November 14, 2002

Pomp and circumstance often disguise a sore lack of substance. The three days summit of the Central European Initiative is no exception. Held in Macedonia's drab capital, Skopje, the delegates including the odd chief of state, discussed their economies in what was presumptuously dubbed by them the "small Davos", after the larger and far more important annual get together in Switzerland.

Yet the whole exercise rests on a series of politically correct confabulations. To start with, Macedonia, the host, as well as Albania, Bulgaria, Romania, Ukraine and other east European backwaters hardly qualify for the title "central European". Mitteleuropa is not merely a geographical designation which excludes all but two or three of the participants. It is also a historical, cultural, and social entity which comprises the territories of the erstwhile German and, especially, Austro-Hungarian (Habsburg) empires.

Moreover, the disparity between the countries assembled in the august conference precludes a common label. Slovenia's GDP per capita is 7 times Macedonia's. The economies of the Czech Republic, Poland, and Hungary are light years removed from those of Yugoslavia or even Bulgaria.

Nor do these countries attempt real integration. While regional talk shops, such as ASEAN and the African Union, embarked on serious efforts to establish customs and currency zones - the countries of central and eastern Europe have drifted apart and intentionally so. Intra-regional trade has declined every single year since 1989. Intra-regional foreign direct investment is almost non-existent.

Macedonia's exports to Yugoslavia, its next door neighbor, amount to merely half its exports to the unwelcoming European Union - and are declining. Countries from Bulgaria to Russia have shifted 50-75 percent of their trade from their traditional COMECON partners to the European Union and, to a lesser degree, the Middle East, the Far East and the United States.

Nor do the advanced members of the club fancy a common label. Slovenia abhors its Balkan pedigree. Croatia megalomaniacally considers itself German. The Czechs and the Slovaks regard their communist elopement a sad aberration as do the Hungarians. The Macedonians are not sure whether they are Serbs, Bulgarians, or Macedonians. The Moldovans wish they were Romanians. The Romanians secretly wish they were Hungarians. The Austrians are sometimes Germans and sometimes Balkanians. Many Ukrainians and all Belarusians would like to resurrect the evil empire, the USSR.

This identity crisis affects the European Union. Never has Europe been more fractured. It is now a continent of four speeds. The rich core of the European Union, notably Germany and France, constitutes its engine. The mendicant members - from Greece to Portugal - enjoy inane dollops of cash from Brussels but have next to no say in Union matters.

The shoo-in candidates - Poland, Hungary, the Czech Republic and, maybe, Slovakia, if it keeps ignoring the outcomes of its elections - are frantically distancing themselves from the queue of beggars, migrants and criminals that awaits at the pearly gates of Brussels. The Belgian Curtain -between central European candidates and east European aspirants - is falling fast and may prove to be far more divisive and effective than anything dreamt up by Stalin.

The fourth group comprises real candidates - such as Bulgaria - and would be applicants, such as Romania, Macedonia, Albania, Yugoslavia, Bosnia-Herzegovina and even Croatia. Some of them are tainted by war crimes. Others are addicted to donor conferences. Yet others are travesties of the modern nation state having been hijacked and subverted by tribal crime gangs. Most of them combine all these unpalatable features.

Many of these countries possess the dubious distinction of having once been misruled by the sick man of Europe, the Ottoman Empire. In a moment of faux-pas honesty, Valerie Giscard D'Estaing, the chairman of the European Union's much-touted constitutional convention, admitted last week that a European Union with Turkey will no longer be either European or United. Imagine how they perceive the likes of Macedonia, or Albania.

As the Union enlarges to the east and south, its character will be transformed. It will become poorer and darker, more prone to crime and corruption, to sudden or seasonal surges of immigration, to fractiousness and conflict. It is a process of conversion to a truly multi-ethnic and multi-cultural grouping with a weighty Slav and Christian Orthodox presence. Not necessarily an appetizing prospect, say many.

