Bridging Europe's solidarity gap
By Vessela Tcherneva - 27 Feb 09
This piece originally appeared in EUOBSERVER
COMMENT - The Wall that represented the geographical and political division of Europe was taken down 20 years ago, bringing euphoric hopes of unity. Yet today there is a new division in Europe - a solidarity gap.
After the accessions of 2004 and 2007, the new EU member states believed that they were finally sitting in the same boat with their neighbors to the West.
But right now, from the point of view of the new members, the EU states of long standing are comfortably aboard a luxury cruise ship heading for the horizon while they themselves bob behind on a leaky dinghy in troubled waters.
How the EU will succeed to bridge this solidarity gap perception will be crucial to its own survival.
The January gas crisis left hundreds of thousands of East Europeans without heating and forced many businesses to suspend operations - and many were right to say that those mainly to blame were the respective governments that had failed to take pre-emptive steps to ensure gas supplies.
The Russian-Ukrainian dispute became the opening act of the East-West drama that called into question the EU's credibility among its new members. The lack of long-term support on the part of the European Commission for the integration of Europe's gas transmission systems and the initial reluctance of key European leaders such as Sarkozy, Merkel or Berlusconi to enter the fray resulted in a 14-day stalemate for a number of recently-admitted EU members.
One immediate result was that previously high levels of support for the union fell by nearly 20% in Bulgaria during the weeks of the crisis. Last week, fresh news of Ukraine firm Naftagoz' inability to pay Gazprom has conjured the spectre of a new gas crisis, raising new fears in EU's East.
The recent call by German Chancellor Merkel to the European Commission for support for the Nord Stream project, which would diversify the gas route to Europe but would not ameloriate dependence on Russia, worsens concerns that there will be no common European policy vis-a-vis Moscow.
Europe cannot seem to accept the argument that the recent crisis has highlighted the uselessness of bilateral agreements with Russia.
Meanwhile, the protectionist statements by French President Nicolas Sarkozy amid the growing financial difficulties of the new member states became an alarming signal for the prospects for their economies. With their banks owned mostly by West European banking institutions and their financial balances highly dependent on foreign direct investment from the established industrial countries, the new member states face the risk of financial turmoil in the months to come.
The recipes for their transitions that the West preached and that were adopted by the domestic elites - that Central and Eastern Europe (CEE) economies should be opened to foreign investment and trade - seem to be at the heart of their current economic difficulties.
Moody's Investors Service warned in a report last week that Western owners of East European banks are coming under pressure to withdraw capital from countries already reeling from budget deficits and foreign borrowing.
For Central and Eastern Europe, which enjoyed breakneck growth spurred by a splurge of credit from these banks, the squeeze could not have come at a worse time. Already bruised by the global downturn, they are on the verge of a downward spiral as credit dries up. Average growth among countries in the region slid to 3.2 percent last year, from 5.4 percent in 2007. This year, it is forecast to contract further, economists say.
French, Italian and Spanish plans to support their car industries by pumping billions in exchange for "staying domestic" cause further concern in the eastern part of the EU. President Sarkozy's announcement that he would like PSA Peugeot Citroen and Renault SA to shift production from low-wage nations back to France in return for €7 billion in soft loans provoked fierce reaction by the Czech presidency of the EU Council. Growing unemployment, along with declining currencies that are making imports and foreign debt payments more expensive, are forcing governments to cut back on spending and public services, leading to a wave of increasingly violent protests across the region.
Last Friday, the coalition government in Latvia - where the economy contracted more than 10 percent on an annualised basis last month - became the second European government, after that of Iceland, to collapse.
The East Europeans will hold a mini-summit this Sunday, preparing for the EU summit in Brussels. The Hungarian and Polish governments will seek support for a "European Stabilization and Integration Program" that they hold would help them find a way out of the crisis. Along with short-term financial injections, the package will suggest faster financial integration of Europe.
Apart from Slovenia and Slovakia, the Eastern European EU members are not part of the Eurozone. The predicted "hard landing" of their economies may imperil the currency boards in Lithuania, Estonia and Bulgaria and will make it more expensive to rescue them than the countries that have already introduced the euro. Including all of them in the ERM II mechanism, which would allow many of the EU's eastern members to adopt the euro in the next two to three years, could be a reasonable political measure to bridge the solidarity gap between East and West.
But as Philip Stephens said in a recent commentary in the Financial Times, some of the old members "would like to undo the enlargement." And as perceptions matter most in politics, the solidarity gap has become a political fact in the EU today.
It will be up to the old member states to send the right signal: not only that solidarity means more that re-distributing structural and cohesion funds, but that the pains of transition were still the right path to take - for we all want to sit in the same boat. And that the political influence of Russia in Europe - the one East Europeans have been trying to diminish by accessing the euro-Atlantic club and now comes back through the gas pipes - should not be a major factor in European politics.