Redefining the European Union: Eastward Enlargement

Heather Grabbe and Kirsty Hughes

The Royal Institute of International Affairs

May 1997, briefing paper No. 36

Introduction: why enlarge?

Eastward enlargement of the European Union, the focus of political and economic integration in Europe, is a key part of creating a new institutional architecture adapted to post-Cold War priorities. A successful EU enlargement would be a central contribution to extending much further eastwards the zone of stability and security created in western Europe since the Second World War, helping to heal divisions and making some amends for the postwar partition of Europe into spheres of influence. By providing a pan-European framework to encourage economic and political integration between East and West, the EU would be a central support for consolidating democracy and market reforms.

The EU is now moving towards admitting its first central European members early in the next century, albeit after a slow start. It faces two main challenges: developing appropriate institutions and policies for an enlarged Union, while also continuing to support the political and economic transformation of central and eastern Europe (CEE). The EU has developed a number of initiatives for these tasks, most notably its pre-accession strategy, and more will emerge during 1997-8. But it still lacks an overall strategy for enlargement to ensure that the outcome is a coherent set of institutions and policies which allow the enlarged EU to function and provide sufficient assistance to those CEE countries excluded from the first accessions. There is a danger that the end result will be a very long process of enlargement which fails to provide an adequate framework for European integration, with damaging consequences for the EU itself and for the countries left on its periphery.

Where we are now

The EU has moved slowly in responding to the transformation in CEE since 1989. It has gradually accumulated a series of formal commitments to the principle of enlargement, but has made no promises to let in particular applicants, nor given any firm accession date. There are currently eleven applicants, including the CEE-lO (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia), as well as Cyprus. Malta has withdrawn its application and is seeking an alternative relationship with the EU, and no commitment has been made to open negotiations with Turkey.

Political and economic conditions for membership of the EU were set out at the Copenhagen European Council in 1993 (see Box 1). Although the objectives themselves are uncontroversial, the conditions are very general and difficult to measure. They do not commit the European Council to deciding on readiness for membership according to a particular set of criteria, although the European Commission's detailed opinions will be very influential in pinpointing priority areas. Rather than implying a fixed set of economic or other targets for applicants to meet, the first two conditions suggest a qualitative judgment by EU members about the basic quality of political life and stage of economic development in each applicant country.

For the applicants, the EU is a moving target. They are formally expected to adopt the whole of the acquis communautaire (the body of EU legislation and policies), but the acquis will change in the years leading up to accession because of moves towards economic and monetary union (EMU) and developments in the second and third pillars. ₁ Moreover, new members are unlikely to have to implement the whole acquis when some current EU members have not done so, owing to opt-outs and derogations. No country has yet adopted the whole of the acquis on accession, and previous enlargements have resulted in lengthy transitional periods and substantial derogations, which will be an important subject for accession negotiations.

Box 1

The Copenhagen conditions

1. Stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;

2. The existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union;

3. The ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union;

4. The Union's capacity to absorb new members, while maintaining the momentum of European integration

Source: European Council in Copenhagen, 1993.

The pre-accession strategy

From the early years of transition, the EU gradually developed a number of initiatives to develop links with the CEE countries and then to prepare them for membership. These initiatives were brought together and called the 'pre-accession strategy' at the Essen European Council in 1994.
The strategy has four main elements:

1. The Europe Agreements set a timetable for trade liberalization over ten years and constitute a free-standing framework for economic relations which need not be a precursor to accession. The agreements are asymmetric in that the EU has liberalized more quickly than the CEE countries, but this seeming generosity was undermined by initial quotas and tariffs for sensitive industrial products (now mostly lifted) and continuing restrictions on agricultural trade. There is resentment on the CEE side that restrictions covered many of the product sectors in which CEE exporters are most competitive.

2. The Structured Dialogue was intended to provide a high-level forum for developing practical cooperation in all three pillars of the EU ahead of accession, but it has no decision-making powers,- what has been called the 'unstructured monologue' is generally seen as ineffective and lacking a clear focus.

