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Europe’s Real Integration

Will European expansion benefit both the East and West equally?

December 13, 2002

Will European expansion benefit both the East and West equally?

The Slovak capital, Bratislava, sits right on the border with neighboring Austria. And Austria's metropolis, Vienna, is just 65 km (40 miles) away. On Friday evenings, thousands of Slovaks who work in Austria during the week must wait in long lines in order to cross the border — and join their families for the weekend.

Many commute to their jobs in Austria on a daily basis. They wait tables, sweep the streets, teach at Vienna's universities — or work for large international corporations such as Siemens.

As the European Union gears up for a historic summit to decide on the largest-ever EU expansion in December 2002, one has to wonder if this everyday scenario will catch on — and serve as a model for the Europe of the future.

Indeed, with eight former communist countries from Central Europe and the Baltic (plus the Mediterranean islands Malta and Cyprus) eligible for EU accession by 2004, people in Western Europe are increasingly concerned that this scenario may become the norm.

By 2004, the "Big Bang" enlargement should become a reality. Already, labor unions in the western countries are alarmed by the vision of a cheap work force from the East flooding their labor market.

Fear is growing, especially in Germany and Austria — who share the most borders with the new member countries. But unions in France, Italy, Britain and Spain are worried as well.

Their governments are demanding a transition period of up to seven years during which the new EU citizens would be barred from fully participating in the EU's open labor market.

Labor unions in the current EU member countries are also concerned that cheaper operations costs on the "other side" will lure away potential investment from their home bases. As an example, consider how the Spanish government even considered halting Slovakia's accession process.

The bone of contention? The auto maker, Volkswagen, which has plants both in Spain (Seat) and Slovakia (VW Passat). Slovakia, with a significantly lower labor cost than Spain, attracted VW's investment in the 1990s by offering state subsidies in the form of tax exemptions.

The Spanish government also expressed its preoccupation over the rumored partial transfer of the Seat Ibiza model production from Spain to Slovakia. In the end, Madrid agreed to a compromise that would allow Volkswagen Slovakia to receive limited state subsidies through 2008 — before submitting to EU norms.

Western Europe is also concerned about a potential influx of Eastern European immigrants. Recent Hungarian polls indicate that about 800,000 of Hungary's ten million citizens would consider moving to Western Europe after gaining EU citizenship. But history suggests that these fears may be largely unfounded.

In 1989, the Office of the UN High Commissioner for Refugees estimated that with the fall of Iron Curtain, Western Europe could expect 25 million refugees from the former communist countries. But this sizeable invasion never materialized.

Up to now, less than 3.5 million Eastern Europeans have decided to move to the West. Three-quarters of them chose Germany as their destination. But altogether they constitute only one quarter of the EU's 13 million total immigration.

And as my acquaintance, Peter, one of the workers already commuting between Slovakia and Austria observes, "I think that most of those Slovaks who want to get a job in Austria already have one. I don't think that the expected opening of the borders will bring any dramatic change."

But the implications of EU expansion may be a cause for concern. And surprisingly, it is not the Western Europeans, but their Eastern brothers, who may have the most to lose.

What Eastern Europeans should be concerned about is the following scenario. Imagine the French, British, German and Italians attract many of the young and educated people from new EU member states.

That would resolve the many problems caused by their own aging populations in areas such as pensions and health care.

With many of the countries in Western Europe experiencing shrinking populations, bright young Hungarians, Czechs, Poles or Estonians could provide a solution for Western Europe's demographic decline.

Italy is the most extreme case of the troubled Western European population trends. Back in 1960, when Italy was entering its golden period of post-war prosperity, Italian women gave birth to 910,000 children. Today, the country's annual births toatal slightly less than 540,000.

As a result, the number of deaths in Italy in 1999 exceeded the number of births by 34,000. If current trends continue, the number of senior citizens should exceed the number of actively employed people from 2025 onward. By 2050, there will be 1.24 retirees for each Italian of productive age.

The country which once worshipped the big family is today able to preserve its population only thanks to growing immigration. The situation in the other EU countries isn't much better.

And yet, "Fortress Europe" is constantly discussing restrictions on immigrants from Africa and Asia. In contrast, bright young Hungarians, Czechs, Poles or Estonians who are lured by the idea of better life, can be very easily integrated into the societies of the current EU countries.

At the same time, though, the potential brain drain might turn the new member states into an enormous social ghetto. It could devastate countries which are already challenged by a difficult social and economic transition from communism to capitalism.

How so? Well, the demographic situation in the new member states isn't any better than in the western part of the EU. Their own existing pension systems are reminiscent of pyramid schemes, where the active, working generation supports those who are already retired.

They need the young workers just as much as Western Europe. And yet, the resources which those countries spend on their free education systems — to provide trained workers for their own economies — could wind up benefiting citizens of other, much richer countries.

Transitional periods which bar the free movement of the labor force might seem discriminatory. But they ultimately would benefit the societies which today feel most hurt by them.

They will also help smooth the giant logistics process of EU enlargement — by not allowing it to fall victim to political populism.

Ironically, the enormous fear hidden behind the EU expansion process may lead both sides of the former Iron Curtain to reach out for similar measures to curb immigration. And that may eventually allow for a successful EU expansion.

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