Opinion of the Economic and Social Committee on "The employment and social situation in the central and eastern European applicant states"
Date: 2001-04-25
Institutions: European Economic and Social Committee
Subjects: Central and Eastern European countries, employment policy, labour market, social situation

10.7.2001

EN

Official Journal of the European Communities

C 193/87

Opinion of the Economic and Social Committee on ‘The employment and social situation in the
central and eastern European applicant states’

(2001/C 193/19)

On 2 March 2000, the Economic and Social Committee, acting under Rule 23(3) of its Rules of Procedure,
decided to draw up an opinion on ‘The employment and social situation in the central and eastern
European applicant states’.

The Section for External Relations, which was responsible for preparing the Committee’s work on the
subject adopted its opinion on 11 April 2001. The rapporteur was Ms Belabed.

At its 381st plenary session (meeting of 25 April 2001), the Economic and Social Committee unanimously
adopted the following opinion.

1.

Introduction

The enlargement process offers a unique opportunity
1.1.
to bring about the vision of a common European home and
improve the lives of people throughout Europe. So far in the
transition process, the applicant states have already made
significant progress in transforming their economies and
societies. However, a great deal remains to be done to make
the vision of a common European home a reality and attain
the goal of better living and working conditions for all.

1.2.
The ESC’s objective in its work on the enlargement
issue is to stress that, over and above the Copenhagen criteria,
the social consequences of EU enlargement must also be taken
into consideration in order to make enlargement socially
compatible for all concerned. Building on its information
report on the stocktaking of the employment situation and the
social situation in the applicant states (1), the ESC has decided
to draw up a more far-reaching own-initiative opinion on this
issue.

1.3.
EU enlargement received fresh impetus from the
Helsinki European Council. As a result of the Helsinki con-
clusions, bilateral negotiations started with Bulgaria, Latvia,
Lithuania, Romania, Slovakia and Malta during the Portuguese
presidency. At the same time, the applicant states are publicly
stating that their aim is to join the EU as quickly as possible.

1.4.
The ESC’s information report on the stocktaking of the
employment situation and the social situation in the applicant
states (REX/015) makes it clear that despite the progress made
in the CEEC, considerable problems still exist on the labour
market and in the field of social development. These may even
worsen in some sectors (e.g. steel, agriculture etc.) in the course
of structural change, since pressure on the goods and labour
markets will increase.

(1) The employment situation and the social situation in the applicant
states, throughout this paper, the term CEEC refers exclusively to
the applicant states.

1.5.
If enlargement is to be socially compatible, an all-out
effort must be made to ease the social problems associated
with enlargement and to accompany this with measures for
involving the public more in decision-making. Otherwise, the
economic and social cost of enlargement may be far beyond
what the applicant states and the EU can afford.

Building on the information report,

therefore, an
1.6.
attempt is to be made to map out the social and employment-
related impact of the economic developments which accession
is likely to bring about, drawing on economic analyses where
available and past ESC work. Hence, the own-initiative opinion
is also to address structural developments, employment trends
and mechanisms for cushioning the effect of economic and
social problems. It should be made clear from the outset that
given the scale of
this own-initiative opinion
inevitably cannot provide a detailed picture of conditions in
the applicant states. The Committee would therefore refer to
its own work on the individual countries and to the work of
the joint consultative committees.

the issue,

1.7.
On 16 November 2000, the ESC staged an enlargement
conference in Brussels entitled Towards a partnership for
economic growth and social rights. Representatives from the
most diverse interest groups in the applicant states were
invited to join the Committee in discussing the current
situation in the CEEC and the impact of EU accession.
Naturally, differences of opinion which exist in a number of
areas were also addressed. For instance, some applicant
state representatives feel that the EU (and the ESC) are not
appreciative enough of CEEC progress to date in the transition
and accession process. On the other hand, ESC representatives
at the conference pointed out that the CEEC still have a great
deal to do to transpose the Community acquis and develop
an economic and employment strategy in preparation for
integration into the single market.

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2.

Economic and social development in the CEEC to
date

accordingly, has had an adverse effect on the attitude of wide
sections of the public towards the market economy.

2.1.
The collapse of the eastern bloc in 1989 wrought
radical changes for the whole of Europe. Most affected,
however, were the countries of
the former eastern bloc
themselves.

2.2.
Virtually overnight, the CEEC lost their most important
trading partner — the former Soviet Union. These countries
were thus forced to forge new links and very quickly turned
westward.

2.3.
Furthermore, the system of so-called ‘real socialism’
and its planned economy gave way to market economy and
democracy governed by the rule of law. This triggered an
unprecedented — and ongoing — transformation process
affecting all areas of life — the economy, society and politics.
For many, this process has brought not only benefits, and,

2.4. The labour market and employment

2.4.1.
During the communist period, unemployment prob-
lems were not officially recognised, although there was
undoubtedly a significant degree of hidden unemployment.

2.4.2.
Since the fall of communism, ‘open’ unemployment
is rife in the CEEC. Developments took a particularly dramatic
turn in the early 1990s when unemployment rose substantially
in all the CEEC within a short space of time. Jobless rates ran
into two figures in virtually all countries. This upward
trend was finally halted in the mid-1990s, and since then,
unemployment patterns have varied very widely from country
to country. Some countries managed to bring down unemploy-
ment from the mid-1990s onwards, while in others, jobless
figures began to rise again.

