No mood to party.

European Union enlargement in Central Europe.

Karl Debbaut, CWI, Wednesday 28 April 2004.

On the first of May ten countries joined the European Union after months of negotiations and a series of successful referendums. 'New Europe', as famously described by Donald Rumsfeld, has married 'Old Europe', but is this the wedding that will lead to the break up of the European Union?

The ten new member states bring 75 million people in to the EU, making it the world's biggest single market in population terms. The leaders of the European Union should be rejoicing with further European expansion and integration. The European capitalists are now putting into practice ideas that formed part of their euphoric propaganda following the collapse of the former Stalinist regimes in the nineties. However, they are now far from euphoric, faced with the reality of what their policies mean in the cold light of day, in a different economical and political situation.

"The joy of unification has been replaced by bitterness: they don't want us". This is how Gazeta Wyborcza, one of Poland's leading newspapers, summed up the mood in Poland, now it, along with 7 other central European states, has joined the European Union. The rush in most of the EU-15 countries to impose restrictions on the free movement of labour from the ten new member states has lead to an outpouring of anger in all the central European states. If people in Poland, the Czech Republic, Hungary, Slovakia, Slovenia or the Baltic countries needed any further proof that they are being treated as second class citizens, this is it. It comes on top of worries about foodprice rises, reduced subsidies for farmers and small food retailers and the fear that Western European corporations will gain even more control over their economies through privatisations and mergers. The press in Latvia has campaigned against a sudden rise in foreigners buying land and property. The paper Latvijas Avize warned that if this went unchecked, Latvians would become "renters and servants" in their own country.

In total the ten new EU countries will receive 40.8 billion euro-worth of aid as part of the Common Agricultural Policy and structural funding for poorer regions. That is only part of the story. To be allowed to join the club the new members will have to pay 15 billion euros in dues. As a result, some, like Poland, will be net contributors to the EU budget during the first years of membership. The disparity between how much money the new and how much the EU 15 countries get sticks in the throat of many in the East. Poland will receive only E67 per person in aid from Brussels, Hungary will receive E49 per person, Slovenia E41 and the Czech Republic E29. These figures are for the first full year of membership in 2005. By contrast, in 2000, Greece received E437 per capita, Ireland E418, Spain E216, and Portugal E211.

The 2,7 million Polish farmers, most of them subsistence level producers, who make up almost one fifth of Poland's 14 million-person workforce have reason to be worried. The subsidies they will be getting are only one quarter of what French, Greek or Spanish farmers will receive from the EU. This means that they will not be able to compete with the giants of the EU's agro-industry. An even greater fear is the possibility that the overall majority of smallholders will not fulfil the EU's criteria to qualify for EU grants at all.

Although the total package of aid the ten new members will receive is only the equivalent to about 0.05 % of the aggregate gross national product of today's EU, the pressure from existing EU members, in particular Germany the biggest contributor to the EU budget, to restrict the costs of the operation reflects the economic crisis hitting Europe and the growing contradictions inside the EU. The economies of the countries in the euro-area grew by a mere 0.4% last year. Countries across the euro zone are struggling to keep their deficits inside the limits of the stability pact. The lights in the German powerhouse of the European economy are flickering. Germany looks set to breach the pact for the fourth time in 2005 and now even the Dutch finance minister, Gerrit Zalm, - who has been one of the strongest critics of those countries that have failed to keep their deficits below the 3% laid down by the pact - had to admit that Holland too is joining the 'instability' club. The stability pact is dying a certain death as Europe's governments face massive popular opposition to their attempts to accelerate cuts in public expenditure, privatisation and attacks on the welfare state. It is unlikely that the member states will agree with the plans of the European commission to raise the annual budget available for expansion in the Union's 2007-2013 budget. The commission would like to spend $140 billion a year. It has a battle on its hands by demanding an extra $40 billion a year from the member states.

"We want to be like Ireland"

Those politicians in Poland, the Czech Republic and Hungary who believe that joining the EU is the capitalist fast track to wealth and prosperity are becoming increasing isolated from their populations. Nonetheless the political class continue to be united in following this road and quote Ireland as the example to follow. They argue that Ireland when it joined the union in 1973 had a per capita income of 62% of the EU average, and that cutting corporate tax, slashing public expenditure, privatising public services and attracting foreign direct investment pushed it up to 121% by 2002.

