But to date the causes have failed to generate the results. The dynamic effects of SEA, the ‘single market act’ of 1986, held by most orthodox economists to be an initiative of greater significance than EMU, had already been wildly oversold—the official Cecchini Report estimated it would add between 4.3 and 6.4 percent to the GDP of the Community whereas in reality it yielded gains of little over 1 per cent. So far, the pay-off for EMU has been even more disappointing. Far from picking up, growth in the Eurozone initially slowed down, from an average of 2.4 per cent in the five years before monetary union, to 2.1 in the first five years after it. Even with the modest acceleration of 2004–7, it remains below the level of the eighties. In 2000, on the heels of the single currency, the Lisbon summit promised to create within ten years ‘the most competitive and dynamic knowledge-based economy in the world’. In the event, the EU has so far recorded a growth rate well below that of the US, and lagged far behind China. Caught between the scientific and technological magnetism of America, where two-fifths of all scientists—some 400,000—are now EU-born, and the cheap labour of the PRC, where average wages are twenty times lower, Europe has not had much to show for its bombast.
Not only has the performance of the single-currency bloc been well below the American. More pointedly, the Eurozone has been outstripped by those countries within the EU which declined to scrap their own currencies—Sweden, Britain, and Denmark all posting higher rates of growth over the same period. Casting a further shadow over the legacy of Maastricht, the Stability Pact, which was supposed to ensure that fiscal indiscipline at national level would not undermine monetary rigour at supranational level, has been breached repeatedly and with impunity by both Germany and France, the two leading economies of the Eurozone. Had its deflationary impact been enforced, as it was on a weaker Portugal, in less position to resist, overall growth would have been yet lower.
Still, it would be premature to think that any unequivocal verdict on monetary union was yet in. Its advocates point to Ireland and Spain as success stories within the Eurozone, and look to the general economic upturn of the past year, led by Germany, as a sign that EMU may at length now be coming into its own. Above all, they can vaunt the strength of the euro itself. Not only are long-term interest rates in the Eurozone below those in the US. More strikingly, the euro has overtaken the dollar as the world’s premier currency in the international bond market. One result has been to power a wave of cross-border mergers and acquisitions in Euroland itself, evidence of the kind of capital deepening the architects of monetary union envisaged. Given the notorious volatility of relative regional and national standings in the world economy—Japan’s is only the most spectacular reversal of fortune since the eighties—might not the Eurozone, after somewhat more than seven lean years, now be poised for their biblical opposite?
Here, clearly, much depends on the degree of European interconnexion with, or insulation from, the US economy which dominates global demand. The mediocrity of Eurozone performance since 1999, attributable in the eyes of economic liberals to statist inertias and labour-market rigidities which it has taken time to overcome, but that are now giving way, has unfolded against the background of a global conjuncture, driven principally by American consumption, that for the last five years has been highly favourable—world economic growth averaging over 4.5 per cent, a rate not seen since the sixties. A large part of this boom has come from rocketing house prices, above all, of course, in the US, but also across much of the OECD as a whole—not least in such once peripheral economies as Spain and Ireland, where construction has been the linchpin of recent growth. In the major Eurozone economies, on the other hand, where mortgages have never been so central to financial markets, such effects have been subdued. One moment of truth will come for EMU if and when there is any abrupt, as distinct from gradual, decline in the American housing market. Relatively immune to mortgage fevers during the boom, how far would the Eurozone be sheltered from a transatlantic recession?
The role of Germany in the new Europe remains no less ambiguous. Absorption of the DDR has restored the country to its standing at the beginning of the twentieth century as the strategically central land of the continent, the most populous nation and the largest economy. But the longer-term consequences of reunification have still to unfold. Internationally, the Berlin Republic has unquestionably become more assertive, shedding a range of post-war inhibitions. In the past decade the Luftwaffe has returned to the Balkans, Einsatztruppen are fighting in West Asia, the Deutsche Marine patrols in the Eastern Mediterranean. But these have been subcontracted enterprises, in NATO or UN operations governed by the United States, not independent initiatives. Diplomatic postures have been more significant than military. Under Schröder, close ties were developed with Russia, in an entente that became the most distinctive feature of his foreign policy. But this was not a second Rapallo Pact, at the expense of western neighbours. Under Chirac and Berlusconi, France and Italy courted Putin scarcely less, but with fewer economic trumps in hand. In Europe itself, the Red-Green government in Berlin, for all its well-advertised generational lack of complexes, never rocked the boat in the way its Christian-Democrat predecessor in Bonn had done. Since 1991, in fact, there has been no action to compare with Kohl’s unilateral recognition of Slovenia, precipitating the disintegration of Yugoslavia. Merkel has moved successfully to circumvent the will of French and Dutch voters, but was in no position to deliver this on her own. The prospects of any informal German hegemony in Europe, classically considered, seem at present remote.
