Volume 10 Numbers 2/3

Spring/Summer 2001

The Trump Card of Domestic Politics: Bargaining Over EU Enlargement
Milada Anna Vachudova

In May 2001, the EU governments began to negotiate how the financial costs of the Union's enlargement will be apportioned among existing EU member states. These negotiations, we may reasonably expect, will last for years to come. The bargaining, so far, provides a textbook case of governments fighting intensely for their short-term political and economic interests within the EU's framework. The positions staked out by certain member-state governments are, predictably, at cross-purposes with the EU's overall goal of accomplishing enlargement and also, sometimes, with their own medium-and long-term-interests especially when these positions make them vulnerable to the tough bargaining tactics of their negotiating partners.

The dispute that took center stage in May was how the rules of the EU's Structural and Cohesion funds would be adjusted to allow for enlargement. These two funds were created to bolster the economies of the EU's poorest regions. Under the current rules, regions are eligible for aid from the Structural Fund if their per capita GDP is below 75 percent of the EU average and for aid from the Cohesion Fund if their per capita GDP is below 90 percent of the EU average. Spain, Greece, Portugal, and Italy want to prevent what they call the "statistical effect" (read: injustice) of enlargement-admitting much poorer countries into the EU while preserving the current rules would disqualify most of their poor regions from receiving aid.

Another dispute is brewing in the background of the one over regional aid. How will the EU's Common Agricultural Policy (CAP) be reformed to accommodate enlargement? Together, regional and agricultural aid accounts for 80 percent of the EU's total budget. In both disputes, EU member states that stand to lose EU funding as a result of enlargement are pursuing two strategies. First, they are insisting that the size of the pie be increased so old members can preserve existing levels of regional and agricultural subsidies, at least during a transition period of several years. Second, they are suggesting that rules should be put in place that would allow old members to take a greater share of this pie than new ones for a certain number of years.

The positions of the various camps are fairly straightforward: Spain, Portugal, and Greece want to preserve the generous regional subsidies they receive from the Structural and Cohesion funds, even after enlargement brings much poorer countries into the EU. France wants to protect the generous agricultural subsidies it receives from the CAP, even after enlargement brings greater numbers of poorer farmers into the EU. The chief contributors to the EU's budget, led by Germany and the United Kingdom, refuse to increase substantially their financial contributions to allow for an ever-increasing budgetary pie. (And Italy and France are at risk, with Italy paying out more for a swollen CAP, and France for increased regional aid.) Meanwhile, the candidates for EU membership insist that the rules cannot be rewritten so that the relatively rich EU-15 regions and farmers receive more than their substantially poorer counterparts in the EU's new member states.

Spain vs. Germany: The Structural and Cohesion funds
If the tally of interests pertaining to the reform of the EU's Structural and Cohesion funds ended here, old and new beneficiaries of regional aid would likely have to back down in the face of Germany's determination not to pay significantly more money into the EU budget. However, Germany undercut its bargaining position in early 2001 when it insisted, along with Austria, on a long transition period before workers from the new members would be allowed to relocate to the old member states after enlargement. (For more on this, see Milada Anna Vachudova, "EU Enlargement: An Overview," EECR 9, no. 4 [Fall 2000].)

The opening volley was fired by Spain, in early May 2001, when it vetoed an agreement among the EU's 15 member states for a seven-year transition period before the free movement of labor would apply to citizens of new EU members. Taking advantage of the political vulnerability of the German government on the labor issue, Spain insisted that the freedom of movement is a basic right of any EU citizen. At the same time, Spain insisted on its current share of the Structural and Cohesion funds, even after enlargement takes place. In exchange for withdrawing its veto of the transition period for the free movement of labor, Spain demanded an agreement guaranteeing for itself absolute amounts of regional funding, at current levels, during the EU's next budget period from 2007 to 2013. In the current budget period from 2000 to 2006, Spain is the largest recipient of the Structural and Cohesion funds, having been allocated 54.8 billion euros, or nearly 63 percent of the total of both funds (Financial Times, May 7, 2001). Spain jumped the gun, some EU members lament, since a review of how regional aid will be financed after 2006 was not scheduled until 2003.

For much of May, Spain held firm to its veto of the transition period for the movement of labor, while Germany refused to guarantee Spain current levels of regional aid for another decade. Greece and Portugal, for their part, had backed down, accepting a compromise proposed by Sweden, though they still stood to gain from Spain's intransigence. In the meantime, Italy elected a coalition of center-right parties on May 13 that promised, once they formed a government, to join the regional-aid battle in the interest of Italy's poor south, the Mezzogiorno.