3. The Single Market White Paper is a formal attempt to prepare applicants for membership by setting out some of the legislation they have to implement in order to join the Single Market. The CEE countries have made major efforts to write Single Market directives into national law, but approximation is a long process and there are doubts about how strictly and effectively the legislation is being enforced and monitored. Making greater progress on harmonization is likely to be strongly emphasized by the EU side.

4. The Phare programme provides aid and technical assistance to the CEE countries. Now that many of the applicant countries are moving beyond the initial phases of economic transition, they will have less need of the preponderance of consultancy provided by Phare. There is discussion about refocusing it towards other forms of assistance, particularly for areas where applicants are far from EU norms, but this would have to be done without any additional finance, at least until the next EU budget is settled in 1999.

The pre-accession strategy has provided a framework for enlargement and some momentum towards negotiations, but it is not a comprehensive plan for enlargement. The focus is on technical adjustments to adapt applicants' legal and policy frameworks to match EU norms. Moreover, the initiatives lack any sense of strategic overview and political leaders have failed to give any sense of how an enlarged EU might work. The strategy now needs strengthening, but ideas about how to make it more effective are still vague and finances are constrained by the budget debate. Further discussion of developing the pre-accession strategy is awaiting the end of the intergovernmental conference (ICC) and the European Commission's 'opinions' or avis on the applicants' readiness for membership, which will clarify when and with whom negotiations will start. A key question is whether the strategy should now be focused on the first entrants, which need to adjust most quickly to the EU, or on those countries excluded from the first wave, where the momentum of reform might slow down. There is also a clear need for greater coordination of EU reforms with the sequencing and timing of accessions.

What next?

The EU committed itself to opening negotiations with Cyprus and Malta six months after the ICC is concluded, and expressed the hope that the preliminary stage of negotiations with some or all of the CEE applicants would begin at the same time. ₂ The ICC is due to finish at the Amsterdam summit in June 1997, provided agreement is reached and there is no delay following the UK general election. Enlargement negotiations could then start at the end of 1997, although a later start under the British presidency in the first half of 1998 is more likely, p05sibly following a 'photo defamille'. of existing and applicant member states at the Luxembourg summit in December 1997. At the same time, EU members face a crowded agenda which includes preparing for NATO expansion and the start of Economic and Monetary Union (see Box 2).

The European Commission is due to publish four sets of documents concerning enlargement shortly after the end of the ICC, to be called 'Agenda 2000'. One set will be the Commission's opinions on the applications. Another document will assess the impact of enlargement on the EU itself, including on main policy areas, and a third will present a draft Community budget to run after 1999. The European Commission will also produce a 'composite document' (or document ensemble) summarizing its analyses of the applicants and of the impact of enlargement on the EU. The Commission will have to decide whether and to what extent to present strong conclusions in this document, which might be seen to pre-empt political discussion among member states. 'Agenda 2000' is likely to constitute the first presentation of an overall enlargement strategy, pulling together the pre-accession strategy for applicant states and the reforms the EU will have to undertake.

Attention will be focused on what the opinions say about the individual applicants and what they imply about the EU's likely decisions on opening negotiations. The opinions will give a detailed assessment of the success and extent of democratic and economic transition in each country and of their readiness to take on different aspects of the acquis communautaire. Assessing democratization and transition to a market economy will be a difficult task for the EU because of the unprecedented nature of post-communist transition. Although there is something of a consensus among academics and policy-makers about the relative progress of the CEE countries in economic transition (see Box 3), defining and measuring democratic criteria will be much more difficult.

Box 3

How to measure transition?

In academic assessments, the Czech Republic, Estonia, Hungary, Poland, Slovakia and Slovenia tend to be put in a first group as the most advanced countries in economic reform. However, Slovakia's success on economic criteria is not matched by its democratic credentials, and this is likely to rule out early membership. The other two Baltic states have so far moved more slowly on economic reform than Estonia, although Latvia is now making much faster progress. Romania has been less successful in political and economic terms, although its new government is changing expectations of progress in the next few years. Following a major economic and political crisis, Bulgaria now tends to lie at the bottom of the list in assessments of the CEE- 10.

