It is fashionable at the present time to be profoundly pessimistic about the future of the European Union after enlargement.
Let me say to begin with that I am not at all pessimistic. Put in the least positive way possible, the countries of the European Union are condemned to work together and they all know it. Put in more positive light, the Union is in the middle of the admittedly difficult talk of undertaking the most ambitious enlargement in its history, but will come out of this process stronger than before.
I do not want this to sound like the normal rhetoric of politicians, so let me just spend the next 30 minutes explaining in some detail why I believe this to be the case.
Poland will join the European Union on May 1st 2004, in less than four months time. For my country this will be one of those great days to include in our history books. And I am sure that this is true for the other nine countries joining on that date.
Today I would like to use this lecture to convince you that enlargement will be a real, clear benefit for the Union. The scale of this benefit will depend on the quality of the policies which the enlarged Union adopts as well as the capacity of Poland and the other new countries rapidly to become effective Member States.
Let me look at this question in two parts:
· Through which mechanisms will the enlargement benefit the Union?
· What are necessary conditions within the new member states to ensure that the Union and the new members benefit?
Through which mechanisms will the enlargement benefit the Union?
Enlargement will bring benefits to the European Union at the political and foreign policy levels as well as through the economy.
Through enlargement – and remember that Poland alone is over half of the total population of the new Member States – the authority of the Union in the world has increased.
With this enlargement the European Union begins to look like uniting the whole of Europe and speaking for the Continent. There remain only three sets of countries outside the Union. Russia and the other East European states are clearly European and at the moment it appears unlikely that they will join in the near future. The western Balkans, on the other hand, have been promised EU membership, when they meet the conditions and of course Croatia has already applied. The third group of countries are the ‘refuseniks', Norway, Switzerland and Iceland as well as the micro-states of Europe, which so far have resisted the temptation to join, but which have certainly not excluded it in the longer term.
This enlargement therefore allows the Union to speak for the vast bulk of the European states in areas where the Union is responsible for policy. This makes the Union a more credible international partner for the other major power blocks in the world; in other words it makes EU Foreign Policy more credible, just at a time when the Inter-Governmental Conference is discussing the strengthening of foreign policy in the future EU Constitution.
Of course this depends ultimately on the question of whether the new member states will agree on policy with the EU-15 and some commentators have doubted this. It is however worth noting that Poland has supported all the foreign policy actions of the Union on which it has been invited to join the Union with one exception. This indicates that there is already a considerable degree of convergence between Polish foreign policy and that of the EU-15.
The exception however is also interesting. This was the action taken against Belarus at the end of last year. The refusal of Poland to join this action indicates the importance to us of improving relations with our neighbours. We would like to see Belarus and Ukraine on a convergence path with the European Union and we did not think that the punitive measures proposed at that time were the best way of changing the policies of the Belarus leadership.
Poland will clearly be supporting a much stronger and effective policy towards its eastern neighbours, and especially Russia, Ukraine and Belarus. These countries are part of what the Union now calls ‘wider Europe' – those European countries which are not members of the Union.
Joining the Union creates a significant problem in our relations with our neighbours. Poland's eastern border will be the external border of the Union. Controls on external frontiers are very severe, because within the Union the aim is to eliminate borders. This means that eventually when integration in the Schengen system is complete, someone crossing into Poland from the east will be able to go anywhere in the Union without any frontier checks at all. However he or she will have to have a visa in future, whereas up to now people have been able to cross into Poland without a visa.
These reinforced controls threaten to create a new and fairly impenetrable border in a region which since 1989 has been marked by growing contact and interpenetration. We in Poland do not want to shift the division in Europe eastwards to separate us from our neighbours. This is one of the reasons we will support policies in the Union which aim at developing near-neighbourhood policies. At the national level we have already demonstrated our intent with a bilateral agreement between the Ukraine and Poland which provides visa-free travel for Poles to the Ukraine and free-visas for Ukrainian citizens coming to Poland. I am pleased to see that the Commission is coming forward with a proposal to ease travel restrictions for people living along the border. Nevertheless the imposition of visas has already caused considerable problems at the frontier.
But beyond these matters linked to the Union's justice and home affairs policy, we will initiate and support policies which aim to increase the integration of the Union with neighbouring countries. This might be through a new series of agreements leading to free trade and further ‘Europeanisation'. There is ample room for cooperation on energy supplies and the Russian proposal for visa-free travel should be looked at carefully. I believe that Poland can provide the impetus for a more far-sighted policy towards these countries.
This in no way suggests that Poland is going to cause difficulties in the development of the EU's CFSP. Spain also showed after its entry into the Union far more interest and attention for the countries of the Mediterranean Basin and Latin America and had a major influence in developing policies towards these regions. We will I hope play a similar influential role in developing policies towards the east.
