Enlargement of the EU:
Dynamics and Problems

László Csaba*1

The Madrid Council of December 1995 made it explicit:
the European Union is definitely going to enlarge Eastward.
The negotiations are likely to get started in tandem in both
Malta and Cyprus, i.e. six months after the conclusion of theintergovernmental conference (IGC) in Turin. Following thedeliberations of the Florence Council of June 1996 the IGC will
have to finalise its draft proposal by the end of 1996, which
gives ground for hope for completion by the second quarter of
1997. In other words, enlargement talks may already be
underway in 1998, with the first new members acceding around2002-2003. The latter date would imply that the fastest Eastern
members will have waited for 12 years, i.e. as long as Britain,
Denmark and Ireland, whose joining the EU was generally
considered an extremely lengthly and controversial process.
This is going to be the fourth enlargement of the EU. As
was documented in the previous cases, any such step has
invariably been an act of high policy, although economic
considerations have not been negligeable either. The primacyof security and strategic considerations deserve mentioning
insofar as discussion in the first half of the 1990s tended to be
dominated by trade and financial issues, reducing a complex
matter to simplistic cost-benefit analysis of a microeconomic
type. This seems fundamentally wrong on the base of
everything that we know about the history as well as thepresent nature of the three pillar post-Maastricht EU. Moreover,even allowing for a micro-approach, it is more often than not
hard to delineate costs from benefits, especially if dynamic
considerations are not neglected. For instance, the aboliton of

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quantitative restrictions or prohibitive duties on agricultural
imports, or the abolition of procedural protectionism may hurt
producer and employment interests in some regions, whereas it
immediately results in consumer surplus, lower prices, i.e.
across-the-broard antiinflationary impacts, and improved
competitiveness in all areas using these imports as their inputs.
Thus applying even the simplest categories of standard
economics requires caution, since elemetary facts andcategories are open to interpretation, or at least they are lessthan trivial.
Then why enlarge? As Commissioner van den Broek(1996) put it recently, there are basically selfish interests of thecurrent EU members which are at stake. First, this is thecheapest way of stabilising the neighbouring region. Even
allowing for a moment for the unrealistic assumption of
keeping everything (such as rules of distribution and sums
received by present recipients) constant, the cost of an Easternenlargement is put at 26 bn écu, roughly 0.5 per cent of the
GDP of the present member-states, or one-eigth of the US
defence budget (Ludlow, 1996, pp52-3). But regardless of thenumbers involved, keeping people from migrating, capitalisingon the natural propensity to stay at home unless dislocated by
war or extreme economic hardship is, of course, the lowest
possible cost crisis-management strategy for the welfare statesof Europe.
A second consideration is the changing economic healthof the transforming countries. The Central European Visegrád
Five already constitute a market of 80 m people, or more
realistically, judged by their import volumes, a market twice thesize of Russia. Economic growth has resumed, with Poland
being the fastest growing economy over the last couple of years
and other economies, unlike Russia's, having already entered
the phase of sustainable growth. Direct foreign investment has
already gathered momentum, with per capita FDI in Central
Europe already in 1995 having overtaken Chile or Malaysia(Hunya, 1996). In other words, the relocation of industries toLászló Csaba

51

lower wage but highly skilled countries is already wellunderway. Given these countries' remarkable success inreorienting their trade from East to West, following standard
integration theory, microeconomic integration is already in awell advanced stage. In other words, accession would only
mean a mere institutionalisation of an already well establishedliaison.
Third, geographical factors should not be underestimated.
With the decay of the Yalta order, Central Europe returns to its
place determined not only by its economic fundamentals, but,at least as significantly, also by its historic and cultural heritage.
It is extremely important, as the core of the EU is the single
market with its four freedoms. Freedom of labour is an
explosive issue only if and insofar as it acts as a bridgehead forthe "clash of civilisations", i.e. if people with widely diverging
perceptions and value systems migrate. Furthermore, as theestablishment of NAFTA neatly demonstrated, global powers
do need a kind of a backyard if they are to stand the challengeof growing in tern ation alisation and competition. As the 21st
century is generally seen as being dominated by the PacificBasin, it is imperative for the EU to prepare adequately for thisnew challenge and integrate the areas that may contribute to its
enhanced competitiveness in more than one dimension.
Last but not least, Eastward enlargement puts the issue ofsystemic change on the agenda of the EU. This is most obvious
in the case of decision-making, but it is also apparent in thefinancing of such established and fundamental arrangements as
the CAP and the welfare state, including regional and cohesion
funds at the Union level, all which render major overhauls
imperative. The calculations over what an Eastward
enlargement would cost serve the usual (favourable) educatoryrole of any long term forecast; they deliberately aim at shocking
decisionmakers in order to alert them to the need to change
unsustainable practices. This factor may become crucial as the
sluggish implementation of farm reforms, or the stalemate on
the issues of majority decisionmaking, or even in terms of52