The opinions will have a major influence on EU decisions about opening and conducting negotiations. Because of their political sensitivity, the Commission will aim to produce clear, objective assessments which are comparable, topic by topic, between the applicants. The opinions may not state directly whether the Commission believes the EU should open negotiations with each applicant, but they are expected to give a clear guide to readiness for membership. EU member states are not obliged to follow this advice in making their decisions, but it will have a strong influence on their discussions.

Opening negotiations: some or all?

Although the applicant countries have had differing levels of success in political and economic reforms and are at different stages in transition, a widely-held view among the CEE- 10 is that the EU should aim to open negotiations with all applicants, although they would move through negotiations at varying speeds. Most EU member states have not taken public positions on this issue, and there are strongly differing views between member states about whether to open negotiations with only some countries or all of them. France has until recently argued for a photo de famille at the start of the negotiation process which would include all the applicant CEE countries; the Nordic countries would also prefer a common start. Germany and the UK seem to favour differentiation early on, opening formal negotiations only with a few.

Since it is generally accepted that countries will move through negotiations at different speeds, this may not appear to be a substantive debate. However, supporters of a common start argue that it is crucial in indicating the EU's commitment to all the countries, which is very important in underpinning reform efforts. The counter-argument is that it is inappropriate to begin negotiating if some countries receive negative opinions from the Commission and are clearly a long way from EU membership. Moreover, the Commission may not have adequate resources to run ten sets of negotiations simultaneously.

Underlying the different country positions on differentiation is the question of which applicants individual EU members most want to see join. Germany is presumed to give priority to Poland, and then the Czech Republic and Hungary, while the Nordic countries would like to see the Baltic states join the EU swiftly, particularly because they will not get into NATO quickly. Since only Estonia matches the top three central European countries in transition performance, opening negotiations with all of the CEE10 is a way of ensuring the inclusion of the other Baltic states.

It is unclear how this debate will be resolved. It seems likely that there will be some form of fudge, with a summit photo de famille followed by pre-negotiations' involving discussion of the opinions with each candidate, and then the start of negotiations only with the most advanced in transition. However the EU resolves this question, at some point it will become clear that certain countries will join much later than the others. Differentiation, whenever it happens, could have a damaging impact on the lagging countries' relations with the EU, but a sharp distinction at the start of 1998 could be particularly damaging by undermining reform efforts and in some cases destabilizing domestic politics, since governing parties and coalitions have given EU membership such a high priority in their policy frameworks. This danger is compounded by the prospect of 'double exclusion', whereby some countries are rejected for early membership of both the EU and NATO within a year.

How should the EU deal with countries excluded from the first wave of accessions? France's idea of a permanent European Conference of all existing and applicant member states (a 'super-structured dialogue') to discuss enlargement - possibly focusing on second- and third-pillar issues - seems to have gained support as a way of including the laggards in discussions while excluding them from formal negotiations. Another key aim underlying the conference idea is to include Turkey while avoiding the issue of opening negotiations. The danger of using such a European conference as a palliative for the 'outs' is that those countries in formal negotiations will not take it seriously and those excluded from negotiations will see it as little improvement on the existing structured dialogue unless it has real decision-making capacities.

More specific ideas to alleviate the pain of rejection include the possibility of increasing Phare funds to the 'outs', focusing on the problems identified in the opinions, as well as giving more to the countries in the first wave prior to their gaining access to the structural funds on accession. However, most of these ideas are still rather vague, and overall there needs to be much more thought about how to integrate the 'backmarkers' more closely into the EU as their neighbours join.

There are a number of more substantive measures that could be taken to reassure those at the back of the queue of the EU's commitment. A clearer time-frame for the likely length of negotiations overall would help to lessen the backmarkers' disappointment at being told to wait, but providing one is politically very contentious in the EU. Other possibilities are to allow these countries to participate in parts of the second and third pillars, to give them better access to EU agricultural markets, and to provide additional aid targeted specifically at their needs.