At the very end of May, however, the Spanish government backed down. This allowed EU member states to agree to a seven-year transition period for the movement of labor, which will now be the subject of negotiations with the individual candidate countries. The question of how regional aid will be financed after 2006 remains contested and will be the subject of difficult negotiations in 2002.

Ironically, the intake of workers from the candidate countries-even from populous and porous Poland-is likely to help the German (and Austrian) economies in the medium term. The demand for imported labor in both economies is predicted to grow over the next decade as the workforce ages and becomes relatively less skilled in certain hightechnology sectors. From the point of view of the budget and as an overall cost to the economy, the influx of labor from the candidate countries is likely to be much less than whatever concessions Germany may now make to Spain in exchange for keeping East European workers at home for seven years after enlargement.

From the political point of view, however, Chancellor Gerhard Schroeder's Social Democratic government is in a tight spot because of the German parliamentary elections scheduled for late 2002. That Germany should pay still more into the EU budget is not popular with German voters, especially at a time when Germany also faces criticism from its Stability Pact partners because of mounting budget deficits. More important, according to opinion polls, substantial numbers of German (and Austrian) voters fear that enlargement will bring an influx of low-skilled workers from the new members that will drive down wages and drive up unemployment. Consequently, the Schroeder government wants the current member states to reach a final agreement on the transition period for the free movement of labor well before campaign season opens in Germany next year.

France vs. Poland: The Common Agricultural Policy
Standing at the sidelines during the ongoing battle over regional aid, in late May, France made a dramatic move in the struggle over the CAP. France's main strategy for protecting the status quo will be to fight for a transition period that allows farmers in the old member states to receive much greater subsidies than farmers in the new member states for many years after accession. The alternative is to increase the EU's agricultural budget so that new member-state farmers as well as old member-state farmers can receive direct payments under existing rules. The cost, however, is likely to be prohibitive. Estimates put the cost of extending an unreformed CAP to the new members at some 10 billion euros per year (EurActiv, May 22, 2001).

Whether the CAP is reformed or not, Poland insists that farmers from the new member states should receive direct payments, from the moment of accession, under rules identical to those governing the original members. The EU's financial projections, adopted by the European Council Summit in Berlin in March 1999, anticipated that new-member farmers could only receive direct payments after 2006. In 2000, Poland scored a substantial victory when it got the issue of direct payments for newmember farmers back on the negotiating agenda. But the French government will be unwilling to start tough, detailed negotiations on direct payments and reform of the CAP until after the presidential and parliamentary elections in France scheduled for May and June of 2002.

In late May 2001, France seized the trump card. It refused to accept a compromise seven-year transition period during which the purchase of agricultural and forestry land by old-member nationals in newmember states would be prevented. By insisting that an agreement be postponed, France has attempted to keep a potent weapon against the governments of Poland, the Czech Republic, and Hungary to use in next year's negotiations over agriculture. Like Spain in its fight with Germany, France is taking advantage of public fears concerning enlargement. According to public-opinion polls, substantial numbers of Polish, Czech, and Hungarian voters worry that enlargement will allow Germans (and other foreigners) to take control of their countries by buying up property and land. Poland has asked for an 18-year delay before foreigners are allowed to buy agricultural land and forests; the Czech Republic and Hungary have asked for a 10-year transition period (while Slovenia and Estonia have not asked for a delay). The candidates worry that the low price of land will encourage speculation, but the overwhelming reason is political. Publics in all three states fear a German buyout. Of course, this fear is not without precedent. In the Maastricht Treaty, Denmark won a permanent restriction on the purchase of second homes by EU nationals in an effort to prevent Germans from buying up the Danish seaside.

In the run-up to the Gothenburg summit in mid-June 2001, France came under intense pressure from its partners to stop blocking the agreement on a transition period for capital mobility. France backed down, and the member states agreed to offer a seven-year transition period to the new members. This will now be the subject of negotiations with the applicant countries, but, preliminarily, the Czech Republic and Hungary have accepted the seven-year transition period while Poland is still standing by its bid for 18 years.

France fears that it will receive, in absolute terms, a smaller portion of even a larger agricultural subsidy-losing out in particular to Poland's numerous and vigorous farmers. French and other EU farmers also fear market losses in favor of the new members who, according to a recent study by the Deutsche Bank, have twice as much arable land and 50 percent more farmland per inhabitant than their EU competitors (EurActiv, May 22, 2001). It should be emphasized, however, that the EU agricultural market is already almost completely exposed to competition from the candidate countries. Any market gain on their part will be gradual and will not come as a shock on the day of enlargement. In the long term, France fears the general downscaling of agricultural subsidies as a part of the EU's budget. Presumably after entry, Poland would be France's staunch ally in preserving a substantial CAP. However, the very scale of Polish agriculture will make the preservation of the CAP that much more difficult.