Enlargement of the EU

meeting the Maastricht criteria clearly demonstrates. The
challenge from the East may thus accelerate changes that arelong overdue.
So why to join the EU? This question is normally
discussed in terms of financial transfers, basically focusing on
the numbers generated by official channels. This isfundamentally wrong. First, economic history in this and thelast century equally shows that any society, succeeding incatching up, has to rely basically on its own savings andinvestment capacity. Even in such outward-oriented societies as
in East Asia, over 80-85 per cent of investment had to befinanced from domestic savings, and only the rest could becovered from external sources. Second, in contemporary
economies, it is foreign direct investment (i.e. typically private
rather than official) which really matters. Financial liberalisation
has resulted in the absolute predominance of privatetransactions over governmental ones. Thus the rules of thegame are set for any newcomer, especially with limited
economic might.
On the other hand, international evidence (Hamar, 1995)
indicates the useful role integrational arrangements play inchannelling private capital to less developed countries. The
Spanish and Portuguese, and more recently the Polish andHungarian experience is also indicative of the potential inherent
in such a step. If 1989 saw $300m invested in Hungary, 1995
closed with over $4.4bn, i.e. nearly fifteen times as much. Whileper capita assistance to Hungary has been negligeable over thelast few years, the stock of FDI is put at $ 14bn, official reserves
at $10bn, and private savings are put at $3bn, in mid-1996. If
one recalls that the $50bn, proposed as the Grand Bargain withthe then-Soviet-Union, was considered as extreme, it is obviousthat focusing on official transfers is a relatively safe way ofgetting on the wrong track and gaining fundamentally false
impressions over what is or is not available in terms offinancing a given economy in the medium term.
Therefore it does not seem convincing if the EU is calledLászló Csaba

53

upon to provide a pre-accession modernisation assistance in theform of large official funds. The idea, originating with Austrianchancellor Franz Vranitzky, and also taken up by the European
Commission's plan of launching 14 trans-European large
projects in infrastructure, therefore seems to miss the point. So
what, if not assistance and transfers, is the point of joining thecomplex machinery of the EU? First and foremost: the EU is ananchor of democracy and also of the European-type of social
market economy, which is the target model for which the vast
majority of the electro rate of Central Europe has repeatedly
voted. By having launched a lengthy process of harmonisationof laws with the EU, the transforming countries have gained afocus of orientation, which might be quite helpful in deciding
the detail of "which capitalism". This thesis is actuallysymmetric. As Balázs (1996, pp 25-58) documents in detail, theTreaty of Rome was conceived so as to make it relatively easy
for European democracies to accede, whereas any otherexternal relation be kept at an arms-length; thus any idea ofgraded membership or go-between is practically impossible tofit into the body of the EU legal structure.
Another matter is, that when the original idea materialisedwith the collapse of the Berlin Wall everyone, especially theEU, was caught by surprise. The grand project of the single
market was just underway, the GATT round in Punta del Este
had brought about severe pressures to liberalise trade in farm
products, services and maritime transport. Thu s the EU felt itself
under siege. German reunification happened promptly, despite
the thinly veiled misgivings of France and Britain, integrating acountry of 17mn - the former GDR - into the Community. The
costs and the speed of all these, as well as the obvious inability
and/or unwillingness to streamline the welfare state, especiallylabour markets, has pushed the EU on to the defensive. This
resulted in a very restrained position against the East.
Association agreements could hardly have been finalised
without the abortive coup in Moscow in August 1991. But theserefrained from even abstractly expressing the EC willingness to54

Enlargement of the EU

integrate these countries. As Wang and Winters (1994, pp
32-53) aptly point out, there was a period of trying to minimise
the impact of 1989 on the EC.
From Association to Accession

Paradoxically, at the very outset it was the perceived
extremely dynamic catchup potential of Central and Eastern
Europe which produced fears on the EU side. As thecalculations of Collins and Rodrik (1991) may exemplify,
overcoming the distortions of a planned economy was
associated by an automatic and far-reaching growth impetus,
which could, in theory, have redrawn the economic map ofEurope in favour of the new Eastern tiger economies.
This approach had obviously been quite mechanistic, as it
typically neglected those institutional factors and other sourcesof friction, which made it highly improbable that such an
instantaneous adjustment could, indeed, have materialised in
mediums other than on paper. As could be forecast at the time
(Csaba, 1990), the distortions were so multidimensional, thecollapse of old institutions so quick and the emergence of newones so slow, that even under the best of circumstances, a
protracted period of adjustment and recovery was to be
expected before the path of sustainable growth could beentered. This crisis of the region was not merely one of external
disequilibrium, but it implied the interplay of crises of thegrowth path, of the social model, of trading patterns as well asof policies and institutions (Kádár, 1990). Both in historic andinternational terms, successful management of any one of theabove-listed challenges is considered as a respectableperformance; the cumulation of these tasks made the processeven more cumbersome, rendering a fair degree of trial anderror inevitable. Therefore any actual policy could only be"suboptimal" against the expectations formulated in the
Collins-Rodrik model, and entertained by much of the polity inthe region. But these expectations turned out to be unfoundedLászló Csaba

