Essentially a Colonial Exploitation*
After a lengthy negotiation process the Central and Eastern European countries (CEECs) won the ultimate prize – full EU membership. The author analyzes the Hungarian experience.
- Apr. 30, 2007
The EU accession process has lead to an agreement that is fundamentally more in favor of the old member states (OMSs). While the new member states (NMSs) can claim marginal gains from this process (some Common Agricultural Policy and Structural and Cohesion Fund payments) – the "discrimination gap" is large and significant. Moreover, the imbalance in the distribution of EU resources is likely to have a market distorting effect on the fortunes of the new and old member states. The large member states dominate the EU decision making process and it is unlikely that the NMSs will be able to resolve this imbalance in the near future.
The details of the final agreement of EU enlargement induced an intense struggle to preserve and safeguard the interests of the OMSs and led to dramatic concessions on part of the NMSs. The ability of OMSs to design and manage the process of the EU enlargement has led to a less than ideal outcome for the NMSs. Given their relative lack of bargaining power (asymmetry), competition with other applicant states, and the threat of being excluded from the final agreement, they have accepted a less than optimal agreement.
The accession of CEECs has drastically changed the nature of the EU. From a club of mainly rich nations (with the exception of Greece, Portugal and Spain) at more or less the same level of development and with similar political, cultural and social institutions, the EU has become a community comprising two groups of countries with fundamentally different economies and societies. The dominant position of the "West" vis-a-vis the Eastern periphery is essentially a colonial exploitation of the East's resources. A confederation in form, the EU is becoming an empire in essence, with all of the attendant consequences - the most important of which is the erosion of democratic institutions in the "West" itself.
On paper, the enlargement almost appeared as if it was a democratic process. Formally, no one suggested a divide of Europeans into first- and second-class citizens. Today there are states within the union, however, that have been officially and publicly deprived of some of their rights (e.g. free movement of Romanian and Bulgarian labor force).
The European integration is part of the global capitalist development and driven by transnational corporations (TNCs) and international financial institutions (IFIs). States take a backseat to TNCs and IFIs who hammer out cooperative, community-enhancing solutions.
The eight Central and Eastern European states that joined the European Union in 2004 are forced to overhaul their finances and to restructure key industries to foster long-term economic growth and prepare for euro adoption, the World Bank said. These nations "have not taken adequate advantage of the benign growth conditions to tighten the fiscal stance and advance major structural reforms." The World Bank pointed to "sporadic steps in the right directions," although it criticized governments for failing to undertake "critical outstanding reforms of strategic enterprise sectors and public finance and administration. (Budapest Business Journal 09.28.2006) The largest three countries (Poland, Czech Republic and Hungary) in the region, beset by unstable governments, are struggling to push through measures demanded by the EU and international institutions like the World Bank and International Monetary Fund, including trimming budget deficits and containing inflation.
All the countries in the region are struggling to meet euro-adoption criteria, a condition of their accession to the EU. To adopt the euro, countries must narrow the budget deficit to maximum 3% of gross domestic product, rein in debt, cut long-term interest rates and curb inflation to a maximum of 1.5% of the 12-month average of the three EU nations with the slowest inflation. It could take more than five years for Poland, the Czech Republic and Hungary to join the euro-zone. It is a double standard from the EU that several OMSs do not fulfil the Maastricht criteria, and no hard measures/sanctions are introduced against those countries.
Following the adaptation of a comprehensive economic reform package in the mid-1990s, the Hungarian economy enjoyed stable and relatively high rates of growth and a reduction in inflation supported by sound macroeconomic policies and appropriate structural reforms. However, starting from 2001 and more importantly over recent years, public expenditure has significantly increased, and generous public wage increases have resulted in budget deficits well over 5% of GDP between 2002-2006, producing large deviations compared to the original deficit targets. In addition, end-year estimates have substantially increased ex-post with virtually every fiscal notification. A large part of the budgetary slippages stem from overoptimistic budgetary planning, large expenditure overruns, tax cuts and the overall lack of sufficient structural adjustment efforts. This highly expansionary fiscal policy has considerably damaged the credibility of the fiscal policy and has been weighing increasingly strong on the economy. In particular, it has contributed to serious external imbalances and to a significant increase in the total foreign debt (from below 20 % of GDP in 2001 to close to 30% of GDP in 2005) and much higher interest rate spreads compared to other recently acceded member states.
