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Facilitators for Small State EU Membership

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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 in Prague 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’ incomes have 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 a security that many of these countries could not achieve alone. It is however an issue that means different things to different countries. The Czech Republic for example has been as keen to join NATO as it has the EU, whilst neutral small states such as Malta have concerns about being tied into a Western security bloc that threatens the neutrality that it cherishes.

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

The EU has a secondary role in terms of security to NATO and small states realise this. For the majority, NATO membership is more important in terms of security but there is a perception that EU membership can somehow be a stepping-stone to NATO membership. Military alliance with the US is seen as a far greater guarantee of security than membership of the EU. Certainly there is a noticeable gap in the military capability European NATO members and The US – the EU has struggled to fund and mobilise its 60,000 strong Rapid Reaction Force whilst the extra $48 billion that President Bush planned to spend in addition to America’s $331 billion defence budget in 2002 was more than Britain 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 respect for human rights and fundamental freedoms (p171 Bretherton and Vogler1999)

Whether it has the military capability to be little more than a defence and security talking shop overshadowed by NATO remains to be seen. It is not planning to set up a European army – its Rapid Reaction Force is little more than a multinational peacekeeping force, like that of the United Nations. With a force of 60,000 personnel, the objectives of the force are to undertake peacekeeping, humanitarian, crisis management and rescue missions at short notice. EU policy has made it very clear that such a force will in no way replace the national armed forces 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 to security. It has had many concerns as to the military implications of its EU membership, however most of its issues can be resolved with reference to policy. The EU does not have any jurisdiction over military service – it cannot impose military service in EU countries; it has no power to decide what EU countries should do with their armed forces and whether they should participate in any military activities; defence and military matters are discussed under the Common Foreign and Security Policy and decisions must be taken by unanimous vote – Maltese forces cannot be ordered to fight with the armies of other EU countries; Malta does not have to give up its neutrality as a condition of EU membership – it can also refuse to serve as a military base or a join a military alliance; Malta does not have to join NATO.

Malta also has an interesting position in relation to the EU’s Rapid Reaction Force. It has agreed to contribute a platoon of 30 Maltese soldiers coordinated with Italian troops. It will not take part in any peacekeeping or crisis management missions and will limit its involvement to humanitarian and rescue missions. Even more unusually, participation in the EU force will be the decision of individual soldiers – The Commander of its Armed Forces will ask for volunteers for the EU platoon. Finally, Malta has sought clarification that the EU as an entity cannot join NATO. It is aware that the EU itself has no capability to defend members and the NATO umbrella of mutual defence of its members does not cover Malta itself – in effect, Malta alone is responsible for its own defence.

For most of small states looking at EU membership however, eventual membership of NATO is a twin goal. One of the issues for all European states in future will be whether the EU security role must be increased if the US shows itself less likely to commit its troops in or around Europe in the future, even under the umbrella of NATO, to fight battles that should be fought by Europe itself. There are mixed messages from the American – on one hand it hints that the EU should be taking more responsibility for the defence of Europe yet at the same time it has repeatedly warned Europe that the EU should not attempt to build its own military organisation, independent of NATO. As Rifkin suggests: “the US would like EU member countries to pony up greater military expenditures and to ratchet up their commitments to the defence of Europe, but within the NATO rubric, so as to maintain US military dominance in that part of the world” (p310 Rifkins 2004).

Historically, the idea that the EU should speak with one voice in terms of foreign policy and world affairs has been around since the earliest ideas of European integration. It has however been the issue around which national governments are most reluctant to lose control of and whilst small states are keen to benefit from the security of EU and possible NATO membership, their governments and their populations are also reserved about handing over too much influence in terms of defence and foreign policy to a centralised body. Certainly, over the years, the EU has had far more success in creating a single market and a common currency than it has in formulating a common foreign and security policy. Nonetheless the geopolitical changes across Europe since the fall of communism, along with the crises in the Balkans have encouraged members to make continuing attempts to show a united fronting terms of foreign policy.