The Irish referendum on the Nice Treaty and the Gothenburg summit
For much of the Swedish presidency, disputes over regional and agricultural aid frustrated Sweden's efforts to make substantial progress toward the first wave of enlargement at the European Council Summit in Gothenburg, Sweden, on June 15-16, 2001. The decisions of Spain and of France to surrender their bargaining chips by no longer blocking agreement among the 15 member states on transition periods for the movement of labor and of capital did ease tensions in the run-up to the summit. But the core issues- under what rules and with what budgets will regional and agricultural aid function after enlargement- remain unresolved.

The Swedish presidency of the EU began on January 1, 2001, with the Swedes taking a strong stand in favor of accelerating the negotiations for the entry of the first wave of EU applicants. Sweden had hoped that it would be able to make two advances at Gothenburg-to tap the candidate countries that will be invited to join the EU in the first wave and to make progress fixing a timetable for accession. Selecting the first wave candidates never even made it onto the agenda in Gothenburg. Germany strongly opposed fixing a timetable, but, at the summit, at the eleventh hour, it backed down. Thus EU leaders did set the end of 2002 as the date for completing the negotiations with the most advanced candidates. This will enable new members to participate in the European Parliament elections scheduled for 2004.

A "no" vote in a referendum on the Nice Treaty in Ireland the previous week cast a shadow over the Gothenburg summit. Irish voters rejected the Nice Treaty, which paves the way for the EU's rapid-reaction force and for the reforms necessary to prepare the EU's institutions for enlargement. The "no" campaign focused on threats to Ireland's neutrality, resulting from an EU military force, and on Ireland's increased contributions to the EU budget following enlargement. The "no" campaign was reportedly much more vigorous than the government's "yes" campaign.

The Irish government and other EU leaders will find a way to manage the Irish "no." But the episode serves to highlight a longstanding problem that undermines the EU's enlargement project: the leaders of the 15 member states have failed to present a coherent and convincing vision of an enlarged, self-confident EU to their voters.

Explaining the enlargement of the EU
Given all of the painful institutional and budgetary reforms necessitated by enlargement, we might wonder why the EU is going ahead with it at all. For the EU's existing member states, after all, the benefits of enlargement are diffuse and long-term. They resonate little with the voters; what is worse, the costs frighten them at election time. Enlargement does have an economic rationale. The EU as a whole will, over time, register an increase in economic activity and prosperity. It will also gain from the stabilization and economic revitalization of its borderlands. This will open new markets for EU products and investments while saving the money and blood that would be expended otherwise in the event of further economic upheaval and war. The debate has yet to be launched about whether enlargement can be explained by theories of European integration that consider economic interests to be virtually the only force driving such integration. (See Frank Schimmelfennig, "The Community Trap: Liberal Norms, Rhetorical Action, and the Eastern Enlargement of the European Union," International Organization 55, no. 1 [Winter 2001], pp. 47-80.)

Recent breakthroughs in the enlargement process, moreover, suggest that the project of admitting into the EU some 15 to 20 new members from eastern and southeastern Europe is impossible without taking into account an even broader and more chaotic project-that of turning the EU into a credible geopolitical actor. The EU's resolve to widen the accession process to the Balkans coincided with its resolve to build a more substantial Common Foreign and Security Policy (CFSP). Both came at the close of a decade when the EU's ability to ensure peace and democracy in its borderlands had been shown to be tragically lacking by the wars in the former Yugoslavia. (See Timothy Garton Ash, "Europe's Endangered Liberal Order," Foreign Affairs 77, no. 2 [March-April 1998], pp. 51-65.) And in the wake of the Kosovo crisis, progress has indeed been made in anchoring the Balkan countries in the EU accession process and in forging policies toward the Balkans within the framework of the CFSP.

The short-term demands of domestic politics in EU member states, however, continue to undercut those EU policies that have the potential of contributing substantially both to democratic consolidation in individual postcommunist countries and to the creation of a whole Europe where economic prosperity fosters peace and vice versa. In June 2001, while the EU's 15 governments wrangled over the EU budget at Gothenburg, civil war threatened in Macedonia, and EU leaders seemed, once again, illequipped to stop it.

Milada Anna Vachudova is Jean Monnet Fellow at the Robert Schuman Center, European University Institute, Florence, and assistant professor of political science at the University of North Carolina, Chapel Hill.

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