Béla Kádár

Why Europe?

 

Given the chance, every nation must prepare for its rendezvous with the future.
Surely it is beneficial to consider time and again what kind of Europe we are about to join, who we are and what we want.
Europe is not some mythical concept, it is not a geographical entity reaching from the Atlantic Ocean to the Ural Mountains. Nor is it the nucleus of world power, as designated by the founding fathers of geopolitics, or the symbol of historical power drainage, aging or decadence. Europe is the greatest historical meeting place in the world. For thousands of years, it has been the scene of the most intensive meeting of peoples and cultures, of human, economic and political movements. On no other continent do we find such a high level of demographical, cultural, economic and institutional intertwining: the combined creative energy of Greek philosophy, Roman law, English pragmatism, French nationalism, German efficiency, Austrian joviality, or, for that matter, of the dashing Hungarian spirit of old.
What makes Europe European? A short answer would be its evolutionary heritage. To put it simply: Europe consists of the areas where, historically, Roman law or English common law was applied, where the organic developments of the last thousand years led to the creation of constitutional monarchies, democratic forms of national and social governance, mechanisms of market economics, where the Gothic and Renaissance cathedrals were constructed, where Homer, Dante, Shakespeare, Goethe, Beethoven, Chopin, Leonardo and El Greco are all part of a common cultural heritage. To be sure, culture is always a local and not a global development, but within the common European heritage, the individual national cultural identities have lived on. The Spanish have remained Spanish, the English English, and this is just as true in the European Union as it has been.
As opposed to other regions, historical interconnections have also led to the development of similar or shared interests in Europe. In terms of economic analysis, the high status of competitiveness, individual freedom and social solidarity within the European system of values is of crucial importance. In the English speaking world, individual freedom and competitiveness are fundamental values, much more so than social solidarity. In the Asian system of values, individual freedom is restricted by competitiveness, performance and solidarity within the family. For centuries, the coexistence of competitiveness, individual freedom and social solidarity have only been characteristic of Europe. This is reflected in the social dimension of the EU, and the need to create solidarity and cohesion in its system of strategic objectives.
Despite the intimacy of economic, cultural and institutional interactions, the European market economies developed a number of unique features, which have survived to this day. The various versions of the European economic model are clearly exemplified by the differences between what are called the Thames, Rhine, Danubian or Iberian forms of capitalism. The European countries belonging to the common social, legal, and institutional framework of the European Union continue to carry the marks of their historical heritage, whilst also preserving certain features that are unique to their model, similarly to their cultural identity. Unity in diversity is not a catchphrase, it is reality.
Globalisation and the scientific, technological and information revolution of the second half of the last century have gradually loosened the traditional framework of the nation states and have created unfavourable conditions for the development of small countries and those with less bargaining power. For them, the framework of the nation state became a limiting factor. With European integration, the scope of action for small European countries expanded. With its eastward enlargement in 2004, the population of the European Union will exceed 400 million, and its GDP will be similar to that of the United States in magnitude. Intra-EU commerce will account for more than a fifth of international trade, and foreign trade with non-member states will amount to a quarter of the total, approximately twice the share of the US. Today and in the foreseeable future, the EU constitutes the largest market in the world economy with a harmonised framework and with common laws and regulations.
From time to time, at present, too, some say that the old continent has lost its vitality and its dynamism, and that its present state shows that Oswald Spengler was right more than eighty years ago when he wrote about the decline of the West. Undoubtedly, the European Union is conspicuous for the absence of statesmen of the first order such as Adenauer, Schuman, De Gaulle or De Gasperi. At the same time, however, it is undeniable that in institutional terms, the EU today is the most rapidly changing region in the world.
Following the resurgent Western European economic cooperation after the Second World War, Monetary Union and the creation of the European Payments Union, the Treaty of Rome was signed in March 1957 by the six founding members. That established a common market. Strangely enough, this process was accelerated by the events of October and November 1956, when the Americans forced the British and French to end their occupation of Suez and tacitly approved the Soviet military intervention in Hungary. These events sent a clear signal to the Western European decision makers of the time concerning pending Soviet-American arrangements. In this respect, Hungary's role indirectly served as an important catalyst for the process of European integration. The common market, which essentially meant a free-trade area, was developed into a customs union by 1968, a single internal market by 1993 and an Economic and Monetary Union by 1998. On 1 January, 2002, the common currency of the European Union, the euro, was introduced, and work began on a common foreign and security policy and the establishment of a joint European army.
In 1971, the six founding members admitted North-Western European states into the Union, when the United Kingdom, Ireland and Denmark were allowed to join; in the 1980s, Southern European states, Greece, Spain and Portugal becoming members; and in 1995, it was the turn of the neutral countries, when Sweden, Finland and Austria acceded. Now we are witnessing the fourth wave of enlargement, towards the East, which will put an end to the effectiveness of the Yalta agreement of 1945. From a historical point of view, the purpose behind eastward enlargement, its significance, is to eliminate the structure formulated at Yalta and consign that era to the history books.
The process of European integration is by no means free of the historic trauma that Europe has had to endure in the last hundred years. For about five hundred years, Europe was the nerve centre of international relations, the focal point of economic, cultural and political affairs in the world, and the most influential civilisation on the planet. But with the two world wars, two self-destructive European civil wars, the old continent destroyed its own international role and prestige, or at least weakened it. In order to avert the danger of Soviet Communism, it assumed a position of enduring dependence on the United States in terms of security and the economy. In the course of its historic development, it has transcended the phase and the illusions of empire-building - at no small cost to itself. Its strategic interests are to ensure international stability, social consolidation, and, as a pre-eminent foreign trade power, economic development, peace and security.
For countries that share the common elements of the European evolutionary heritage but are not yet members of the European Union, the European connection, or accession to the EU, reduces the costs and risks of belonging to a globalised world without frontiers. It requires no further evidence that within the framework of cooperation between countries that share the European heritage, not only geographical distances, but institutional, cultural and mental dissimilarities are also considerably smaller than those existing vis-ŕ-vis Asian or overseas countries. But the European Union will become fully conscious that the presence or the absence of a common European evolutionary heritage is not a historical, but rather a practical problem of integration. The costs as well as the results of integrating various countries into the EU, of developing and modernising them within the Union, will be determined by their share in this common evolutionary heritage. It is not difficult to forecast that this aspect will receive considerable attention when it comes to planning and realising future enlargements.