Whilst progress continues to be made, albeit slowly in the creation of Rapid Reaction Force, previous attempts to forge a military partnership have failed. An attempt to form a European Defence Community was unsuccessful in 1954 and a further attempt through a process called European Political Cooperation in 1970, in which countries attempted to coordinate their positions on foreign policy issues had little success in translating words or statements into action.

The sphere of foreign policy does give smaller states some leverage within the overall activities of the EU. Whilst some within the EU are pushing for a greater amount of authority to go towards the EU and its institutions, the situation at present remains that essential authority remains with member states - the agreed formula requires that key decisions are taken by a unanimous vote. This obviously is problematic with 15 members, never mind 25. It does however allow small states an important power of veto if they so close to use it. The system also allows small neutral states a degree of protection in terms of their neutrality. If for example, 24 other states decided to join NATO, thus wiping out the perceived neutrality of member states, a neutral country such as Ireland would still be able to veto this.

The Common Foreign and Security policy that was laid out in 1992 was soon tested in the breakup of the former Yugoslavia. The experience was a sobering one for the EU – unable to broker a peace deal diplomatically, it was unable to act effectively as an intervening European force and member states could only become involved under aNATO or UN umbrella.

For small state in Eastern Europe, EU membership is something to override their often-deep-rooted feelings of insecurity. The European Commission has also made statements to confirm that it is aware of its security responsibilities to the smaller states of Eastern Europe, confirming in 1990 that: “the peaceful revolution which swept Ester Europe in 1989 is probably the most significant event in global terms for the last 45 years. It is happening on the doorstep of the European Community. It represents a challenge and an opportunity to which the EChas given an immediate response” (p183 Mike Mannin – Pushing Back the Boundaries – The European Union and Central Europe, Manchester University Press 1999) The threats that they perceive are not necessarily the traditional threat of an aggressive neighbour, although(despite its own overtures towards NATO) Russia is still seen as potential threat by most and the Czech Republic has an understandable historical wariness of Germany. Hungary also has its own security concerns in relation to its extensive borders with the seemingly unstable states of the former Yugoslavia. The feeling of threat has generally emanated from the experience of rapid and fundamental internal change, exacerbated by perceptions of external threat to environmental or societal security.

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

For smaller states, the international security aspect of EU membership is largely about a feeling of belonging and knowing that their own defence is more secure because of membership of the EU. For the likes of Hungary and the former Soviet states in the Baltics, this requirement is largely met by EU accession and the potential for NATO membership. There are compromises to be made in the region of security though – this has been something that has been experienced by all member states. Despite their commitments to making a success of the Common Foreign and Security Policy, member states still find it difficult to change their own national policy towards a particular region or country in the name of EU solidarity. Even the seemingly closest of neighbours can disagree – for example Ireland’s opposition in comparison to British support for war in Iraq.

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

Chapter Three – Social Aspects of EU Membership

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

The EU has been built on a commitment of economic competition alongside social cohesion and solidarity – it has developed traditions of quality in terms of working conditions, industrial relations and social policy in general. It purports to be a non-discriminatory society in which all citizens have the same opportunities and rights as others, regardless of sex, race or origin. All or these aspects are an attraction to many leaders and citizens in smaller European states. Similarly, EU policies in the workplace and in terms of social security attract small states. The EU looks to increase minimum rights as regards working condition with policies on issues such as equal opportunities, health and safety and flexible working time. It also sets targets for member states in terms of universal social protection, participation and democracy in the workplace and participation in democratic life. The EU introduces social inclusion programmes for the most vulnerable in society – in 2002 this led to the adoption of a coordinated policy among member states to fight social exclusion, a policy that was to be extended to new members states. The EU expects its member states to develop the social justice that is enshrined within its own charters. It encourages decent or fair wages and decent living standards for all its citizens. In the words of Jechimis “freedom from need for the basic necessities of life – food, housing, medical care and education – is as important to true democracy as the freedom of speech and worship, assembly and association” (p9 Daniel Vaughan-Whitehead, EU Enlargement versus social Europe, Edward Elgar Publishing, Cheltenham 2002) .
EU enlargement is promoted by the EU as mutually beneficial. New smaller member states benefit from the social policies of the EU and, despite the reservation of larger established states about some new members, they should benefit from the increased market and the diversity that new members bring. The EU enlargement of 2004 was estimated to increase the EU population by 28 per cent and its surface area by 35 per cent.

