in the hands of those who want to keep out Turkey or stop enlargement altogether.
The Austrian EU presidency used the term to sever the link between the Western Balkan applicants (all small, so presumably “easy to absorb”) and Turkey (“too big, too poor, too different”). But this attempt backfired. When EU foreign ministers met their counterparts from the Western Balkans in Salzburg earlier this year, they stressed that absorption capacity was key to all future enlargements. The European Parliament followed with similar statements, as did the Council and a number of politicians from EU capitals. Enlargement Commissioner Olli Rehn tried to limit the damage by explaining that absorption capacity was not a new criterion for enlargement. But not all EU politicians agreed. Bavaria’s minister-president, Edmund Stoiber, for example, insists that the EU’s absorption capacity is more important than a candidate’s state of preparedness.
People and politicians in candidate countries are worried: “Does it matter whether we work hard?” they ask, “The EU will not let us in anyway.” The debate about absorption capacity could weaken the leverage the EU has over countries wishing to join. Given how much trouble looms in the EU’s immediate neighbourhood, that is a big risk.
The Commission report is a laudable attempt to deconstruct the term, and render it less politically explosive. To start with, the Commission insists that integration capacity is a better term: no country wants be “absorbed” by the EU. Then it breaks up the term into three questions:
1) Is the EU able to take in new members? Here the Commission promises to analyse the potential impact of each newcomer on EU institutions, policies and the budget.
2) Are the candidates well prepared enough to fit in neatly? To make sure they are, the Commission promises tougher conditions, closer monitoring and more help during future accession negotiations.
3) Are the people in the EU ready to accept more countries? The Commission rightly says that the main responsibility for explaining enlargements – past and future – lies with EU governments. But it promises to help by producing more comprehensible information.
Neatly divided into its different elements, absorption capacity becomes a to-do list for the EU rather than a threat to the candidates. After all, says the Commission, it is “first and foremost a functional concept”.
But this implies that the EU is a static construct that needs a few technical fixes before it can take in more countries. In reality, the EU is adjusting constantly in response to new challenges, such as fighting terrorism, securing energy or coping with globalisation. Successive enlargements have helped the EU in that process.
The accession of Turkey and the countries of the Western Balkans would spread democracy and wealth further across the European continent; it would strengthen the EU’s hands in volatile Middle East and Black Sea regions; it would add young, eager workers to an ageing EU economy; and it would encourage West European countries to find a way of living harmoniously with Muslim immigrants and neighbours (not only Turkey but also parts of Bosnia and Albania are predominantly Muslim).
New members are not just a burden to be “absorbed”. They are an asset too. Future enlargements will make the EU stronger, more tolerant and more competitive. The debate about absorption capacity cannot capture this because it only looks at one side of the enlargement balance sheet.
Katinka Barysch is chief economist at the Centre for European Reform
The Commission tries to be upbeat. It talks about progress in the candidates and the EU’s will to keep its enlargement promises. But it cannot paper over the fact that today enlargement fatigue on the part of the EU meets accession pessimism on the part of the member-states.
Perhaps the most interesting part of the strategy paper is hidden in an annex on “absorption capacity”. The EU’s nappy test, Nick Watt of the Guardian calls it half-jokingly. But the question of absorption capacity is dead-serious. It is not only, as the Commission paper argues, a question of how many interpreters we need in Brussels or how much Turkish farmers could cost the EU budget. It is the question of whether enlargement helps the EU to become stronger and more prosperous.
The EU’s concern about absorption capacity is neatly summed up in the following quote:
“The prospect of further enlargement at a time when the full consequences of the preceding one have not yet been absorbed must give rise to concern. The Commission considers therefore that any further enlargement must be accompanied by a substantial improvement in the efficiency of the Community s decision-making processes and strengthening of its common institutions.”
This is not from the 2006 strategy paper. It’s from the Commission’s 1976 opinion on Greece’s membership applications. The EU has always been worried about the effect that newcomers would have on its institutions, its budget and policies, its identity and standing in the world. This is legitimate. An overstretched, gridlocked or internally divided EU would be bad for its existing members and unattractive for newcomers.
However, absorption capacity is a vague and politically charged term. A new House of Lords report on enlargement (to be released on Novmeber 23rd) argues that it could become a dangerous tool in the hands of those who want to keep out Turkey or stop enlargement altogether.
The Austrian EU presidency used the term to sever the link between the Western Balkan applicants (all small, so presumably “easy to absorb”) and Turkey (“too big, too poor, too different”). But this attempt backfired. When EU foreign ministers met their counterparts from the Western Balkans in Salzburg earlier this year, they stressed that absorption capacity was key to all future enlargements. The European Parliament followed with similar statements, as did the Council and a number of politicians from EU capitals. Enlargement Commissioner Olli Rehn tried to limit the damage by explaining that absorption capacity was not a new criterion for enlargement. But not all EU politicians agreed. Bavaria’s minister-president, Edmund Stoiber, for example, insists that the EU’s absorption capacity is more important than a candidate’s state of preparedness.
People and politicians in candidate countries are worried: “Does it matter whether we work hard?” they ask, “The EU will not let us in anyway.” The debate about absorption capacity could weaken the leverage the EU has over countries wishing to join. Given how much trouble looms in the EU’s immediate neighbourhood, that is a big risk.
The Commission report is a laudable attempt to deconstruct the term, and render it less politically explosive. To start with, the Commission insists that integration capacity is a better term: no country wants be “absorbed” by the EU. Then it breaks up the term into three questions:
1) Is the EU able to take in new members? Here the Commission promises to analyse the potential impact of each newcomer on EU institutions, policies and the budget.
2) Are the candidates well prepared enough to fit in neatly? To make sure they are, the Commission promises tougher conditions, closer monitoring and more help during future accession negotiations.
3) Are the people in the EU ready to accept more countries? The Commission rightly says that the main responsibility for explaining enlargements – past and future – lies with EU governments. But it promises to help by producing more comprehensible information.
Neatly divided into its different elements, absorption capacity becomes a to-do list for the EU rather than a threat to the candidates. After all, says the Commission, it is “first and foremost a functional concept”.
But this implies that the EU is a static construct that needs a few technical fixes before it can take in more countries. In reality, the EU is adjusting constantly in response to new challenges, such as fighting terrorism, securing energy or coping with globalisation. Successive enlargements have helped the EU in that process.
The accession of Turkey and the countries of the Western Balkans would spread democracy and wealth further across the European continent; it would strengthen the EU’s hands in volatile Middle East and Black Sea regions; it would add young, eager workers to an ageing EU economy; and it would encourage West European countries to find a way of living harmoniously with Muslim immigrants and neighbours (not only Turkey but also parts of Bosnia and Albania are predominantly Muslim).
New members are not just a burden to be “absorbed”. They are an asset too. Future enlargements will make the EU stronger, more tolerant and more competitive. The debate about absorption capacity cannot capture this because it only looks at one side of the enlargement balance sheet.
Katinka Barysch is chief economist at the Centre for European Reform
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