55

for the very reasons we summed up above.
Faced with a recession, which proved to be both longer
and deeper than visualised by the polity*2 a change of mood
took place. In the place of tiger economies the vision of an
everlasting recession, (or even "depression") emerged, with novisable way out of the crisis in the forseeable future. This camp,
led by the Economic Commission of Europe, tended to take atface value both the previously reported official output figures
and the newly reported (and statistically often inadequate) first
results, measured at grossly undervalued market rates of
exchange. It also rejected any cautionary note as sheer
apoligetics. Using regional averages (i.e. by overshadowing thedifferences in various policies, outcomes and phases oftransformation), this approach started to talk about a slump
which would exceed the Great Depression.
Reflecting this train of thought the idea of intermediate
solutions came to the fore. Begg et. al, (1992) came up with theidea of letting new democracies in through the back door of the
EFTA. The idea was further developed by one of the co-authors
in a seperate monograph (Baldwin, 1994), elaborating the ideaof "enlargement on the cheap". This called for a gradedmembership for countries of the East, excluding them from theareas triggering major transfers, like agriculture and regional
policy, allowing them to take part in industrial free trade, but
not granting them voting rights, especially over matters ofmoney. This approach included a strong call for Eastern
partners to trade more among themselves, and thereby proving
their maturity for integration.
Central European countries reacted allergically to the idea.
First, they saw it as yet another attempt to banish them into
second rank citizens, without even the prospect of getting into
the club of equals (or more equals). Second, the Europe
Agreements had actually already granted more than free trade,including a series of institution-building measures, law
harmonisation etc. Last but not least, by setting up CEFTA, theycreated not only a forum which made them different from the56

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rest of postsocialist world, but an area where WTO disciplines
actually gradually gained more application than anywhere in
the world except the single market itself (Csaba, 1996), i.e.
granting each other wider-ranging economic freedoms than ageneralised system of Europe Agreements would have resulted.
Meanwhile, the Western side has also been evolving
gradually, but definitely. First, by adopting the Maastricht
agreement the EC was transformed into the EU. In other words,
the task of "tying Germany in" was accomplished, and a callfor wide-ranging liberalisation and monetary restraint was
jointly adopted by opting for the plan of a single currency.
Second, the drift between the security / strategic interest of the
EU and its petty-minded trade policy stance has become
unsustainable. This was reflected in the Copenhagen Council
decisions of June 1993, making it plain that the EU does share
the associated members' objective for accession, and spellingout the criteria for the latter. The same Council called for an
accelerated implementation of the trade liberalisation part of theEA, setting the deadline for 1999 instead of the original 2003.
Third, the Essen Council of 1994 introduced the instrument ofstructured dialogue, enabling the associated countries to takepart regularly in Community activities (as a kind of training
exercise). Fourth, the Madrid Council of 1995 has expressedhope that accession negotiations with the East will start inparallel with those with Malta and Cyprus, i.e. six month after
the conclusion of the IGC. It entrusted the Commission to makean avis, the latter sent out questionnaires to the applicants, andwill decide, on the base of the avis, to launch negotiations in
1998. As it stands now, though talks may start in parallel with12 countries, the outcome will definitely be differentiated, inboth time and substance. In the course of 1994 the top leadersof the Commission already expressed their view, that no more
package tours to Brussels will take place.
In formal terms, the EU has gone farther towards Easern
applicants than on any previous occasion. The law
harmonisation exercises, the PHARE and other technicalLászló Csaba

57

assistance programmes, with a budget of 2.5bn DMark in 1996,
have produced a gradual, but more intimate, relationship thantrade agreements. Elaboration of the White Book, thoughcontroversial in many aspects, still constitutes a guide, a pointof orientation over how the single market works, or at least,
how is it seen by those operating it. The structured dialogue has
allowed for starting cooperation and guided approximation insuch sensitive areas as home affairs and environment. The
Association Council has wide ranging prerogatives in
discussing matters of the trade régime and trade policy inminute detail, which will help to mold a joint philosophy overotherwise contentious issues. The Tempus, Tacis, ACE andother programmes help students and researchers to launch
networking and studies in and of the EU.
Finally, a third stage is marked by two importantdevelopments. First, the EU expanded Northwards, rendering
EFTA and the related option obsolete, by definiton. Second,transformational recession has come to an end and recovery
has started in the Central European region. As detailed
empirical evidence (Fischer, et.al, 1996) indicates, the success ofstabilisation, institution building and privatisation policies, i.e. a
trio stipulated also by the EU and EA, has brough about results.
The outcome of this evidence are directly related to policies,
not to factor endowments or history, as the counterposition ofBelarus to Estonia clearly indicates.
This also means, that the changing perception of the Eastis also in the making. If stage two tended to see the region as an
object of altruistic activities, stage three is molded by visions ofa dynamic new market and one of an investment spot, where
both capital and labour are well worth the money spent on
them. It is hardly by chance that German analysts (Welfens,
1995) have gone out their way in portraying Central Europe as
an ideal place to relocate industries and services. Indeed, thisprocess, which is already well underway, may contribute toincreasing competitive pressures on the core-EU, thereby
contributing the necessary impetus to a more thorough policy