The EU takes steps to ensure that the smaller states acceding to the EU are committed to their responsibilities in employment and social affairs. Efforts required by the states acceding in 2004 included:
•Full transposition of EU legislation into national legislation – in areas such as labour law, health and safety, gender equality, or anti-discrimination 
•Preparation for the participation in the European employment strategy, following up the so-called Joint Assessment Papers (JAP)which set out priorities for employment policy in the run-up to accession
•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 and restructuring – 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 positive factors by both politicians and populations in smaller European states.EU social policy has a determination to secure more and better jobs and opportunities at its core. EU policies are designed to ensure that nobody is left behind as it aims to become the most competitive and knowledge-based economy in the world. It has developed a Social Policy Agenda that links together its economic, social and employment policies and includes key strands:
•The European Employment Strategy
•Improving working conditions and standards
•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 significant improvement for many of the economically stagnant smaller states. To do this the EU will have to create 20 million new jobs amongst the current25 member states by 2010 – a target likely to have current prospective candidates even kinder to join and share in the benefits of job creation.

The European Employment Strategy involves the EC meeting annually to decide on common priorities and objectives for the employment policies of member states. Strategies are created that aim to ensure job creation, job quality, a decent work-life balance and the stamping out of discrimination based on race, gender or disability. Individual governments feed into this with their own plans and how they are achieving them – as with many aspects of EU membership, small states can benefit from the chance to work with partners from other member states 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 and social skills for citizens across the EU. The fact that the fund is particularly directed at states with high levels of unemployment or low-income also makes the scheme attractive to small states. A further 3billion euros is also set aside to tackle discrimination and inequality.

The minimum standards for all also set out attractive policies in terms of employment and social policy for smaller states. From expected guarantees on standards of working environment to minimum rules on working conditions and health and safety, the EU does set out to protect workers’ rights, something that is popular with voters throughout the EU.

Freedom of movement and the possibility of taking up employment elsewhere is of course a massive attraction for citizens in many of Europe’s small states where they feel their opportunities are restricted. In the period leading up to accession the citizens of prospective member states were free to travel and reside in existing member states for up to three months if they possessed valid travel documents, were not considered a threat to national security and could provide evidence of means to support themselves for the duration of their stay. Following accession, although the abolition of borders between existing and new members states as outlined in the Schengen agreements have not yet come into effect, citizens of small sates such as Latvia and Lithuania are now able to enter other member states and, providing that they meet the conditions for gaining the right of residence, they will be able to study and live there as well as voting in local and European Parliament elections.

The right to take up employment elsewhere in the EU has been something that citizens in smaller states such as those in the Baltics have seen as selling point for EU membership. At present this remains something of a grey area. Whilst the aim is to allow complete free market access and the right to work anywhere within the EU, if current member states are convinced that it is necessary to protect their own labour markets from disturbances and potential influxes of migrant workers then they can impose temporary restrictions on the right to work within their borders. Also, for a two-year period from 2004, existing member states can choose how to deal with work permits for citizens from new member states. These policies are to be reviewed after two years as the EU looks to move towards full freedom of movement and although the restrictions may be extended, some member states have already said that they will probably not demand specific work permits.

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

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 to receive citizens from across the Europe Union and reach as wide an audience as possible, to promote a dialogue between European cultures and to exploit the historic heritage, architecture and quality of life in the city. These are obviously in addition to the large-scale economic benefits of hosting a series of events that pull in tourist from all over Europe.