EU interests in eastward enlargement

The almost decade-long postponement of enlargement by EU member states, the continuous deterioration of the terms of accession and the less than enthusiastic response to eastward enlargement on the part of the Western European public make it necessary to discuss the interests motivating the European Union in the current enlargement.
On the level of power politics, some of the current member states and their most influential interest groups have long been opposed to the eastward enlargement on the assumption that it would create a "German" Europe, since Germany is not only closest to the East-Central European countries geographically, but is also their principal trading partner. The targeting of Europe's scarce resources towards the east also seems perilous from the point of view of Latin Europe and resource distribution; it is felt that it might happen at the expense of the region's own needs and the development and stabilisation of the Southern Mediterranean region, which is of crucial importance. Earlier development concepts had marked the axis of European development between Hamburg and Seville. The eastward shift in the hub of the EU and of NATO, movements along the Paris-Berlin-Warsaw, Munich-Budapest and Milan-Riga lines directly damage significant business interests. The eastward extension of the European Union's borders has also prompted fears in the countries that have so far benefited from their role as border nations.
Beyond geographical and national implications, there is clearly discernible opposition by certain target groups and sectors. Western European industrial employees' organisations considered a migration of jobs and capital eastward and the resulting rise in unemployment as the main drawback of eastward enlargement. Farmers felt it would contravene their interests by reducing the level of agricultural support available to them and by increasing competition. Small and medium-sized businesses and artisans feared a flood in imported commodities, as well as the appearance, due to the free movement of labour, of Central European competitors capable. Although the costs of eastward enlargement will amount to a mere 1.5 thousandth of the EU's annual GDP between 2004 and 2006, politicians are often keen to emphasise their efforts to safeguard taxpayers' money in their bid to find favour with voters.
Implications in terms of party politics are complex as well. The Socialist and Social Democratic parties, which are allied to trades unions, also share some of the economic reservations, such as those concerning migration of workers. Political forecasts for the Conservative and Christian Democratic forces, on the other hand, are gloomy as the accession of the Central European countries, most of which have a left-wing majority, could from their point of view have an adverse effect on the balance of power in the European Parliament, which had tipped in their favour so far.
It is, however, easy to dispel some of the earlier reservations concerning Europe turning into a "German" Europe if we examine actual economic processes in recent years. Hungarian economic relations with France, Spain, Portugal and Belgium have developed much more dynamically recently than ties with Germany and Austria. The freedom of movement for labour and capital within EU member states has also resulted in the creation of jobs and opportunities for more exports. The European Union has become a net exporter of agricultural products towards East-Central European countries, with the exception of Hungary. No matter how they are calculated, the financial burdens of enlargement cannot be regarded as excessive. At the same time, Western European decision makers, the individuals and organisations formulating public opinion and public opinion itself are not easily persuaded concerning the mutual benefits of enlargement. Under these circumstances it is nothing short of a miracle that the decision concerning enlargement was taken at all. It is not surprising that some of the Western European and international opponents of enlargement will be hoping that at least a few of the Eastern European countries will reject accession in the course of their national referenda, thereby curtailing or thwarting enlargement.
Naturally, those Western European political, business and intellectual circles who think and act on an international scale are aware that eastward enlargement will boost the potential and the competitiveness of the EU with relatively highly skilled and motivated human resources. The accession of ten new countries, some of which are in a phase of more dynamic social and economic development than current member states, could breathe new life into the old continent.
The eastward extension of the European Union's borders will also have strategic implications for the continent, given the enlargement of the European region of stability and security. From the point of view of culture, the European historical and intellectual heritage will be enriched by the diverse dowry of the accession countries. In terms of international relations, enlargement will strengthen the European identity in the America-centred globalised world, promote the need to tackle the burning problems of developing countries and the consequences of the rapid development of the Asian region. It would, however, be misleading to overestimate the numbers of those thinking in terms of European strategies. Therefore, ratifying accession by all parties involved and gaining Western European political support for enlargement will still need persuasion.

