By Andr s Rodr guez-Pose London School of Economics Oxford University Press ISBN 0-19-874286-X

1. by Andr�s Rodr�guez-Pose London School of Economics Oxford University Press ISBN 0-19-874286-X

2. Part III

3. Chapter 6

4. Introduction The fall of the Berlin Wall in November 1989 marked the beginning of the end of the post-WWII polarized world Countries to the East of former the Iron Curtain looked immediately towards the prosperous and democratic West Membership of the EU became an indicator of future stability and prosperity for central and eastern European countries (CEECs) The EU, despite a warm welcome, was somewhat slow to react: Because of the economic, social and political situation of countries in CEE Because of the degree of internal restructuring needed in order to accommodate new members

5. Change in central and eastern Europe The fall of the Berlin Wall in November 1989 symbolically marked the beginning of a process of radical transformation in CEE This process entailed different types of transition Political transition: From one-party states to democratic regimes Economic transition: From centrally planned socialist economies to capitalist systems Identity transition: Represented by changes in national allegiances Diplomatic transition: Integration or reintegration into a �Western-dominated� international system

6. Different transitions in central and eastern Europe Political transition: From communist one-party states to democratic regimes Successful in the Czech Republic, Hungary, Poland, Slovenia, and, increasingly, Slovakia Baltic states close to that stage (question marks about the treatment of minorities) Right track, but early stages: Bulgaria, Romania, and, increasingly, Croatia Still far away: Russia, the Ukraine, Yugoslavia, Albania Plain dictatorships: Belarus

7. Different transitions in central and eastern Europe (II) Economic transition: Mammoth economic changes Serious difficulties in the passage from centrally-planned to free-market systems Wholesale reform of how the economy is run Change in the attitudes and habits of economic agents End of central planning, of state support and subsidies to basic industries Introduction of market institutions such as competition and profit End of full employment and employment for life Introduction of �real� trade

8. Different transitions in central and eastern Europe (III) Economic transition (II): Two alternative approaches to economic transition: Shock therapy: Rapid demise of socialist economic institutions and their replacement by market institutions (Poland and Hungary, to a lesser extent) Gradual and incremental transition: step by step change of institutions (Czech Republic) No system has yielded magical results Loss of economic weight of most CEECs Severe recession in the early 1990s Steep rise in unemployment Transition to capitalism has often implied the loss of one generation�s worth of income (Fischer, Sahay, and V�gh, 1997)

9. Different transitions in central and eastern Europe (IV) Economic transition (III): Weak economic situation across CEECs The republics of the former USSR have been especially hard hit Although candidate countries, Turkey and the European republics of the former USSR together have a population which is similar to that of the EU-15, the size of their economies put together represents less than the joint size of the Dutch and Spanish economies The GDP per capita of candidate countries is lower than that of the poorest member states in EU-15 Economic transition is proving more complicated that political transition Few CEECs have managed to achieve a full transition to a market economy

10. Evolution of GDP

11. GDP in CEECs with respect to the EU

12. GDP per capita in CEECs

13. Different transitions in central and eastern Europe (V) Identity transition: From being citizens of a state to being citizens of another (in some case with little or no historical tradition): Former East Germans, becoming citizens of a united Germany Former Czechoslovakians, becoming Czech and Slovak citizens Former Soviets citizens, being divided into 15 independent republics. Collapse of the former Yugoslavia National identity still not well defined: Especially in states with little historical tradition (Belarus, Bosnia-Hercegovina, Macedonia, Moldova) In states with large minorities

14. Different transitions in central and eastern Europe (VI) Diplomatic transition: Failure of regional co-operation after the collapse of communism: Lack of success of regional co-operation: the Central European Free Trade Area (CEFTA) never really got off the ground Commonwealth of Independent States (CIS) in the former USSR with little economic and political clout Integration or reintegration of CEECs into a �Western-dominated� international system: From the Warsaw Pact to NATO Integration in international organizations with economic content: IMF, OECD, WTO Membership of the EU as the ultimate goal

15. Enlargement and European integration EU engaged during the 1990s in the widening vs. deepening debate: Deepening: Steaming ahead with greater economic and political integration and reform before opening the gates to new members Consequences: It becomes more difficult for candidate countries to join, as the acquis communautaire expands considerably Widening: Allow candidate countries in first and then undertake reforms Consequences: The consensus to proceed with economic and political integration becomes more difficult

16. Enlargement and European integration (II) The position each country adopted has depended on their future vision of the EU, as well as on internal political considerations France, Benelux, Spain, and Portugal on the deepening side Britain on the widening side, because of the deeply-rooted Euroscepticism in the country Germany, Italy, and Greece in two minds: pro-widening, but wanting at the same time to deepen the EU Admission of Austria, Finland, and Sweden in 1995 reinforced the pro-widening camp Initial decisions favoured the deepening agenda Process of enlargement has been slow and relatively ad hoc Introduction of criteria in the 1993 Copenhagen summit

17. Enlargement and European integration (III) �Copenhagen criteria� 1993: stable institutions guaranteeing democracy, the rule of law, the protection of minorities, and human rights; a functioning market economy, capable of coping with an increasingly competitive market pressure an institutional framework capable of assuming the obligations of the acquis communautaire in its entirety. Enlargement, however, played second fiddle to economic and political integration until the implementation of the single currency It is only since the arrival of the Euro that enlargement has become the EU�s greatest priority

18. Enlargement for candidate countries For candidate countries the EU is regarded as guaranteeing: Democratic stability Economic prosperity But it also implies: Swallowing the bitter pill of thorough economic, institutional, and political reform Economic reform may have important implications for economies that are, as a general rule, much poorer that previous candidates Greater need for adjustment than in previous enlargements as a result of the growth of the acquis communautaire in recent years

19. Enlargement for the EU Enlargement will increase the heterogeneity of the EU and therefore requires a rethinking of European institutions and policies The Treaty of Rome was originally devised for six member states, enlargement to twenty five or more members implies a thorough revision of the Treaty� And a thorough revision of the current institutional framework� And of the decision-making rules Enlargement has also important budgetary implications Thorough revision of main EU policies (agricultural, structural, and cohesion) Enlargement may revive the large flows of east-west migration of the early 1990s

20. Conclusion Enlargement will transform the EU It will increase political and economic stability across Europe It will increase the budgetary burden on the EU if no thorough reform of current policies is undertaken It may lead to institutional paralysis without thorough reform It will tilt the balance of power in the EU, probably in Germany�s favour A successful enlargement requires a thorough reform of: The economies, policies, and institutions of applicant countries A thorough institutional and policy reform in the EU itself