Part of the reason for the relatively subdued profile of the new Germany has, of course, been the costs of re-unification itself, for which the bill to date has come to more than a trillion dollars, saddling the country for years with stagnation, high unemployment, and mounting public debt. This was a period in which France, though no greyhound itself, consistently outpaced Germany, posting faster rates of growth for a full decade, from 1994 to 2004, with over double its increase in GDP in the first five years of the new century. In 2006, substantial German recovery finally arrived, and the tables have been turned. Currently the world’s leading exporter, the German economy now looks as if it might be about to exercise once again something like the European dominance it enjoyed in the days of Schmidt and the early Kohl. Then it was the tight money policies of the Bundesbank that held its neighbours by the throat. With the euro, that form of pressure has gone. What threatens to replace it is the remarkable wage repression on which German recovery has been based. Between 1998 and 2006, unit labour costs in Germany actually fell—in a staggering feat, real wages declined for seven straight years—while they rose some 15 per cent in France and Britain, and between 25 and 35 per cent in Spain, Italy, Portugal and Greece. With devaluation now barred, the Mediterranean countries are suffering a drastic loss of competitiveness, that augurs ill for the whole southern tier of the EU. Harsher forms of German power, pulsing through the market rather than issuing from the high command or central bank, may lie in store. It is too soon to write off a regional Grossmacht.
Germany has now been re-united for sixteen years. A single currency has circulated for eight years. The enlargement of the EU is just over three years old. It would be strange if its outcomes were already clearer. In practice, of course, the expansion of the EU to the East was set in motion in 1993, and completed—for the moment—in 2007, with the accession of Romania and Bulgaria, and at one level it is plain why it should be perhaps the principal source of satisfaction in today’s chorus of European self-congratulation. All nine former ‘captive nations’ of the Soviet bloc have been integrated without a hitch into the Union. Only the lands of a once independent Communism, in the time of Tito and Hoxha, wait to join the fold, and even there a start has been made with Slovenia. Capitalism has been restored smoothly and speedily, without vexing delays or derogations. Indeed, as the director-general of the EU Commission for Enlargement has recently observed: ‘Nowadays the level of privatization and liberalization of
the market is often higher in new Member States than old ones’.9 In this newly freed zone, rates of growth have also been considerably faster than in the larger economies to the west.
No less impressive has been the virtually frictionless implantation of political systems matching liberal norms—representative democracies complete with civil rights, elected parliaments, separation of powers, alternation of governments. Under the benevolent but watchful eye of the Commission, seeing to it that criteria laid down at Copenhagen in 1993 were properly met, Eastern Europe has been shepherded into the comity of free nations. There was no backsliding. The elites of the region were in most cases only too anxious to oblige. For their populations, constitutional niceties were less important than higher standards of living, once the late-communist yoke was thrown off, although few if any citizens were indifferent to the humbler liberties of speech, occupation or travel. When the time for accession came, there was assent, but little enthusiasm. Only in two countries out of ten—Lithuania and Slovenia—did a majority of the electorate turn out to vote for it, in referenda which most of the population elsewhere ignored, no doubt in part because they regarded it as a fait accompli by their leaders anyway.
Still, however technocratic or top-down the mechanics of enlargement may have been, the formal unification of the two halves of Europe is a historical accomplishment of the first order. This is not because it has restored the countries of the East to an age-long common home, from which only a malign fate—the totalitarian grip of Russia—wrested them after the Second World War, as the ideologues of Central Europe, Kundera and others, have argued. The division of the continent has deeper roots, and goes back much further, than the pact at Yalta. In a well-received book, the American historian Larry Wolff has taxed travellers and thinkers of the Enlightenment with ‘The Invention of Eastern Europe’ as a supercilious myth of the eighteenth century. The reality is that from the time of the Roman Empire onwards, the lands now covered by the new member-states of the Union were nearly always poorer, less literate and less urbanized than most of their counterparts to the west: prey to nomadic invasions from Asia; subjected to a second serfdom that spared neither the German lands beyond the Elbe nor even relatively advanced Bohemia; annexed by Habsburg, Romanov, Hohenzollern or Ottoman conquerors. Their fate in the Second World War and its aftermath was not an unhappy exception in their history, but—catastrophically speaking—par for the course.
It is this millennial record, of repeated humiliation and oppression, that entry into the Union offers a chance, finally, to leave behind. Who, with any sense of the history of the continent, could fail to be moved by the prospect of a cancellation in the inequality of its nations’ destinies? The original design for EU expansion to the East was a joint product of German strategy under Kohl and interested local elites, seconded by assorted Anglo-American publicists. It aimed to fast-track Poland, Hungary and the Czech Republic into the Union, as the most congenial states of the region, with the staunchest records of resistance to communism and most westernized political classes, leaving less favoured societies to kick their heels in the rear. Happily, this invidious redivision of the East was avoided. Credit for preventing it must go in the first instance to France, which from the beginning advocated a ‘regatta’ approach, insisting on the inclusion of Romania, which made it difficult to exclude Bulgaria; to Sweden, which championed Estonia, with the same effect on Latvia and Lithuania; and to the Prodi Commission, which eventually rallied to comprehensive rather than selective enlargement. The result was a far more generous settlement than originally envisaged.