58

Enlargement of the EUof readjustment. In the longer run perspective, this "threat" isprobably one of the most valuable contributions of the Central
European societies to an enlarged Union and its global
competitiveness.
Taking all these factors together, the question for 1996 is
surely not whether or not there will be an enlargement, butwhen and how, through which procedures, and in what stages.
In this respect Ludlow (1996, p.67) is right in remarking:"the forthcoming enlargement to the east and south should not
be seen as a leap into the unknown, so much as the logicalconsequence not only of what the Union has promised, but alsoof what the Union and the states concerned are alreadyengaged in doing together."
As indicated above timetables and procedures alreadyadopted by the EU, such as the IGC, the lack of understandingon the financial directives effective from 1999, the forthcoming
WTO mini-round on agriculture starting from 1999, theongoing farm reform projects, and last but not least, thelaunching of stage three of the economic and monetary union(emu), taken together make an instantaneous accession,entailing a shock for would-be members highly unlikely. The
mere listing of these tasks, each of them extremelycomprehensive and time-consuming by their very intricate
nature, make the frequently voiced cautioning words against
haste sound as sheer hypocricy. On the contrary, the danger ofending up with an unacceptably longish*3 accession period due
to bureacratic clumsyness, rather than triggered by specificpolicies or priorities tailored to a peculiar vision of Easternenlargement, seems to be very grave, indeed. Thus it would bevital not to wait for the ratification of IGC documents by eachsignatory, and launch the accession talks, not letting theCommission spend an average of two years in preparing theavis, but expecting to come up with it as quickly as was thecase with the Finns (Kádár, 1996, pp55-7). Such decisions can,and indeed, should be expected, (as the example of theFlorence Council, cited above, indicates). Otherwise theLászló Csaba

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treadmills of bureaucracy and intercountry stalemates may
unduly lenghten the preparation time. On the other hand,orchestrating support within the would-be member state canonly rest on a foreseeable and clear perspective, not a vague
promise of potential membership in the distant future. In otherwords, the systemic anchoring Junction of the EU is cruciallydependent on its ability to present politically marketable
deadlines and conditions against vague promises. The
examples of Norway, Switzerland, and Austria to some extent(and possibly also of Malta in the future) may serve as warning
signs in this respect.
The Eastern partners have a no less demanding task inmolding their systems, priorities and options so as to makethem congruous to the emerging new / post-reform emu whileproviding societal acceptance of these rearrangements. Recent
experience in Western Europe pertaining to post-Maastricht
reforms neccesitated by the emu, like the strikes in France, Italy
and Germany, or British-German reluctance to accept the ECB
and the 'euro', replacing the respective monetary authorities /currency units, is already indicative of the severity of thisproblem. While core EU members have to face up to relatively
minor rearrangements along the preset and mutually agreed
upon path, systems' designers in the East have already agreed
in the EAs to adopt an acquis communautaire, whose final
shape is partly unknown as yet, in part it is still subject todebate, and even opt-outs, by present club members. Moreover,the switch from moderate levels of inflation to low single digit
levels is known to entail much larger costs in terms of output
and employment than the move from say, Italian-Spanish levelsof 6-8 per cent to 1-2 per cent. While the easiest way to avoid
the over-extension of the welfare state is restraint in its
establishment phase, the obligation to come up to a social
Europe, a point repeatedly stressed by the European Parliament,
may well go in the opposite direction.
What criteria should be used to evaluate whether a wouldbe member is on the right track? The Copenhagen Council has

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singled out political democracy, a functioning market economy,
as well as the ability and willingness of the accessant and the
EU to absorb new integration forms, primarily regarding theemu. Ever since that time recurring attempts have been made totry to specify and detail these points. In my view these attempts
are partly futile, partly counterproductive. The more one wishes
to replace a complex category with a series of indicators, thegraver is the danger of ending up with a typical relict of theplanned economy, when market assessment was replaced byvarious partial indicators that were supposed to represent
consumer satisfaction or technological progress. At times offundamental change much of the synthetic indicators of overall
economic activity may simply be devoid of content. If one
thinks of cases when even the US GDP could be modified by
two percentage points, or inflation could move in similar
degree, or of the fluctuation of the Italian GDP depending on
estimates of the irregular economy, it seems safe to say that any
artificial rigour in something that for reasons of structuralchange is essentially hard to measure, can only end up
thwarting the accession process. Competition for the favourable
points in the privatisation "beauty contest" has alreadyproduced some fairly odd official data, whose precise meaning
must be subject to wide interpretation. General government
deficit is often not accounted according to standard GFS
practices, with various special funds taking over the losses, orthe latter simply not being recorded, or passed over to thebanking sphere. If such indicators as "ability to implement
Community law" were also included, that would already boil
down to openly and completely arbitrary decisionmaking, a
procedure which is to be eschewed for a number of reasons, inthe interests of all concerned.
To my knowledge, it was a paper by Ludlow and Gros
(1993) which first came up with the idea of creating a
convergence programme for the acceding countries. Since thenthe EU PHARE programme has already launched a series ofstudies to realise this end. The idea is obviously based on theLászló Csaba

61

model of Maastricht, while economics has already reached aconsensus view of convergence: these criteria are neither
necessary, nor sufficient to ensure a single stable currency.
Moreover, meeting the Maastricht criteria is by no meansan entry card for Central Europeans. The Copenhagen criteria
mean, that by the time of their accession, they will have toarrive at such a position where meeting these criteria does notlook far-fetched. In fact, as Fischer, et. al, (1996) document,
most Central Europeans fared much better both on the fiscal
front and on domestic debt, than the core EU countries, while
the long-term interest rate is not a criteria that can or should beinterpreted seriously in transforming economies. Furthermore,on previous occasions no development criteria were named, as
the Treaty of Rome is clear in rejecting this point. Thus therelevant criteria for their ability to integrate is whether they
have already reached Greek-Portuguese-Irish levels, which,according to both the above quoted article and other PPP
assessments of real GDP / irregular economy included most ofthem have. In fact, as Begg (1996) and even the tables of
Ludlow (1996, pp 55-6) himself indicate, except for Portugal, nomajor catchup took place in the last fifteen years within the EU,
either as an aggregate, even less on the - truly relevant —regional levels. Thus requiring convergence from would-be
members is asking for a virtue incumbents were themselves notable to live up to in the period relevant for comparison.
Reliance on any rigid concept or means of measurement
seems all the less legitimate insofar as EU reform is still far frombeing over. In other words, would-be members need to follow amoving target. Thus any overdose of rigour requiring them toadopt measures, institutions or procedures, the EU is - or atleast should be - about to abandon, could only be
counterproductive. Especially labour market legislation, farm
policies and harmonisation / unification of concrete pieces oflegislation, like opening hours or tax rates, may be the areas
where the benefit of doubt looks more, rather than less, relevantin the context of accession.

