NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE

Membership in EU

Tibor Palánkai

Emeritus Professor

Corvinus University of Budapest

Master Course

2014

Prof. Palánkai Tibor

Application for full EU membership

In Athens on April 1, 1994 Hungary as the first submitted its application for accession,

Few days later Poland did the same.

RO, SK, BG and the Baltic states in 1995. In 1996, CZ and SL announced their intentions.

Decisions on full membership

In 1991, in first association agreements only vague obligation to CEE full membership.

In September 1992, the ‘Visegrad’ Four joint request, by 1996 their development be assessed, and conditions of full membership be set.

Decisions in Edinburgh in 1992, and Copenhagen in June 1993. Accession criteria were set.

From 1994, Essen, „pre-accession” process started.1995 Cannes, ‘White Paper’ for adoption of SEM.

Conditions of full membership

Demand for setting of a date for the start of accession negotiations:

Lisbon in June 1992, on talks with Cyprus and Malta: negotiations, which should begin not more than six months after the conclusion of the 1996 Intergovernmental Conference.

Madrid in December 1995 with the 10 CEE associates: negotiations may (!) begin ‘not more than six months’ after the successful conclusion of the 1996 IC.

Process to negotiation

In spring of 1996 the EU sent the 12 candidates an Avis - questions to assess their readiness for integration and on the basis of their answers, Commission’s published, ‘country reports’ in July 1997

In December 1997, Luxemburg, five ‘first-round’ CEE countries (Czech Republic, Estonia, Hungary, Poland and Slovenia +Cyprus) were named.

From March 31, 1998, screening. Real accession negotiations started on November 10, 1998.

Negotiations on full membership

‘Agenda 2000’ (in April 1999, Berlin), the budget target for 2000-2006: EU’s strategy to prospective members.

Assuming the admission of NMs in 2002, 6 cs.December 1999 Helsinki a turning point: Enlargement as number one strategic commitment, Talks with ‘second-round’ countries (Bulgaria,

Latvia, Lithuania, Romania and Slovakia + Malta) started,

Individual assessment (the Regatta principle).

Negotiations on full membership

 The Treaty of Nice, December 2000: institutional measures necessary to enlargement (majority voting, the number of seats in the European Parliament, and Commission etc.),

Fixing a Road Map: Negotiations concluded by the end of 2002, the first accessions on January 1, 2004, and new members’ citizens take part in the European parliamentary elections held in June of 2004.

Conclusion of negotiations

Negotiations concluded on December 13 of 2002 in Copenhagen, budgetary compromises were reached,

Entry of 8 CEE countries plus Cyprus and Malta, Possibility of joining for Bulgaria and Romania by 2007,Accession treaties signed on April 16 2003 in Athens,

after ratifications and referenda Treaties in force from May 1, 2004. EP elections in June.

Future Members

If the conditions met, decisions about negotiation with Turkey till end of 2004.

Croatia has submitted its application, but Treaty changes are supposed,

Council in Thessaloniki in June 2003, perspective membership is offered for Western Balkan, based on a Stabilisation and Association Process.

Additions to Europe Agreements

Full opening of agricultural markets,Full opening in relations of CEFTA (other new

members with extension of the SEM),Reduction of external tariffs (CET - from about 8%

to 3%),Taking over EU association treaties (more than

100),Immediate application of SEM (1995 White Book)

with derogations.

Transition Period - Derogations

No general transition period – only special, mainly technical derogations:

Free movement of labour, Selling of arable land, Direct payments under CAP postponed till 2013, Joining the Euro-Zone – no deadline.

Free movement of labour

 Two year period, national measures applied by current Members, they may result in full labour market access;

After reviews at end of two years, decision left open whether to apply the acquis,

The transitional arrangement should end after five years, but may be prolonged for a further two years in those Members, where serious disturbances of the labour market or a threat of such disruption, but these safeguards may be applied by member States up only to the end of the seventh years.

Arable Land

Seven-year transitional period granted to Czech Republic, Estonia, Hungary, Latvia, Slovakia and Lithuania, maintaining national legislation on purchase of agricultural land and forests.

Review should be held before the end of third yearCommission is authorised to extend this period by

further three years in case of serious disturbances of the land market. PLcan apply national legislation for twelve years.

Enlargement and CAP

The common market frameworks are immediately taken over with price and export subsidies.

Direct payments start at 25% in 2004, and increase to 30% in 2005 and 35% in 2006, reaching 100% of the then applicable level 2013. The direct payment may be topped up from the national budgets to 55% of the EU level in 2004, 60% 2005 and 65% in 2006.

The New Members included into the temporary rural development instrument.

Entering EMU

Copenhagen on criteria: “ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union”, - no opting out,

Accession treaties: all countries will take over and implement economic and monetary union as from the date of their entry, with some derogations.

Entering EMU

Special staging:

As “first stage” (SEM) implemented,

They enter “second stage” (implementation of “convergence program”),

Entry into the euro-zone remains uncertain, no deadline set.