Prospects for economic integration and convergence

In economic terms, the process of integration and convergence between East and West is already proceeding rapidly. Trade and investment flows are binding the CEE- 10 closely into the EU economy, with over half of their exports going to the EU and a large proportion of their foreign direct investment (EDI) coming from EU countries. Indeed, the rapid pace of integration suggests that many of the economic benefits of enlargement will occur in advance of accession, although full membership is likely to bring more FDI and trade, and will be important in removing the barriers to agricultural markets.

Although trade and investment will benefit the CEE economies, they are unlikely to match EU average income levels on accession. The richest CEE countries (the Czech Republic and Slovenia) are rapidly approaching the per capita GDP levels of the poorest EU members (Greece and Portugal), but it could take 20 years for the top five CEE countries to reach the EU's average level of 1994 GDP per capita, ₃ and the EU economy will continue to grow in that period.

Extending the Single Market. derogations and transitional periods

These significant and long-term economic disparities could create a number of tensions in an enlarged EU. New and old member states could have greater diversity of interests because of their very different levels of economic development. Many of these questions arise in the context of extending the Single Market, particularly if significant derogations are negotiated by both sides.

In the negotiations themselves, some of the most difficult and controversial issues are expected to include free movement of people, agriculture, state aids and the structural funds. There are a number of potential trade-offs between these areas, and with other areas, and the experience of the Europe Agreements may encourage a tough stance on the part of some of the applicants, which will lengthen the negotiating period.

Some CEE countries could seek derogations or transitional periods in areas such as state aids, particularly if they are still in the process of reducing subsidies to major industries and to agriculture. The applicants may also seek derogations on EU environmental and social standards until they reach a certain level of economic development. On the EU side, concern in some countries about potential migration from the East because of wage differentials and unemployment has led to discussion of imposing very long transitional periods before free movement of people is extended to new CEE members, but such a measure would be controversial within the EU. A key issue will be to ensure that derogations and long transitional periods do not distort the Single Market.

What sort of EU?

The debate about the future of the Union An EU of 25 or more member states will be very different from one of 12 or even 15 countries. In addition to the rise in numbers, the diversity of member states needs and aspirations will increase. How should the EU change to fit these new circumstances? Responses to this question tend to be determined by the spectrum of different views on how the EU itself should develop. Proponents of further integration emphasize the need for more pooling of sovereignty and a strengthened role for Community institutions to ensure that an enlarged EU can function effectively. At the intergovernmentalist end of the spectrum, there is talk of the EU having fewer competences because of increased diversity in member states' views. The difficulties in gaining consensus in this area are evidenced by the IGC, which has left serious negotiation on the highly contentious issue of institutional reform until the last few weeks.

EU leaders are tempted to put these issues off and not grapple with the necessary institutional and policy reforms, because a 25-member state EU is many years away. Yet gradual and incomplete reforms combined with very slow enlargement are likely to result in an incoherent set of institutions and policies, and the whole process could be prone to inertia. A more strategic approach would be to establish a timeframe for enlargement, and hence for institutional and policy reforms. A clear commitment would give EU leaders considerably more strength in overcoming opposition to necessary reforms. Indeed, it would provide the kind of strategic goal that the applicant countries have found so useful in pushing forward their own difficult reforms. The EU should build on 'Agenda 2000' to create a coherent and comprehensive enlargement strategy with a clear timeframe for the first accessions.

The impact on policies

Inevitably, enlargement will have a major impact on the two main EU policies, the Common Agricultural Policy (CAP) and the regional aid funds, which together account for around 80% of the Community budget. Bringing in all ten eastern applicants would add 28% to the EU population but only 9% to its GDP (at current levels). Most of these countries are much poorer (GDP per capita in the CEE countries is only one-third of the average EU level) and their economies are more agricultural than those of EU members. Poland is the most problematic applicant in this respect, having a population of 40 million and a large agricultural sector.