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

The social aspects of the EU are a major attraction to small states within the EU, in some respects more to the citizens of poorer nations than to their national governments. There is obviously a cost involved in implementing the some of the employment strategies and for the likes of the Latvian and Lithuanian governments, workers’ rights and equal opportunities are issues to be worked on once they have managed to boost economic growth. Certainly, for the workforce in poorer small states, REU membership offers opportunity. Many are happy to stay and work in their home countries but the opportunity to move and elsewhere a freedom that they are keen to have.

The benefits of EU membership can be seen in Central and Eastern Europe. Combined with economic benefits, social policies have already begun to create better employment prospects. The arrival of new members will also enrich the community through the spread of cultural diversity, exchange of ideas and a better understanding of other nations. Quality of life in smaller states should improve as their governments adopt EU policies for the fight against organised crime, against drugs and illegal immigration. Adherence to EU environmental policies should also see a better standard of living and indeed better health 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, the rule of law, human rights and respect for minorities. All these criteria are incentives for joining the EU that cab be described under the broad framework of social policy. Economic benefits and increased security may be the immediate things that come to mind when analysing why small sates wish to join the EU, social issues, encompassing the likes of employment law, law and order and culture, are also important factors.

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. Its 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 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 Russians out, 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 the Czech Republic’s economic growth. The economy had performed well following the Velvet Revolution, due partly to the prudent economic policies of the Communist government. Having split with Slovakia, it boomed again with rapid transfer of ownership to the private sector, low unemployment and an avoidance of the hyperinflation that affected other former communist states. The Czech Republic had a well-developed industrial tradition and a well-qualified labour force that complemented its progress under democracy. The shift towards a market system worked well in the mid-1990s with price stability and reasonable rate of growth. The economy was based in mineral resources including coal, tin, lead, zinc and iron ore along with highly developed processing industries for machinery, steel, chemicals, glass and uranium. Exports that the Czechs hoped to boost with entry into the EU included manufactured goods, machinery, cars and transport equipment and beer. In agricultural production, cereals, sugar beets and hops were the main products.

A balance of payments crisis led to a recession between 1997 and 1999that the government took many steps to correct. The privatisation of the banking sector was completed by 2001 and a public bailout of the banks and their bad debts. A great deal of attention was paid to the restructuring of loss making companies and a legal framework was put in place to combat economic crime and establishing more efficient bankruptcy procedures. Whilst waiting for entry to the EU, THE Czech Republic made a determined effort to attract foreign investment, something it hoped would be further enhanced by EU membership. There have been successes – large investment has been attracted 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 broader 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 developments in terms of employment growth, primarily in the private sector. In contrast with previous experience, jobs have been created mostly for dependent workers, whilst self-employment decreased mainly due to changes in the tax treatment of the self-employed. On a more negative note, restructuring and downsizing has continued in manufacturing, public services and some private services, leaving unemployment at its highest since 2001.

The government had introduced a programme of fiscal reform in 2003including spending ceilings and major reforms on pensions and in health. 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 increases and increases in regulated prices is likely to effect consumer prices in 2005 and 2006 and whilst there is little change projected change in interest rates following EU entry, some additional inflation pressures could come from robust output growth, sizeable increases in some public-sector wages and oil price effects.

Czech Republic: Demand, output and prices

Current prices Percentage change, volume (1995 prices)
Billion CZK

Private Consumption1192.
Government consumption513.04.52.2-0.4-0.20.5
Gross fixed capital formation638.
Final domestic demand2343.
Total domestic demand2374.

Exports of goods/services1593.
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.
GDP deflator2.

Memorandum items
Consumer price index1.
Private consumption deflator0.7-
Unemployment rate7.
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 suggests that the overall effect has been positive – the momentum of export growth is expected to continue, and economic output is projected to grow about 4 per cent over the projection period, while inflated is predicted to remain stable at around 3 per cent. Export growth is expected to reach double digits in 2005 and should remain high for the following two years. Investment growth is likely to decelerate but remain sustained and employment growth should be positive but muted.

