The
Social Consequences
Of European Union Expansion
By Markus Salzmann
20 April 2004
World Socialist Website
The
accession of 10 Eastern European states to the European Union from May
1 will intensify the social crisis in these countries as well as in
the rest of the EU. The population in Eastern Europe has already suffered
an enormous rise in poverty and unemployment, wage cuts and the devastation
of social provisions in order to fulfil the criteria for EU membership.
The introduction
of free market conditions, the privatisation of former state enterprises
and radical austerity measures have led to devastating economic and
social conditions.
Wages in the accession
countries are presently five to eight times lower than in the EU. Average
per capita GDP in the current EU states (24,250 euros) is substantially
higher than in Hungary (€7,080), for example, or Latvia (€3,740).
Unemployment, the
main cause of poverty, rapidly rose in the accession countries in the
last 15 years. In the Czech Republic it climbed from 0.7 percent in
1990 to 6.5 percent in 1998 and is now almost 11 percent. On average,
it is twice as high as in the EU.
These figures are
not truly representative, as there are strong regional differences.
In Bratislava, the capital of Slovakia, just 60 kilometres from Vienna,
unemployment is approximately 4 percent. It rises to 60 percent in rural
areas 200 kilometres further east. The national average in Slovakia
is 16.6 percent. A similar range can be seen in Hungary. While unemployment
is minimal in the capital Budapest, in other regions it rises to 40-50
percent. Unemployment among those aged under 25 is constantly increasing.
In some regions some 45 to 50 percent of this age group are affected.
An unparalleled
decline can be witnessed in all areas of society. In Poland and Hungary,
the child mortality rate has risen by over 5 percent since the end of
the 1980s. It is estimated that 50 percent of the Hungarian population
are currently worse off than 10 years ago.
At the same time,
Eastern Europe is considered a paradise for Western European enterprises.
In order to attract foreign capital, business taxes have been drastically
reduced. In the Czech Republi,c it has been decided to lower the business
tax rate by 7 percent to 24 percent. Like Poland before, Slovakia this
year introduced a uniform tax rate of 19 percent, which applies equally
to the ordinary worker, the multimillionaire and big corporations. Last
year, those with high private incomes were still being taxed up to 38
percent. In Hungary the tax rate is also below 20 percent and the country
is seeking to lure enterprise with tax exemption schemes lasting many
years.
The Baltic states
have established even better conditions for those willing to invest.
In Latvia, the poorest accession country, several special economic zones
have been established in which corporations enjoy tax exemptions of
over 80 percent. Estonia has completely exempted business profits from
taxes.
These lower taxes
and the enormous wage differentials mean corporations are increasingly
shifting their production to Eastern Europe. It is forecast that in
a few years Slovakia will be the world leader in car production when
measured per head of the population. Service and IT jobs are also being
shifted eastwards. The logistics enterprise DHL, for example, plans
a project in the Czech Republic worth €500 million. As a result,
production in Britain will be reduced. The number of call centres will
rise in the Czech Republic by around 70 percent over the next years.
In the main, todays
business-friendly conditions were established in the 1990s by former
Stalinist bureaucrats, who rapidly proved themselves the most eager
advocates of capitalism.
A good example of
this is the policy of the government in Hungary in the mid 1990s. The
Bokros package, named after the finance minister at the
time, implemented drastic cuts in pensions, health and education; a
radical devaluation of the currency meant a loss in real wages of 10
percent. In parallel, state-owned industry was rapidly denationalized
and an army of unemployed established.
A former production
director of the Phillips electronics corporation recalled these years
with satisfaction in a recent magazine interview. At first, we
did not want to believe it all, he gushed, we counted and
counted again. Suddenly we were again competitive with Asian production
locations.
In the 1990s, Phillips
increasingly shifted its production to Hungary, where wages are about
five times lower than in Western Europe. Since 2001, the corporation
has moved production further eastwards, to the Ukraine, where costs
are even lower.