Reform of the policies looks inevitable, but it could be slow and painful. Extending the CAP and regional funds in their present form even just to the most advanced CEE countries would require a politically unacceptable increase in the size of the Community budget. There are also other pressures to reform the CAP in particular, notably from budget-trimming net contributors and the next round of multilateral negotiations on agricultural trade due in 1999. Moreover, the priorities of the CAP are not directed towards the needs of economies in transition, having been formulated for the current EU members. In addition, economies with much smaller GDPs will have major problems absorbing transfers per capita at current levels, and co-financing on such a scale is unrealistic.

In reforming its policies for enlargement, the EU has to find a balance between three key priorities:

1. Managing the budget debate. The main net contributors will argue to keep the Community budget within its current ceiling of 1.27% of EU GDP. If this constraint is accepted, then although the budget will increase in line with GDP growth, any new funds for central and eastern Europe would have to be redirected from existing transfers. In the medium term, the political climate may change to allow greater eastward transfers, but no significant increase seems likely to be agreed during the current budget negotiations.

2. Reassuring current beneficiaries, if enlargement is not to be blocked by protests from farmers and vetoes by the Mediterranean countries. Although current recipients will have to be weaned off Community funds, some funding guarantees will be needed in the short run.

3. Avoiding second-class membership. Accession to the EU without full access to policies would run against the principle of equal treatment of member states, and would constitute less than full membership.

The most likely approach to the CAP seems to be gradual but eventually extensive reform, and incremental access for new members over long transitional periods. The CAP would thus be extended once there had been a narrowing of the differential in agricultural conditions and economic disparities with the CEE countries. The structural funds proba6ly require a less fundamental reform. A large proportion of the funds could be set aside specifically for the poorest EU members, both new and old, and all recipients could be subject to a cap on total transfers of 4% of GDP.

The political management of this issue will be very demanding, however, given the power of the interest groups involved and the different priorities of member states. In the CEE countries, there may also be considerable disappointment that expected transfers will not materialize. Moreover, there is a strong argument that the CEE countries need more aid now, during the difficult period of transition, rather than many years hence.

Institutional change

An initial enlargement to include even just another four or five member states would add considerably to the strains already evident at several points in the EU's institutional structure, by virtue of increased numbers and diversity. Institutions designed to deal with six or 12 member states are struggling with 15; adding several new CEE members with their own policy priorities and views on European integration would further impede EU decision-making processes.

Extending qualified majority voting (QMV) is one way to try to resolve this problem, but member states disagree about which areas to bring under QMV, and the UK opposes its extension in the second and third pillars. Another way of dealing with diversity of positions would be to introduce some form of flexibility officially into the Union. The IGC has been considering introducing one or more 'flexibility clauses' into the Treaty on European Union to allow some countries to form smaller groupings under an agreed set of rules.

Flexibility raises many questions about the future of the EU. It could be the only way for the EU to move forward, allowing commonality and diversity to coexist; however, its success will depend on the form of flexibility introduced and the use which member states make of it. If flexibility is limited, EU structures will remain very similar to current ones. More wide-ranging flexibility, however, could be divisive if it creates a multi-tier EU which is not coherent. Moreover, although the areas of 'enhanced cooperation' that emerge may not be exclusive, new CEE members will be concerned to ensure that they are not implicitly relegated to an outer tier.

Who and when?

Negotiations with some and possibly all of the CEE applicants should start by early 1998. Predictions about which countries will be the first to join the EU, and when, depend not only on the details of negotiations and the content of the Commission's opinions, but also on the different political, economic and security interests of the current member states, and other developments within and beyond the EU. Any delay in the launch of the EU's key project at present - the single currency - would be likely to delay enlargement because of the political crisis it would provoke. Member states' attitudes to EU enlargement are also affected by the process of NATO enlargement, which is likely to start in 1999. The anticipated exclusion of the Baltic states from the first round of NATO enlargement (due to be decided in July 1997) is already causing Nordic member states to press for early EU membership for these countries.