Slovakia, for example, has adopted a brutal neo-liberal shock therapy. The neo-liberal government of Mikulas Dzurinda introduced a flat tax on income, corporate profits and retail sales of 19%, partly privatised the pension system and raised the retirement age from 58 for women with children and 60 for men to 62 years for everyone. The latest measures, a 50% cut in the basic welfare benefits, triggered food riots in Eastern Slovakia. The Roma minority attacked supermarkets and groceries after the announcement of the measures. The government answered by sending in the police and army and closing off entire villages. Brutal repression followed and at least one Roma died at the hands of the police. Overall unemployment in Slovakia stands at 16% and the national average income is about E250 per month. Near the capital Bratislava however incomes are about 90% of the EU average, a sign of how a very rapid gap between a very rich minority and a poor majority of the population has developed since the reintroduction of capitalism, accelerated by the drive towards EU membership. The results of corporate tax cutting, public spending slashing and the privatisation of public services is that the working class and poor foot the bill for the profits of capitalism.

The countries of Central Europe have attracted foreign direct investment in the run-up to EU entry as these countries offer a highly skilled workforce for very low wages. The majority of these investments have been to buy up assets in the privatisation frenzy. Foreign investors have bought up large parts of the manufacturing industry, either to close them down and eliminate competition or to take them over and gain from a highly skilled workforce on low wages. According to the Economist, foreign-owned firms provide half of the manufacturing jobs in central Europe. This is the twice the share they have in the EU. Slovakia for example has become the European centre for car manufacturing and may soon produce more cars per head of the population than any other country on Earth. Volkswagen is already making 300,000 cars a year in Slovakia, Peugeot-Citroën is building a 300,000-car plant and expects it to be up and running in 2006 and this year Kia Motors, part of the Hyundai group, has decided to built a 200,000 cars a year plant by 2007. Slovakia, with a population of 5.4 million people, will build 150 cars per 1000 people by 2007. Half as many again as the current top producers, the Belgians, last year. The scramble for foreign investments has led to increasing tensions between the countries of central Europe. Kia Motors played Poland against Slovakia and for months the press was filled with stories to put pressure on the government to bow to their demands. In the most optimistic scenario for capitalism, central Europe may well become a workhouse for the manufacturing multinationals. In the short and medium term more parts of 'heavy' industries will be closed and employment will be slashed. Employment in the Polish mining industry for example has gone down from 450,000 in 1991 to 142,000 today. The World Bank has just granted Poland a $300 million loan to ease the social effects of further pit closures. In a restructuring plan sent to the Polish parliament, the government is seeking to cut coal output by 12 million tons every year. Most of this would be at Kompania Weglowa, Poland's largest mining group, with the complete closure of 6 coalmines.

The benefits for the working class and poor of foreign direct investment in these countries have been meagre as a growing economy went hand-in-hand with rising unemployment and poverty. The economy in Slovakia has become increasingly dependent on a few big firms within the same single industry - an industry with a massive worldwide overcapacity. Clouds are already gathering over the prospects of these countries attracting more foreign investment.

Now as Poland, Hungary, the Czech Republic, Slovakia and Slovenia finally get to join the European Union some foreign investment is jumping ahead in search for even lower wages and lower costs in the countries of south-eastern Europe. Romania's monthly average wages are $130 compared to $597 in Poland. A report by the Economist Intelligence Unit estimates that Romania, Bulgaria, Croatia and their neighbours on the Balkan Peninsula between the Adriatic and the Black seas, will attract an average of $5.6 billion in foreign direct investment a year until 2007. The effects on the 10 new members are becoming clear, while they had growth rates of up to 5% in the second half of the nineties they now perform more modestly with an average of about 2.3% GDP growth. Even if they go back to growth rates of around 4% a year for the foreseeable future, the current wealth gap is so large that it would take Slovakia almost 40 years and Poland 60 years before they catch up with Western Europe. On the basis of capitalism this is clearly out of the question. The capitalist classes do not have the resources or the intention of undertaking the level of investment necessary to develop the new EU members. The net sum the EU proposes to transfer to the ten new members over three years from 2004 and 2006 is 25 billion euro. This compares, at current prices, to 97 billion euro that was transferred from the US to Western Europe in the Marshall Plan between 1948 and 1951. A more recent comparison is from the 1990s when West Germany transferred 600 billion euro to eastern Germany - a transfer which has not resulted in eastern Germany catching up with the West.

