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C a n E a s t e r n E u r o p e C a t c h U pW i tho ut S t ruc tu ra l Fund s?

s t h i n g s l o o k t o d a y , t h e c o u n t r i e s o f C e n t r a l a n d E a s t e r n E u r o p e w i ll , e x c e p t f o r B u l g a r i an d R o m a n i a , a ll h a v e j o i n e d t h e E u r o p e a n U n i o n i n a n o t h e r t w o y e a r s ' t im e . T h e f o r th -

c o m i n g a c c e s s i o n r o u n d w i l l b e t h e m o s t f a r -r e a c h i n g i n t h e E U ' s h is to ry . N e v e r b e f o r e h a v e

s o m a n y c o u n t r ie s j o i n e d a t t h e s a m e t im e a n d n e v e r b e f o r e h a s t h e r e b e e n s o w i d e a g a p

b e t w e e n t h e e s t a b l is h e d a n d t h e n e w m e m b e r s t a t e s i n t h e i r e c o n o m i c d e v e l o p m e n t l e ve ls .

B o t h b e c a u s e t h e a c c e s s i o n c o u n t r i e s l a g s o f a r b e h i n d in te r m s o f p e r c a p i t a i n c o m e s a n d

because the ro le o f ag r i cu l t u re i s s t i l l s i gn i f i can t i n t he i r economies , t he re wou ld need to

b e a c o n s i d e r a b l e f lo w o f s u p p o r t f r o m t h e S t r u c tu r a l F u n d s a n d t h e C o m m o n A g r i c u lt u r a l

P o l i c y in t o E a s t e r n E u r o p e i f t h e n e w e n t r a n t s w e r e tr e a t e d b y t h e s a m e s t a n d a r d s a s e x i s t -

i n g m e m b e r s t a t e s . T h e w a y t h i n g s a r e g o i n g , t h e b e n e f i t s t h e a c c e s s i o n c o u n t r i e s o b t a i n

f rom EU f inanc ia l a i d a re l ike l y t o b e p re t t y m eag re a t l eas t un t il 2006 . A id f r om the S t ruc tu ra l

F u n d s w i l l n o t fl o w t o t h e n e w m e m b e r s u n til t h e y h a v e e s t a b l i s h e d t h e a d m i n i s tr a t iv e s t r u c -

t u r e s th e E U r e q u i re s . A th o r o u g h r e s t ru c t u r in g o f t h e f l o w o f E U f u n d s w o u l d n o t b e c o n -

c e i v a b l e u n t il t h e 2 0 0 7 - 2 0 1 3 b u d g e t a r y p l a n n i n g p e r io d . Y e t e v e n t h e n , i t i s h i g h ly d o u b t f u l

w h e t h e r fi n a n c ia l a i d w i th i n t h e U n i o n w o u l d b e s u b s t a n t ia l ly f o c u s e d o n t h e n e w m e m b e r s ,

a s t h e c o u n t r i e s t h a t h a v e b e n e f i t e d m o s t u p t o n o w h a v e a l re a d y s i g n a ll e d t h e i r in t e n t io n t o

d e f e n d t h e i r e n t it l e m e n t s e v e n a f t e r 2 0 0 6 .

The se l im i ted p rosp ec ts o f r ece i v i ng subs tan t i a l f i nanc ia l a i d f r om th e EU a re a g rea t

d i s a p p o i n t m e n t f o r t h e a c c e s s i o n c o u n t r i e s , w h o s e h o p e s o f r e c e i v i n g s u b s t a n t i a l t r a n s f e r

p a y m e n t s h a d b e e n a s u b s ta n t ia l m o t i v e f o r s e e k i n g E U m e m b e r s h i p . I t i s d i f fi c u lt t o c o n v e y

t o t h e p e o p l e i n t h e s e c o u n t r ie s t h a t t h e f l o w o f f u n d s w i l l b e m u c h s m a l le r th a n a n t i c ip a t e d .

H o w e v e r , q u i t e a n o t h e r i s s u e is w h e t h e r t h e r e i s n o t a t e n d e n c y t o v a s t l y o v e r e s t i m a t e t h e

p a r t E U f i n a n c ia l a s s i s t a n c e w i l l p l a y i n E a s te r n E u r o p e ' s e n d e a v o u r s t o c l o s e t h e e c o n o m i cd e v e l o p m e n t g a p . T h e c a n d i d a t e c o u n t r i e s h a v e o f te n c l a i m e d t h a t t h e y w i l l n e v e r b e a b l e to

c a t c h u p w i t h o u t t h i s m o n e t a r y a i d .