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Enlargement of the EU

Should sustainingly high rates of growth become acondition for entry? Many analyst suggest so. Meanwhile, suchrespectable new members, as Finland, and founding menbers,
such as France, have been anything like tiger economies in thelast few years. Thus it seems more legitimate to ask for areconsideration of regional policies, or the priority of equalisingdevelopment levels / creating cohesion than to ask yet anothervirtue from candidates what incumbents themselves were notenjoying. Beyond doubt, neoclassical theory would supply aseries of arguments establishing a strong catchup potential forcountries at a low-medium income level of development.
Beyond doubt, joining a big market and opening up theireconomies to capital inflows can further contribute to such anacceleration. But in this more conservative view catching up isa by-product, rather than a condition, of integrating with moreadvanced economies. Thus in the traditional wisdom thecausation is just the reverse to that in the various convergenceprogrammes, namely high growth being the reward rather thanthe entry card for the entire process leading the transforming
economies of Central Europe to full EU membership.
Acession - But to What Kind of EU?

With the time passing and the strategic logic of accelerated
accession there is, and seemingly, there will remain a highdegree of uncertainty pertaining to the salient features of thetarget model transforming countries are to adjust their own
internal arrangements. Semiofficial news coming from the IGC
foreshadows a policy of muddling through rather than abreakthrough, which was the original idea behind convening
this particular forum. Such vital issues as majority voting are
unlikely to change, with key members, notably Germany(Seidel, 1996) coming up with strong arguments for preserving,rather than changing, the status quo. Even on technical matters,
like working languagues, more reliance on written
communications, or the need to involve national representations

László Csaba

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rather than the notorious European Parliament, a minor rather
than a larger scale change is in the making. Radical reform
plans of Commissioner Fischler have foundered onmember-country and farming lobby resistance, thus without theimpetus of the WTO no bold decision is to be taken (Maitland,1996). Convergence among the indicators of member-states is
not particularly impressive, whatever we think about the meritof this process. Measures for far-reaching financial liberalisation
received insufficient support only (Jack, 1996). And as a recent
warning from the Commission made it clear, major members
have yet to comply with the basics of the single market, even inbanking and taxation (Coleman, 1996) i.e. areas that new
members have to comply with before entry. Last but not least,
the emergence of the emu is anything but certain. While
politicians keep on reiterating the unchanged- deadlines,
specialists and businessmen sound sceptical, and consider 2002
as the more realistic deadline (e.g. Neue Zürcher Zeitung, 15
November, 1995), while others are calling for so lax aninterpretation that it would make the arrangement quite formal(Financial Times, 5 July, 1996).
The latter is a particularly serious issue. Monetary union,
once implemented, is an irrevocable process triggering a seriesof related measures. Meanwhile, those who join in without
coming up to the criteria in reality, face severe feedbacks /punishments by the markets, which may force them to leave theentire Union (Watrin, 1993). Moreover the technical realisationof this arrangement is also burdened with a lot of unresolved
problems. But over and above these, it is yet to be decided,
whether monetary union should and could be accompanied bymore regional transfers, as the vision of social Europe would
imply, or conversely, the fiscal criteria will press for a decreasein previously available sums, thus putting the burden of
adjustment to wages and national factor market flexibility.
Both in this respect, and in terms of Eastern enlargement,
the question of labour mobility arises. Some consider it as atriviality (Tichy, 1996) that under the forseeable growth of

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Enlargement of the EU

inequalities among regions, factor mobility should be limitedon the labour market. But this would contradict not only to oneof the four freedoms, but also to the basics of a monetary union
which, in part, is also about triggering labour market
adjustment by enforcing flexibility. Without wanting to take aposition on the issues debated by and among the incumbents, it
should be clear, that the Central Europeans have not only
themselves to blame in not being sure about the fundamentals,
let alone the particulars, of the target model / acquis they areabout to converge to. And we have not even touched upon suchsensitive / emotional issues as environmetal protection, social
rights, gender problems, transferability of social security
entitlements across the countries or mutual recognition ofqualifications.
Any further enlargement will not only exacerbate thedecisionmaking stalemate inherent in the present arrangements,
conceived for six (actually only four, with Benelux acting as aunit), but operated by fifteen members. With the joining in of agreater number of small states at least two major problems
emerge. One is already being addressed, i.e. the issue ofrepresentation, or democratic deficit, which is particularly grave
for larger members. This can be overcome by various
institutional innovations currently under consideration, likerequiring a double majority - i.e. one also by the size of theactual electorate represented - over a broad range of issues. A
further step in this direction would be the more direct
involvement of national parliaments in elaborating decisions at
the Union level.
More importantly, however, new entries will obviously
give rise to new types of distributional coalitions, andcompletely new voting patterns may emerge, which can bemodelled through game theory. This is important insofar as theuncertainty in the outcomes of any decision, to be taken an theUnion level, is on the increase.
In order to tackle this problem two suggestions have been put
forward. One is that of a European ConstitutionLászló Csaba

