Many small states wish to join the EU as they see it as a body that can better the lives of their citizens and deliver a better standard of living for all. The perception is that EU membership can bring about economic growth, employment, better social conditions and the opportunity to live in a community where there is peace, security and social justice.

Member states on the other hand have sometimes conflicting views about prospective membership of some smaller states. There are worries about the economic impact of taking on some of the poorer countries and concerns about immigration and security issues arising from smaller states on the boundaries of the EU. This dissertation will examine the three main reasons that small states wish to join. Chaperone looks at the economic issues and the benefits that the single market can bring, Chapter two looks at issues around security, in particular the desire of smaller stats to combine EU membership with NATO membership and chapter three looks at the aspects of EU social policy and its overall culture that attract small states. Chapter four and five are cases studies of the Czech Republic and Estonia – why they wished to join the EU and how membership has affected them to date.

There is some debate as to what actually defines a small state. Some definitions will base the description on population alone and define a small state as one with a population of less than 1.5 million. Other definitions pay more attention to economic and political status. For the purpose of this dissertation, a small state is understood to be one within Europe deemed to have a small amount of economic and political influence in comparison to influential EU member states such as Britain, France and Germany.


Chapter 1 - Economic Reasons for Joining the EU

Economic growth is the primary reason for small states joining the EU. It is emerging into a huge commercial force and is now the largest internal single market as well as the largest trader of goods in the world. The year 2000 saw the EU account for 24 per cent of the total world trade in services, ahead of nearest competitors the US (with 22per cent) and Japan (8 per cent) (p61, Jeremy Rifkin – The European Dream, Polity Press, Cambridge 2004).. Importantly the EU exports more than it imports, unlike the US, which runs on a trade deficit. The EU’s GDP is also exceeding that of the US – $10.5 in 2003 against $10.4and in total accounts for 30 per cent of GDP in the world.

Quite simply, small states in Europe want to be a part of this economic powerhouse, and although debates about sovereignty, security and national identity may rage in all member states and amongst the politicians and citizens of prospective member states, the bottom line is the economy – many smaller states feel that unless they become part of the EU, they will be left behind economically.

Many small states will argue, quite rightly, that the enlargement of the EU to accommodate them will bring benefits across the Union. The enlargement in 2004 to include a further 10 states (Cyprus, Czech Republic, Estonia, Hungary, Poland, Slovenia, Latvia, Lithuania, Malta and Slovakia) has added over 100 million people to the EU’s market and will boost economic growth and create jobs. A study in 1997 by the Centre for Economic Research estimated that the accession of the countries of Eastern and Central Europe would bring and economic gain of 10 billion Euros for existing member states and 23 billion Euros for the new members. A further study by the European Commission also suggests that the accession of the new member states could increase the growth of GDP of the acceding countries by between 1.3 and 2.1percentage points annually, whilst for the existing members it could increase the level of GDP by 0.7 percentage points on a cumulative basis.. Certainly for small states, there is a perception that remaining outside of the EU denies them economic benefits, reduces the possibilities for growth and weakens their incentive for economic reform as well as discouraging foreign investment.

Figures on national GDPs in the 1990s explain why the smaller states see EU membership as economically beneficial. The Economist reported the following levels for 1994 at purchasing-power parity exchange rates: Czech Republic £7,910, Latvia $5,170, Malta $7,460, Cyprus$10,260, Estonia $5,519 and Lithuania $3,240. This can be compared against a GDP of $18,170 for the 15 member states at the time – roughly the average GDP of the smaller states was one third that of the averaged of existing members.

The existing members states obviously want to see new members add to the economic success of the EU. Andrew Moravcsik writes “enlargement rests on the convergent interests of existing and prospective members. EU leaders promote accession because they consider enlargement to have longer-term economic and geopolitical benefits – the creation of commercial opportunities and the stabilisation of neighbouring countries (Andrew Moravcsik and Milada Anna Vachudova – Bargaining Among Equals 2002). Moravcsik further makes the valid point that smaller states, particularly those from Eastern Europe will even accept less favourable terms on accession simply due to the fact that the economic consequences of non-membership are unpalatable – for the likes of Poland and the Czech Republic the EU gives them something that was a distant dream fifteen years ago – access to the worlds largest single market, strengthening of political ties with the West and the stabilisation of democracy and their own capitalist economies.

The financial aid available to prospective member states is a huge incentive for small states to apply for EU membership. The Union’s pre-accession strategy provides aid for applicants to carry out their forms required for membership and the Phare Programme which is open to prospective countries from Central and Eastern Europe involves institution building measures with accompanying investment as well as measures designed to promote economic and social cohesion. Eight of the new member states that joined the EU in May 2004 had been eligible for the Phare Programme and pre-accession aid has been substantially increased to remaining candidate countries. Bulgaria and Romania for example have been allocated 4.5 billion euros in pre-accession aid for2004 to 2006.

The Instrument for Structural Policies for Pre-Accession (ISPA) is financial assistance aimed at addressing environmental and transport infrastructure priorities identified in accession partnerships with applicants from Central and Eastern Europe. Coming under the remit of the Directorate General for Regional Policy, ISPA only finances major transport and environmental projects. Up until 2003 its overall budget for Central and Eastern European countries was 1.1 billion Euros and/or 2004 it had a budget of 452 million Euros for Bulgaria and Romania.

A further type of assistance for candidate countries is the Special Accession Programme for Agricultural and Rural Development (SAPARD).This programme, again aimed at beneficiary countries from Central and Eastern Europe offers aid to help deal with problems in the infrastructure in agricultural and rural sectors. SAPARD had a budget of 560 Euros for the ten candidate countries from the region in 2003and a further 225.2 million Euros for Bulgaria and Romania for 2004.

