Sowing the seeds of internal conflict

Date: 25/09/1997

By Michael Mann and Leyla Linton

ANYONE who has lived through an earlier round of EU enlargement will not relish the negotiations to come over agriculture and structural funds.

Talks were tortuous enough with Sweden, Austria and Finland, countries with farming sectors, in the main, at a similar level of development to the existing EU countries.

The gulf between farming in the EU-15 and even the most advanced of the countries of eastern and central Europe (CEECs) is vast.

But this divide may prove very useful to the European Commission in fighting its internal battles.

Facing the twin challenges of a tight budget and impending world trade talks, plus a system which is becoming unsustainable, the Commission can use the prospect of enlargement as a lever to force through 'domestic' reforms which are hard for most EU governments to stomach - even if it continues to insist this is not why change is needed.

Many experts argue that rural concerns also make the accession of the likes of the Czech Republic and Poland before 2005 a pipedream which even the Commission does not believe in its heart of hearts.

The figures are revealing. The ten CEECs have an agricultural labour force of 9.5 million - very high compared to the EU's 8.2 million - and farm workers still make up 27&percent; of the workforce. Yet they only produce, on average, 8&percent; of gross domestic product.

Prices in the CEECs are still well below the Union's cushioned guaranteed price levels. Once they begin to recover from the huge upheaval of economic change, their production potential is immense.

There is simply no way the existing member states will allow the applicants to take a full part in the Common Agricultural Policy in the short to medium term, no matter how enthusiastic their rhetoric.

Terrified southern farmers sweat at the awful prospect of cheap eastern food flooding the long-protected EU market. (Expect Spain's minister to hold out almost to the death in the final negotiations.)

Past events also tell a story. Last time the Commission tried to increase access for CEEC farm products to the EU market, its plan was torpedoed by a coalition of countries led by Germany, in theory the biggest fan of eastwards enlargement.

In its Agenda 2000 report, the Commission estimated that the accession of all ten CEECs would add 11 billion ecu to annual CAP spending.

The introduction of EU-15 prices in the new member countries would lead to massive surpluses which would be impossible to sell. Agriculture Commissioner Franz Fischler's experts have suggested the feared grain mountains could grow to almost 60 million tonnes by 2005 and beef stocks to 1.5 million tonnes.

It would also be a mistake to assume that immediate immersion in the CAP would necessarily be beneficial to the rural economies of the CEECs themselves, many of which are struggling to undertake the kind of land reform western experts believe to be crucial. Job losses resulting from western competition would result in massive unrest.

The Commission's preference is clear. First it has to get the EU's house in order. Only then can there be any prospect of enlargement.

Initially, efforts will be made to help structural adjustments in the CEECs, with payments under schemes such as Phare targeted at developing their food-processing capacity and the like.

Even once they have joined, the new members can expect a lengthy transitional phase before being fully taken under the CAP's highly protective wing.

Fischler has already made it clear that CEEC farmers will not qualify for the same sort of 'compensation' payments their western counterparts will be granted for the price cuts they face. Instead, he favours the establishment of a fund to broaden existing rural development initiatives.

The second crucial area for EU reform is the structural funds aimed at helping the poorest regions of the Union. These, together with agricultural spending, swallow up 80&percent; of the Union budget.

As with agriculture, the enlargement process gives the EU a chance to overhaul the system. The distribution of structural funds, which currently cover areas accommodating more than half the Union's population, is widely agreed to be unwieldy and too thinly spread.

In Agenda 2000, the Commission proposes maintaining the economic and social cohesion budget at 0.46&percent; of Union gross national product. It also suggests simplifying structural measures by reducing the number of 'objectives' from seven to three: two for regions whose per capita GDP is less than 75&percent; of the EU average or which have major economic and social restructuring needs; and a third to promote employment. (It is acknowledged that, to date, structural funds have had singularly little impact on unemployment.)

Post-overhaul, the Commission predicts that by 2006, the first two objectives will cover between 35&percent; and 40&percent; of the Union's population.

The accession of the CEECs threatens to dilute the average wealth of the EU. The ten CEECs have an overall per capita GDP estimated at 32&percent; of the Union average, compared to the 74&percent; average of the four current poorest countries.

German Socialist MEP Detlev Samland recently summed up the possible impact of this starkly. “The Union now finances cash grants to the CEECs equivalent to ten ecu per inhabitant. If the CEECs were to be treated in 1999 in the same way as Portugal and Greece, the grant payments would have to be raised to 400 ecu per inhabitant,” he said.

“Considering all applicant countries, the aggregate volume of payments would total 43.8 billion ecu, compared with approximately 33 billion ecu for the cohesion policy of the 15 current member states.”

At last week's meeting of EU foreign ministers in Brussels, national governments complained about the cost of enlargement. The southern states in particular have been vociferous, fearing that they stand to lose most. Greece claimed not enough funds had been allotted to expansion and called on the Commission to carry out a more substantial study on the needs of present member states and those of the CEECs.

Portugal, too, reiterated its concerns over expanding the Union, saying poorer countries would suffer. Lisbon stresses that it has worked hard to qualify for economic and monetary union and argues that it would not be fair if, after “all that effort”, it lost cohesion funding as other member states have suggested. Spain has gone further still, threatening to block enlargement if it loses cohesion funding.

As history has shown all too often, what the Commission wants for the CAP and the regions and what ministers are prepared to agree on are two very different things. The final form of any enlargement settlement is, for the moment, anyone's guess.