Hungarian interests in accession

Hungary's accession to the European Union will create a new environment and new conditions in virtually all fields of life. We can easily distinguish areas where accession will have clear advantages or disadvantages, or, in other words, where one side overwhelms the other. In terms of discussing the fate of the country, however, our judgement must be based not on the fine points but on entire processes, on interests in favour and those against.
Besides the great range of diverse aspects in our analysis and judgement, let us not forget that we live in a world where, ever since the Second World War, consumption and welfare have become social values. Most people assess systems, governments, processes and policies on the basis of their own social well-being. Hungary is a small country with a small economy. It is unable to provide the products and services it needs competitively. It caters for a high proportion - more than half - of its needs from imports. Therefore, Hungary needs to export goods and services to counterbalance imports and these exports need to be competitive, which means that economic development will necessarily be export-oriented.
Today, three-quarters of all Hungarian exports are bound for current EU member states, and an additional 8 to 9 per cent for countries that will either join at the same time as Hungary, or within a few years. The fact that Hungary will belong to a group of nations constituting the world's largest foreign trade market will have a beneficial effect on the country's strategic position and international standing. An ancient maxim amongst merchants is that you should build up the closest possible links with your most important partner, preferably family relations. Accession in this respect is akin to a marriage.
The settlement received by Hungary as a result of this marriage is not to be dismissed lightly. It is true that the level of support earmarked for Hungary between 2004 and 2006 is considerably less than expected, averaging a mere 0.7 per cent of the country's GDP. But in the next budgetary period, beginning in 2007, Hungarian representatives will also be participating in the allocation of EU funds. True, at the beginning of the 21st century, the economic position and the interests of EU member states differ considerably from what they were during earlier enlargements, but the Southern European countries and Ireland received resources equalling about 3 to 5 per cent of their GDP from the various funds of the European Union. Today it is impossible to predict the exact level of financial support that will be available in the budgetary period lasting from 2007 to 2013 but the level of available support is likely to be in the order of 2 to 4 per cent of Hungarian GDP.
The funds provided by the EU to its various countries, regions, micro-regions and cities are crucial for their development and competition for such moneys is increasingly intense. The last half-century has shown that there is a direct connection between the development of the various countries and the level of foreign working capital that they have managed to obtain. Hungary's accelerating economic development after 1996 depended on the fact that on average, it had the highest share of foreign capital investments amongst the former socialist countries between 1990 and 1994. Annual working capital investment amounted to an average of 4 per cent of GDP throughout that period. In addition, most of this was not linked to privatisation but was green field investment. In the last three years, this figure has been halved. If this trend continues, it could slow or curtail development. The economic support received on account of accession will result in new resources becoming available for development. Furthermore, in the eyes of foreign investors, Eu membership enhances a country's appeal (if all other factors remain unchanged).
Membership will increase the Hungarian economy's rate of growth by one per cent each year. It will also assist in the country's rapid modernisation and in eliminating its relative historical backwardness, something that is crucial for Hungary's future.
As a result of thirty years of European integration, Ireland, once a British semi-colonial area, surpassed the United Kingdom in terms of per capita GDP in the year 2000. In the three Southern European countries, the gap that had existed between them and the rich Northern European countries has narrowed considerably.
In grand European strategy, membership of the EU makes it possible for Hungary to utilise the comparative advantages arising from its geopolitical position. Following the decline and the eventual disappearance of the medieval Hungarian state, the country's geopolitical position deteriorated considerably. Its territory became a battlefield, a buffer zone between East and West, between the Habsburg, Ottoman, and Russian empires. As a result of accession to and member-ship in the EU as part of its eastward enlargement, Hungary will no longer serve as a guardian of the borders of Europe or as a sort of advanced post, but will play an important and enduring mediatory and organisational role by utilising its geographical position, historical know-how, relations and faculties, as well as by serving as a link to the Hungarian minorities in neighbouring countries.