65(Institutions.. pp52-65), proposed mostly by those who wish to
set limits to centralisation and arbitrary decisionmaking. As agrowing government is burdened with a threat of everincreasing centralisation (both of tasks and financing),
adherents to this school apply traditional arguments ofconstitutional political economy to constrain governmental
discretion, and aim at preserving individual freedom from theemerging supra-Leviathan. Adherents to this school (Bernholz,
1996) rightly note that a free society survives only if a given
decision needs more justification than the mere existence of amajority favouring it, such as externalities, public purpose, or acommonly agreed aim of redistribution favouring some groups.
Meeting these criteria is particularly difficult in a community of
25 members, all the more so, as the contents of national interest
not only may, but actually do vary across time. Suchphenomena as the French switchover to the policy of franc fort,
the signing of the World Trade Organisation disciplines, oragreeing to common defence or home affairs objectives, areclear examples of this case. Only if the government - or in ourcase, joint integrational affairs - are kept reasonably narrow, do
we see a chance for affairs of truly common interest to be
decided upon in a transparent and efficient manner.
Alternative suggestions (Dewatripont,et.al, 1996) call for amore flexible interpretation of the acquis, attempting to single
out a type of core acquis (adherence to which would be
required by any entrant, old or new) and a more optional one.
In the latter case, non-paraticipation would also include
non-voting over the issue, as already modelled for stage threeof the emu. This may, at the end of the day, institutionalisea multispeed Europe. The latter may well have its benefits,
however it is hard not to see the political, technical and evenmore the dynamic problems caused by such an option. Fromthe enlargement perspective all less centralising forms may beseen as advantageous, insofar as they allow for the inevitablediversity that such an extended club would entail.
A further line of thought is the tendency to try to enhance

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the technocratic nature of EU organisations, trying to exempt
them írom the treadmill of daily political compromises. One
example is the EMI and the later European Central Bank, which
will not be under any governmental control. Similar calls havebeen made to create a separate EU competition agency and an
environmental body, similar to the European Court of Justice.
The problem with this line of reasoning is the traditional one,i.e. enhanced technocratic competences may weaken
democratic controls, and the split between public perceptions /preferences and technocratic considerations may become
unbearable. The more independent these bodies are, the moredifficult it may be to turn or change their activities.
Last but not least, competition of systems will surely notcome to an end even by the completion of the enlargement
process. An enlarged EU will remain in competition with otherregions of the globe, as a provider of public services. The
poorer the EU performs in this respect, the graver will be thedanger of relocation of more competitive personnel, enterprises
and activities to areas where the regulatory environment ismore favourable to them. A strict interpretation of theMaastricht convergence criteria by relatively weak or shortsighted governments may easily lead to a further increase of thetax burden in Europe and thus to a loss of employment andgrowth, as Knoester and Kolodziejak (1996) demonstrate.
While their suggestion to a Union-wide tax code, compelling
the public authorities to cope with fiscal adjustment by meansother than tax increases, does not sound entirely convincing,
the analytical part of their study clearly evidences the dangers
inherent in the most probable scenario of muddling through.
What Countries to Absorb? And How? And When?

What has been presented above may well suffice toconvince the reader: it is not only the Eastern part of theenlargement game which is burdened with uncertainties. But
beyond doubt, this - traditionally better explored - area hasLászló Csaba

67

also a series of questions to be addressed, and partly evenanswered, before accession to the EU becomes realistic.
Political democracy figures first among the Copenhagen
criteria of accession. It is relatively easy to establish whether or
not the regular peaceful handover of governmental power takes
place among competing political forces by way of regular, andinternationally supervised, free elections. Later interpretation of
the criterion includes observance of human and minority rights,
where several would-be members still have a considerable way
to go.
A functioning market economy is certainly a vague
criterion at first sight. However, similarly to consumer
satisfaction or embodied technological progress, its strength lies
also in its broadness. This category does allow for a multiplicity
of market models as already observed among current members,
encompassing versions of the market economy as diverse as
those in Greece and Finland. On the other hand it also calls forthe successful conclusion of, what is recently termed in
Washington as the first generational issues in economictransformations, such as the privatisation of most assets, thesetting up of the institutional infrastructure of a market order,
liberalisation of all factor markets, the creation of conditions formarket clearence by way of proper measures of auditing,bankruptcy legislation and regulatory / supervisory bodies in
the financial sphere. Whether or not a country qualifies forOECD membership may well be taken as a benchmark for the
progress in this round of transformation.
There is, however, a broader interpretation oftransformation which hardly allows for it to be concluded inWestern economies in general and in the EU in particular. In
this sense the process knows no end. In this broader approach,as argued in detail elsewhere (Csaba, 1995, pp245-267)
transition may be seen to be over at a stage, when the quality ofreforms to be instituted by the transforming country in question
is by and large the same as those in the incumbent countries of
the EU. For instance, overcoming the social security crisis, or68