Table 1: Trends in CEEC unemployment rates (in %)

1990

1993

1995

1996

1997

1998

1,7

0,8

2,0

6,3

—

1,6

5,8

16,4

3,5

14,6

16,4

10,4

14,4

15,4

11,1

2,9

11,7

14,9

9,5

13,1

14,5

12,5

3,5

11,4

13,2

6,6

12,8

14,4

13,7

5,2

11,0

10,3

8,9

12,5

14,8

12,2

7,5

9,6

10,4

10,3

15,6

14,6

Bulgaria

Czech Republic

Hungary

Poland

Romania

Slovakia

Slovenia

Source: The Vienna Institute for International Economic Studies (WIIW), Countries in Transition, Vienna, 1999.

It must be remembered however that unemployment
2.4.3.
statistics also depend on how they are drawn up. For instance,
the drop in Hungary’s jobless rate from 1993 is due, among
other things, to the removal from the statistics of the long-
term unemployed (1).

virtually full employment, while in most rural regions, the
situation is quite the reverse. A particular difficulty is that these
regional disparities are growing not shrinking. This process is
accelerated by the striking disparities in education between
town and country (2).

2.4.4. Major regional disparities also exist on the labour
for instance, some urban areas enjoy
market.

In Poland,

(1) EP, Working Paper: The social dimension of enlargement, p. 85.

(2) Poland on the road to accession, OJ C 51, 23.2.2000.

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Table 2: Regional unemployment in the CEEC (2nd quarter 1999; in %)

Lowest levels

Highest levels

Praha (CZ)

Bucuresti (RO)

Nyugat-Duna´ntu´ l (HU)

Közép-Magyarorsza´g (HU)

Sud-Vest (RO)

Nord-Vest (RO)

Dél-Alföld (HU)

Source: Eurostat.

3,2

3,4

4,4

5,2

5,4

5,6

5,7

Severen Tsentralen (BG)

Severozapaden (BG)

Warminsko-Mazurskie (PL)

Vy´ chodné Slovensko (SK)

Severoiztochen (BG)

Yugoiztochen (BG)

CEEC average

17,7

21,2

21,3

21,9

23,2

23,7

10,4

If we consider individual economic sectors,

2.4.5.
it is
generally true to say that economic restructuring has led
mainly to a drop in the workforce in traditional industrial
sectors, which are not very competitive and in construction
and farming. The mining, iron and steel industries have been
particularly hard hit by government measures and action taken
by individual companies. Together with the chemical industry,
these sectors still have major overcapacity from the planned
economy era. Poland, whose overall economy is showing very
strong growth thanks to speedy and consistent reforms
immediately after the fall of communism, did manage to cut
unemployment to some extent in the years up to 1998. In
1999, however,
jobless figures rose again as restructuring
in the coal, steel and shipbuilding industries led to mass
redundancies.

2.4.6.
All countries have seen a considerable decline in the
level of public-sector employment. One reason for this has
been the consistent privatisation of state-run manufacturing
and service industries in a bid to establish a market-driven
economy. Another reason, however,
is simply the difficult
public-sector budget situation.

2.4.7.
The decline in employment could not be offset by
the establishment of a large number of new small businesses
and the growing need for jobs in trade, banking and services.
Consequently, the first half of the 1990s saw a drop in the
overall
level of employment. However, this downturn has
since eased.

Table 3: Share of people employed in the various economic sectors (in %), 1990 and 1998

1990

1998

Total

Agri.

Industr.

Constr.

Service

Total

Agri.

Industr.

Constr.

Service

Bulgaria

Czech Republic

Hungary

Poland

Romania

Slovakia

Slovenia

100

100

100

100

100

100

100

18,5

36,6

11,8

37,8

8,2

7,5

42,9

100

36,7

100

25,7

26,4

5,4

7,5

32,8

28,0

11,3*

29,7*

5,3*

53,7*

100

25,8*

25,8*

7,0*

41,4*

100

25,7

23,4

29,0

37,9

5,5

27,6

100

37,5

27,2

12,6

32,9

11,2

43,3

100

8,2

43,2

6,5

42,1

100

7,8

6,7

28,2

34,5

4,4

8,2

6,2

5,8

4,9

7,4

7,1

43,5

53,6

58,3

45,1

30,4

56,6

51,7

Source: The Vienna Institute for International Economic Studies (WIIW), Countries in Transition, Vienna, 1999 (*1992).

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2.4.8.
Agriculture is a particular problem in some countries.
In Poland, Bulgaria and Romania, for instance, the proportion
of the workforce engaged in farming is well above the EU
average. Although the percentage figure has been falling in
some applicant states for a number of years, it has increased
still
further in those states which already have a dispro-
portionately high share of jobs in farming. One reason for this
is that, because of growing unemployment in urban areas,
many people are returning to their families in the countryside.
It may therefore be assumed that there is a high proportion of
hidden unemployment in the agricultural sector in these
countries.

2.4.9.
This trend is a matter of concern inasmuch as — in
keeping with the trends in industrialised countries — it can be
assumed that, in the CEEC too, structural change will lead to a
steady decline in the percentage of the workforce employed in
agriculture. The trend is felt more strongly in areas with an
above-average share of agricultural workers.
In particular,
countries where a high percentage of the workforce are in
farming are likely to experience a sharper rise in unemploy-
ment unless appropriate and timely counter-measures are
taken.
(The political unrest in Poland brought on by the
situation in farming shows that this trend must be taken very
seriously.)

2.4.10.
One issue which often receives less attention is the
illegal employment of foreign workers in the CEEC. Just like
the EU, where estimates put the annual figure for illegal

workers from the CEEC at some 700 000 (1), this problem also
affects the applicant states themselves. In their case, however,
it mainly involves workers from Europe’s easternmost regions
(e.g. Ukraine and Belarus).

