GHDI logo

Hopes and Fears on the Eve of Eastern EU Expansion (April 26, 2004)

page 2 of 4    print version    return to list previous document      next document

May 1, 2004, marks a historic turning point. European division is a thing of the past and so is the old Europe, with all its rituals and comfortable habits.

What belongs together – historically and culturally – can now grow together.* In one fell swoop, the EU will increase its number of residents from 380 million to more than 450 million. More people will live in the new Europe than in the United States and Japan combined.

But that which could hardly be more different – above all economically – is also supposed to come together now as well: the saturated welfare states of the old Europe and the young upward climbers who are still having trouble with the burden of their state capitalistic past. That opens up possibilities – and any number of dangers.

At any rate, the joy over an epochal occurrence that seemed unfathomable for so many decades is being dampened in many places by fear of the economic repercussions. Suddenly, the EU includes those countries that distinguished themselves in the past several years as Germany’s fiercest rivals in the competition to woo manufacturers. Countries that use low wages, flexible workers, and tax dumping to lure businesses away, along with their jobs.

Starting May 1, we will see the removal of other hindrances that have made small and medium-sized companies, in particular, reluctant to follow the drive to the East [Drang nach Osten] thus far. Step by step, the same rights and standards will be introduced on the other side of the Oder River. The currencies should fluctuate within fixed limits around the Euro until – in two years at the earliest – the common European currency will gradually be introduced in Eastern Europe.

Legal certainty, currency stability, and (important for non-European investors) free access to the European market – all this, along with low wages and low taxes, makes the accession countries especially attractive to businesses. And that is especially dangerous for Germany as a site for manufacturing.

Will Germany, then, be among the losers of the great EU enlargement because jobs will migrate on a scale that hasn’t been seen up to this point?

Yes, say pessimists such as Munich professor Hans-Werner Sinn, president of the Institute for Economic Research (Ifo); he predicts long-term low-wage competition. And that means lower incomes, less growth, and less affluence: the start of a downward spiral.

No, say optimists such as Dieter Hundt, president of the German Employers Federation (BDA). He predicts a win-win situation, that is, a development that benefits all, the accession countries and the established industrial countries, Germany first and foremost.

According to this theory, growth in Eastern Europe will spur the entire European economy: through increased exports to the up-and-coming countries and also through the relocation of jobs. By using foreign-made supplies, German businesses can ensure that the “made in Germany” products that are so desirable worldwide remain competitive in the first place.

Developments up to now support the optimists’ theory. Opening up Eastern Europe proved to be a stroke of luck for the German economy. It opened up new markets and tapped into cost-effective suppliers. Hundreds of thousands of jobs were thus created or secured – here in this country, that is.

* This is a reference to the famous line uttered by Willy Brandt on November 10, 1989, one day after the fall of the Berlin Wall: “Jetzt wächst zusammen, was zusammen gehört”: “What belongs together can now grow together.” – trans.

first page < previous   |   next > last page