The East European Economies Before EU Enlargement
Summary of the East European Studies meeting with Keith Crane, Research Director for PlanEcon and Editor of PlanEcon Trade and Finance Reviews.
The process of integrating the economies of Central and Eastern Europe with the EU has already begun to create positive results. Progress made towards meeting EU membership requirements, combined with their strong performances in 2001, generate promise for continued economic growth in the region. While EU integration is viewed as inevitable, and expected to occur in January 2005, it will not be an easy road, as EU rules are too stringent and, occasionally, counterproductive. Several challenges that the Central and East European countries will face both before and immediately after gaining full membership to the EU will be the ratification process itself and problems created by inflation and exchange rate differences.
Through EU accession programs, Central Europe is already being brought into the economic fold of the European Union. The EU's active participation in the economies of the region has engendered increased productivity and solid growth rates (around 4 percent). Much of the growth can be attributed to the fact that 3/4 of Central Europe's exports are now going to the EU. Despite some concern that the slowdown in the German economy would hit Central Europe hard, exports held up well last year and countries like Hungary even enjoyed as much as a 20 percent increase in this area. Poland was one of the few exceptions and had a miserable year in 2001, but its economic woes were primarily self-inflicted due to choices made on agricultural and monetary policies.
Despite these notable achievements, however, the countries of Central and Eastern Europe continue to face various difficulties, including: onerous labor regulations, complicated registration policies, inadequate banking facilities, risk in the form of fluctuating exchange rates, continual tax rate changes, and the inability to implement court decisions.
The bureaucratic nature of the EU accession process will also create difficulties for the countries of Central and Eastern Europe. They have been working to meet all chapters of the nearly 100,000 page aquis communitarie, and only the most difficult chapters remain to be closed. Though contentious issues concerning labor mobility and the purchase of land by foreigners have been largely resolved, the question of how much assistance the new members (Poland, in particular) will receive, especially in the form of agricultural subsidies, remain looming, unresolved problems.
The EU is anticipating a "Big Bang" admission of 10 countries (eight of them in Central and Eastern Europe) on January 1, 2004. Those countries are the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, together with Cyprus and Malta. Bulgaria and Romania are unlikely to receive invitations. However, great difficulty will lie in the ratification process, as the treaty must be ratified not only by all 10 new members but also by each of the 15 current EU members. Though accession is likely to occur, extended debates can be expected that will draw out the ratification process. Consequently, PlanEcon does not expect these countries to receive full membership before January 2005.