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

For the Czech Republic, entry into the EU was largely based on economic ambition and its target for the short to medium term is to strengthen its growth prospects. At the beginning of 2005, growth potential is somewhere around 3 per cent (p9 OECD Outlook 2004/7) which suggests at best a moderate pace of catch-up to living standards elsewhere in the EU. The OECD sees four major issues that will determine the merits of the Czechs’ EU accession. Firstly, is fiscal consolidation – necessary to cope with ageing, to bring down the tax burden and to fulfil euro-entry conditions. Pension and health reforms should be targeted artmaking savings, greater revenue raising measures need to be implemented and with the decentralisation of public services, there is a requirement for good budgeting practices and accountability in regional and municipal governments. A successful entry into the euro area will be a second crucial factor in the Czech Republic’s successful integration into the EU. Again, the OECD is optimistic about this but states that “the Czech authorities should pay close attention to how the Maastricht criteria are interpreted and applied by the European Commission and the ECB and adjust their communication strategy accordingly. Thirdly is making the business environment more growth-friendly.

Whilst EU membership has seen the Czech Republic compete strongly for foreign investment, policy towards poorly performing firms and business start-ups is far from efficient, often slowing down the exit and entry of firms. Also, bankruptcy procedures in the Czech Republic are cumbersome and often end up in asset stripping and liquidation. Finally, improving the functioning of the labour market is a challenge for the Czech government. Mobility between jobs and regions is weak and factors such as debt control, severe poverty traps and strict employment protection legislation on individual dismissals have led to some considerable long-term unemployment. The Roma population is particularly hit by this, as with social exclusion and poor educational opportunities, something that the EU is keen to see rectified. Migration following EU membership has slowly started to influence the Czech labour market – Slovakshave migrated to take up many skilled vacancies and other migrants from Eastern Europe, particularly Ukraine have been taking up unskilled jobs that are unattractive to Czechs. A more open immigration policy needs to be adopted to address the inconsistency in the granting of work permits and to allow for a better alignment of immigrant’s skills with those needed on the Czech labour market.

Prime Minister Vaclav Klaus had often been sceptical about Czech entry into the EU. One of his favourite metaphors had been “shall we let our identity and sovereignty dissolve in Europe like a lump of sugar in a cup of coffee?” (p26 Rupnik and Zeedonk 2003) and Czechs can be relieved that this has not happened. To date, the Czech Republic has found EU membership more in line 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-term economic growth with a share in Western prosperity was the prime motivation for entry into the EU – the signs so far are at the very least that this looks achievable.

Chapter Five –Case Study: Estonia

The Estonian transformation from a planned to market economy had taken place in the early 1990s. Systematic reforms had followed monetary reforms in 1992. The first major move of the post-communist government had been to restore the kroon as the national coin and set up currency board to enforce a peg to the DM. A legal framework was established to launch the private sector and to restructure Estonia’s business sector – it was successful from early in the post-Communist era in attracting foreign investment. GDP fell in the early 1990s as the new economic system bedded in but by 1995 the recession had run its course, although a crisis in the financial sector in 1998 caused foreign 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, the economy continues to show great resilience despite the slowdown in its major EU trading partners during 2001.GDP growth fell slightly during this year, the budget showed a small surplus of GDP at 0.2 per cent and the current account deficit stood at 6.1 per cent, covered by strong foreign direct investment flows. Estonia’s most important exports are machinery and electrical equipment, wood and textiles while tourism is also an important factor. Its biggest business partners in recent years have been Sweden and Finland.

The IMF describes Estonia as “an outstanding performer among the transition economies” yet it faces many challenges that it hopes EU membership can help it with – in particular, it needs to lower unemployment and ensure the balance regional development of the country.