Slovenia serves as a good example of a small state that has particularly benefited from pre-accession assistance – from 2000onwards it received a total of around 65 million euros annually from the financial aid programmes. It was allocated large amounts of money form the PHARE programme: in the period 1992 to 1999 it was allocated191 million euros, for 2000 33.3 million, 28.5 million in 2001 and 41.9million in 2002. In addition there were payments totalling 19.6 million Euros from ISPA in 2000, and 17 million in 2001. 60 per cent of the support was directed at environmental projects and 40 per cent at transport projects. Finally the Slovenian SAPARD programme has given the state 6.6 million euros annually since 2000. Such financial assistance is obviously an attraction to governments of small states and it is also something that sways the populations of the states in favour of EU membership. A referendum held on EU accession in Slovenian 2003 showed a 90 per cent vote in favour of accession, influenced largely by the amount of aid that it had received. A referendum held on NATO membership at the same time was in favour, but with only a majority of 66 per cent.

Attracting business with its comparatively cheap labour force is a further objective of the smaller states in seeking EU membership. Certainly for the larger, established members, the thought of cheap labour from 75 million new citizens from Eastern and Southern Europe isa fear for their own economies as is the prospect of companies in Western Europe relocating more of their manufacturing and service operations to the East where labour costs are cheaper.

Happily, for the small states in Eastern Europe at least, there is evidence that this has already begun to happen. The consulting firm Gartner states that The Czech Republic, Poland, Slovakia and Hungary are especially attractive options as sites for Western European companies looking to outsource some of their operations to cheaper labour markets. Logistics Company DHL set up an IT operation centre inPrague in 2004 and Gillette has announced plans to set up a $148million plant in Poland, moving its manufacturing and distribution out of Germany and England (p63 Rifkin 2004). The consequences are as worrying for Britain and Germany as they are positive for Poland -Gillette will close two plants in England and cut production and its workforce in its Berlin factory.

Poland serves as an example of a country feeling the economic benefits of EU membership. Prior to joining, many Poles were sceptical and vociferously made know their concerns about dangers to their sovereignty and social values. However over three quarters say that they are now happy with EU membership (The Economist – Reaping the European Harvest, January 8, 2005) and this is largely due to the upturn in the polish economy generated by EU membership. In the first eight months of its membership Poland was given $3.4 billion from the EU budget, equating to roughly twice what it paid in. Farmers’ incomeshave risen by one third for small farmers and by two thirds for those with large farms reversing years of decline. Generous EU subsidies and an influx of foreign buyers paying good prices for Polish fruit and meat have been the reason for this. Poland’s total exports rose by over30 per cent in the first nine months of 2004 due to the abolition of customs formalities and tourist numbers have been boosted by 20 percent with EU rules opening up the skies to budget airlines. (The Economist January 8, 2005). There have been similar results in other Eastern European states – in Poland, the Czech Republic, Hungary, Slovakia and Slovenia, growth averaged 4.6 per cent as opposed to 3.5per cent in 2003. In Baltic States Estonia, Latvia and Lithuania, less regulated economies enjoyed growth of 6.7 per cent in 2004 (The Economist January 8, 2005).

There have been some economic tensions with more established member states. The low tax policies of newer members have been criticised by the likes of France and Germany who see the lower taxes of Central European states as damaging to jobs and investment in Western Europe. Belgium, as well, has publicly questioned why the EU should give regional financial assistance to states that appear to collect very little in tax. Slovakia, for example set a 19 per cent flat rate for income tax, corporate tax and VAT for 2004 as an incentive for its business climate. Despite the raised eyebrows of Western members however, tax revenues showed a modest rise for the year.

For smaller states, the greatest attraction of the EU is its economic power. Individual aspects such as trade without tariffs and the common currency can alone be seen as positive benefits for the smaller states, but it is the overall economic package that comes with the EU that really appeals – small states generally believe that membership will secure their long-term economic prosperity.


Chapter Two - Security in the EU

Security is an important issue for small states and the EU offers asecurity that many of these countries could not achieve alone. It ishowever an issue that means different things to different countries.The Czech Republic for example has been as keen to join NATO as it hasthe EU, whilst neutral small states such as Malta have concerns aboutbeing tied into a Western security bloc that threatens the neutralitythat it cherishes.

An effective security policy is crucial for the EU. Bretherton andVogler rightly states that: “If the Union is fully to realise thepotential of its significant presence, it is vital that the economicpower of the European Community is articulated to a stronger sense ofcollective political purpose. A well coordinated and fully functioningcommon foreign policy would have this effect” (p169 Bretherton andVogler – The European Union as a Global Actor, Routledge Publishing,New York 1999).
Individual states have differing agendas in terms of security. Statesin Eastern Europe and The Baltics are largely looking to move west andaway from the old sphere of Soviet influence. Slovenia on the otherhand has one eye always on the situation in the former Yugoslavia.

The EU has a secondary role in terms of security to NATO and smallstates realise this. For the majority, NATO membership is moreimportant in terms of security but there is a perception that EUmembership can somehow be a stepping-stone to NATO membership. Militaryalliance with the US is seen as a far greater guarantee of securitythan membership of the EU. Certainly there is a noticeable gap in themilitary capability European NATO members and The US – the EU hasstruggled to fund and mobilise its 60,000 strong Rapid Reaction Forcewhilst the extra $48 billion that President Bush planned to spend inaddition to America’s $331 billion defence budget in 2002 was more thanBritain or France spends in a year (The Economist – A moment of truth –the future of NATO, May 4, 2002).

The EU’s Common Foreign and Security Policy announced objectives that will have been well-received by small states:
•To safeguard the common values, fundamental interests, independence and integrity of the Union
•To strengthen the security of the Union in all ways
•To preserve peace and strengthen international security
•To promote international cooperation
•To develop and consolidate democracy and the rule of law, and respectfor human rights and fundamental freedoms (p171 Bretherton and Vogler1999)

Whether it has the military capability to be little more than a defenceand security talking shop overshadowed by NATO remains to be seen. Itsis not planning to set up a European army – its Rapid Reaction Force islittle more than a multinational peacekeeping force, similar to that ofthe United Nations. With a force of 60,000 personnel, the objectives ofthe force are to undertake peacekeeping, humanitarian, crisismanagement and rescue missions at short notice. EU policy has made itvery clear that such a force will in no way replace the national armedforces of individual member states.