The implications of membership in terms of national and social security are more difficult to quantify. European integration will improve the country's standing, it will make its various processes more computable and more transparent, it will limit the irrationality of potential shifts in party politics and governance, and will reduce the country risk surcharge. In their accession treaties, the ten new member states also sign up to the objectives of the Economic and Monetary Union, with the introduction of the euro among them, and undertake to fulfil them over the medium term. Reducing the budget deficit, inflation and interest rates will undoubtedly exact a high price in terms of development. At the same time, however, the costs of maintaining a national currency and of exchanging currencies will disappear with the introduction of the euro, and foreign trade will expand as a result of lower real interest rates. In the long run, all this could increase the rate of growth in Hungarian GDP by an additional 0.6 to 0.9 per cent.
It is always a risky business to try to quantify forfeited profits or losses that may have been. Nowadays all small countries with their own national currency are vulnerable to waves of outside speculation aimed at making a profit or exerting some kind of influence. Under existing conditions, it is easy to amass 5 to 15 billion dollars of hot money on the global money markets. This is enough to force a small country to bear significant financial losses or to bring it to its knees altogether. Membership of the euro zone is the only true protection against such attempts, since the likelihood of success against the economic potential and the foreign currency reserves of the European Union are rather slim. Gunboat or nuclear diplomacy are no longer the greatest threats to the interests of small nations. The need for economic, financial and market security and a firm stance against organised crime and terrorism have become much more important within the framework of national security. Thus the protection afforded by EU membership also brings indirect economic benefits as well as advantages in terms of national security.
By the turn of the century, the Hungarian economy, which is highly dependent on foreign trade, had practically been integrated into the international and the European system of economic cooperation. Participation in the - albeit not too efficient - work of international organisations can be interpreted as a sign of institutional integration. It is one of the peculiarities of the last century in the history of Hungary that all major international decisions shaping the fate of the nation - Trianon, Yalta, Malta - were taken by foreign powers, with Hungary itself excluded. Membership of the European Union also entails integration into the international structure of decision-making. Hungarian MEPs will sit in the European Parliament and its committees. Their room for diplomatic manoeuvring will have expanded and they will have the chance to conclude various coalitions and temporary alliances with partner nations.
Integration also promises improved chances in pursuing the national interest. Hungarians and a responsible Hungarian leadership can never forget the traumatic consequences of the country's partitioning under the Treaty of Trianon. The events of the post-war period clearly show that small countries or those with a weakened bargaining power have had much more success asserting their distinctive national interests through international or regional organisations than on their own, through bilateral relations. Small as Hungary might be, as part of a global power group, it will have enhanced opportunities to represent and defend the interests of Hungarian minorities living in non-member states, and aiding their efforts to catch up with the rest of the world.
Naturally, membership of the European Union is not a horn of plenty. It also has its disadvantages. The price of membership is the surrender of certain elements of national sovereignty. It also entails strict and rapid adaptation to the legal, economic and regulatory framework of the more highly developed nations and an increase in the requirements relating to performance and competitiveness. Adoption of the common foreign trade policy, for example, is a requisite of membership, including the EU's lower import duties. Hungary also has to accept the Union's contracted partners, sign up to its common policy concerning the provision of aid and international cooperation, and cancel or modify certain free trade agreements. As a result, the country will have to cope not only with the more intense internal competition of a large economic area, but also with the consequences of increased competition from developing nations receiving various trade concessions from the EU. There will not be any benefits or concessions available to make up for Hungary's performance deficit. It will be impossible to carry on with cheap, structurally outdated industrial and agricultural