The poor budget

In the Czech Republic,

2.4.11.
situation in the transition
countries exacerbates conditions on the labour market. A
demand-led employment policy is virtually impossible to
finance. In many countries, budget austerity is also affecting
active labour market policy.
for
instance, further cuts have been made in spending on labour
market activities and retraining measures, despite rising unem-
ployment figures. Every applicant state has started to introduce
active labour market policies and establish a network of
regional and local employment offices. From an overall
standpoint, however, there is a need to press ahead with the
process of establishing modern labour market institutions,
flanked by education and training measures.

2.5.

Income and purchasing power

2.5.1. Measured as per capita GDP in purchasing power
parity terms, incomes in most central and eastern European
applicant states have improved steadily since 1993. In Bulgaria
and Romania, however, income trends are stagnating at a
consistently low level, and the same has been true of the Czech
Republic since 1996.

(1) Warsaw Voice, 28.5.2000, p. 15.

Table 4: Per capita GDP in purchasing power parity terms (in ECU)

1993

1994

1995

1996

1997

1998

1995

1996

1997

1998

EU = 100

BG

CZ

EE

HU

LV

LT

PL

RO

SK

SI

4 400

4 700

4 900

4 600

4 400

4 600

9 500

10 300

11 100

12 000

12 300

12 200

5 100

5 200

5 600

6 100

6 900

7 300

7 400

7 800

8 100

8 600

9 200

9 800

4 000

4 200

4 300

4 700

5 200

5 500

4 600

4 800

5 300

5 800

6 200

5 200

5 600

6 100

6 700

7 300

7 800

4 800

5 200

5 600

6 100

5 800

5 500

6 300

6 700

7 300

8 100

8 800

9 300

9 900

10 700

11 300

12 200

13 000

13 700

Average

5 800

6 200

6 600

7 200

7 500

7 700

Source: Eurostat, Economic Accounts of the European Union, 1998.

28

63

32

46

24

27

35

32

41

64

38

25

65

33

47

25

29

37

33

44

66

39

23

64

36

47

27

30

38

30

45

67

39

23

60

36

49

27

31

39

27

46

68

38

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2.5.2.
Apart from in Bulgaria, Romania and the Czech
Republic, CEEC growth rates have been higher than the EU
average, slowly leading to income convergence.

2.5.3.
In some CEEC, per capita GDP in purchasing power
parity terms already stands at more than 50 % of the EU

average. Slovenia leads the field with around 70 %. Comparing
incomes in terms of exchange rates, however, produces a very
different picture. Here, the differences between the CEEC and
the EU are considerably greater than when comparing in terms
of purchasing power parity (see table 5).

Table 5: Per capita GDP/exchange rates (in ECU)

1993

1994

1995

1996

1997

1998

1995

1996

1997

1998

EU = 100

BG

CZ

EE

HU

LV

LT

PL

RO

SK

SI

1 100

1 000

1 200

900

1 100

1 300

2 800

3 300

3 800

4 400

4 500

4 900

900

1 300

1 800

2 400

2 800

3 200

3 200

3 100

3 300

3 500

4 000

4 200

700

700

1 200

1 400

1 600

2 000

2 300

1 000

1 200

1 700

2 300

2 600

1 900

2 100

2 500

2 900

3 100

3 600

1 000

1 100

1 100

1 200

1 400

1 500

1 900

2 200

2 500

2 700

3 200

3 400

5 400

6 000

7 200

7 500

8 100

8 800

Average

1 900

2 100

2 400

2 600

2 900

3 200

Source: Eurostat, Economic Accounts of the European Union, 1998.

7

22

10

19

8

7

14

6

14

41

13

5

24

13

19

9

9

16

7

15

41

14

6

23

15

21

10

12

16

7

16

42

15

7

24

16

21

12

12

18

7

17

44

16

2.5.4.
The major disparity between income and wage levels
in terms of exchange rates and purchase power parities (e.g.
more than 1:4 in Bulgaria and around 1:2 in the Czech
Republic and Hungary [see table 4]), indicates that considerable
adjustments will be needed in the course of EU accession.

Such differences are unlikely to continue in a com-
2.5.5.
mon market with relatively tightly linked currencies in the
run-up to monetary union. The prices of tradeable goods will
have to adapt. Increasing real wages to offset these price
increases will undermine the CEEC’s wage advantage, and with
their competitiveness. The dilemma
it a key element of
between cutbacks in real wages or a collapse in exports can be
resolved only through an appropriate increase in labour
productivity which, despite rising wages, will lower unit labour
costs (productivity-driven wages policy) — or at least put a
brake on them. EU schemes must help support the requisite
investments in education, fixed assets and infrastructure.

2.6. Social security and health

2.6.1.
As a result of high unemployment and with a view
to easing budgetary pressures, the CEEC found themselves
obliged to adapt their social security systems to the changed
situation. The social security and pension systems in particular
are suffering as a result of the difficult conditions brought
about by tight budgetary policies. Attempts are therefore being
made in all of
the applicant states to supplement state
insurance systems with company and private care schemes.

2.6.2.
Pensioners are also hit by the trend in prices for basic
consumer goods. However, governments should refrain from
introducing price controls to solve the problem.

2.6.3.
Unemployment insurance also changed radically in
some countries over the past few years. Both the payment
period and the level of benefit have been cut and the eligibility
criteria are now more strictly applied.