Malta’s position as a neutral member state (along with Ireland, Sweden,Finland and Austria) makes it an interesting case in relation tosecurity. It has had a number of concerns as to the militaryimplications of its EU membership, however most of its issues can beresolved with reference to policy. The EU does not have anyjurisdiction over military service – it cannot impose military servicein EU countries; it has no power to decide what EU countries should dowith their armed forces and whether they should participate in anymilitary activities; defence and military matters are discussed underthe Common Foreign and Security Policy and decisions must be taken by aunanimous vote – Maltese forces cannot be ordered to fight with thearmies of other EU countries; Malta does not have to give up itsneutrality as a condition of EU membership – it can also refuse toserve as a military base or a join a military alliance; Malta does nothave to join NATO.

Malta also has an interesting position in relation to the EU’s RapidReaction Force. It has agreed to contribute a platoon of 30 Maltesesoldiers coordinated with Italian troops. It will not take part in anypeacekeeping or crisis management missions and will limit itsinvolvement to humanitarian and rescue missions. Even more unusually,participation in the EU force will be the decision of individualsoldiers – The Commander of its Armed Forces will ask for volunteersfor the EU platoon. Finally Malta has sought clarification that the EUas an entity cannot join NATO. It is aware that the EU itself has nocapability to defend members and the NATO umbrella of mutual defence ofits members does not cover Malta itself – in effect, Malta alone isresponsible for its own defence.

For the majority of small states looking at EU membership however,eventual membership of NATO is a twin goal. One of the issues for allEuropean states in future will be whether the EU security role has tobe increased if the US shows itself less likely to commit its troops inor around Europe in the future, even under the umbrella of NATO, tofight battles that should be fought by Europe itself. There are mixedmessages from the American – on one hand it hints that the EU should betaking more responsibility for the defence of Europe yet at the sametime it has repeatedly warned Europe that the EU should not attempt tobuild its own military organisation, independent of NATO. As Rifkinssuggests: “the US would like EU member countries to pony up greatermilitary expenditures and to ratchet up their commitments to thedefence of Europe, but within the NATO rubric, so as to maintain USmilitary dominance in that part of the world” (p310 Rifkins 2004).

Historically, the idea that the EU should speak with one voice in termsof foreign policy and world affairs has been around since the earliestideas of European integration. It has however been the issue aroundwhich national governments are most reluctant to lose control of andwhilst small states are keen to benefit from the security of EU andpossible NATO membership, their governments and their populations arealso reserved about handing over too much influence in terms of defenceand foreign policy to a centralised body. Certainly, over the years,the EU has had far more success in creating a single market and acommon currency than it has in formulating a common foreign andsecurity policy. Nonetheless the geopolitical changes across Europesince the fall of communism, along with the crises in the Balkans haveencouraged members to make continuing attempts to show a united frontin terms of foreign policy.

Whilst progress continues to be made, albeit slowly in the creation ofa Rapid Reaction Force, previous attempts to forge a militarypartnership have failed. An attempt to form a European DefenceCommunity was unsuccessful in 1954 and a further attempt through aprocess called European Political Cooperation in 1970, in whichcountries attempted to coordinate their positions on foreign policyissues had little success in translating words or statements intoaction.

The sphere of foreign policy does actually give smaller states someleverage within the overall activities of the EU. Whilst some withinthe EU are pushing for a greater amount of authority to go towards theEU and its institutions, the situation at present remains thatessential authority remains with member states - the agreed formularequires that key decisions are taken by a unanimous vote. Thisobviously is problematic with 15 members, never mind 25. It doeshowever allow small states an important power of veto if they so closeto use it. The system also allows small neutral states a degree ofprotection in terms of their neutrality. If for example, 24 otherstates decided to join NATO, thus wiping out the perceived neutralityof member states, a neutral country such as Ireland would still be ableto veto this.

The Common Foreign and Security policy that was laid out in 1992 wassoon tested in the break up of the former Yugoslavia. The experiencewas a sobering one for the EU – unable to broker a peace dealdiplomatically, it was unable to act effectively as an interveningEuropean force and member states could only become involved under aNATO or UN umbrella.

For small state in Eastern Europe, EU membership is something tooverride their often deep-rooted feelings of insecurity. The EuropeanCommission has also made statements to confirm that it is aware of itssecurity responsibilities to the smaller states of Eastern Europe,confirming in 1990 that: “the peaceful revolution which swept EsterEurope in 1989 is probably the most significant event in global termsfor the last 45 years. It is happening on the doorstep of the EuropeanCommunity. It represents a challenge and an opportunity to which the EChas given an immediate response” (p183 Mike Mannin – Pushing Back theBoundaries – The European Union and Central Europe, ManchesterUniversity Press 1999) The threats that they perceive are notnecessarily the traditional threat of an aggressive neighbour, although(despite its own overtures towards NATO) Russia is still seen as apotential threat by most and the Czech Republic has an understandablehistorical wariness of Germany. Hungary also has its own securityconcerns in relation to its extensive borders with the seeminglyunstable states of the former Yugoslavia. The feeling of threat hasgenerally emanated from the experience of rapid and fundamentalinternal change, exacerbated by perceptions of external threat toenvironmental or societal security.

