The Hindu Business Line : The EU grows in size and, hopefully, in influence

ON May Day 2004, the European Union officially welcomed 10 new members. By expanding from 15 to 25, the population of this group has increased from 380 million to 460 million, dwarfing the US size of 290 million. The new EU is now reported to account for a quarter of the world's wealth.

The new members are Poland, Hungary, the Czech Republic, Estonia, Latvia, Lithuania, Slovakia, Slovenia, Malta and Cyprus. In this list, all but the last two were former members of the Soviet block. Czechoslovakia, which split after being released from the Soviet influence, will interestingly be coming together again. From being a part of a large command economy, these countries went through a rather short period of independence, and have now voluntarily joined another large group. While it gives them access to a large market, it must be easier for them to adjust to the demands of EU's centralised bureaucracy having lived for years under another centralized regime.

It was a historic event not just for the members of the EU but for the whole world. It is the first time that so many members have joined at the same time and it is going to require several adjustments for the current members. For the rest of the world, it is a beacon of light and an evolving miracle that we do not often recognise. At a time when rebel groups within several nations are fighting for `independence' of their limited square-footage of territory, the juggernaut of globalisation is increasing interdependence on an unimaginable scale. Only parochial leaders, with un-thinking followers, can even imagine that postage-stamp size countries can survive in the global economy of today. A vote in the UN or even in the WTO does not count for anything if the economy is not doing well or there is no food on the table.

The WTO claims 147 members. There are already about 240 regional trade agreements in place and this is expected to go up to about 300 by the end of 2005. If nothing else, this is an indication of the importance that nations ascribe to the need for economic cooperation. Most of these are basic agreements that aim to reduce tariffs in trade within the region, yet they are all launched with considerable fanfare and hope towards a better future through cooperation. For all of them, the progress being made by the EU in not just reaching agreements on trade issues but in various facets of economic policy is a model that they wish to emulate.

The smaller countries see the entry into the EU group as a boost that will launch them into faster economic growth and they must be secretly hoping for a repeat of the Irish miracle. Although Ireland joined the EU in 1973, during the 1990s it received significant funds for restructuring and investments have poured in lifting it onto a new growth curve. With growth rates rivaling those of the Far East nations, it came to be known as the `Celtic tiger'. During 1989-2001, Ireland's GDP per capita increased from being 70 per cent to 119 per cent of the EU average. Now, Ireland's GDP per capita is the second highest in the EU, after Luxembourg, while its unemployment rate, at 4.5 per cent, is among the lowest.

It's not all hunky dory in the EU though. The UK, while still a part of the EU, does not seem to agree with much that goes on elsewhere in Europe. Either the hangover of once having been an empire, or the `special relationship' they covet with the US makes them stay aloof. The UK is reputed to be full of `eurosceptics' and the US has a fair share of `euroenvy'. The usual tone of reporting about the EU in the US has a heavy dose of scepticism. After all, who likes to see an ally emerge as a rival for global influence.

When the euro was launched, there were several predictions in the US about its imminent failure because of the complexity of individual nations having to manage their economies within carefully agreed to limits. The euro has survived and grown in strength as a rival currency that several nations are now tempted to hold their reserves in both the dollar and the euro.

One country that has been waiting in the wings the longest hoping to be accepted into the EU club is Turkey. The country is proud of the fact that it is part European and part Asian, separated by the Bosphorus. The two parts of the capital, Istanbul, that strides the Bosphorus, are locally referred to as the European and the Asian side. However, the rest of Europe, represented by the EU is not sure if it wants to let Turkey in, and has been stringing it along for a long time. Turkey is like the childhood love, always there and taken for granted. Intellectuals in Istanbul, in private conversations, will insist that the reason for their being kept out is that they are a Moslem-majority nation, although avowedly secular. While the EU will vehemently deny this, news reports that suggest that the EU is a ``reunification of Christendom'' will tell you why the Turks believe what they do.

Even with the growing size of the EU, its influence has been slow in coming. It finds it difficult to speak in one voice on political issues, which is understandable because that is not the intent of the union. The most recent example was the issue of whether to support the US stance on Iraq. The UK, as always, quickly fell in line. (The UK has a tendency to agree with US foreign policy even before the US has formulated its position.) Spain, in spite of vociferous opposition at home, also supported the US stand although it cost Prime Minister, Mr Aznar, his job at the time of re-election. Sensing a opportunity to drive a wedge, the US Defence Secretary mocked the opposition to the war by calling them `old Europe'.

If not in the political arena, EU has been asserting its independence in the economic areas.

The anti-trust agency in the EU took a diametrically opposite stand to the US in at least a couple of high profile cases. In GE's attempt to acquire Honeywell, it said `no' although the US had cleared it, and in the case against Microsoft, the EU again took a harder line in seeking to dampen the software giant's market power while the US anti-trust agencies had negotiated a settlement.

The new nations have joined just in time to participate in the framing of the new European Constitution that is expected to be completed in June. This will determine the structure of power and decision-making in the group, and the older members Germany and France are worried that their influence within the group will be diluted. Other concerns include the vast disparities of wealth for the newcomers only have an average of 48 per cent of the GDP of the existing 15.

When West Germany absorbed its weaker east, it believed that there would be great benefits as the companies of the west reached out to new markets. The reality has been different. Thus, as weaker and poorer nations join the EU, everyone is in for some major readjustments and it will continue to fascinate us to watch this evolving experiment.

(The author is professor of international business and strategic management at Suffolk University, Boston, US. His Internet address is cgopinat@suffolk.edu)

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