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2.6.4.
On the whole, despite the moves made so far to
reform social security systems, considerable effort is still
required, since, in the words of the European Commission,
‘standards in the applicant states are generally low’ (1). Govern-
ments in central and eastern Europe thus face a twofold
difficulty: the establishment of a social security system which
(a) can be financed and (b) is of a high standard.

2.6.5.
In addition to social protection, health services have
also deteriorated overall as a result of massive savings in public
budgets. In all the CEEC, for example, the number of hospital
beds has fallen markedly over the past few years. Apart from
Slovenia, where overall public health care is comparable to EU
levels, all the other applicant states must do much more in the
drive to improve their health systems.

2.7. Other economic developments

2.7.1.
Schemes to stabilise and liberalise the economy as
well as moves towards privatisation have generally improved
economic conditions in the applicant states, allowing compani-
es to operate within a free market. Decisions about what, how
much and for whom to produce are no longer taken, as they
were a decade ago, by public authorities and planning boards;
nowadays, the market decides.

2.7.1.1.
Virtually all countries have experienced very rapid,
large-scale privatisations. According to a World Bank study (2),
the results have varied markedly depending on country, sector,
size of undertaking, selected method and the legal and
institutional environment.

2.7.1.2.
Privatisations have tended to be more successful in
places with a sufficiently well developed legal and institutional
environment and where few core shareholders and foreign
investors have had stakes in the privatised companies. The
privatisation of small businesses (small-scale privatisation) has
also been relatively successful.

2.7.1.3.
Results have been poor where the primary aim has
been to privatise as many companies as possible as quickly as
possible, without giving adequate consideration to the legal
required and the macro-
and institutional environment
economic impact of privatisation on jobs and income trends.
Moreover, in the course of privatisations, it was often not the
best bidder whose offer was accepted, but people and compani-
es with close links to the awarding authority.

2.7.1.4.
In many cases, therefore, although privatisation
has boosted individual companies’ productivity, this has often
been paid for by a rise in unemployment and growing income
disparities. A frequent problem has been the failure to establish
the requisite legal and institutional
framework in sectors
providing public services (such as energy); this may result in
the emergence of monopolies. In both cases, back-up measures
are needed to counter any adverse developments. Overall,
however, it may be said that privatisation has been a key tool
in the requisite structural change.

2.7.2.
Economic restructuring has also had a positive
impact on price trends. The strong inflationary pressure — so
much in evidence at the start of the transition period because
of the ending of subsidies for basic consumer goods and
because companies were unable to respond quickly enough to
changes in demand by broadening supply and renovating or
expanding their production plants — has for the most part
been reduced.

2.7.3.
The central banks fostered this positive development
by pursuing a responsible interest rate and monetary policy.
All the CEEC ended up by making great strides forward in the
fight against inflation, although,
in the case of the Czech
Republic, a very restrictive approach in the second half of the
1990s meant accepting a fall in growth, accompanied by a
rapid rise in unemployment.

2.7.4.
The stabilisation of economic and political con-
ditions in the CEEC has generated a continuous inflow of
foreign direct investment (FDI). Investors providing capital or
setting up new businesses in the CEEC have two main goals in
mind. One objective in setting up new business establishments
is related to the market (i.e. tapping into new market outlets)
and proximity to customers, a factor which companies see
as particularly important. Another is cost-related (taking
advantage of the relatively low production costs); this plays a
predominant role mainly in the manufacturing sector. For the
CEEC, however, both effects are welcome. The impact of (i)
market entry or expansion and (ii) lower manufacturing costs
(the result not least of the wage differential between country
of origin and country of destination) benefits the CEEC by
creating jobs and boosting prosperity.

(1) Agenda 2000, Vol. 1: For a stronger and wider Union, Vol. 2: The
challenge of enlargement, p. 59 (COM(97) 2000 of 15.7.1997).
(2) John Nellis: Time to rethink privatisation in transition economies?

World Bank, 1999

2.7.5.
The decision taken at the Helsinki European Council
to start bilateral accession negotiations with Slovakia, the two
remaining Baltic states, Bulgaria and Romania further boosted
foreign investors’ interest, not only in these countries but also
in the central and eastern European applicant states as a whole.

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2.7.6.
Growth rates in the individual CEEC are, with few
exceptions, higher than the EU average. However, overall
economic growth is lower than anticipated in Agenda 2000.
Hence, the gap in economic performance between the CEEC
and the EU will narrow much more slowly than predicted just
a few years ago.

2.8. Equal opportunities

2.8.1.
Legislation in the individual applicant states is largely
consistent with the key requirements of EU law relating to the
equal treatment of women and men. Unfortunately, practice
often differs. As in the Union, the main problems arise above
all because economic difficulties affect women and men in
different ways (1). Moreover, awareness of the importance of
equal opportunities for men and women remains low.

2.8.2.
Equal opportunities, however, relate not only to the
relationship between men and women, but also to the
avoidance of any kind of discrimination based on ‘racial or
ethnic origin, religion or belief, disability, age or sexual
orientation’
(Article 13, EC Treaty). With regard to the
situation of minorities in particular (e.g. Roma), there are still
considerable problems in the applicant states.

3.

The opportunities of EU enlargement and potential
problems

3.1.
The political changes in eastern Europe at the end of
the 1980s and the resultant transition process presented major
these countries have
challenges for the CEEC. To date,
undergone many positive developments and successful
reforms. The reform process has however also been marked
by rising unemployment and budget-related cuts in social
protection and health care .

3.3. The opportunities of enlargement

3.3.1.
date has already brought many advantages to both sides.

