Bangemann goes east with warning message

Date: 10/04/1997

By Mark Turner

AS INDUSTRY Commissioner Martin Bangemann sets off on a didactic tour of the East, his would-be pupils may be forgiven for wondering exactly what he expects to achieve.

Following his visit to Hungary in March, the robust German will touch down in Poland and the Czech Republic this month, and - if all goes to plan - the other seven EU applicant countries before the summer holidays.

He will be taking with him a simple message: if the countries of central and eastern Europe (CEECs) are serious about joining the Union, their industries must become much more competitive.

But given that his statements will be delivered to politicians rather than businessmen, and will be accompanied by precious little of substance, their value is questionable.

There is no doubt, though, that his audience will pay rapt attention. With only months to go before the European Commission releases its crucial assessments of each candidate's suitability for membership, and with Bangemann's opinion weightier than most, no one will want to be the first to stop clapping.

His visits will at least make one thing clear - however much western Europe feels it owes its lost cousins, it will not let any stragglers into the club.

It has been obvious for some time that successful candidates will need to comply with Union regulations and standards. But the message Bangemann will deliver is that cosmetic legislative change is not enough.

Although wide-scale privatisation and the gradual abolition of subsidies have prodded many CEEC companies towards genuine competitiveness, most still face a long, painful process of restructuring and cut-backs before they are ready to vie with the leaner West.

The disappearance of east German industry after reunification is a sharp demonstration of what happens when things go wrong - and the EU is no Germany, willing to bear the expense of half its members being on welfare.

Cheap labour in the CEECs is counterbalanced by inefficiencies in production and distribution, and goods are often of a quality unacceptable to western consumers. The dismantling of barriers could destroy all but the fittest of enterprises.

Neither can the East rely on a natural improvement as transition kicks in. Productivity increases have been offset by fast-climbing wages (though still well below western levels) and, since 1995, the dollar cost of labour per unit in transition countries has actually risen modestly.

In Poland, Bulgaria and Slovakia, unit labour costs increased faster than they did in Germany in 1995, although Hungary managed to reduce them in the same year. The cost of complying with EU environmental legislation and industrial standards also promises to be sky-high.

Some companies are beginning to bite the bullet. The Czech telecom firm SPT, for example, recently announced that it would slash 10,000 jobs - one-third of its workforce - over the next three years.

But considering the outcry provoked by Renault's Belgian closure in a country relatively accustomed to free market economics, eastern industrial toning promises to be fraught with controversy.

Whether Bangemann, full of fine words and good intentions, can do anything to help is, as a result, doubtful.

Even his spokesman acknowledged that only industry itself could provide the answers to eastern Europe's competitive lag. “The ideal solution would be to achieve this without political interference,” he said.

But in countries still used to strong messages from the centre, a little high-level pushing might be a good thing and will confirm what its people already suspect.

A recent Eurobarometer study revealed that many central and eastern Europeans are growing more sceptical about premature integration. Although the political and economic élites of the countries remain firmly committed to quick entry into the Union, the man in the street - especially in the Baltic states of Estonia, Latvia and Lithuania - increasingly fears the economic fall-out of joining too early.

In Latvia, where 16&percent; of citizens who expressed an opinion said they would vote 'no' in a referendum on Union membership and 40&percent; were undecided, one respondent explained his belief that “local production will go bankrupt because these goods do not meet EU standards”.

According to Eurobarometer's analysis, “a no-vote is justified first of all by economic arguments. People in the Baltics, in the Czech Republic and in Slovenia fear that joining the European Union might worsen the economic situation, be too expensive or bring no benefits to their own country”.

While this should not be overestimated - the overwhelming majority of central and eastern Europeans would vote 'yes', with numbers rising in Romania and Poland - it is clear that an important minority are only too aware of the potential risks.

Bangemann will not be proffering any miracle cures for the CEECs' inherent difficulties. He will, however, “be suggesting immaterial investment, through knowledge networking and technical exchange”, according to officials, and will discuss the possibility of more sector-specific cooperation such as the EU-CEEC maritime forum.

The Commissioner will also continue to tout his dream of a pan-European information society supporting a panoply of industrial contacts and networks.

But these are all long-term projects which will take years to have a significant impact on the region.

While the EU applicants' economies have been growing rapidly in recent years, most have not even attained their 1989 levels of production. If Bangemann is serious in his demands, French promises of a first-wave enlargement by 2000 look rather flimsy.