I n f a c t , h a v i n g c o m e t h r o u g h t h e t r a n s i t i o n c r i s i s o f t h e m i d - 1 9 9 0 s , t h e C e n t r a l a n d

E a s t e r n E u r o p e a n c o u n t r ie s h a v e a lr e a d y d o n e a s u b s t a n ti a l a m o u n t o f c a t c h i n g u p . T h e s e

c o u n t r i e s ' f o r e i g n t r a d e n o w f o c u s e s s t r o n g l y o n W e s t e r n E u r o p e , a n d m o s t o f t h e m h a v e

d e v e l o p e d i n to a t t r a c ti v e l o c a t i o n s f o r f o re i g n i n v e s t m e n t . E x c e p t f o r s h o r t p e r i o d s i n p a r -

t i c u l a r c o u n t r i e s , e c o n o m i c g r o w t h i n E a s t e r n E u r o p e o v e r t h e p a s t e i g h t y e a r s h a s b e e n

h i g h e r t h a n i n t h e E u r o p e a n U n i o n . T h u s t h e g a p i n p e r c a p i t a i n c o m e s b e t w e e n W e s t e r n

and Eas te rn Eu rope has na r rowed , t hough adm i t t ed l y i t i s s t i l l ve ry l a rge . W i th t he excep -

t io n o f P o l a n d , th e C e n t r a l a n d E a s t e r n E u r o p e a n e c o n o m i e s h a v e r e m a i n e d m o r e b u o y a n t

- s o m e o f th e m m u c h m o r e s o - d u r i n g t h e E U ' s c u r r e n t re c e s s i o n a r y p h a s e , a n d f o r e c a s t sf o r t h e y e a r s a h e a d a r e b e t t e r fo r E a s t e r n E u r o p e t h a n t h e y a r e f o r E U m e m b e r s t a t e s . I n o t h -

e r w o r d s , t h e c a t c h i n g - u p p r o c e s s i s a l r e a d y t a k i n g p l a c e , a n d s o f a r i t h a s o p e r a t e d w i t h o u t

t h e c a n d i d a t e c o u n t r i e s h a v i n g r e c e i v e d a n y a p p r e c i a b l e t r a n s f e r p a y m e n t s f r o m t h e E U ' s

c o f fe r s . T h e d y n a m i s m h a s b e e n d r i v e n b y r e f o rm s d e s i g n e d t o e n c o u r a g e e f f ic i e n t m a r k e t s

in t hese co un t r i es an d to s tep u p the i r in teg ra t i on i n to t he i n te rna t i ona l d i v i s i on o f l abour , on

a w o r l d a n d m o r e e s p e c i a l ly o n a E u r o p e a n s c a l e .

W h a t w i ll h a p p e n a f t e r t h e E U ' s e a s t w a r d e n l a r g e m e n t ? W i ll t h e a c c e s s i o n c o u n t r i e s b e

a b l e t o c o n t i n u e c l o s i n g t h e e c o n o m i c d e v e l o p m e n t g a p , o r w il l t h e p r o c e s s r u n o u t o f s te a m

w i t h o u t s u b s t a n t i a l h e l p f r o m t h e S t r u c t u r a l F u n d s ? I n t e r m s o f t h e i r e c o n o m i c f u n d a m e n -

t a ls , t h e n e w m e m b e r s w i l l re t a in a g o o d c h a n c e o f c o n t i n u i n g t o c l o s e t h e g a p . T h e i r l a b o u r

e n d o w m e n t s a n d l a b o u r c o s t s g i v e t h e m a c le a r a d v a n ta g e . A s s t u d i e s f o r W e s t e r n E u r o p e -a n e c o n o m i e s h a v e s h o w n , a d v a n t a g e s in f a c t o r e n d o w m e n t s h a v e a s i g n i fi c a n t i n f lu e n c e

o n c r o s s - b o r d e r i n v e s t m e n t d e c i s i o n s , t o a d e g r e e t h a t c a n m o r e t h a n c o m p e n s a t e f o r a p e -

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8/8/2019 Can Eastern Europe Catch Up Without Structural Funds

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r iphe ra l g eog raph ica l loca tion. Indeed , the speed w i th w h ich the econom ies o f the cohes ion

coun t r ies I re land , Spa in and Po r tuga l made up g round a f te r the i r en t ry in to the Eu ropean

Co mm un i ty bea rs th is ou t. M oreove r , in con t ras t to the cohes ion coun t r ies a num ber o f the

cand ida tes fo r access ion a lso bene f i t f rom a re la t i ve ly cen t ra l l oca t ion w i th in an en la rged

European eco nom ic area ( th is ho lds for the Cze ch Republ ic , S loven ia and pa rts o f Hungary ,