Cooperation between the Union and the CEEC to

Up to now, the EU has benefited in particular from
3.3.2.
trade with the CEEC and has a significant trade surplus with
these countries. Trade with the CEEC as a percentage of the
EU’s overall external trade reflects the CEEC’s relatively low
gross national product. A further rise may be expected,
particularly as a result of growth in both the CEEC and in the
EU.

The CEEC benefit above all

from the relatively
3.3.3.
unhindered access to the EU market, from the various EU
support measures (financial aid, political dialogue etc.) and
from the substantial
involvement of many companies in
eastern Europe. Foreign direct investments to date have had a
largely positive impact on both jobs and the economy.
Furthermore, western European companies operating in the
applicant states generate a considerable share of CEEC foreign
trade.

3.3.4.
In addition to these benefits which have emerged for
both sides since the opening-up of eastern Europe, enlargement
also presents a range of further opportunities. On the one
hand EU enlargement to include the CEEC is a contribution to
peace and security in Europe. On the other, enlargement is, as
the ESC reiterated in earlier opinions, an ‘historic opportunity’
which should not be missed. It will bring together all the
peoples of Europe within a ‘common home’, bring stability
and prosperity to the European continent forever, and strength-
en the political, economic, social and cultural influence of
Europe (in the widest sense) throughout the world(2).

3.4. Problems

In taking this

long-term view, however,

3.4.1.
is
important not to forget that developments in the CEEC will
still be accompanied by many problems in the medium term.
This is due to the huge ‘double burden’ facing the accession
states: while still having to cope with the process of transition,
they have undertaken to adopt the entire EU legal acquis.

it

3.2.
The EU met its responsibility in the first instance by
supporting the reform process in the CEEC with funds (Phare)
and trade agreements (Europe Agreements). Then, at the 1993
Copenhagen European Council, the EU heads of state or
government also agreed that the CEEC would be able to join
the Union if certain criteria were met. Accession negotiations
were finally officially opened in March 1998.

The tight budget situation in the CEEC, weaknesses
3.4.2.
in their systems of public administration and law (3) and
increasing pressure on labour markets will make it even more
difficult to manage this ‘double burden’. Integrating the CEEC
into the EU internal market will also heighten competition in
these countries.

(1) Agenda 2000, Vol. II: The challenge of enlargement (impact

study), p. 46 (COM(97) 2000)).

(2) OJ C 19, 25.1.1993 and OJ C 129, 10.5.1993 — EC/CEEC
relations (Bulgaria, Romania and the Baltic states) and OJ C 75,
10.3.1997 — Implications for CAP of the accession of countries
of central and eastern Europe.

(3) Cf. various progress reports of the EU Commission.

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3.4.3.
It is worrying that the economy is split between
competitive, clearly export-oriented sectors that are relatively
productive and supported by foreign investment and sectors
serving the domestic market that are not very competitive,
have low productivity and above all inadequate technology.
Rapid integration of the latter into an open and competition-
oriented system is particularly problematic (1).

Lack of capital — and the resulting lack of innovation
3.4.4.
— poses a particular problem for many companies. This
concerns SMEs in particular, which are a pillar of the transition
process and make a large contribution to GNP and employ-
ment (2).

3.4.5.
These weaknesses may exacerbate the situation in
trade and industry in view of emerging merger trends. At the
moment the degree of concentration in the retail sector is very
low, but pressure from foreign retail chains on the eastern
European market is intensifying. This means that in both the
retail and other sectors, such as consumer and business
services, many companies will face a higher risk of failure and
closure and will be more subject to structural change (2).

The demise of regional industrial giants that are no
3.4.6.
longer competitive is ongoing and threatens the livelihood of
whole regions. If it is not possible to set up smaller businesses
with marketable products, then the wide local disparities
already to be found will be further exacerbated.

3.4.7.
In 48 of the 50 regions of eastern Europe, per capita
gross domestic product is less than 75 % of the EU average.
This situation is typified by the enormous regional differences
in income. At the bottom end of the income scale is the Polish
region of Swietokryskie, with just 24 % of the EU average. But
income levels are also relatively low in the Baltic Republics,
Bulgaria and Romania (25 %-34 % of the EU average). Regions
of the applicant states on the EU’s future external borders face
particular problems as a result of their exposed location. At
the other end of the scale are above all the urban centres of
central and eastern Europe, in particular the Prague region,
where income trends actually lie above the EU average (3).

(1) Hungary on the road to accession, OJ C 117, 26.4.2000, p. 38.
(2) EU Magazine 5/2000.
(3) Eurostat News Release No 48 of 18.4.2000.

3.4.8.
As the ESC already mentioned in its information
report, the situation in the CEEC presents certain risks that
should not be played down. On the one hand ‘there is the
danger of a “brain-drain” because of the existing considerable
discrepancy in incomes between the EU and the applicant
states; this may also have a damaging effect on the economic
catching-up process in these states. On the other hand, it is
likely that certain groups will have to face major social
hardships brought about not only by the ongoing process
of radical change but also triggered,
in particular, by EU
enlargement since both the consumer goods and the labour
markets will come under increasing pressure’.

In Agenda 2000 the Commission also noted that the
3.4.9.
applicant states will not be able to enjoy the benefits of
accession immediately, and that these benefits will not be
distributed evenly. For a long time after accession these
countries will face enormous adjustment pressures which may
generate economic, social and political tensions.

These tensions may also be felt in certain EU
3.4.10.
Member States, especially those that border on the CEEC, since
the huge income discrepancies create the probability of
increased labour migration and company relocations. This
may heighten pressure on the labour market. In the absence
of adequate transitional arrangements governing the free
movement of labour and services and specific measures to
address the problem, this will lead to higher unemployment in
these neighbouring Member States.