In the IGC Poland was broadly supportive of the Convention's Constitutional draft. We have strongly backed the idea of having a Union Foreign Minister (although we would have preferred another name for him – if we use the term foreign minister this will lead to endless confusions with Member States' foreign ministers). We also considered it appropriate that the new Foreign Minister should sit both as a Vice-President in the Commission and in the Council. The combination of the two functions in one person will allow the integration of the Union's foreign policy with instruments of foreign policy such as financial protocols under the control of the Commission.
Poland will therefore argue strongly for the further development of the Union's Common Foreign and Security Policy but on two conditions. The first will be no weakening of our strategic relationship with the United States and the second is that NATO should remain our essential security guarantee in the longer-term future. This does not mean that Poland will always automatically agree with American policy, as some of our critics in the current EU member states perfidiously suggest. It does mean that Poland will always act in the full knowledge and understanding that Europe and America must stand together if we are not to fall separately.
For me the worst element of recent disagreements within Europe and between Europe and the United States was the apparent enjoyment of these divisions by some prominent politicians on both sides of the Atlantic. In the USA some politicians seemed to try to make divisions within the European Union even more severe than they already were; basically they believe a divided Europe is the best sort of Europe for American interests. In Europe other politicians saw this quarrel as a chance to demonstrate Europe's independence from the USA, something which they long for without being prepared to pay for.
I regard both these groups to be fundamentally wrong; not just fundamentally but dangerously wrong. Dangerous, because both the harmonious cooperation between the USA and the European Union and the gradual development of a strongly integrated European Union are fundamental to the defence of our liberal democratic values.
The enlargement will also in my view bring economic advantage to the Union. The integration of Poland and the other new member states has already benefited producers and exporters in the EU-15 through the opening up of our markets. Most of the central European states have been growing at around twice the annual rate of the Union over the last seven or eight years. Therefore high rates of investment, as industry has re-equipped and new enterprises have set up in business, have sucked in imports of capital goods and services. Consumer goods have also flowed into the region as living standards have risen and some domestic industry was less competitive than exports.
Of course this impact has been especially noticeable in the countries bordering central Europe, like Germany and Austria. In 2002 German exports to central and eastern Europe comfortably exceeded exports to the USA. As long as our growth exceeds that of the EU-15 one would expect the new member states to remain an important market for these countries.
Economic growth is of great importance to Poland and the other new member states, as we try to catch up with the rest of the Union. Part of the growth story must be foreign direct investment. We have been quite successful in attracting FDI since the middle of the nineteen-nineties, but we realise that the competition is becoming harder especially from locations in the Far East.
Many in the Union consider that our ability to attract FDI from the EU-15 countries is rather a disadvantage for the old Member States. The fact is however that relocation is often not a choice between the existing production location in the EU-15 and a new location in central Europe. Rather it reflects the need to be close to new markets in our region and sometimes it is a choice between Central Europe or the Far East.
From this point of view I consider the accession of the new member states to be of considerable advantage to enterprises in the EU-15. As specific country risk in the new Member States declines to similar levels to that in the old Union, new secure locations add to the flexibility which EU companies have. Security of course depends on the new Member States running sensible macro-economic policies.
This brings me to the second question.
What are necessary conditions within the new member states to ensure that the Union and the new members benefit?
It is clear that accession to the Union may not have any advantage either for the Union or the acceding country if inappropriate policies are followed. Economic policies and the development of efficient institutions coordinating European policy are crucial.
· Macro-economic policy has to be aimed at stability to accompany rapid growth
· Micro-economic policy needs to accompany the restructuring of state and private sector heavy industries as well as agriculture
· Costs need to be carefully controlled in the aftermath of accession
In Poland our economic policy is aimed at creating the conditions for higher growth with price stability over the long term. The short-term indicators are very promising:
- inflation now down to an underlying rate of between 1 and 2%
- growth is recovering fast, predicted to be 3.5% this year and 5% next year
- year-on-year manufacturing output is up over 10% and investment in manufacturing is 15% up (y/y)
- exports have recovered and are expanding fast
The key problems which have to be tackled in the short-term are unemployment and the fiscal deficit. The latter is going to be made considerably more severe because of the costs of accession in the first two or three years of EU membership. This is why the Government has recently produced its programme to curb the government deficit and return to a stable public finance path, allowing room for accession expenditure.
Poland's objective must be to follow a policy which allows it to catch up in terms of income but also wealth with the countries of western Europe.