Small states have fears about the spread of international terrorism inmuch the same way as large states, even though there has been littlehistory of terrorist attacks in some of the smaller states to date. Theindiscriminate nature of attacks on Western targets over the lastdecade has meant that all nation within Europe’s boundaries must beprepared to tackle the threat. The European Security Strategy agreed in2003 confirmed the commitment of all member states to its basic missionand priority areas for action: the fight against terror; a strategy forthe Middle East and a comprehensive policy on one of the smaller statesof Europe itself, Bosnia-Herzegovina. The Security Strategy also lookedto build on the credibility of its intervention capability, identifyinga number of peacekeeping, rescue and humanitarian missions that couldbe undertaken by the Rapid Reaction Force. It also agreed to provide upto 5000 police officers that could be deployed within 30 days forcivilian duty in crisis areas.

For smaller states, the international security aspect of EU membershipis largely about a feeling of belonging and knowing that their owndefence is more secure as a result of membership of the EU. For thelikes of Hungary and the former Soviet states in the Baltics, thisrequirement is largely met by EU accession and the potential for NATOmembership. There are compromises to be made in the region of securitythough – this has been something that has been experienced by allmember states. Despite their commitments to making a success of theCommon Foreign and Security Policy, member states still find itdifficult to change their own national policy towards a particularregion or country in the name of EU solidarity. Even the seeminglyclosest of neighbours can disagree – for example Ireland’s oppositionin comparison to British support for war in Iraq.

As things stand, military intervention including European nations islikely to continue to be NATO led. Accession to the EU alone is likelyto offer the smaller states to operate in the midst of what has beenreferred to as an ‘island of peace’. That will suit the majority ofthem perfectly.

Chapter Three – Social Aspects of EU Membership

At the most basic level, the governments and citizens of small statesseeking EU membership seek a better standard of life. Whilst theeconomy and defence and security issues contribute to this the overallperceived social benefits of EU membership cover a wide range ofissues. Directed specifically at the 10 prospective accession states in2004, the EC stated that “adapting to the EU’s employment and socialpolicies will (also) lead to an improvement in key areas such as labourmarket reform, work conditions, health and safety, gender equality andsocial cohesion”.

The EU has been built on a commitment of economic competition alongsidesocial cohesion and solidarity – it has developed traditions of qualityin terms of working conditions, industrial relations and social policyin general. It purports to be a non-discriminatory society in which allcitizens have the same opportunities and rights as others, regardlessof sex, race or origin. All or these aspects are an attraction to themajority of leaders and citizens in smaller European states. SimilarlyEU policies in the workplace and in terms of social security attractsmall states. The EU looks to increase minimum rights as regardsworking condition with policies on issues such as equal opportunities,health and safety and flexible working time. It also sets targets formember states in terms of universal social protection, participationand democracy in the workplace and participation in democratic life.The EU introduces social inclusion programmes for the most vulnerablein society – in 2002 this led to the adoption of a coordinated policyamong member states to fight social exclusion, a policy that was to neextended to new members states. The EU expects its member states todevelop the social justice that is enshrined within its own charters.It encourages decent or fair wages and decent living standards for allits citizens. In the words of Jechimis “freedom from need for the basicnecessities of life – food, housing, medical care and education – is asimportant to true democracy as the freedom of speech and worship,assembly and association” (p9 Daniel Vaughan-Whitehead, EU Enlargementversus social Europe, Edward Elgar Publishing, Cheltenham 2002) .
EU enlargement is promoted by the EU as mutually beneficial. Newsmaller member states benefit from the social policies of the EU and,despite the reservation of larger established states about some newmembers, they should benefit from the increased market and thediversity that new members bring. The EU enlargement of 2004 wasestimated to increase the EU population by 28 per cent and its surfacearea by 35 per cent.

The EU takes steps to ensure that the smaller states acceding to the EUare committed to their responsibilities in employment and socialaffairs. Efforts required by the states acceding in 2004 included:
•Full transposition of EU legislation into national legislation – inareas such as labour law, health and safety, gender equality, oranti-discrimination
•Preparation for the participation in the European employmentstrategy, following up the so-called Joint Assessment Papers (JAP)which set out priorities for employment policy in the run-up toaccession
•Preparation for participation in the open method of coordination in the arrears of social inclusion and pensions
•Preparation for the future intervention of the European Social Fund(ESF), a key tool in supporting the development of human capital andrestructuring – the allocation of ESF is now entering a decisive phase
•Enhancing the dialogue in these countries involving employers and trade unions and their interaction with government.
EU policies towards employment and training are also seen as a positivefactors by both politicians and populations in smaller European states.EU social policy has a determination to secure more and better jobs andopportunities at its core. EU policies are designed to ensure thatnobody is left behind as it aims to become the most competitive andknowledge-based economy in the world. It has developed a Social PolicyAgenda that links together its economic, social and employment policiesand includes key strands:
•The European Employment Strategy
•Improving working conditions and standasrds
•Social inclusion and social protection
•Equality of men and women

The EU aims to raise the level of working age people I employment to 70per cent, again something that would represent a significantimprovement for many of the economically stagnant smaller states. To dothis the EU will have to create 20 million new jobs amongst the current25 member states by 2010 – a target likely to have current prospectivecandidates even kinder to join and share in the benefits of jobcreation.

The European Employment Strategy involves the EC meeting annually todecide on common priorities and objectives for the employment policiesof member states. Strategies are created that aim to ensure jobcreation, job quality, a decent work-life balance and the stamping outof discrimination based on race, gender or disability. Individualgovernments feed into this with their own plans and how they areachieving them – as with many aspects of EU membership, small statescan benefit from the chance to work with partners from other memberstates and develop best practices.
The European Social Fund also entices small states towards the EU. Itis due to spend around 60 million euros to develop work skills andsocial skills for citizens across the EU. The fact that the fund isparticularly directed at states with high levels of unemployment or lowincome also makes the scheme attractive to small states. A further 3billion euros is also set aside to tackle discrimination andinequality.