It is therefore essential to seek a socially sustainable
3.4.11.
accession, in order to ensure social peace in Europe and in
particular in the applicant states. A rapid accession without
the necessary structures to cushion against social hardship
could jeopardise the whole process of integration. Moreover,
without adequate measures to ensure sustainable employment
in the CEEC there would be a further increase in pressure on
labour markets in the Member States.

4. Making the enlargement process socially sustainable

The basic condition for accession to the Union is
4.1.
(1)
fulfilment of the ‘Copenhagen criteria’. These include:
establishment of democratic principles and structures,
(2)
development of a functioning market economy, and (3)
acceptance and transposition into national law of the whole
EU legal acquis (e.g. social and employment standards, environ-
ment and consumer protection measures).

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4.2.
However, meeting the Copenhagen criteria is in itself
not enough, because accession is not just an administrative
and technical matter, but rather a major sociopolitical pro-
cess (1). This means that closer relations with the EU’s eastern
European neighbours and Community support measures must
not be restricted to legal matters or to economic, technical and
financial areas. At issue therefore is not only what enlargement
means from an economic or legal perspective, but above all
what benefits enlargement can bring for the people of Europe.

4.3.
It is agreed that enlargement offers a major opportunity
to bring Europe together and to improve people’s lives.
However, this process is not automatic and does not happen
of its own accord. For many people in the applicant states, for
instance, the transition process to date has brought not only
benefits. This has not only influenced the attitude of wide
sections of the population towards the market economy, but
is also reflected in the considerable scepticism among people
with regard to EU enlargement. Growing scepticism in the
applicant states indicates that people in the CEEC have not yet
been adequately informed or that they expect accession to
bring disadvantages. Recent surveys also indicate a similar
mood in the current EU Member States (2).

4.4.
An important role must therefore be assigned to the
social dimension in the European integration process (3). Only
if the EU and governments take the concerns of people on
either side seriously and pursue with them a political discussion
about these concerns, can the enlargement process be free of
serious political conflict. This also includes dialogue with the
public — in other words an appropriate information and
communication policy on both sides channelled towards
citizens’ needs. In this connection, the Committee welcomes
the initiative announced by the Commission to develop a
communication strategy.

In the short time since the fall of communism in 1989,
4.5.
considerable progress has been made in the CEEC towards
developing stable democracies and functioning market econ-
omies. The ESC nevertheless concludes that in order to make
the enlargement process socially sustainable, there is still a
great need for action to reduce regional economic disparities
(not only between and within the applicant states, but also

(1) OJ C 51, 23.2.2000.
(2) European Commission, Eurobarometer, report 53, October 2000.
(3) Cf. ESC: OJ C 339, 31.12.1991 and OJ C 129, 10.5.1993, as well
as A3-0189/92: European Parliament Resolution on the strategy
of the European Union to prepare for the accession of the
countries of Central and Eastern Europe, with a view to the
European Council
in Essen (9-10 December 1994); European
Parliament Resolution of 17 April 1996 on the White Paper:
‘Preparing the associated countries of Central and Eastern Europe
for integration into the internal market of the Union’ (OJ C 141,
13.5.1996).

between the EU and these states), to avoid social hardship, to
take more account of the social dimension, and finally to
create effective social partnership structures and strengthen
social dialogue.

4.6. Promoting economic and social cohesion

Since the continued success of the transformation
4.6.1.
process depends on management of its economic and social
impact, the economic strategies used to effect the transition to
a market economy must be socially sustainable. Market-
oriented and social measures must always go hand in hand (4).
Adverse social and employment trends could cause internal
political problems in the CEEC and threaten integration.

4.6.2.
The European Parliament also emphasises the role of
investment in developing improved social structures in the
countries of central and eastern Europe (5). The European
Parliament considers development of an effective social dimen-
sion to be a basic pre-condition for averting the potential
undesirable effects (6) of integration into the internal market (5).

Questions relating to employment, which under the
4.6.3.
Amsterdam Treaty now play a much more important role in
Community policy, should also be addressed more specifically
in negotiations with the applicant states. Both in agriculture
and industry, there are likely to be considerable structural
changes, which could threaten many jobs. Appropriate macro-
economic and regional and structural measures should there-
fore be taken — taking into account the different degrees of
transition and different structures in the applicant states —
with the aim of developing new employment opportunities
and obviating the impending increase in unemployment with
all its implications. Given the state of the applicant states’
budgets, however, discussions are needed on the financing of
such measures.

4.6.4.
Border regions are particularly affected by the expect-
ed changes. The best way for them to deal with these changes
is through cross-border cooperation (e.g. by using existing EU
programmes). The Committee welcomes the fact that the
Commission is already working on a communication on the
development of border regions.

(4) OJ C 129, 10.5.1993.
(5) European Parliament Resolution of 17.4.1996 on the White
Paper: ‘Preparing the associated countries of Central and Eastern
Europe for integration into the internal market of the Union’ (OJ
C 141, 13.5.1996).

(6) György Farkas, deputy Secretary-General of

the Hungarian
the
Chamber of Commerce, estimates
600 000 SMEs in Hungary would not survive a rapid accession
(Wirtschaftswoche No 13, 25.3.1999, p. 30).

that one third of

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4.6.5.
Agriculture in the CEEC is a particularly difficult area.
No matter how big an effort is made, the structural problems
faced by agriculture in many applicant states will take more
than a few years to be overcome. It can be assumed that, above
all, small farms with very low productivity (e.g. in Poland) will
not be able to survive the enormous competitive pressures of
the internal market in the foreseeable future. It will take a
long time to make the necessary structural adjustments and
strengthen the competitiveness of agriculture in the CEEC (1).

