For Baltics, equality still at least a generation away

  • 2003-03-20
  • Daniel Aronssohn

The enlargement of the European Union will not only boost the economic competitiveness of its new members but also that of the current 15 member states, economists said at a symposium in Vienna on March 14.

The former communist countries of Central Europe that are due to join the EU in 2004 have in the past decade "gone through a dramatic process of structural adjustment," said Peter Havlik, an economist at the Institute for International Economic Studies in Vienna.

"Central and Eastern Euro-pean countries now have an industrial structure that is positioned somewhere between the industrially less advanced EU-south and the more advanced EU-north countries," Havlik added.

In Hungary and Poland, industrial productivity was twice as high in 2002 as it was in 1990, according to figures from the institute.

In the Czech Republic, Slovenia and Slovakia, industrial productivity last year returned to the levels of 1990 after a sharp fall.

Romania, Bulgaria, Latvia and Lithuania are at the bottom in terms of economic transition because they have failed to attract significant levels of foreign investment.

But in general, Havlik said, "central Europe's manufacturing exports to the EU increased by almost 160 percent between 1995 and 2001 and have already surpassed the market share of Japan in EU imports by far."

He stressed that exports increasingly consisted of products with a large technology content, like cars, electronics and telecommunication equipment.

Meanwhile, the sale of EU products in Central Europe has shot up by 140 percent.

This price of this two-way trade increase has been the loss of some 5 million jobs in Central Europe and a sharp increase in unemployment in most of its countries.

Lionel Fontagne, the head of the French think tank CEPII, said these difficulties were only temporary.

"In the short term things get worse, jobs are lost faster than they are created," he said, adding that in a country like Poland it would "take five to six years to overcome the unemployment problem."

Fontagne said "the most advanced countries in Central Europe, like Hungary, will achieve the standard of living of the EU in about 15 years, while for the rest it will take 25 to 30 years."

This evolution will not take place at the cost of the current member states, but will, on the contrary, benefit them, he said.

"The Czech automobile industry was developed without jeopardizing the German automobile industry because they are not exactly at the same level of the game," he explained.

On the whole EU enlargement will "translate into growth for the big firms and for economies of scale and an improvement in overall productivity that will eventually also benefit the short term losers of the transition."

But Witold Orlowski, an economist at the NOBE institute in Warsaw, said being a member of the EU was no guarantee of economic success.

"Greece's wealth is still 40 percent lower than the EU average, as it was when it joined 20 years ago. But Ireland, which joined at the same time, has come very close to the average."