Many other Western
European enterprises are doing the same, e.g., Siemens, which recently
announced the transfer of between 5,000 and 10,000 jobs to cheap wage
countries in Eastern European.
In order to attract
international capital, the contest to see which country can offer the
lowest taxes has spread to Western Europe. Austria, which for years
has had the lowest taxes on wealth in the European Union, has decided
to implement tax reforms in 2005, lowering corporation tax
from 34 to 25 percent and offering further concessions for investors.
In this regard,
tax experts are already warning that the radical austerity measures
Vienna has imposed on the population over past years will no longer
be sufficient to compensate for government revenue shortfalls resulting
from this reform, meaning large holes will arise in the budget.
In part, this situation
has already been achieved in the accession countries. According to economists,
the budget and foreign trade deficits contain the potential for economic
crises. Last year, for example, Estonias budget deficit reached
nearly 15 percent. This is five times higher than the Argentinean deficit
which provoked a huge financial crisis in the country in 2001. In Hungary,
the forint came under severe pressure this year because of the rising
state deficit. The Hungarian foreign trade deficit is already 58 percent.
In Latvia it is about 64 percent of GDP.
Contrary to everything
said by Brussels, the accession of the East European countries in May
will not improve the situation for working people there. All indicators
point to the differences in wages between east and west continuing to
remain in place for at least 10 years. Also, the reforms
will not end with accession. The Czech government declared recently
that further cuts were necessary in health and pensions provisions.
Given the current condition of the welfare system this largely equates
to privatisation.
It is more likely
that conditions in Western Europe will be adapted to those of the accession
countries. Even more comprehensive attacks on wages and social standards
will be demanded in order to remain competitive. At the
beginning of the year, the Ifo Institute for Economic Research at Munich
university proposed wages in East Germany should be cut, since after
accession regional funds provided by Brussels would diminish and a rise
in unemployment threatens.
As the German newsweekly
Der Spiegel reported recently, a government commissionconsisting
of a number of business representatives under the leadership of the
Klaus von Dohnanyi, the former chief of Treuhand (the institution responsible
for denationalising East German state property during German reunification)
submitted a proposal to establish special economic zones in East Germany.
These would supposedly give Germany an equal chance against
countries such as Poland, Hungary and others where such zones already
exist. The central thrust of the proposals are tax exemptions for enterprises,
the deregulation of labour and environmental law and the concentration
of state aid on economic centreswhich would deprive
all other areas outside these zones of any aid at all.
None of the established
parties in Eastern Europe represents the interests of the broad mass
of the population, who are mainly confronted with choosing between ruthless
market-oriented neo-liberals and retrogressive nationalist
forces, who seek to direct justified indignation into reactionary channels.
This has resulted
in a situation that is politically quite unstable. In Hungary, one government
after another has been voted out at elections held since 1991. Recently
in Poland the government party split and does not even register 10 percent
in opinion polls. In Latvia, the twelfth government since 1991 has come
into office. And in Lithuania, government head Rolandas Paksas was recently
impeached because of his contacts with the mafia.
The advanced nature
of the social crisis in the accession countries contains enormous potential
for conflict, as was shown in the unrest in Slovakia in February. In
the course of the European-wide demonstrations against welfare cuts
on April 3 there were also many protests in Eastern European cities.
The progressive
unification of Europe is possible only in the form of the United Socialist
States of Europe. The EU is expanding eastwards in the interests of
the European financial elite, which sees a reservoir of cheap labour
and new markets in the accession countries. At the same time, they will
try to impose a similar level of wages and social standards in Western
Europe.
The expansion process
means not only that social contradictions will increase; the conflicts
between the European powers and between Europe and the USA will also
be intensified. This is clearly shown by the distinction drawn by the
American government between an old and new Europe,
linked to support for the Iraq war, and conflicts over the creation
of a common EU constitution.