4.6.6.
It must also be borne in mind that the value of farms
should not be seen in purely economic terms. As well as their
importance for environmental protection and the upkeep of
the countryside, their capacity to relieve the social burden
must also be recognised as long as it is not possible to create
enough alternative jobs outside agriculture (1).

4.6.7.
The Committee thus welcomes the establishment of
new policy tools as part of the pre-accession strategy (Sapard,
ISPA) and the decision of the employment and social affairs
ministers on 9 March 1999 to increase the emphasis on
employment and social policy in the Phare programme. EU
Commission moves to help the applicant states draw up an
employment strategy consistent with the Luxembourg process
should also be highlighted. As part of this, the Commission is
drawing up — individually with each applicant state — a
joint assessment paper (JAP), which forms the basis of the
employment policy review process provided for under the
accession partnerships. This makes it possible, when laying
down employment objectives, to cater as far as possible for
the individual requirements and particular national circum-
stances of each accession state.

that, at

It should be noted, however,

4.6.8.
the ESC
enlargement conference, many participants from the applicant
states were critical of EU schemes in general (in terms both of
application and access), accusing them — despite Commission
lacking transparency and involving
improvements — of
excessive red tape (e.g. in twinning arrangements). The Com-
mittee would therefore ask the Commission to address these
criticisms accordingly.

4.6.9.
A key pillar of any employment strategy in the CEEC
must be the development of business. As the Committee
already indicated in its information report on the employment
situation and social situation in the CEEC, enterprises make an
essential contribution ‘to the creation of new jobs and the
generation of income, which are prerequisites for further
economic and social development. Appropriate measures will
therefore have to be taken, e.g. in the fields of training and
technical assistance, to develop efficient enterprises’.

(1) OJ C 51, 23.2.2000.

4.6.10. Without such measures there is a risk not only that
insufficient new jobs will be created, but that existing jobs will
be threatened, unless businesses in the CEEC are prepared for
the further structural changes made necessary by complete
integration into the internal market and the accompanying
increase in competitive pressure.

4.6.11.
Another point concerns social service systems.
Here, too, the ESC has already noted that as part of the pre-
accession process more account must be taken, under Article
16 of the Amsterdam Treaty, of such systems which work
more specifically to strengthen social cohesion and alleviate
the distress of the socially most disadvantaged. These systems
must therefore not be allowed to succumb to privatisation
pressures; rather their importance in meeting present-day
needs must be recognised (2).

4.6.12.
The problem of a growing ‘brain drain’ in the CEEC,
which may make it more difficult for their economies to
catch up, was discussed at the enlargement conference on
16 November 2000 referred to above. It was clear opinions
vary on the matter. While some are warning of a growing
exodus of human capital from the CEEC, moves are being
made in the Member States to meet manpower requirements
in certain areas (such as IT) by taking on skilled labour from
the applicant states. Some applicant state representatives also
argue that the ‘brain drain’ has for the most part already taken
place. They therefore propose staging a joint seminar together
with the ESC on this issue. In this context, the ESC welcomes
the call from the Commission and the Council to the applicant
states to provide an assessment of anticipated future migration
movements and their impact on labour markets and the
economy.

Lastly, the problem of corruption and the combat-
4.6.13.
ing of fraud should be mentioned here. As is made clear in the
regular Commission reports on the applicant states’ progress
on the road to accession, the CEEC still have a great deal to do
in the fight against corruption.

4.7. Strengthening social dialogue

4.7.1.
The ESC has already noted on several occasions that
developing relations between employers and employees as
autonomous social partners (while maintaining the role and
responsibility of government) is a crucially important part of
the accession process (3).

(2) Cf. European Parliament Resolution of 17.4.1996 on the White
Paper: ‘Preparing the associated countries of Central and Eastern
Europe for integration into the internal market of the Union’ (OJ
C 141, 13.5.1996) and CEEP 99/PECO 3: Written position on the
EU’s enlargement.
(3) OJ C 129, 10.5.1993.

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4.7.2.
Enlargement will succeed only if it is underpinned by
a broad social consensus. This consensus requires a socially
acceptable process in which the social partners and other
interest groups (e.g. consumers, voluntary organisations) are
involved (1).

4.7.3.
As the Commission progress reports show, social
dialogue is developing in very different ways in the applicant
states. According to the Commission, a tripartite dialogue
is
employers
(between
developing satisfactorily in Estonia, and Slovenia, whereas in
other countries there is room for improvement.

government,

employees)

and

4.7.4.
The ESC was also able to ascertain in various talks
with social partners in the CEEC (e.g. through the joint
consultative committees), that there are considerable difficult-
ies on the social dialogue front; these concern both the social
partners’ dialogue with governments and among themselves
and structural weaknesses and problems within particular
social partner organisations.

4.7.5.
In the light of these talks, it is apparent that, in some
applicant states, workers’ rights are not monitored, there is not
enough focus on social dialogue and the social partners are
not adequately involved in preparing and drawing up reports
for the Commission. Certain governments are also very
reluctant to grant the social partners an autonomous role. And
in some CEEC there are major disparities in the degree of
organisation and development of employers’ and employees’
bodies. For instance, in some countries employers are much
less well organised than employees. From the unions’ point of
view it is difficult to conclude sector-wide collective agreements
owing to the absence of a negotiating partner. Most wage
agreements are therefore reached primarily at company
level (2).