Poland's per capita Gross Domestic Product measured at purchasing power standards is roughly 40% of the EU-15 average; measured in current exchange rates it is only around 20%. A purely arithmetic calculation suggests that even if Poland grows at 5% in real terms annually while the EU-15 grows at half that, it will take around 35 years to catch up with the average in the EU-15. Raising the Polish growth rate to 6% annually would reduce the catch up period to 27 years. So growth is important for Poland and economic policy at home and in the Union needs to be growth stimulating.
Growth is also important because influence in the Union is partially related to economic strength. The faster Poland can grow, the more influence it will have.
Economists still know relatively little about the causes of growth, however some elements are relatively clear. Most growth appears to come from increases in factor inputs – labour and capital. In Poland this means we need higher levels of investment, both domestic and foreign, consistently over many years. A higher input of labour is perfectly possible to achieve. Today we have high levels of unemployment, we will have large cohorts of young people entering the labour market for some years to come and the overall activity rate – the percentage of the population of working age in the labour market – can be raised over time considerably to levels reached in the UK or Denmark.
The other source of growth is the better utilization of factors employed in the production process. This can come from a better education of the workforce for instance or from new and better technology being employed. Major progress can be made here. Labour productivity doubled between 1990 and 2000, though admittedly this was related to the transition from the planned economy to the market. Foreign direct investment is a crucial factor in improving capital productivity. Foreign investment is responsible for bringing newer and better technologies, which will help Poland to achieve the transition from a country characterized by relatively low value-added exports to one more like the leading economies of western Europe.
Accession to the European Union is important in this growth story for several reasons.
Firstly it will increase the credibility of Poland in the eyes of domestic and international investors – in other words perceived country risk will decline, as I have already mentioned. This should increase the propensity of foreign investors to come to Poland and for domestic investors to put their money to work at home rather than abroad.
Accession will also bring additional capital into the country in the form of financial transfers for structural development. Eventually these transfers are likely to approach 4% of our GDP annually. This finance will be used above all for improving our infra-structure, notably in terms of transport infrastructure but also in the environment; in both areas the needs are very considerable. Infrastructure is a real constraint on growth, so this impact of EU membership will be vital to our future development.
Realising these potential gains requires a liberal economic environment both within Poland and within the Union. There is still a lot to do to make the environment in Poland attractive for business. We have to tackle further tax reform, something the finance minister is now addressing and we have to make progress in reforming our labour market, a process which the government has already embarked on. Longer term structural fiscal reform is important to ensure that official flows of assistance from the EU do not squeeze out flows of private capital. So success will depend very much on the quality of domestic macro-economic policy to enable Poland to use the opportunities which membership of the Union offers.
This means that Poland must remain an economic reformer at home.
It also means that Poland must argue strongly for more liberal, growth-oriented policies at the EU level. I am worried about the lack of structural reform in some of the key EU economies which are the markets for Polish exports. But economic policy in the Union is essentially a domestic responsibility – the Union cannot force a country directly to reform its policies on the labour market or on health and social security.
This is why Poland is supporting what the EU calls the Lisbon Process. This consists of setting common goals for economic reform to be achieved using benchmarking and best practice rather than legislation. We have to see whether this helps to accelerate much needed reform in the Union.
The enlargement of the Union to central and eastern Europe presents a considerable range of economic and entrepreneurial opportunities and advantages.
However we should above all remind ourselves that this enlargement is really part of the major European triumph of ending the Cold War and integrating the Continent. It is a change of historic proportions which also presents a win-win situation to all the countries in the new enlarged Union. Such an opportunity only comes rarely in the history of a Continent.
I cannot finish this lecture without referring to the problems of the last European Council, at which it proved impossible to adopt a draft Constitution for the Union. For many in the Union this was just the first example of the problems of enlargement. For them it was an example of Poland living up to its reputation for being difficult, a reputation which it gained with all those powers which tried to occupy it or dominate it.
The first point to remember is that the Union has a legal base on which to work and take decisions. This Treaty was agreed at Nice two years ago. This is not the ideal framework but it will allow the Union to continue to work effectively for years to come. The failure to agree a new Constitution does not by any means make the Union ungovernable.
The second point is that the Union was too ambitious in terms of timing of these weighty decisions, which in retrospect was a bad error. There was simply not enough time in which to get agreement between all the member states on all points, even though they were agreed on the vast majority of the proposed changes.
This posed domestic political problems not only for Poland and Spain but for many other member states faced with the problem of putting a fairly dense Constitutional Treaty to their citizens or Parliaments for ratification. For Poland the problem was acute because we had asked our citizens to vote on whether to join the Union or not in a referendum in June and already in December the Union was proposing to change the deal which we had put to our voters.
I am convinced that the vast majority of the proposals in the draft discussed at the last European Council will be agreed in the course of the next year.
All members of the Union know that in this ever more dangerous and challenging world environment, they only have strength in unity.