The minimum standards for all also set out attractive policies interms of employment and social policy for smaller states. From expectedguarantees on standards of working environment to minimum rules onworking conditions and health and safety, the EU does set out toprotect workers rights, something that is popular with votersthroughout the EU.

Freedom of movement and the possibility of taking up employmentelsewhere is of course a massive attraction for citizens in many ofEurope’s small states where they feel their opportunities arerestricted. In the period leading up to accession the citizens ofprospective member states were free to travel and reside in existingmember states for up to three months provided that they possessed validtravel documents, were not considered a threat to national security andcould provide evidence of means to support themselves for the durationof their stay. Following accession, although the abolition of bordersbetween existing and new members states as outlined in the Schengenagreements have not yet come into effect, citizens of small sates suchas Latvia and Lithuania are now able to enter other member states and,providing that they meet the conditions for gaining the right ofresidence, they will be able to study and live there as well as votingin local and European Parliament elections.

The right to take up employment elsewhere in the EU has been somethingthat citizens in smaller states such as those in the Baltics have seenas selling point for EU membership. At present this remains somethingof a grey area. Whilst the aim is to allow complete free market accessand the right to work anywhere within the EU, if current member statesare convinced that it is absolutely necessary to protect their ownlabour markets from disturbances and potential influxes of migrantworkers then they can impose temporary restrictions on the right towork within their borders. Also for a two-year period from 2004,existing member states can choose how to deal with work permits forcitizens from new member states. These policies are to be reviewedafter two years as the EU looks to move towards full freedom ofmovement and although the restrictions maybe extended, some memberstates have already said that they will probably not demand specificwork permits.

Small states such as Latvia and Lithuania have had problems withorganise crime since the collapse of communism and they have hopes thata closer working relationship with the law and order agencies of thelarger established member states will help to alleviate these problems.In contrast, one of the fears of existing sates is that an enlarged EUwill lead to an increase in illegal migration and organised crime. Oneof the key objectives of European policy is to ensure that Europeancitizens can enjoy a high level of personal freedom and mobility withinthe EU. It has developed a set of rules and standards on issues such asborder control, asylum, illegal migration, organised crime and policeand judicial cooperation. As previously mentioned, the Schengen systemhas been developed for the eventual lifting of border controls once allmember states are satisfied that all its external borders are as safeand well managed as they would expect of their own borders. New states,particularly those n the fringes of Europe will have to implement thesecontrols – there may be a cost but end result is hoped to be a Europein which freedom, security and justice can be offered to all of itscitizens.

EU membership allows small states to more freely enjoy and participatein cultural aspect of European life. Ireland for example has benefitedculturally from Cork’s status as European Capital of Culture for 2005.The award of the status has seen a number of benefits for the citizensof Ireland including promotion of events involving people active inculture across Europe, ensuring the mobilisation and participation oflarge sections of the population in cultural events, the opportunity toreceive citizens from across the Europe Union and reach as wide anaudience as possible, to promote a dialogue between European culturesand to exploit the historic heritage, architecture and quality of lifein the city. These are obviously in addition to the large-scaleeconomic benefits of hosting a series of events that pull in touristfrom all over Europe.

Culture is one the many ‘quality of life’ aspects that attract smallstates towards EU membership. There are a number of other varyingindicators that suggest the benefits of EU membership. For example, inthe EU there are 322 trained physicians per 100,000 people (P79 Rifkin2004) - significantly higher than in many of the smaller states outsideof the EU.

The social aspects of the EU are a major attraction to small stateswithin the EU, in some aspects more to the citizens of poorer nationsthan to their national governments. There is obviously a cost involvedin implementing the some of the employment strategies and for the likesof the Latvian and Lithuanian governments, workers rights and equalopportunities are issues to be worked on once they have managed toboost economic growth. Certainly for the workforce in poorer smallstates, REU membership offers opportunity. Many are happy to stay andwork in their home countries but the opportunity to move and elswehwereis a freedom that they are keen to have.

The benefits of EU membership can be seen in Central and EasternEurope. Combined with economic benefits, social policies have alreadybegun to create better employment prospects. The arrival of new memberswill also enrich the community through the spread of culturaldiversity, exchange of ideas and a better understanding of othernations. Quality of life in smaller states should improve as theirgovernments adopt EU policies for the fight against organised crime,against drugs and illegal immigration. Adherence to EU environmentalpolicies should also see a better standard of living and indeed betterhealth for citizens in new member states.

One of the main criteria for accession to the EU as laid out by the ECin Copenhagen was that members should be able to ensure democracy, therule of law, human rights and respect for minorities. All of thesecriteria are incentives for joining the EU that cab be described underthe broad framework of social policy. Economic benefits and increasedsecurity may be the immediate things that come to mind when analysingwhy small sates wish to join the EU, social issues, encompassing thelikes of employment law, law and order and culture, are also importantfactors.

The Czech Republic was seen from the early 1990s as the most likely of the Eastern European nations to be a candidate for EU membership. Following the Velvet Revolution it made good progress towards meeting the membership criteria, despite some scepticism towards the EU when under the leadership of Prime Minister Klaus.

The initial breakaway from communism had been completed as Czechoslovakia. Rupnik and Zielanka write that: "for both Czechs and Slovaks, the 'Velvet Revolution' of November 1989 heralded the exit from communism and a 'return to Europe' that became identified with the prospect of joining the EU" (p3, Rupnik and Zielenka 2003).

Following the split with Slovakia, the Czech Republic began to focus on its entry into the EU. It's prime motives were its identification with European cultures and values, a belief that joining up with other democracies would make its own democratic transition irreversible and the desire to access western modernity, prosperity and security. For the Czechs, security in particular was an issue and it had in fact seen membership of NATO a priority over membership of the EU. The Czechs were more pro-American than many other of the EU member states or prospective members and had a general wish to 'keep the Russiansout, the Americans in and the Germans down' Otto Pick, Director of the Institute of International Affairs argues that NATO is seen by the Czechs as the only organisation the links the US with Europe and that whilst the EU is important to the Czechs, its most influential country is Germany whilst in NATO's case the most influential member is the US. He writes of Czech opinion: "so to many people, NATO seems to be a political counterbalance of the EU which many people see as dominated by Germany" (p33 Rupnik and Zielenka 2003).

