By Steven Hill, IP/IP Journal (Berlin), May 21, 2014
Economic gains in Central and Eastern Europe more than icing on the cake
New research shows that living standards between eastern and western Europe are converging. But such bits of good news have been drowned out by more negative reporting in the run up to EU parliamentary elections on May 25.
Recent media attention has focused on the ongoing difficulties in Ukraine, as well as the upcoming European parliamentary elections in which euroskeptic parties are expected to make gains. Receiving much less attention is the fact that this month Europe is quietly celebrating an auspicious anniversary – the ten-year mark since ten new member states joined the European Union.
Eight of the ten countries were former Soviet satellites, and three years later Romania and Bulgaria also joined as part of the same wave. Within a few years the European Union nearly doubled in size, from 15 to 27 (and now 28) member states, absorbing a large part of the old Soviet empire in the process. Representative democracy and the rule of law became rooted in the soil of these former communist dictatorships – not always perfectly, but with resolve and a sense of progress.
But that is just the beginning of the “soft power” success story. Recent research shows an additional reason why so many in Ukraine wish to join the European Union, despite the EU’s own share of ongoing challenges. One of the primary rationales for eastward expansion was to raise the living standards of Eastern and Central European nations. And now there is clear evidence this is occurring. Indeed, living standards between western and eastern Europe have been slowly converging.
According to Andrew Watt from the Macroeconomic Policy Institute (IMK) of the Hans Böckler Foundation, in 2004 the gross domestic product per capita of the ten new and two soon-to-be member states was considerably less than half (44.8 percent) of the figure for the 15 existing EU members. Using data from the European Commission’s AMECO database, Watt calculated that ten years later the corresponding figure is 57.3 percent. So for each year of membership the new entrants have closed the living standards gap by an average of just over 1.25 percentage points, which is remarkable considering the low point from which they began after the collapse of the Soviet Union. Indeed, that is a much faster rate of convergence than Spain and Portugal experienced during their first ten years of membership in the then European Economic Community.
Four of the newer EU states (Poland, Romania, Hungary, and Slovakia) border Ukraine, and three of those have made considerable progress. Poland is one of the stars of EU enlargement, with its GDP per capita surging from 40 percent of the EU-15 average to 63 percent. Slovakia has risen from around 50 to 70 percent, and even Romania’s per capita growth has climbed from a low 30 percent to more than 38 percent of the EU-15 average. Hungary, on the other hand, is one of two accession states to have made little progress in closing the living standards gap; the other is Slovenia, but at 75 percent of the EU-15 average, it remains the wealthiest of the “Class of 2004” accession states.
Compare that progress to the considerably larger gap between the United States and Mexico, which has remained virtually unchanged over the past ten years. The US and Mexico are linked by the North American Free Trade Agreement (NAFTA), which lacks crucial elements of a political and economic union. Consequently, Mexico still has a GDP per capita that is less than 30 percent of that of the US.
Part of the reason is that the US economy’s recovery has been faster than the EU-15 recovery. On the other hand, says Watt, the larger gap between the US and Mexico should have made it easier for Mexico to realize income convergence. Instead, Mexico’s convergence with the US economy has remained below that of Romania and Bulgaria’s convergence with the EU.
East-west economic convergence has slowed somewhat as a result of the 2008 economic collapse. The losses were considerable in the Baltic states and in Slovenia, though hardly noticeable in Poland. In recent years the Balts have begun to catch up again.
The figures clearly show “that eastern enlargement has been a substantial success,” says Watt, “not least in one of its key goals, namely facilitating relatively rapid growth in material living standards in the central and eastern European accession countries.” For that reason, adds Jan Marinus Wiersma, a fellow at the Dutch Wiarda Beckman Foundation, “the EU is more popular in Poland than in most of the older member states … Those bordering on Russia will be very happy with the political protection that the present situation offers.”
Beyond creating a rising economic and democratic tide that has slowly lifted all boats, Europe also has taken the lead in preparing for global climate change. That has included widespread deployment of conservation practices and green design in everything from skyscrapers, homes, and automobiles to low-wattage light bulbs, motion sensor lights, and low-flush toilets. Many EU member states have moved forward ambitiously with renewable energy technologies like solar, wind, and sea power. As a result of this transformation, Europe has reduced its ecological footprint (the per capita amount of the earth’s capacity consumed by a population) to half that of the US for the same standard of living.
So there is much to recognize and appreciate for this ten-year anniversary. Nevertheless, the media have been portraying the glass as half empty rather than half full. Few have noted the ten year mark, let alone reported on the positive gains. It is disappointing, but arguably symptomatic, argues Watt: Europe’s achievements have “not been considered newsworthy by the European media,” which instead fuels euroskepticism.
Of course the celebrations should be tempered by an awareness of the remaining challenges, including ongoing recovery from the economic crisis which resulted in widespread income and job losses. And steps must be taken to counter the gains made by populist, anti-Europe parties who have capitalized on frustration over growing insecurity and skillfully blamed EU enlargement. Hungary remains a puzzle, with its economic stagnation and democratic reversals; and super high unemployment – especially among youth – in Greece and Spain is of great concern.
But the EU – as well as the eurozone – are still relatively new political and economic entities, where many of the details of “union” are still being worked out. This is a decades-long process, and growing pains are to be expected. It is important to maintain a broad and long-term perspective, and not allow the perfect to be the enemy of the good.