Enlargement of the EU

finding ways for sustainable financing of health care systems
for an ageing population are typically second generational
reforms, whose solution can not, and should not, be made aprecondition for new entrants, as current EU members also
have yet to find ways of solving them.
Between the minimum and maximum points roughly
described above, there is a series of areas, where a set ofmeasures can be outlined in order to meet the third
Copenhagen criterion; the ability and willingness to cope withthe challenge of the emu. First and foremost, fiscal policies caneasily get out of control. As long as proper accounting
standards and GFS techniques are applied the survival of thewelfare state inherited from the socialist period is due to create
difficulties. For instance even in a quickly growing economy
like Poland, the growth of entitlements, especially in thepension scheme, is shown to be well above the financing
capacity of the state determinded by the inflow of tax revenue.
In the Czech Republic first attempts to privatise important partsof the health care system have created financial bottlenecks
already in the first and second quarter of the functioning of thissystem. In Hungary the pension system, especially early
retirement schemes and disability pensions, was misused tofight labour market disequilibria. This has created a situation
where 2.4m full time employed have to support over 3m retired,
40 per cent of whom have made no previous contribution andtherefore have not created a right to the transfers they recieve.
Inflation is still much too high for EU standards in thefrontrunner transforming countries. This reflects in part the long
period of readjusting prices of energy, housing, public
transport, as well as the long road towards a single rate system
of VAT. Also, governmental inability to curb spending and raise
revenues proportionately leads to a reliance on inflation as ameans of balancing public finances, at least ex post facto, withall the well-known detrimental consequences. Last but not least,
the 1990s have not established a very strong case for toughantiinflationary governmental policies, even in such pioneeringLászló Csaba

69

countries as Estonia or Slovenia. Therefore double digit
inflationary expectations have become built into the overall
perceptions of households and companies alike. International
evidence suggests that moderate inflation may indeed be sticky
and hard to bring down. The Maastricht criteria play a usefuleducational role of repeatedly feeding this back to the attentionof decisionmakers.
The emu targets also warn decisionmakers in the East of
the need to develop a financial and trading system, wherereliance on the rate of exchange as an instrument of economic
policy can and should be discontinued. This is a fairly toughtask for countries, where the exchange rate used to be a mereaccounting unit in the socialist period, and activating this
instrument was one of the achievements of reform-mindedeconomics. Indeed, against complete governmental discretionand multiple rates the use of a single exchange rate as an
across-the-board measure represents an important advance. It
also plays the useful role of making the tradeoffs among various
policy measures and priorities open, such as export promotion
and antiinflationary considerations, or maintaining current
account equilibrium and sustaining high levels of domestic
activity, or swift structural change. However, the ability andwillingness in participating in the emu assumes a much quicker
learning ability, than was the case in the core EU. It requires thebuild-up of a widespread, near-consensus conviction, favouring
low inflation and exchange rate stability against other, lessabstract, thus more operational policy objectives, such as
employment or the protection of domestic producers. In fact,
this seems to be a formidable task for the years to come, as it is
not only a small circle of policymakers, but wide segments ofthe population who need to be convinced. In fact, the two tasks
are intertwined, as the lower the rate of inflation, the smaller the
inflation differential from the EU average, and the easier it may
prove to sustain a fixed exchange rate.
Enlargement under emu conditions have important
implications for official financial transfers. As it seems now

70

Enlargement of the EU

there will hardly be a strong political case for increased
spending to be triggered primarily by a new round ofenlargements. This is an important difference from times whenmore spending was taken for granted by the political class andthe electorate alike, as e.g. on previous Southern enlargements.
In other words, new entrants will have to put up with a much
more limited generosity than has previously been the case.
Calls for the EU to take up a modernising role in the form ofextended financing facilities for pre-accession strategies (Inotai,1996) seem to miss this fundamental point.
Moreover, as hinted above, enlargement will lead to aredistribution of the available (non-growing) cake amongincumbents and newcomers. In other words, a reform of theintra-EU funds is a precondition for enlargement to become
feasible. One wonders, for example, whether it will besustainable to keep entire countries in target zone I, or whether
various special arrangements, allowing for someclose-to-average regions to receive regional supports under
special deals, will or should survive. But if all costs wereliterally to be avoided, a policy of no change would be seen to
be for the best a situation which would, of course, be quite outof the question.
What has been unfolded is the best indication why the
traditional EU preference for package tours / deals will be
unsustainable and impracticable for Eastern enlargements. The
applicants are widely diverging countries, with Slovenia being a
potential net contributor, and Romania at the other end, still
employing some 35 per cent of its population in the farming
sector. Under these circumstances it seems highly likely thatthe only viable compromise between the strategic need toenlarge, and the financial imperative to keep costs down, will
be one of stepwise enlargement. Under this scenario, lessproblematic countries, such as those with a low share of
agriculture, little demand on structural funds, and little or no
external conflict potential, will be first to qualify.
On the latter point it is important to be realistic. In a typicalargumentation Ludlow (1996, p.43) puts Hungary in the same