What of the upshot of expansion from the other end, for the Union itself? Thanks to the modesty of the share of Structural Funds allocated to the East, its financial cost has been significantly less than once estimated, and the balance of trade has favoured the more powerful economies of the West. This, however, is the small change of enlargement. The real takings—or bill, depending on who is looking at it—lie elsewhere. Core European capital now has a major pool of cheap labour at its disposal, conveniently located on its doorstep, not only dramatically lowering its production costs in plants to the East, but capable of exercising pressure on wages and conditions in the West. The archetypal case is Slovakia, where wages in the auto industry are one-eighth of those in Germany, and more cars per capita are shortly going to be produced—Volkswagen and Peugeot in the lead—than in any other country in the world. It is the fear of such relocation, with closure of factories at home, that has cowed so many German workers into accepting longer hours and less pay. Race-to-the bottom pressures are not confined to wages. The ex-Communist states have pioneered flat taxes to woo investment, and now compete with one another for the lowest possible rate: Estonia started with 26 per cent, Slovakia offers 19 per cent, Romania advertises 16 per cent, and bids at 15 per cent are being mooted in Poland.
The role configured by the new East in the EU, in other words, promises to be something like that played by the new South in the American economy since the seventies: a zone of business-friendly fiscal regimes, weak or non-existent labour movements, low wages and—therefore—high investments, registering faster growth than in the older core regions of continent-wide capital. Like the US South, too, the region seems likely to fall somewhat short of the standards of political respectability expected in the rest of the Union. Already, now that they are safely inside the EU and there is no longer the same need to be on their best behaviour, the elites of the region show signs of kicking over the traces. In Poland, the reigning twins defy every norm of ideological correctness as understood in Strasbourg or Brussels. In Hungary, riot police stand on guard around a ruler who has vaunted his mendacity. In the Czech Republic, months pass without parliament being able to form a government. In Romania, the president insults the prime minister in a phone-in call to a television talk-show. But as in Kentucky or Alabama, such provincial quirks add a touch of folkloric colour to the drab metropolitan scene more than they disturb it.
All analogies have their limits. The distinctive role of the new South in the political economy of the US has depended in part on immigration attracted by the region’s climate, which has given it rates of demographic growth well above the national average. Eastern Europe, which offers no comparably broad Sunbelt, is much more likely to suffer out-migration, as the recent tide of Poles arriving in Britain, and similar numbers from the Baltics and elsewhere coming to Ireland and Sweden, suggest. But labour mobility in any direction is—and, for obvious linguistic and cultural reasons, will remain—far lower in the EU than in the US. Local welfare systems, inherited from the Communist past, and not yet much dismantled, are also potential constraints on a Southern path. Nor does the East, with less than a quarter of the population of the Union, have anything like the relative weight of the South in the United States, not to speak of the political leverage of the region at federal level. For the moment, the effect of enlargement has essentially been much what the Foreign Office and the employers lobbies in Brussels always hoped it would be: the distension of the EU into a vast free-trade zone, with a newly acquired periphery of cheap labour.
The integration of the East into the Union is the major achievement to which admirers of the new Europe can legitimately point. Of course, as with the standard encomia of the record of EU as a whole, there is a certain gap between ideology and reality in the claims made for it. The Community that became a Union was never responsible for the ‘fifty years of peace’ conventionally ascribed to it, a piety attributing to Brussels what in any strict sense belonged to Washington. When actual wars threatened in Yugoslavia, far from preventing their outbreak, the Union if anything helped to trigger them. In not dissimilar fashion, publicists for the EU often imply that without enlargement, Eastern Europe would never have reached the safe harbour of democracy, foundering in new forms of totalitarianism or barbarism. There is more substance to this argument, since the EU has supervised stabilization of the political systems of the region, with a good deal of direct interfere
nce. But it too exaggerates dangers in the service of vanities. The EU played no role in the overthrow of the regimes installed by Stalin, and there is little sign that any of the countries in which they fell were at risk of lapsing into new dictatorships, had it not been for the saving hand of the Commission. Enlargement has been a sufficient historical annealment, and—so far—economic success, not to require claims that it has also been, counter-factually, a political deliverance. The standard hype demeans rather than elevates what has been accomplished.
There remains the largest question. What has been the impact of expansion to the East on the institutional framework of the EU itself? Here the glass darkens. For if enlargement has been the principal achievement of the recent period, the constitution that was supposed to renovate the Union has been its most signal failure, and the potential interactions between the two remain a matter of obscurity. The ‘Convention on the Future of Europe’ decided on at Laeken met in early 2002, and in mid-2003 delivered a draft European Constitution, agreed by the European Council in the summer of 2004. Delegates from candidate countries were nominally included in the Convention, but since the Convention itself amounted to little more than window-dressing for the labours of its president, Giscard d’Estaing, assisted by a British factotum, John Kerr—the two real authors of the draft—their presence was of no consequence. The future charter of Europe was written for the establishments of the West—the governments of the existing fifteen member-states who had to approve it, relegating the countries of the East to onlookers. In effect, the logic of a constituent will was inverted: instead of enlargement becoming the common basis of a new framework, the framework was erected before enlargement.
The New Old World Page 8
