Assessing two years of EU membership

Photo: European Commission

It is two years since fireworks and parties celebrated the enlargement of the European Union by ten new members. This was particularly significant in Central Europe where former communist countries like Hungary, Slovakia, the Czech Republic and Slovenia left behind the tensions and problems of the cold war and, as many put it, re-joined Europe.

For a look at the successes and problems of the enlargement Kerry Skyring spoke to Katinka Barysch, senior economist at the London-based Centre for European Reform. I asked her: has enlargement brought benefits to Central Europe?

"Absolutely, there is no doubt that the Central and Eastern European countries have benefited enormously from integrating with Western Europe, with the old European Union. If you want to see how much they have benefited, just compare Poland with Ukraine, or compare Slovakia and the Czech Republic with other countries that have broken up in the western Balkans. The prospect of joining the EU has really served as an anchor for economic reform and democratisation in the region. Then, of course, because the accession process provides a certainty for businesses, the countries have been hugely successful in attracting foreign investment and, on the basis of that, expanding their exports into the EU market."

Despite that, though, a big problem of unemployment still remains in many of these countries. Are we likely to see that change as time goes on?

"Since 2004, we have seen a slight improvement in most of the labour markets in Central and Eastern Europe. There are quite intractable problems that will take a long time to fix. Basically, you've got dual labour markets in a lot of these countries, where you have near full employment or even skill shortages in the capitals and in western booming industrial regions, and then you have unemployment of 30 percent or so in declining industrial heartland rural areas in the eastern regions. It takes a long time to fix those problems because you have to upgrade the skills of the work force and you need to improve the infrastructure, including the housing markets so that people find it easier to move around."

Photo: European Commission
And is the European Union helping? We know there's a big fight over money and how much the EU would provide in terms of subsidies or transfers to these countries. Is it helping to overcome those things that are lacking in rural and eastern areas of the new member states?

"The EU is already paying structural funds to the new member states. It always takes a little bit of time for this money to actually come in because the application and implementation procedures of the EU are strict and have to be strict to rule out fraud. So, it takes a bit of time and it's too early to evaluate how far the EU can make a difference. But EU money as such is not a panacea for fixing labour market problems. If you compare the experience of Ireland and Greece, both in the past have been very big recipients of EU structural funds. But Greece squandered the money on consumption, while Ireland spent is as part of a much broader and well thought-out national development plan and you can see how throughout the 1990s, Ireland rose very quickly from one of the poorest nations of the EU to becoming one of the richest. Whereas Greece just only very recently got its act together and started spending the money more widely."

Are there any trends emerging amongst the new EU member states on who is spending money wisely and who is not?

"It's really too early to tell because at this moment the states are forwarding their applications. You can already see that some countries have been more efficient in handing in the applications and are starting to disperse the money more than others. But it is too early to tell."

Photo: European Commission
There are some challenges ahead, such as introducing the Euro to some of these economies - it looks as though Slovenia will be the first - and then the Schengen border. Are they well equipped for these things?

"I think it is more or less only a question of time, provided these countries want to join the Euro. It will take longer than these countries originally thought. They thought it would be relatively easy, that they would more or less be in two years after their accession. But it turns out that it is more difficult for two reasons. First, the countries in Central and Eastern Europe find it very difficult to get their budgets under control and there also are significant inflationary pressures in some of these countries still, which is natural because these are fast growing countries and they have to have higher inflation than the slower growing Eurozone countries.

"The second reason why this is taking a little longer is because the EU has decided to be very tough and apply the Maastricht criteria down to the letter. This is also right because the Eurozone needs to be well managed and it has to be certain that the newcomers are really ready to join the single currency on a sustainable basis. But once both sides are satisfied that this is the case, I see no obstacle for the Central and Eastern European countries to join the Euro."