László Csaba

71

category as divided Cyprus in terms of the conflict potential,
due to the non-signing of the treaty on good-neighbourly
relationship with Romania at the time of the Balladur Pact.*4 In
reality, Hungary is neither divided, nor employs the means ofconflict management, as one observes in Ulster, Corsica, or theBasque country, not even running into the type of conflicts one
can see with Greece and Turkey, or Spain and Britain overGibraltar. In countries where boundaries and ethnic groupings
do not overlap, it is probably inevitable that some tension may
exist, as exemplified by Southern Tirol, Alsace or Catalonia.
While any effort is worth it to pacify these, and the EU does
play an important role to bring this about, one should not,again, fall into the trap of requiring virtues from candidates thatincumbents do not live up to. Nor should one mix up ends andmeans. Joining the EU is possibliy one of the best means ofattaining the goal of pan-European appeasement along theCatalonian, Tirolean and Lapland models. In this respect one
wishes to see the Union's efficiency in finding a solution to the
Cyprus problem by making use of its sizeable leverage on
Turkey - an instrument Hungary lacks over Yugoslavia (itsonly neighbour where no basic treaty is yet in force).
Last but not least, the issue of agriculture should be
discussed. On the one hand some reform of farm policies will
be inevitable, insofar as the 1994 GATT on agriculture hasoutlawed the use of export subsidies, with a preannounced
decreasing scheme in operation until 1999, when further
liberalisation measures will be discussed. This means that theentire EU philosophy built on food security, and having lead to
overproduction, needs to be reassessed, along the lines alreadycircumscribed by the early MacSharry reforms. According tothis line of thinking production supports will be discontinued,
and regional retraining and ecological, or sheer income
support, schemes would take their place. As a consequence, by
the time any transforming country can realistically aspire forfull membership, the enormous production push effects in theEast, that one could have expected under unchanged

72

Enlargement of the EU

conditions, stemming from a combination of higher prices andsubstantial external transfers, will surely not materialise.
Therefore it is important for the Central Europeans to
adopt realistic economic strategies, which do not consider theexternally financed modernisation of their farming sector as acore of their overall recovery. The latter approach may becomea dangerous illusion leading to misallocation of resources, aswell as to the adoption of bargaining stances, which may prove
too intransigent and lead to delays in finalising overall deals on
actual accession. The stronger a country's farming lobby, thehigher the probability will be for this type of deadlock toemerge, especially in such traditionally strong agro-oriented
nations as Poland Lithuania and Romania.
But even under the best of circumstances a protracted
foot-dragging seems likely, with the farming lobbies on bothsides trying to squeeze out the most from the rest of the
taxpayers.
In sum, due to the delays in the internal reforms of the EU
the, absorption capacity of the Union does not seem to be on
the sufficient increase. Therefore the politically most opportune
timing of the first round of accession by the year 2000 seems tohave been missed. It is next to impossible to visualise any
scenario, short of a catastophic derailment in Russia, which
could accelerate the accession talks, upsetting and redrawing
the intricate internal balances within the Union, to come to an
end early enough, so that national parliaments could ratify all
the relevant pieces of legislation by that time. Instead, 2002
seems to be the first realistic target date by which the countries
in the first round may acceed. But this first round is likely to befollowed by second and third rounds, extending over yet
another decade.
Most observers find the sequencing of candidates
politically embarassing. However, an enlargement in a single
step would definitely be financially unsustainable. Moreover,even in pure political terms, it might be equally embarassing to
get in a larger number of unknowns, or to change thegeographical equilibrium within the Union too conspicuously

László Csaba

73

and too quickly. A step by step enlargement, by contrast, canplay a useful role of trial and error, assisting the more
problematic countries to adjust themselves to the same
standards. And conversely, this may be the only way tomaintain the necessary political momentum for more distantentries.
Concluding Remarks

The Eastward enlargement of the Union will be an act ofhigh politics, just as much as was the case on previous
occasions. However, it does not mean that there will not be anequally weighty economic component. The latter will
substantially differ from the enlargement to the South, not only
because of the single market, but because of the forseeable andinescapable budgetary consequences of the emu, as well as offurther reforms that will have been finished before enlargementtakes place.
As it seems today, just because of the forseeable limited
generosity of the EU, money may well not be the main thinghindering a potential enlargement. Official money is bound toplay a subordinate role anyway. What seems to be a more
serious issue, is the change in voting patterns and in potential
distributory coalitions. The less the EU manages to come up
with a rule-based and efficient decision making structure, thegreater is the threat of becoming more of a UN-type of
discussion forum. The decision over emu stage three mayforestall such an outcome, however at the cost of creating
several categories among members. The latter may makeaccession at the first run easier, but it may postpone themoment of fully-fledged membership to a distant point in the
future.
Those countries which have concluded the first round oftransformation have entered a period of sustained growth.
These countries may have a lot to offer for the international
competitiveness of the EU. On the other hand, the EU will not

74

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be able to shrug off the trouble with those countries, who will
not become members, not even in the distant future. For thelatter, strategies on par with the Mediterranean strategy, i.e.
implying more official transfers but less institutional generosity,
may be a serious option to be considered. All the more so, asboth the threat of migration and the security challenge iscoming primarily from the latter group, not from the would-be
members.
Notes
1

2

3
4

The author is senior economist at Kopint-Datorg Institute andProfessor of international economics at the College of Foreign
Trade, both based in Budapest.
Kornai (1993) calls this transformational recession, as distinct
from cyclical slumps, adjustment recessions and theGreat
Depression alike.
Even that would not be as long as the recent suggestion of
Baldwin (1996) on starting negotiating free trade from 2003.
The
Hungarian-Romanian
Grundvertragwassignedin
September, 1996 and was ratified by the Romanian legislationnext month. Hungarian ratification is due in the first quarter of1997.

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