Amongst the Euro sceptics in the Czech Republic was a cross-section of political thought. Liberals had fears of communism being smuggled in through the back door again in the form of a centrally governed regulatory frame, ex-communists had concerns about Americanisation and the prospect of international capitalists taking over profitable local firms and nationalists were ever wary of German influence.

Entry into the EU was of course seen as an opportunity to build on theCzech Republics economic growth. The economy had performed wellfollowing the Velvet Revolution, due partly to the prudent economicpolicies of the Communist government. Having split with Slovakia, itboomed again with rapid transfer of ownership to the private sector,low unemployment and an avoidance of the hyperinflation that affectedother former communist states. The Czech Republic had a well-developedindustrial tradition and a well qualified labour force thatcomplemented its progress under democracy. The shift towards a marketsystem worked well in the mid-1990s with price stability and areasonable rate of growth. The economy was based in mineral resourcesincluding coal, tin, lead, zinc and iron ore along with highlydeveloped processing industries for machinery, steel, chemicals, glassand uranium. Exports that the Czechs hoped to boost with entry into theEU included manufactured goods, machinery, cars and transport equipmentand beer. In agricultural production, cereals, sugar beets and hopswere the main products.

A balance of payments crisis led to a recession between 1997 and 1999that the government took a number of steps to correct. Theprivatisation of the banking sector was completed by 2001 and a publicbailout of the banks and their bad debts. A great deal of attention waspaid to the restructuring of loss making companies and a legalframework was put in place to combat economic crime and establishingmore efficient bankruptcy procedures. Whilst waiting for entry to theEU, THE Czech Republic made a determined effort to attract foreigninvestment, something it hoped would be further enhanced by EUmembership. There have been successes – large investment has beenattracted from the Toyota Motor Corporation and PSA Peugeot Citroen – a1.5 Euro green-field car assembly plant in Kolin.
The economic outlook in 2004 painted a generally positive picture for the Czech Republic. With buoyant exports and strong private investment, output growth had gained momentum and was predicted to reach 4 per cent during 2005 and 2006. Inflation was expected to remain around 3 per cent and whilst employment growth was expected to be muted, a slight decline in unemployment was expected for 2005 and 2006 (OECD Economic Outlook - Czech Republic Volume 2004/2 no 76).

A more detailed analysis shows GDP growth strengthening and becoming more broad based, largely due to entry into the EU single market. Private investment had increased quickly, improving export results and profits and increasing profitability of firms and low interest rates. Imports have also soared. Entry into the EU has brought about some positive developmentsin terms of employment growth, primarily in the private sector. Incontrast with previous experience, jobs have been created mostly fordependent workers, whilst self-employment decreased mainly due tochanges in the tax treatment of the self-employed. On a more negativenote, restructuring and downsizing has continued in manufacturing,public services and some private services, leaving unemployment at itshighest since 2001.

The government had introduced a programme of fiscal reform in 2003including spending ceilings and major reforms on pensions and inhealth. The aim is to bring the central government deficit down to 3per cent of GDP by 2008,with an intermediate target of 4 per cent in2006 (OECD Outlook 2004/2) . Harmonisation has driven excises increasesand increases in regulated prices is likely to effect consumer pricesin 2005 and 2006 and whilst there is little change projected change ininterest rates following EU entry, some additional inflation pressurescould come from robust output growth, sizeable increases in some publicsector wages and oil price effects.

Czech Republic: Demand, output and prices

200120022003200420052006
Current pricesPercentage change, volume (1995 prices)
Billion CZK

Private Consumption1192.32.84.93.53.63.6
Government consumption513.04.52.2-0.4-0.20.5
Gross fixed capital formation638.63.47.49.57.26.0
Final domestic demand2343.93.34.94.13.73.6
Stockbuilding30.00.1-0.40.60.00.0
Total domestic demand2374.02.84.24.53.73.6

Exports of goods/services1593.32.76.216.712.010.4
Imports of good/services1598.04.97.817.311.29.6
Net exports-58.7-2.2-2.2-2.8-0.9-0.7

GDP at market prices2315.31.53.13.94.24.1
GDP deflator2.81.74.12.62.5

Memorandum items
Consumer price index1.80.12.93.13.0
Private consumption deflator0.7-0.72.12.82.6
Unemployment rate7.37.88.48.38.2
Central govt financial balance-6.8-12.6-4.3-4.6-3.9
Current account balance-5.6-6.2-6.5-6.6-6.5

The OECD analysis of the Czech economy into entry into the EU suggeststhat the overall effect has been positive – the momentum of exportgrowth is expected to continue and economic output is projected to growabout 4 per cent over the projection period, while inflated ispredicted to remain stable at around 3 per cent. Export growth isexpected to reach double digits in 2005 and should remain high for thefollowing two years. Investment growth is likely to decelerate butremain sustained and employment growth should be positive but muted.

The Czech republic, like other new member states, is committed tojoining the euro zone. This again is likely to be a positive move,partly from the economic gains from joining a large currency area butalso as the conditions fro entry will encourage the Czechs to maintainlow and stable inflation and seek reductions in government deficit anddebts that in themselves would probably improve economic conditions.The OECD looks favourably upon the Czech strategy on entry into theeuro. A process of dialogue and explicit agreement between thegovernment and the Central Bank has helped shape expectations andreduce uncertainties among markets. Also the aim to avoid aprolongation of ERM II membership over two years will lessen the riskof exchange rate volatility. To meet the Maastricht criteria for entryinto the euro, the Czech Republic still has to tackle its high budgetdeficit and there will need to be clear evidence of fiscalconsolidation to achieve a positive assessment by the EU authorities.