Current trends already give grounds for some predictions concerning the sequencing and timing of accessions. Negotiations are likely to be fairly lengthy, given the much bigger economic and legal adjustments that even the front-runners face compared with the EFTA applicants which joined in 1995. If negotiations took between four and six years, with another year for ratification - and assuming no delays owing to other EU developments - then the first CEE countries would join between 2003 and 2005. Earlier accession dates look highly optimistic given the complex process involved and the controversial nature of many of the issues surrounding enlargement. On current political and economic trends, the first group is likely to comprise the Czech Republic, Estonia, Hungary, Poland and Slovenia, although not necessarily in that order or all in the same year, and they may join with significant transitional periods and derogations.

How rapidly the other applicants join will depend on how quickly they catch up with EU criteria, and on when and whether internal EU reforms fully address the needs of a Union of 25 member states. The danger is that the second-and third-wave applicants could find their reform efforts undermined by their long wait to join the EU, especially if they are excluded from NATO as well. In a positive scenario, the second- and third- wave countries might join within five years of the first group; a negative scenario might see this take ten years or more.

The overall process of EU enlargement in central and eastern Europe could thus last until 2010 or even 2015, even assuming that there are no serious impediments from an EMU delay or from a Greek veto if a divided Cyprus has not been allowed to join. By 2010, pressure is also likely to have built for yet wider expansion, both east to Ukraine and south to the remaining former Yugoslav countries and Albania.

Conclusions

The question for the EU is whether it can maintain coherence and a common sense of purpose during such a long period of change while reforming its institutions and policies for enlargement and EMU.

The costs of getting enlargement wrong could be very high. A long-drawn-out process of accessions could result in disillusionment in the CEE countries about Western institutions and also about the painful reforms they have undertaken with the promise of joining. Particularly worrying is the impact that 'double exclusion' might have on the countries left out of the first accessions for both NATO and' the EU.

Similarly, there are risks for the EU itself if enlargement is mismanaged. A very long enlargement process will make the development of a proper enlargement strategy yet more difficult. If the EU fails to prepare itself adequately for enlargement, the process of negotiations could be drawn out or even stalled while EU members argue about the budget and institutional reforms. This would increase tensions between member states and could lead to a failure to reform the EU adequately. A long and difficult process of enlargement could also leave public opinion trailing behind, increasing Euroscepticism in some member states and hindering ratification of the accession treaties.

In the longer term there is the question of what would hold a much larger EU together. Would 25 or more member states be able to work together successfully despite their different priorities and economic needs? If enlargement to include the outlying applicants took 15 or 20 years, would the EU remain relevant as an institution? The goals of security and prosperity are sure to remain important, but the EU may no longer be able to deliver them.

It is critical for the rest of Europe as well as the EU that it gets this enlargement right, not only because of the implications for European security and stability, but because the EU will itself be fundamentally changed by it. Yet successful management of these changes cannot be achieved if the EU moves slowly and without a coherent strategy. An overall strategy for its future would enable the EU to drive the enlargement process forwards, so that it can accept its first new members quickly and ensure the stability and subsequent accession of those left further behind. Such a strategy would require an integrated plan for EU reforms and accessions, including a timeframe for enlargement to ensure the strategic development and planning of policy and institutional reforms.

In the short run, the most immediate challenge is to strengthen rather than weaken the commitment to enlargement to all ten CEE applicants. This means either starting negotiations with all ten together in early 1998 or providing substantive structures which increase the integration of the second- and third-wave countries into the EU. Starting negotiations with all ten applicants would give real substance to the proposal for a permanent European Conference because it would be the forum representing the future face of the EU. Current indications are, however, that the European Conference will be used to allow negotiations to start with only a few countries. If so, it is particularly important that the EU strengthens its commitment at the start of negotiations by providing a timeframe for the enlargement process, to make the realistic length of the whole process clear to applicants and to force current member states to address the needs of a larger and more diverse EU.

Footnotes

Note 1: Under to the Maastricht Treaty, the three 'pillars' of the European Union are the European Communities (which govern the Single Market), the Common Foreign and Security Policy, and cooperation in Justice and Home Affairs. Back.

Note 2: European Council in Madrid, 1995. Back.

Note 3: According to the World Bank, World Dei'eloprnent Report 1996: Front P/an to Market, (New York: Oxford University Press, 1996). Back.