„Second and Third stages” – impolemented in “co-existence” with the single currency.

Membership in ERM2

Original assumption – new members join ERM-2 upon their entry into EU, or soon,

Hungary - the band of free floating of forint widened from +/ – 2.25% to +/- 15% in 2001, unilateral imitation of ERM2, since 2008 free floating.

Countries, which joined ERM2: LT, EE and SL – June 2004, LV – May 2005, SK– June 2006,

Others: free or managed floating.

Caution of EU on CEE Euro joining

EU (ECB, Commission, and EP) caution, and argue for later acquisition of the euro:

• Fear about the danger of deflationary effects, • Loss of growth, postponement of convergence

and the restructuring, • Constrains for “one size fits all” common

monetary policy, and• Fears of new members as a stability risk for

euro.

Constraints of Maastricht and Stability and Growth Pact

Inflation: Maastricht or 2% of ECB too restrictive and deflationary, “optimal” inflation (price increase bellow productivity growth) would be satisfactory and desirable,

Budgetary constraints of ‘enlargement’ (even 3% ceiling is too restrictive and unrealistic) due to adjustment needs (infrastructure, environment, structural modernization),

3% and 60% assumed with 2.5-3% growth. It fits nor to the old and neither to the new members.

CEE as Optimum Currency Area

Labour: regional mobility even lower than in West,

Inter and intra-sector mobility remarkable, Wage flexibility decreasing (transformation

“fatigue”), More flexible labour market regulation, than in

old members, Full liberalisation of capital, but weaknesses of

transmission.

CEE as Optimum Currency Area

Possibility of ‘asymmetric shocks’: convergence of economic and trade structures (drop of share of “sensitive” products from 58% to 15% in few years), competitive structures created,

Increase of intra-sector – intra-company trade,

Synchronisation of business cycles,

Budget transfers: most important constraints,

Independent central banks created.

Entering Euro-zone by New Members

Entering Euro-zone: SL – 2007, CY and ML-2008, SK – 2009, EE – 2011 and LV- 2014.

LT – target date: 0.1.01. 2015.

Others in the “second stage” (implementation of “convergence program”), but no target dates.

PL could join in foreseeable future – strategic interests.

For CZ, HU and PL, they could have joined before

2008, but political will was missing.

Meeting Maastricht Criteria

Country Inflation Bud. def. Pub. Debt Int. rateCZ 2002 1.4 5.6 25 2.75 2008 6.3 0.7 29 2.20 2013 1.4 4.4 46 0.05 HU 2002 5.2 4.0 52 8.50 2008 6.0 5.1 66 10.0 2013 1.7 2.0 80 3.0PL 2002 1.9 5.3 38 6.65 2008 4.2 1.9 45 5.0 2013 0.8 3.9 56 2.5 Reference 3.0 3.0 60 2.75

Considerations of Joining Euro-zone

Once Euro is in place in most countries, TNCs are not interested (saving of transaction costs), they use euro in their operations. Even gains from exchange rate speculations and tax evasion.

In HU, experts in favour, in CZ and PL divided.

Political elites hesitant, they are afraid of need of austerity measures.

National business elites –contradictory interests: fear of dominance of TNCs, possibilities of speculation and tax evasion.

Considerations of Joining Euro-zone

Points of cost and benefits are general (savings in conversion and transaction costs, trade creation etc., while loss of monetary autonomy).

Preserving exch. rate because assuming growth, convergence and social sacrifices. Preserving Possibilities of competitive devaluations.

Fears are not entirely groundless, but not supported by the experiences of entrants.

All largely depended on good or bad policy choices.

Political aspects of Enlargement

The 10 new members basically fulfilled the political accession criteria by their entry.

New CEE members have successfully completed their political transformation: Parliamentary democracy and the institutions established, main political trends adequately represented, their balance for stability seemed to be ensured, freedom of the media mostly guaranteed, and civil society developing.

Political problems and Enlargement

Problems: protection of minority rights, corruption and functioning and manipulation of certain institutions.

After accession there are bad experiences with sustainability of political stability.

In recent years, in most of the new members, political crisis was emerging, which is equally „transformation” and „enlargement” crisis, but like in the all EU, reflection of general crisis of democracy.

Political problems and Enlargement

New crisis phenomena: in spite minor improvements, growing dissatisfaction among the population concerning persisting poverty and inequity, diminishing tolerance against reform measures or any difficulty, more susceptibility towards populist demagogy, in some countries the extreme, populist parties getting into government coalitions, certain hostility against foreign investors, pressure for withdrawal of former reforms etc.

Conclusions

Enlargements were based on political decisions.Croatia successfully joined in 2013, no less mature

than some other new members.Joining of Turkey is strategic question, but political

determination and appropriate policies are lacking on both sides. W. Balkan: special cases, adjustment and preparation is needed.

Limitations of „integration” (absorption) capacities of the Union. Some critical issues: reform of CAP and EU budget, consolidation of the Euro.

END

Thank you!

Prof. Palánkai Tibor