For the Czech Republic, entry into the EU was largely based on economicambition and its target for the short to medium term is to strengthenits growth prospects. At the beginning of 2005, growth potential issomewhere around 3 per cent (p9 OECD Outlook 2004/7) which suggests atbest a moderate pace of catch-up to living standards elsewhere in theEU. The OECD sees four major issues that will determine the merits ofthe Czechs’ EU accession. Firstly is fiscal consolidation – necessaryto cope with ageing, to bring down the tax burden and to fulfileuro-entry conditions. Pension and health reforms should be targeted atmaking savings, greater revenue raising measures need to be implementedand with the decentralisation of public services, there is arequirement for good budgeting practices and accountability in regionaland municipal governments. A successful entry into the euro area willbe a second crucial factor in the Czech Republic’s successfulintegration into the EU. Again the OECD is optimistic about this butstates that “the Czech authorities should pay close attention to how the Maastricht criteria are interpreted and applied by the EuropeanCommission and the ECB and adjust their communication strategyaccordingly. Thirdly is making the business environment moregrowth-friendly.

Whilst EU membership has seen the Czech Republiccompete strongly for foreign investment, policy towards poorlyperforming firms and business start-ups is far from efficient, oftenslowing down the exit and entry of firms. Also, bankruptcy proceduresin the Czech Republic are cumbersome and more often than not end up inasset stripping and liquidation. Finally, improving the functioning ofthe labour market is a challenge for the Czech government. Mobilitybetween jobs and regions is weak and factors such as debt control,severe poverty traps and strict employment protection legislation onindividual dismissals have led to some considerable long-termunemployment. The Roma population is particularly hit by this, as withsocial exclusion and poor educational opportunities, something that theEU is keen to see rectified. Migration following EU membership hasslowly started to have an effect on the Czech labour market – Slovakshave migrated to take up a number of skilled vacancies and othermigrants from Eastern Europe, particularly Ukraine have been taking upunskilled jobs that are unattractive to Czechs. A more open immigrationpolicy needs to be adopted to address the inconsistency in the grantingof work permits and to allow for a better alignment of immigrantsskills with those needed on the Czech labour market.

Prime Minister Vaclav Klaus had often been sceptical about Czech entryinto the EU. One of his favourite metaphors had been “shall we let ouridentity and sovereignty dissolve in Europe like a lump of sugar in acup of coffee?” (p26 Rupnik and Zielonka 2003) and Czechs can berelieved that this has not happened. To date, the Czech Republic hasfound EU membership more inline with the vision of Havel who spoke of“one big community, based on the principle of unity in diversity” (p283Rupnik and Zielonka p2003). Certainly for the Czechs, long-termeconomic growth with a share in Western prosperity was the primemotivation for entry into the EU – the signs so far are at the veryleast that this looks achievable.


Chapter Five –Case Study: Estonia

The Estonian transformation from a planned to market economy had takenplace in the early 1990s. Systematic reforms had followed monetaryreforms in 1992. The first major move of the post-communist governmenthad been to restore the kroon as the national coin and set up acurrency board to enforce a peg to the DM. A legal framework wasestablished to launch the private sector and to restructure Estonia’sbusiness sector – it was successful from early in the post-Communistera in attracting foreign investment. GDP fell in the early 1990s asthe new economic system bedded in but by 1995 the recession had run itscourse, although a crisis in the financial sector in 1998 causedforeign demand to decline with a subsequent fall in GDP.

2000 saw the growth rate in the economy increase again to 7.1 per cent,driven by the economic integration with member states. From then on theeconomy continue to show great resilience despite the slowdown in itsmajor EU trading partners during 2001.GDP growth fell slightly duringthis year, the budget showed a small surplus of GDP at 0.2 per cent andthe current account deficit stood at 6.1 per cent, covered by strongforeign direct investment flows. Estonia’s most important exports aremachinery and electrical equipment, wood and textiles while tourism isalso an important factor. Its biggest business partners in recent yearshave been Sweden and Finland.

The IMF describes Estonia as “an outstanding performer among thetransition economies” yet it faces a number of challenges that it hopeEU membership can help it with – in particular, it needs to lowerunemployment and ensure the balance regional development of thecountry.

Its relations with the EU were good throughout the 1990s. It wasrecognised by the European Commission in August 1991 and the followingyear the Estonian Ambassador in Brussels was accredited by the EC. Itsdraft Accession Treaty was approved by the Estonian Government on April8 2002 and a referendum was held on entry in September 2003 and 66.84per cent of voters supported accession.

Estonia’s monetary policies in the 1990s committed the nation largelyto a classic liberal agenda of open borders, low taxes, balancedbudgets, the competition principle, privatisation, deregulation and aminimal state. Such was the extent of this, that when Estonia made thedecision to seek EU membership it would involve a good deal of economicsacrifice.
It can be argued that some of Estonia’s economic strengths can bebalance d by a number of political weaknesses. Certainly its governmenthas displayed a certain amount of bitterness about its recentexperiences of cultural and economic imperialism. The immediatede-Russifiaction of the administrative process serves as an example ofthis. In fact, since its independence, Estonia’s nationalism has beenstrongly inclusive, with an open disregard for all things Russian andauthoritarian.

Security was a major factor in Estonia’s decision to join the EU.Whilst relation have been amicable with Russia, the large number ofethnic Russians living within its borders have led Estonia towardsseeking membership of NATO as a further security blanket. Even despitegood relations with its Nordic and Baltic neighbours, securityconsiderations remain overriding: “The EU is seen as the strongestanchor for Estonia’s return to the West….even Estonian liberals arguethat the EUs protective cloak is worth the sacrifice of full-bloodedliberal economic policies, if that indeed is what EU membershiprequires” (p422 Gillingham John, European Integration 1950-2003,Cambridge University Press 2003).