4.7.6.
These problems must be overcome before there can
be effective social partnership structures that are equal to the
challenges of the transition and enlargement process. But
this also requires that the social partners have sufficient
understanding of the characteristics and problems of a market-
oriented economy, privatisation and business restructuring
policies, the basic principles and techniques for concluding
wage agreements,
labour market organisation, vocational
training, etc. (3).

(1) Cf., for example, Reinforcing the pre-accession’s strategy, OJ
C 157, 25.5.1998, p. 58, Social policy: the social dialogue, OJ
C 95, 30.3.1998.

(2) ESC opinion ‘Poland on the road to accession’, OJ C 51,

4.7.7.
Against this backdrop, it is important for the appli-
cant states that their social partners discuss these matters with
their EU counterparts, given their many years of experience
with a market economy and with EU policies. The Communi-
cation from the Commission on adapting and promoting the
social dialogue at Community level, in which the Commission
also focuses specifically on the applicant states, underlines the
role of social dialogue and provides for support measures, is a
positive step in this context (4). At this point, the Committee
would also refer to the Nice European Council conclusions on
strengthening the social dimension of enlargement, where the
EU heads of state or government stressed support for the role
of social dialogue in the context of enlargement.

4.7.8.
Companies from EU Member States operating in the
applicant states should also lead by example in fostering social
dialogue and industrial relations by, for instance, authorising
works councils or helping establish viable employers’ organis-
ations in the CEEC and playing a part in these organisations.

4.7.9.
For several years already the ESC itself has been
widely involved in promoting social dialogue with representa-
tives from the applicant states. Various hearings have been
held with representatives of CEEC economic and social interest
groups (e.g. in Brussels, Warsaw, Tallinn) and bilateral relations
have been established with individual countries, e.g. through
the Joint Consultative Committees, which comprise members
of the ESC and members of similar interest groups in the
applicant states (5).

4.7.10.
CEEC representatives at the enlargement conference
pointed out, among other things, that the work done by
international organisations operating in their countries should
be better coordinated and proposed that a role be given to the
Committee in that context.

5. Conclusions and recommendations

5.1.
As the ESC has already said, eastward enlargement of
the EU represents an historic opportunity to unite all the
peoples of Europe in a ‘common home’, thereby ensuring
lasting stability and prosperity in Europe.

5.2.
However, the benefits of EU enlargement will not be
enjoyed equally across the board. Enlargement is likely to be
accompanied by fiercer competition and increased structural
change in the CEEC, which will step up pressure on goods and
labour markets. For certain groups this many result in social
hardship that should not be underestimated. Against this
background, growing scepticism among the general public in
the applicant states can be seen as an indication of the fears
shared by many.

23.2.2000.

(4) COM(98) 322 final. Cf. speech given by Commissioner Flynn in

(3) Economic and social organisations in the countries of central and
eastern Europe — consultative mechanisms, OJ C 19, 23.1.1993.

Warsaw on 18.3.1999 (Speech/99/48).

(5) OJ C 157, 25.5.1998, p. 58.

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5.3.
The ESC therefore emphasises the importance of the
social dimension in the enlargement and integration process.
The enlargement process cannot take place without major
political and social conflicts unless sufficient attention is paid
to the social dimension. But this means taking very seriously
— perhaps much more seriously than hitherto — the fears of
those considered to be more vulnerable or perceived as being
the losers(1).

5.4.
Against this backdrop, the Committee welcomes the
Commission communication entitled Social Policy Agenda
which sets out the Commission’s objective ‘to contribute to
preparing the enlargement of the Union under conditions of
balanced economic and social development’ (2).

5.5. Moreover, the Committee feels that, before successful
accession can take place, it is essential to adapt the EU cohesion
and structural programmes and the common agricultural
policy so that the applicant states can accede on an equal
footing.

In addition to the objectives and actions set out in the
5.6.
Social Policy Agenda, the ESC calls on the Commission to give
greater attention to the following issues during the accession
negotiations and to consider how they can be appropriately
addressed:
— the urgent need to formulate appropriate, socially- and
environmentally-sustainable, development strategies for
key problem areas (e.g. heavy industry, agriculture)
building on an overall approach;

— the need for training measures at every level, but
especially for economically disadvantaged regions, so that
the economic gulf between town and country can
eventually be narrowed. Such training measures are also

needed in agriculture and heavy industry to accompany
structural change and cushion the effect of adverse
employment trends; the Committee feels that the import-
ance of training in the CEEC cannot be stressed often
enough and would refer in this regard to its information
report on the European dimension of education:
its
nature, content and prospects (3) and to the conclusions
of the Lisbon European Council on education policy;

— improving conditions for SMEs by promoting entreprene-
urship (including access to credit facilities), setting up
processing and marketing organisations, providing for
technical assistance and training measures and estab-
lishing an appropriate microeconomic environment, with
the aim of encouraging economic growth and creating
permanent jobs;

— promoting social dialogue at the various levels and raising
awareness among the social partners and civil society
organisations, so that they organise themselves more
effectively on their own;

— establishing social service systems that help to strengthen
social cohesion and alleviate the plight of the socially
most disadvantaged;

— the need to step up dialogue with civil society about
preparing for EU accession and the consequences of
accession;

— fostering equal opportunities for all, especially between

men and women and in relation to minorities;

— greater transparency in the application and use of EU
programmes and other possible forms of support.

(1) OJ C 51, 23.2.2000.
(2) COM(2000) 379 final.

(3) The European dimension of education: its nature, content and

prospects.

Brussels, 25 April 2001.

The President

of the Economic and Social Committee

Göke FRERICHS