"The planned correction of the excessive deficit by 2009 will require the Hungarian government to strictly achieve its budgetary targets, which hinges upon an effective implementation of all the measures announced in the program," the EU said. (Commission’s assessment on the public finance situation in Hungary in relation to the September 2006 convergence programme and to the excessive deficit procedure, Brussels 26. September 2006.)
The EU still considers Hungary at "high risk" because of its budget deficit, according to the Council Regulation (EC). It warned that the government may not be able to execute spending cuts as planned and pointed out that the plan has no margin of error.
EU ministers, who will check on Hungary's progress twice a year after the government missed its deficit targets every year since 2001, will require prime minister Ference Gyurcsany's cabinet to present detailed plans for reducing the shortfall further until April 10, 2007. By then, Hungary should "take effective action regarding the measures to achieve the deficit targets for 2006 and 2007 and the further specification of the multi-annual program of budgetary consolidation," the Commission said. Gyurcsany has already raised taxes and cut subsidies in 2006 in order to cut the deficit. The EU Commission urges Hungary to "rigorously implement" the measures and to do most of the deficit cuts this year. The government should also be prepared to make additional reductions if there are slippages, it said.
The comprehensive austerity package, tax measures and reform proposals seek to redress budget imbalances and to prepare the path towards a membership in the European Monetary Union (EMU). The initiative includes state and local public sector reforms, as well as reforms in health care, education and public transport. A range of taxes will be increased, and energy and transport costs will also rise. However, concerns have been raised about whether the reforms will be successful in the long term; moreover, the severity of the measures will challenge the position of the trade unions and of employers. The ongoing anti-government protests and demonstrations show the dissatisfaction of the population.
* This article is a slightly revised version of a paper submitted to the seminar: EU-Enlargement: New Members – Old Periphery?
The author is president of Attac Hungary
The details of the final agreement of EU enlargement induced an intense struggle to preserve and safeguard the interests of the OMSs and led to dramatic concessions on part of the NMSs. The ability of OMSs to design and manage the process of the EU enlargement has led to a less than ideal outcome for the NMSs. Given their relative lack of bargaining power (asymmetry), competition with other applicant states, and the threat of being excluded from the final agreement, they have accepted a less than optimal agreement.
The accession of CEECs has drastically changed the nature of the EU. From a club of mainly rich nations (with the exception of Greece, Portugal and Spain) at more or less the same level of development and with similar political, cultural and social institutions, the EU has become a community comprising two groups of countries with fundamentally different economies and societies. The dominant position of the "West" vis-a-vis the Eastern periphery is essentially a colonial exploitation of the East's resources. A confederation in form, the EU is becoming an empire in essence, with all of the attendant consequences - the most important of which is the erosion of democratic institutions in the "West" itself.
On paper, the enlargement almost appeared as if it was a democratic process. Formally, no one suggested a divide of Europeans into first- and second-class citizens. Today there are states within the union, however, that have been officially and publicly deprived of some of their rights (e.g. free movement of Romanian and Bulgarian labor force).
The European integration is part of the global capitalist development and driven by transnational corporations (TNCs) and international financial institutions (IFIs). States take a backseat to TNCs and IFIs who hammer out cooperative, community-enhancing solutions.