Estonia realigned itself with the West from the early 1990s onwards andclearly had set its sights on EU membership. Martin Laar, primeminister between 1992 –1996 and 1999 – 2001 spoke glowingly of theUnion stating that it was “not only an economic union but has acultural and historical identity” (p423 Gillingham 2003) and also that“Europe should concern itself deeply with what it is about, so that forthe (Estonian) people the European Union does not merely stand for aEuro-currency. It must be an idea, a dream” (p423 Gillingham 2003). AsEstonia applied for membership in 2000, Laar also spoke of his beliefsthat small states were a vital part of the EU success and that theacceptance of such diversity within its framework was one of itsstrengths, stating: “nowhere else on earth do so many cultures livetogether on such a small territory” (p423 Gillingham 2003).

Structural change in Estonia in the lead up to EU membershipexemplified its move away from a Soviet past to a future with itsWestern and Baltic neighbours. Finnish influence in particular wasnoticeable. Estonians use more computers and cell phones per capitathan the French, its capital, Tallinn, has been restored, yet away fromthe capital there are still large areas of poverty, with the 30 prycent Russian minority in particular remaining disengaged from economicprogress. One of the assurances that the EU has demanded from Estoniais fair access in opportunity for jobs, housing and health care for itssizeable Russian minority.

Since accession, Estonia has continued to flourish as an emergingeconomic power. Its is attracting business in particular from theaffluent Nordic states and is rapidly developing a highly educatedworkforce and expanding telecommunications and information technologysector – it has more personal computer per head than France (p59Mannin)

Like many small states, Estonia was buoyed by improvements in itseconomy in its years as a candidate member. Once a state has beenaccepted for accession, financial aid from the EU, along with thetargets that it sets would be members for economic improvement tend tobring about economic upturn in them. The pre-accession benefits to EUmembership can be as much of an incentive to small states as membershipitself. The Regular report of the European Commission reported in 2002“Estonia is a functioning market economy. The continuation of itscurrent reform path should enable Estonia to cope with competitivepressure and market forces within the

Union” Other economic indicators, helped by prospective entry into theEU were also positive – GDP growth of around 6 per cent was underpinnedby strong private consumption growth which reached 9.3 per cent in2002, helped by low interest rates and strong wage and employmentgrowth.. Despite a slump in global investment, within Estoniainvestment grew by 16.2 per cent in 2002, again helped by low interestrates. Labour market conditions improved, with an increase in theemployment rate to 62 per cent and unemployment falling to 91 per centof the labour force by the end of the year.

Estonia benefited in the Labour market following input form EUadvisors. Curtailing unemployment had been one of the core objectivesof Estonia’s pre accession agreement and as such was closely monitoredby the EU. The rate declined significantly from 14.6 per cent in thefirst quarter of 2000 to 10.6 per cent in 2003, although large regionaldisparities continued to exist and the ethnic Russian population wasnoticeably affected. It is also worth noting that the improvement waslargely due to significant decline in the economically activepopulation during the period – a decline of almost 2.5 per cent.

Severe skill mismatches remained a problem, as did a rise in the numberof long-term unemployed. These are issues that may well be tackled withEU membership – of the EU’s employment targets is a guaranteed offer ofa job or training for any young person out of work for more than sixmonths or for an adult out of work for more than twelve months (p9Vaughan Whitehead, 2003). Estonia has already undertaken efforts toaddress issues around unemployment - it has promoted vocationaltraining and lifelong learning and set up an effective institutionalframework with the aim of supporting job creation.

Such was the strength of Estonia’ economy in the 1990s, relative to itsyears under communism, that in fact it probably need the economicassistance of the EU considerably less than other small states, almostto the extent the EU membership may have had a negative effect on itseconomy. Nevertheless, Estonia had set its sights on EU membership fromthe early 1990s – its historical security worries and a certainty thatits future belonged in the west were the driving factors behind itapplication. Estonia’s accession process was relatively smooth and itwas able to enter the EU in 2004. The early signs are that it economyis remaining stable and that the Estonian people, whilst fiercelyindependent on one level, are comfortable with their statues asEuropeans.

Not all small states seek EU membership. Switzerland is quite happywith its own economy and longstanding neutrality to withstand anyovertures from EU members who would be keener to see the prosperousSwiss joining the EU than perhaps they are to see some of the poorersmall states. Iceland is another small nation that has shown a distinctlack of interest – quite simply, such is its reliance on its fishingindustries that it does not wish to share them with other Europeanstates.

For many small states however, membership of the EU has either been orremains a long-term strategic goal. The EU offers a host of benefits,of which importance varies according to the situation of the particularstate. The economic benefits are of course crucial. Financialassistance prior to accession is a large enough carrot to dangle infront of small sates with under performing economies but the longerterm rewards of the single market and shared currency offer smallstates the possibility of a relatively stable economic future. Securityto some is equally important. The traumatic 20th century histories ofsates such as the Czech Republic and the Baltic states ensure they arekeen to be a part of a collective security force. Some of the fear maybe psychological than based on genuine security threats but nonethelessthe desire for a common security policy, whether within the EU or NATOis very real.

Finally, there is a simple sense of wanting to belong to Europe thatfuels a desire to be part of the EU. Agirda Brazausskas spoke to theCouncil of the European Parliament in April 1994 and stated:“Lithuania’smajor gain following the restoration of independence onMarch 11 1990 is the sense and desire of commonality with Europe, adistinct awareness that Lithuania is a European state” (Mouritzen,Waever & Wiberg, European Integration and National Adaptations,Nova Science Publishers, New York 1996). His words may well have aresonance for the leaders and people of small states across Europe –they see themselves as Europe and want to belong to a Union that looksto further the interests of all Europeans.


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