East Meets West: European Union Expansion and the Troubled Former Communist Countries

by Tony Wesolowsky

Prague, Czech Republic — Since the fall of the Berlin Wall in 1989, the people of Central and Eastern Europe have yearned to retake “their rightful place in Europe.” Many see membership in the continent’s supranational bureaucratic behemoth, the European Union, as their ticket back. The EU is set to expand in 2004, absorbing 10 more states, eight of them former communist East Bloc nations.

Its backers say EU expansion, which will stretch Europe’s political frontiers from the Atlantic to the Bug River, will forever close the book on the post-World War II order, which divided Europe into East-West camps.

Beyond the lofty rhetoric, East Europeans have more humbler hopes, namely that EU membership will bring them the good life enjoyed by their richer cousins further West.

But will it? Many sober critics say that is unlikely. It certainly won’t be all gloom and doom. EU expansion is likely to lead to some economic development. But it will likely be patchy, sprinkled heavily in the region’s metropolises, like Prague, Budapest and Warsaw. Large swathes of the region, from the rustbelts to the countryside, are likely to remain mired in poverty, or close to it.

Chalk that up to the development strategy foisted upon the region by Western planners, most prominently shock therapy guru Jeffrey Sachs, who anointed foreign direct investment as Eastern Europe’s savior. There would be no Marshall Plan to lift up the whole region by increasing local demand, as people there anticipated and hoped. Instead, big business was given free reign to scavenge the choicest industrial scraps, and in a large degree shape the region’s future, insofar as Eastern Europe fits into the global strategies of the world’s multinationals.

And all signs so far from Brussels, the epicenter of the EU, indicate that East Europeans will be second-class citizens in the new EU kingdom. That became evident in January, when the EU executive arm, the European Commission, unveiled a much anticipated plan on future farm subsidies for new member states.

Handouts to European farmers are the biggest outlay from the EU kitty, amounting to nearly half its 90 billion euro (about $80 billion) annual budget.

But farmers in the 10 new EU states would initially get just a quarter of the subsidies paid out to their Western counterparts. The plan would hit hardest in Poland, the largest candidate country with 39 million people, some 20 percent of whom tend the land for a living. Polish farmers fear they won’t be able to compete with EU-subsidized farmers, who will flood the market with cheaper goods.

The firebrand leader of a Polish nationalist party, cashing in on the country’s creeping anti-EU sentiment, lashed out at the plan, and threatened to whip up a huge anti-EU campaign ahead of a referendum on whether to join.

“If we are not treated as equals, if the European Union tries to exploit us and use us as a dumping ground for its goods, we will start a propaganda war, and make sure that Poles vote ‘No’ in the referendum,” threatened Andrzej Lepper, leader of the Polish Self Defense Party.

Besides stiffing their farmers, the EU plans to shut the door on the region’s workers, as well. They will have to wait seven years after EU entry before they can seek jobs anywhere in the EU, a right available to workers from Western EU countries. In this case, the EU caved to fears, mainly in Germany and Austria — both of which border would-be EU members, Poland and the Czech Republic — that throngs of eastern jobseekers will migrate westward, eager to work for next to nothing.

Although they raised a storm of protest over the farm subsidy proposal, East European politicos have rarely raised objections, nodding their collective head to the dictates laid down by EU officialdom.

“We rush into the EU, we want to be ‘good pupils,’ and therefore, we try to meet as many EU requirements as possible, even if they’re not beneficial to the country,” explains Teodora Donsz, a Hungarian working for CEE Bankwatch, a group monitoring the goings-on of the international financial institutions in the region.

Germany may offer a clue to what EU expansion will look like. Its 1990 reunification in some ways mirrors the process on a smaller scale. And while Western Germany has invested heavily in the former East Germany, the development gap, especially in the countryside, is painfully clear, and not narrowing. On the tenth anniversary of the fall of the Berlin Wall, a majority of Ossis, or East Germans, told pollsters that they regretted reunification.

Some are warning the EU not to repeat the German mistakes, and to focus more attention on overall development in East Europe, so the East European countries join the EU on more equal terms.

“Otherwise, as happened with the five Lander of former East Germany, the new EU will be a patchwork of rich regions, exploiting and controlling concentrated areas of poverty and underdevelopment,” wrote Jean-Yves Potel in Le Monde Diplomatique in February 1999.

Raising the six most developed East European countries to just 50 percent of the income level of the EU would have required a $450 billion investment, according to the Institute for International Economics in Washington. The West had no intention of ponying up that kind of lucre. And the EU has steered clear of the topic in talks with East European officials, according to Olivier Hoedeman, a researcher with Corporate Europe Observatory, an Amsterdam-based corporate watchdog.

“The negotiations have been limited to how Central and Eastern Europe can adapt to existing EU rules and its economic model. Economic investment with local development was ruled out from the start,” explains Hoedeman.

“A better solution than joining the Western-shaped EU would have been the establishment of a Central and Eastern European Union, like the Visegrad group,” says Donsz. (The Visegrad group consists of Poland, Hungary, the Czech Republic and Slovakia, and is named after the Hungarian town where leaders of the four signed a declaration vowing to pursue common goals vis-a-vis the West.)

What Western policymakers wanted and largely got was the breakup of the economic integration of countries in Central and Eastern Europe which existed under communism as the Comecon economic grouping, explains Peter Gowan, author and professor at North London University. Under EU integration, the economies of Central and Eastern Europe will be channeled to serve the interests of the West and its businesses, explains Gowan.

While the people of both East and West Europe may be skeptical of their impending marriage, business relishes the opportunity of unfettered access to the region and its labor and consumer market.

“It was as if we had discovered a new Southeast Asia on our doorstep,” said Keith Richardson, a former head of the European Roundtable of Industrialists (ERT), one of the most influential corporate lobbies in Brussels, in an interview with Corporate Europe Observatory.

Volkswagen officials who bought out Czech automaker Skoda in the 1990s said in 1996 that a Skoda worker cost the company a tenth of what a German automaker earns.

“With EU expansion, you’ll have more companies moving low-wage operations into Eastern Europe, over Southeast Asia. That’s because of cultural reasons, and the logistics of transport between markets. That’s why the EU is so focused on building new transport links between East and West,” explains Hoedeman.

Western businesses have already been busy, staking a strategic hold in the region. Unilever and Proctor and Gamble have divvied up the Central and Eastern European market for personal care products. Philip Morris controls 70 percent of the Czech cigarette market. Most of the West’s $100 billion plowed into the region has gone into food, cigarettes, chocolate, soft drinks and alcohol, consumer durables and cars as well as the service sector.

East Europeans first believed Western investors would bring much-needed technological know-how to the region. Today, many are not so sure, finding instead that Western investment is more about controlling assets and markets than sharing technology.

When General Electric bought Tunsgram in Hungary, it closed down the company’s production of vacuum equipment, electronic components, floppy disk and magnetic tape products, all of which were considered profitable by Tunsgram’s management. The Hungarian cement industry was bought by foreign owners who then prevented their Hungarian affiliates from exporting; and an Austrian steel producer bought a major Hungarian steel plant only in order to close it down and capture its ex-Soviet market for the Austrian parent company.

The EU has facilitated Western corporate takeovers of indigenous Eastern assets, funding the state privatization agencies, paying for studies on privatization by Western accountancy firms and giving subsidies for the actual purchase of assets by the EU.

This from the same EU which Eastern Europeans are hoping will lead them to their “rightful place” on the continent. They may be sorely disappointed where the EU is leading them.

Tony Wesolowsky is a freelance writer based in the Czech Republic.