The rhetoric over the historic enlargement has already subsided in Germany and Austria where politicians have criticised the Eastern European countries for low corporate tax rates and low wages. Gerhard Shröder commented that these countries cannot expect to attract investment by low taxes and wages (away from for example the former East German regional states) and finance the infrastructural projects with EU money. The political message could not have been clearer: why should Germany, suffering from unemployment and high budget deficits, subsidise low tax rates in the countries to the east which will be its economic competitors? Germany's top six economic institutes intervened in the debate to defend the real position of the German ruling class saying that not the low tax rates but the subsidy system was the problem and should be revised.

Immigration

The issue of immigration and the recent rush in most of the EU-15 countries to impose restrictions on the movement of labour from the accession countries to the member states in Western Europe has created enormous resentment in Eastern Europe. In Slovakia the British ambassador made a television appearance to warn that only 'genuine' jobseekers will be welcome and the British embassy is considering a leaflet campaign to press the point home. The legal access to European labour markets and the opportunity to travel and work more freely was seen by Eastern Europeans as one of the few immediate and real advantages of joining the European Union. The politicians referred to it in their campaign for the 'yes' vote in the referendums on joining the union. Now a feeling of betrayal is spreading as expressed by one opinion poll in Poland in which only 10% of the people believe the EU will keep its future promises to Poland. The pro-European Union camp in those countries has been forced by public opinion to an offensive on the issue. Poland's government officials went on the record threatening retaliation against restrictions on its workers: "One option that we will seriously consider is 'an eye for an eye and a tooth for a tooth". Hungary has announced employment curbs for those EU countries intending to apply them against Hungarians and Slovakia has announced similar measures. Even if these are largely empty threats, the issue of immigration will come back to haunt the EU and its member countries. Even though the European Commission is paying Dana Hübner, Poland's newly appointed commissioner, about five times the salary of her country's president; she was forced to reflect public opinion in Poland in her first major interview. "We are tremendously disappointed! And we were already disappointed when we negotiated the chapter on the free movement of people..." She goes on to warn the European Union about the possibility of a backlash when Poland is forced to organise a future referendum on the European Constitution. "Politically we cannot avoid it [organising a referendum - KD]. The challenge again will be the voter participation, we need 50% minimum. I do not know if we can make it now."

While people in the ten new member states will have to wait until 2011 before restrictions to come to Germany, Austria and Italy will disappear, they are supposed to immediately introduce sharp border controls of their own against the non-EU countries on their eastern border. The prospect worries Hungary, who wants to keep close ties with ethnic Hungarian minorities in Serbia and the Ukraine and Poland, who would prefer more open borders with the Ukraine. Last year Ukrainians crossed the border with Poland 6 million times, Belarusians 4 million times. Most were small traders buying goods for resale at home and bringing in cheap consumer goods like alcohol and tobacco to sell on the markets in town squares of eastern Poland, the poorest part of the country.

Political instability.

The reintroduction of capitalism to Eastern Europe has created political instability. For a while the population had some patience with neo-liberal 'reforms' because they hoped their living standards and liberties would increase in the longer term. In the early stages people had illusions that EU enlargement would deliver better working and living conditions. Now that European enlargement is happening, these illusions are disappearing fast and patience is running out. This has accelerated political instability, the difference however with the 1990s, is that the ruling class is running out of options, as pro-capitalist 'reformers' are being replaced with populist, nationalist forces, far from entirely under the control of the ruling class. As the Economist put it in its survey on EU enlargement in November 2003: "If you plan a political career in central Europe, then hang on to your day job. Countries changed their governments every 20 months, on average, in the first decade after communism".

(number of governments since 1993*) Latvia:12, Lithuania: 12, Estonia: 9, Poland:8, Slovenia:2, Slovakia:6, Czech Republic:5, Hungary:5 - *including partial terms)

Last March Latvia saw its 12th government in 13 years take office. Lithuania wrote European history last month by being the first country to impeach a sitting president. Rolandas Paksas was voted out by parliament for shady dealing with a Russian businessman. The Czech government is in trouble too as there is talk of an alliance between 'disloyal' social democratic MPs and an 'unreformed Communist Party' in opposition to the ruling social democrats. In Slovakia, trade unions and the opposition party organised a petition campaign against the neo-liberal reforms of the government and for a referendum on early parliamentary elections. They succeeded in getting the 600.000 signatures needed to call a referendum but it failed to get the required 50% turnout. Nevertheless, the referendum took place on the same day of the first round of the presidential elections in which both candidates of the ruling parties failed to make the second round. Ivan Gasparovic, a former minister in Vladimir Meciar's government, won the presidential election with the backing of the main opposition party Smer. Smer is a left Populist Party, a split from the social democratic 'Party of Democratic Left' and has gained substantial support in the last few months.