Po land and Slovak ia) .Howeve r , i t wou ld be fa ta l l y w rong to imag ine tha t the ca tch ing -up p rocess w i l l con t inue

v i r tua l l y au toma t ica l ly fo r the Cen t ra l and Eas tern Eu ropean coun t r ies on ce they have jo ined

the EU. In rea li ty , qu i te the reve rse i s t rue . Th e access ion o f any ne w m em ber to an in teg ra -

t ion area inev i tab ly heats up the compet i t ion among locat ions, and the increased r iva l ry

a f fec ts the access ion coun t r ies jus t the same. Thus the po ten tial oppo r tun i t ies to ca tch up

increase , bu t so too do the r i sks o f s tay ing beh ind . In o the r wo rds , a coun t ry ' s po l i c ies as re -

ga rds i t s a t t rac t iveness as a bus iness loca tion assum e a g rea te r respons ib i li t y fo r i t s eoono -

my ' s ove ral l ab i l i t y to c lose the d eve lopm en t gap . Eve ry (access ion ) coun t ry has to look a f te r

mac roeconomic s tab i l i t y , to s t i ck cons is ten t l y to and upho ld marke t -o r ien ted re fo rms . On ly

then wi l l i t a t t rac t inward investment and be in a pos i t ion to u t i l ise i ts domest ic resources

eff ic iently . A num ber o f Centra l and E astern European cou ntr ies have found ou t the hardwa y in recen t yea rs tha t po l i c ies de t r imen ta l to these requi remen ts w i ll cause a se tback in

c los ing the deve lopm en t gap , nam e ly Bu lga r ia (1996 -1997 ), Rom an ia (1996 -1999 ) and the

Czech Repub l i c (1997 -1999 ) . Greece o f fe rs a te l l i ng examp le show ing tha t EU en t ry does

no t gua ran tee tha t the ec ono m y w i ll ca tch up . A f te r ente ring the EC in 1981 , the coun t ry pu r -

sued ra the r unconv inc ing m ac roecon om ic po l i c ies fo r a cons ide rab le pe r iod, i t s s t ruc tu ra l

po l ic ies were geared to cons erv ing ex is t ing industr ies , and i t fa iled to m ode rn ise i ts adm in-

i st ra t ive sys tems . Th us even though i t rece ived subs tan t ia l sum s f rom the S t ruc tu ra l Funds

- on a sca le no less than Portuga l , Spa in or I re land - i ts income per head fe l l back re la t ive

to the EU average. N ot unti l Gre ece had ma de goo d so me of i ts se l f- in fl ic ted def ic ienc ies in

the ea r ly 1990s d id i t, too , beg in to ga in g round re la t ive to the EU ave rage pe r cap i ta income.

Any coun t r ies pu rsu ing poo r Ioca t iona l po l i c ies a f te r access ion w ou ld be des t ined to haves im i la r expe r iences . They wou ld de te r inves tmen t, the i r g rowth wou ld s lacken , and tha t de -

ve lopm en t gap w ou ld s to p c losing. Acce ss to the EU 's S t ruc tu ra l Funds , on howeve r la rge a

sca le , wou ld d o l i tt le or noth ing to cha nge th is s i tuation.

Eas te rn G erma ny o f fe rs a good e xam p le o f how l i tt le im pac t t rans fe r payme n ts can have

i f marke t -ope ra ted fo rce rs a re insu ff ic ien t to sup po r t g row th . The re has p robab ly neve r been

a reg ion , in the recen t pas t o r a t any o the r time , wh ich has rece ived so m uch s upp o r t f rom

o th e rs ; i n th i s c a s e th e b u l k c a m e f r o m w e s te rn G e rm a n y a n d s o m e a l s o fr o m th e E U S t ru c -

tu ra l Funds. In the f i rs t ha l f o f the 1990s , eas te rn Germ any ' s econom y w as g row ing w i th

som e dynam ism, ye t s ince 1997 , i t has been fa ll ing back re la t ive to the wes te rn pa r t o f the

coun t ry even though the vo lum e o f trans fe r paym en ts i s und im in ished . The reg ion ' s g rowth

is now among the weakes t in the en t i re Eu ropean Un ion . Ev iden t l y , the t rans fe r paymen tshave no t managed to b r ing abou t any las t ing , tho roughgo ing improvemen t in supp ly -s ide

condi t ions in eastern Germany. In part icu lar , deve lopment there has been very d isappoin t ing

com pared w i th the p rog ress tha t Cen tra l and Eas te rn Eu ropean coun t r ies have made la rge ly

w i thou t ou ts ide he lp .

Of cou rse the access ion coun t r ies a re fu l l y en t i t l ed to rece ive equa l t rea tmen t f rom the

va r ious f inanc ia l supp o r t p rog ram me s m anaged by the EU, and no th ing wr i t ten he re shou ld

cas t do ub t on tha t . Howeve r , they need to judg e rea l is t ica ll y the con t r ibu t ion such as s is t -

ance i s li ke ly to make tow ards the i r econo mic deve lopm en t . In the l i gh t o f th is assessme n t , i t

wou ld b e adv isab le fo r the EU 's f inanc ia l ass is tance to b e cu t ba ck in gene ra l , and fo r these

cons t ra in ts to app ly equal ly to ex is t ing and new me mb er s ta tes .

Konrad Lammers

Head o f the HWW A Department "European Integration"

I n t e re c o n o m i c s , S e p te m b e r /O c to b e r 2 0 0 2 2 31