Stability and Growth Pact
The eight Central and Eastern European states that joined the European Union in 2004 are forced to overhaul their finances and to restructure key industries to foster long-term economic growth and prepare for euro adoption, the World Bank said. These nations "have not taken adequate advantage of the benign growth conditions to tighten the fiscal stance and advance major structural reforms." The World Bank pointed to "sporadic steps in the right directions," although it criticized governments for failing to undertake "critical outstanding reforms of strategic enterprise sectors and public finance and administration. (Budapest Business Journal 09.28.2006) The largest three countries (Poland, Czech Republic and Hungary) in the region, beset by unstable governments, are struggling to push through measures demanded by the EU and international institutions like the World Bank and International Monetary Fund, including trimming budget deficits and containing inflation.
All the countries in the region are struggling to meet euro-adoption criteria, a condition of their accession to the EU. To adopt the euro, countries must narrow the budget deficit to maximum 3% of gross domestic product, rein in debt, cut long-term interest rates and curb inflation to a maximum of 1.5% of the 12-month average of the three EU nations with the slowest inflation. It could take more than five years for Poland, the Czech Republic and Hungary to join the euro-zone. It is a double standard from the EU that several OMSs do not fulfil the Maastricht criteria, and no hard measures/sanctions are introduced against those countries.
Hungary’s Convergence Program (Austerity Plan)
Following the adaptation of a comprehensive economic reform package in the mid-1990s, the Hungarian economy enjoyed stable and relatively high rates of growth and a reduction in inflation supported by sound macroeconomic policies and appropriate structural reforms. However, starting from 2001 and more importantly over recent years, public expenditure has significantly increased, and generous public wage increases have resulted in budget deficits well over 5% of GDP between 2002-2006, producing large deviations compared to the original deficit targets. In addition, end-year estimates have substantially increased ex-post with virtually every fiscal notification. A large part of the budgetary slippages stem from overoptimistic budgetary planning, large expenditure overruns, tax cuts and the overall lack of sufficient structural adjustment efforts. This highly expansionary fiscal policy has considerably damaged the credibility of the fiscal policy and has been weighing increasingly strong on the economy. In particular, it has contributed to serious external imbalances and to a significant increase in the total foreign debt (from below 20 % of GDP in 2001 to close to 30% of GDP in 2005) and much higher interest rate spreads compared to other recently acceded member states.
"The planned correction of the excessive deficit by 2009 will require the Hungarian government to strictly achieve its budgetary targets, which hinges upon an effective implementation of all the measures announced in the program," the EU said. (Commission’s assessment on the public finance situation in Hungary in relation to the September 2006 convergence programme and to the excessive deficit procedure, Brussels 26. September 2006.)
The EU still considers Hungary at "high risk" because of its budget deficit, according to the Council Regulation (EC). It warned that the government may not be able to execute spending cuts as planned and pointed out that the plan has no margin of error.
EU ministers, who will check on Hungary's progress twice a year after the government missed its deficit targets every year since 2001, will require prime minister Ference Gyurcsany's cabinet to present detailed plans for reducing the shortfall further until April 10, 2007. By then, Hungary should "take effective action regarding the measures to achieve the deficit targets for 2006 and 2007 and the further specification of the multi-annual program of budgetary consolidation," the Commission said. Gyurcsany has already raised taxes and cut subsidies in 2006 in order to cut the deficit. The EU Commission urges Hungary to "rigorously implement" the measures and to do most of the deficit cuts this year. The government should also be prepared to make additional reductions if there are slippages, it said.
Impact of Hungarian Government Reforms and Tax Measures
The comprehensive austerity package, tax measures and reform proposals seek to redress budget imbalances and to prepare the path towards a membership in the European Monetary Union (EMU). The initiative includes state and local public sector reforms, as well as reforms in health care, education and public transport. A range of taxes will be increased, and energy and transport costs will also rise. However, concerns have been raised about whether the reforms will be successful in the long term; moreover, the severity of the measures will challenge the position of the trade unions and of employers. The ongoing anti-government protests and demonstrations show the dissatisfaction of the population.
* This article is a slightly revised version of a paper submitted to the seminar: EU-Enlargement: New Members – Old Periphery?
The author is president of Attac Hungary
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