Slovakia's Prime Minister, Mikulas Dzurinda, should go and visit the freshly made redundant Prime Minister of Poland, Leszek Miller. They can boast to each other about their own unpopularity. Dzurinda's approval ratings sunk to 5% in November 2003 and have shown some consistency in that regard. Miller's personal approval ratings fell to 3% but it took him less than three months to come down from about 20%.

No surprise then that Miller is the first ex-Prime Minister of a new EU country to resign on the second day of his country's EU membership. The Prime minister appointed a new prime minister and the country's political elite want to avoid new general elections at any cost. Opinion polls reveal that the outgoing coalition of the Democratic Left Alliance (SLD) and the Union of Labour (UP) would not get a single seat in a newly elected assembly. They formed a government in 2001, when the SLD polled 41%, and according to the latest polls would come out of new elections with only 7%, repeating the fate of their predecessors in Jerzy Buzek's government. This led Marek Borowski, speaker of the lower house of parliament, to lead 20 rebel deputies out of the SLD to form a new party called the Polish Social Democracy (SDPL). The SDPL claims to be on the left of the SLD. However, in one of the first statements Borowski made as spokesperson for the new party, he promised support for the Hausner plan, a drastic plan of cuts in benefits and social provisions. The Hausner plan is the current government's 'piece de resistance' to reduce the public debt and the budget deficit, named after the economic minister Jerzy Hausner also a member of the Democratic Left Alliance (SLD).

The biggest party coming out of the elections would be the Populist Party Samobroona (Self-Defence) with 29% of the vote, beating the official neo-liberal opposition of the Civic Platform (PO) into second place. As a reaction the leaders of the Civic Platform have made an about turn on their support for the Hausner plan. But it seems as if Jan Rokita, head of the Civic Platform's parliamentary caucus was right when he said: "whoever touches the SLD now will catch a horrible disease". This horrible disease leaves the Polish ruling class sweating for the future. Aleksander Kwasniewski, the president, is trying to find a cure by appointing a non-party technocratic candidate to be the next prime minister. Marek Belka, a former finance minister, has started negotiations to win the backing of a majority of the parliamentarians. The new prime minister flew in from Kuwait where he was in charge of the economic policy for the US-led administration in Iraq. He is known as an arch neo-liberal and will try to accelerate privatisations and cuts in social spending. Both the remnants of the Democratic Left Alliance (SLD) and their new off shoot, the Polish Social Democracy (SDPL), have announced that they will support the new prime minister.

Not so for Self-Defence. Its leader Andrzej Lepper built the party by appealing to the poor layer of farmers, and those in the countryside who suffered most during the restoration of capitalism. Its political program combines Polish nationalism and agitation against foreign economic influence with longing for the 'stability' of Stalinist rule in People's Poland. With his opposition to the European Union and neo-liberal reforms hehe has made, at least electoral, inroads amongst layers of the working class as well. He calls for vastly increased government spending and quotes the government of Gierek in the 1970s as the best government Poland has ever had. "I think Gierek was going in the right direction. How many factories were built under him, how many roads, how many hospitals? Now we have millions of people out of work, 80% of the banks are in foreign hands and we are almost 83 billion Euro in debt" (Financial Times, London 07/04/04). A week later, in an interview with a Warsaw local daily 'Zycie Warszawy' he praised Hitler: "He ended unemployment, opened up a wide range of public works. Then what drove him in the direction of genocide I don't know."

The development of populist forces show the enormous political vacuum that exists in these countries in the absence of independent parties of the working class capable of challenging neo-liberal reform and capitalism and fighting for the demands of working class, unemployed, and the urban and countryside poor. There are opportunities and dangers present in the situation. The working class needs its own independent party. Such a party would have to draw up a detailed balance sheet of Stalinism and capitalist restoration and develop a strategy and program for genuine democratic socialism. Far from unifying Europe, the effects of the Euro and EU-enlargement will be to increase the danger of the development of the right-wing forces of populism and nationalism in opposition to the policies of the major EU powers. It will lead to more vigorous clashes of interests between the different EU powers.

Capitalism, European or American, is not able to provide a decent living standard for the workers of Eastern and Central Europe. Pro-market policies coerce the peoples of Europe in a union of exploitation. Only workers' opposition, with socialist policies, can prevent this and lay the basis for a genuine co-operation between the peoples of Europe by breaking the power of capitalism. A socialist confederation of Europe would mean the end of capitalism, mass unemployment and poverty, and a massive increase in living standards for all.

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