The former communist countries in transition are supposed to be miraculously transformed by the accession process. Alas, the indelible pathologies of communism mesh well with Brussels's unmanageable, self-perpetuating and opaque bureaucracy. These mutually-enhancing propensities are likely to yield a giant and venal welfare state with a class of aged citizens in the core countries of the European Union living off the toil of young, mostly Slav, laborers in its eastern territories. This is the irony: the European Union is doomed without enlargement. It needs these countries far more than they need it.

The strategic importance of western Europe has waned together with the threat posed by a dilapidated Russia. Both south Europe and its northern regions are emerging as pivotal. Enlargement would serve to enhance the dwindling geopolitical relevance of the EU and heal some of the multiple rifts with the USA.

But the main benefits are economic.

Faced with an inexorably ageing populace and an unsustainable system of social welfare and retirement benefits, the EU is in dire need of young immigrants. According to the United Nations Population Division, the EU would need to import 1.6 million migrant workers annually to maintain its current level of working age population. But it would need to absorb almost 14 million new, working age, immigrants per year just to preserve a stable ratio of workers to pensioners.

Eastern Europe - and especially central Europe - is the EU's natural reservoir of migrant labor. It is ironic that xenophobic and anti-immigration parties hold the balance of power in a continent so dependent on immigration for the survival of its way of life and institutions.

The internal, common, market of the EU has matured. Its growth rate has leveled off and it has developed a mild case of deflation. In previous centuries, Europe exported its excess labor and surplus capacity to its colonies - an economic system known as "mercantilism".

The markets of central, southern, and eastern Europe - West Europe's hinterland - are replete with abundant raw materials and dirt-cheap, though well-educated, labor. As indigenous purchasing power increases, the demand for consumer goods and services will expand. Thus, the enlargement candidates can act both as a sink for Europe's production and the root of its competitive advantage.

Moreover, the sheer weight of their agricultural sectors and the backwardness of their infrastructure can force a reluctant EU to reform its inanely bloated farm and regional aid subsidies, notably the Common Agricultural Policy. That the EU cannot afford to treat the candidates to dollops of subventioary largesse as it does the likes of France, Spain, Portugal, and Greece is indisputable. But even a much-debated phase-in period of 10 years would burden the EU's budget - and the patience of its member states and denizens - to an acrimonious breaking point.

The countries of central and eastern Europe are new consumption and investment markets. With a total of 300 million people (Russia counted), they equal the EU's population - though not its much larger purchasing clout. They are likely to while the next few decades on a steep growth curve, catching up with the West. Their proximity to the EU makes them ideal customers for its goods and services. They could provide the impetus for a renewed golden age of European economic expansion.

Central and eastern Europe also provide a natural land nexus between west Europe and Asia and the Middle East. As China and India grow in economic and geopolitical importance, an enlarged Europe will find itself in the profitable role of an intermediary between east and west.

The wide-ranging benefits to the EU of enlargement are clear, therefore. What do the candidate states stand to gain from their accession? The answer is: surprisingly little. All of them already enjoy, to varying degrees, unfettered, largely duty-free, access to the EU. To belong, a few - like Estonia - would have to dismantle a much admired edifice of economic liberalism.

Most of them would have to erect barriers to trade and the free movement of labor and capital where none existed. All of them would be forced to encumber their fragile economies with tens of thousands of pages of prohibitively costly labor, intellectual property rights, financial, and environmental regulation. None stands to enjoy the same benefits as do the more veteran members - notably in agricultural and regional development funds.

Joining the EU would deliver rude economic and political shocks to the candidate countries. A brutal and rather sudden introduction of competition in hitherto much-sheltered sectors of the economy, giving up recently hard-won sovereignty, shouldering the debilitating cost of the implementation of  reams of guideline, statutes, laws, decrees, and directives, and being largely powerless to influence policy outcomes. Faced with such a predicament, some countries may even reconsider.