Its relations with the EU were good throughout the 1990s. It was recognised by the European Commission in August 1991 and the following year the Estonian Ambassador in Brussels was accredited by the EC. Its draft 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 largely to a classic liberal agenda of open borders, low taxes, balanced budgets, the competition principle, privatisation, deregulation and minimal state. Such was the extent of this, that when Estonia made the decision to seek EU membership it would involve a good deal of economic sacrifice. 
It can be argued that some of Estonia’s economic strengths can be balance d by many political weaknesses. Certainly, its government has displayed a certain amount of bitterness about its recent experiences of cultural and economic imperialism. The immediatede-Russifiaction of the administrative process serves as an example of this. In fact, since its independence, Estonia’s nationalism has been strongly inclusive, with an open disregard for all things Russian and authoritarian.

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

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

Structural change in Estonia in the lead up to EU membership exemplified its move away from a Soviet past to a future with its Western and Baltic neighbours. Finnish influence was noticeable. Estonians use more computers and cell phones per caponata the French, its capital, Tallinn, has been restored, yet away from the capital there are still large areas of poverty, with the 30-pry cent Russian minority remaining disengaged from economic progress. One of the assurances that the EU has demanded from Estonia is fair access in opportunity for jobs, housing and health care for its sizeable Russian minority.

Since accession, Estonia has continued to flourish as an emerging economic power. It is attracting business in particular from the affluent Nordic states and is rapidly developing a highly educated workforce and expanding telecommunications and information technology sector – it has more personal computer per head than France (p59Mannin)

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

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

Estonia benefited in the Labour market following input form EU advisors. Curtailing unemployment had been one of the core objectives of Estonia’s pre accession agreement and as such was closely monitored by the EU. The rate declined significantly from 14.6 per cent in the first quarter of 2000 to 10.6 per cent in 2003, although large regional disparities continued to exist, and the ethnic Russian population was noticeably affected. It is also worth noting that the improvement was largely due to significant decline in the economically active population during the period – a decline of almost 2.5 per cent.

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

Such was the strength of Estonia’ economy in the 1990s, relative to its years under communism, that in fact it probably need the economic assistance of the EU considerably less than other small states, almost to the extent the EU membership may have had a negative effect on its economy. Nevertheless, Estonia had set its sights on EU membership from the early 1990s – its historical security worries and a certainty that its future belonged in the west were the driving factors behind it application. Estonia’s accession process was relatively smooth, and it was able to enter the EU in 2004. The early signs are that it economy is remaining stable and that the Estonian people, whilst fiercely independent on one level, are comfortable with their statues as Europeans.

Not all small states seek EU membership. Switzerland is quite happy with its own economy and longstanding neutrality to withstand any overtures from EU members who would be keener to see the prosperous Swiss joining the EU than perhaps they are to see some of the poorer small states. Iceland is another small nation that has shown a distinct lack of interest – quite simply, such is its reliance on its fishing industries that it does not wish to share them with other European states.

For many small states however, membership of the EU has either been or remains a long-term strategic goal. The EU offers a host of benefits, of which importance varies according to the situation of the state. The economic benefits are of course crucial. Financial assistance prior to accession is a large enough carrot to dangle in front of small sates with underperforming economies but the longer-term rewards of the single market and shared currency offer small states the possibility of a relatively stable economic future. Security to some is equally important. The traumatic 20th century histories of sates such as the Czech Republic and the Baltic states ensure they are keen to be a part of a collective security force. Some of the fear maybe psychological than based on genuine security threats but nonetheless the desire for a common security policy, whether within the EU or NATO is very real.

Finally, there is a simple sense of wanting to belong to Europe that fuels a desire to be part of the EU. Agirda Brazausskas spoke to the Council of the European Parliament in April 1994 and stated: “Lithuania’s major gain following the restoration of independence on March 11 1990 is the sense and desire of commonality with Europe, distinct 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 a resonance for the leaders and people of small states across Europe –they see themselves as Europe and want to belong to a Union that looks to further the interests of all Europeans.


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