activities, which require only a low level of skills. There will be no further postponing of the crucial decisions of economic policy.
Undoubtedly, not everybody will be able to meet the requirements of accelerated adaptation and performance. Putting one's faith in better chances for those look-ing to escapist TV shows, drugs, and pleasure seeking instead of ongoing further training and the development of skills just won't work. Nor will things be easy for the unskilled or semi-skilled, or for small and medium-sized enter-prises, in agriculture as well, who are up against the problems of undercapitalisation and limited access to market information. Retired people, who make up precisely thirty per cent of the population, will not have much of a chance to determine their own fate. Their living conditions will depend on the country's performance and income levels. Towns, villages and districts that are run by relatively inept or slowly reacting local authorities or those that are handicapped for some other reason, may also experience mounting problems. The advantages of membership will not manifest themselves immediately, and will certainly not be apparent to all social and economic groups to the same degree, and this is also a potential source of tension.
In the absence of more EU support, the proportion of the population that will likely be able to exploit the advantages of accession is estimated at around 20 to 35 per cent. It would, however, be an unjust mistake to link the falling behind of any part of the population to accession. If this were to happen in the near future, it would reflect Hungarian peculiarities and the lack or the adverse nature of
the proper conditions for development in Hungary. Would it be fair to let slip the chance to improve the opportunities of the majority because the minority is unable to take its fate into its own hands? Is that a question of economics, politics, or ethics?
Let us also not forget that in today's increasingly globalised world, the aforementioned tensions and challenges would emerge in a few years' time anyhow, regardless of accession. But a non-member nation state will not have any outside resources at its disposal to ease adaptation. There is a greater variety of means available to combat social differences in a dynamic economic region. In the era of globalisation, cooperation within the framework of international organisations also entails the curbing of national sovereignty. Small nations have accepted this in the past: the experience of bygone decades has shown that the member states of international or regional organisations have greater opportunities to assert their interests than non-aligned countries.
Hungary's accession to the European Union is a historic reversal of fortunes. In historical terms, it is a farewell to Hungary's rather gloomy past, as expressed in the Hungarian national anthem, even if this farewell has not been long, nor passionate, judging by recent manifestations of public sentiment. Membership also means bidding farewell to the backwardness that has characterised Hungarian history, increasingly so in the 20th century. It is a vehicle for modernisation and development, and a farewell to an unalterable, bleak future. Membership of the Europe sans frontičres means bidding farewell to the trauma of Trianon, even if the experience itself will never be erased from Hungarian memory. Membership means bidding farewell to Yalta and its heritage, farewell to shuttling between East and West, to being a ferry amongst nations. Hungary is now moored firmly on the West bank.
Last, but not least, membership means bidding farewell to Hungary's status as a small country, to the constricted framework of the small nation-state and the national economy, to barriers to growth, to the disadvantages of the so-called economies of scale. After the collapse of the Austro-Hungarian Empire, the country's scope of action is expanding once again, and this time, the expansion is infinitely greater. Within this expanded space, Hungary will no longer be as small as it used to be on its own. Based on population, it is ranked ninth amongst the 27 current and future member states of the EU, and has every chance of forming successful coalitions with other small member states. For the first time in a long while, the number of votes it will wield and the growth in its economic potential resulting from modernisation will have a positive influence on the prospects of Hungarian national interests. Consequently, membership of the European Union will not only mean bidding farewell to a part of Hungary's troubled heritage, it is also a rendezvous with the future.

 

Béla Kádár
is a member of the Monetary Council and President of the Economics Society.
He was Minister of International Economic Relations in the 1990-94 government.