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Two Roads Diverge in Europe My interest in the European Union lies in my background in Turkey. My friends and I grew up admiring the big European powers. We looked up to their orderly, beautiful cities, less corrupt politics, more efficient economies, and more refined culture. We needed to work hard and refine our tastes to go anywhere near the European standards. During my year abroad in Munich, I witnessed important developments that increased my knowledge and understanding of Europe. For one, now I know that important economic problems are facing the European powers. The Europeans found chances to show their discontent in constitution referenda and regional elections. Now it is clear that something has to be done to address their rightful fears. There are two options in front of the member states. One is to follow protectionist policies, blame the EU for the economic problems and try to avoid further enlargement and liberalization. The one they should follow, on the other hand, would be to tackle the real reasons behind unemployment and slow growth. Another exciting year is awaiting people like me, who are interested in the EU. In December, the European Council decided to open accession talks with Turkey. I favor the accession simply because it is a solid goal that provides us an incentive to work on improvement in many areas. The incentives to work continuously are all the stronger, when we see that our efforts yield formal results and there is progress towards the goal. Over the winter break, I witnessed great skepticism in Turkey. Turks, including my family, surely wanted to join the EU, but did not believe that the negotiations would lead to full membership. They were aware of the unpopularity of Turkey’s accession. The next elections in Germany and France were likely to bring new political parties to power. Unlike the existing ones, the new governments would not favor the full membership of Turkey. Even before the national elections, the constitution referendum in France and the regional elections in Germany showed people’s discontent. In the case of the French referendum, it was discontent with the economic problems, and the fear that the policies of the EU are exacerbating them. Germany and France’s economies have not been growing fast enough to create jobs for the growing numbers of unemployed. One of the policies in question is the enlargement. The labor costs are very high in France and Germany. Since the old members have put limitations to legal inflows of cheap labor from the new members, manufacturers are forced to pursue cheap labor by investing in the new members. The French and the Germans lose the potential to create jobs. Yet another threat to “the European social model” is the Services Directive, which proposed to liberalize the services within the single market. The opponents of the Directive, namely the left wing and the unions, claimed that competition from the poorer EU members would steal German and French jobs, drive down wages and welfare standards. Against this backdrop, it is easy to understand the unpopularity of further enlargement and liberalization of the EU. At the same time, the French and the Germans should realize that the reason for unemployment is neither the enlargement, nor policies that aim further liberalization. The real reason is the high labor costs that make Western Europe uncompetitive in the world markets. For one thing, as I already mentioned above, manufacturers choose to invest in low-cost countries rather than Germany or France. For another, cheap imports from countries like China drive local producers of these imported goods out of business, as is experienced by the textiles sector now. The workers in these sectors lose their jobs, and press for protectionist measures against competition from low-cost countries. Protectionism can only be a second-best solution that will serve to delay the needed reforms. It will save some jobs now, but the trade distortion will lead to great losses. As an alternative, the left-wing opponents of the constitution would rather “export the European social model” to the new members, and maybe impose higher labor standards on China. It does not sound plausible, however, to try to make the competitors less competitive. The only remaining option is to try to make Germany and France more competitive by reducing costs. One area that needs reform is the welfare system. Strongly regulated labor markets in France and Germany make the employers hesitant to create new jobs. The employed enjoy job protection and high wages, while the unemployed, who may be willing to work for less, cannot find jobs. Moreover, because of generous unemployment benefits, the jobless do not have enough incentive to look for work. The Hartz IV reform in Germany tries to improve the incentives for the unemployed to work. Moreover, the labor unions were forced by their own members to agree on lower wages and longer working hours, in an effort to avoid further loss of jobs. Unfortunately, the good outcomes of structural reforms, namely higher growth and lower unemployment, are not likely to be observed in the short run. That is why the ruling Social Democrats (SPD) lost the regional elections in North Rhine-Westphalia in May, and Chancellor Schröder had to call for early national elections in September. After having spent eight months in Germany and witnessed the unpredictable turn of events, I am curious to see how the rest of the story will unfold. A lot has happened, but a lot more has to happen. It will definitely be an exciting year. What will be the aftermath of the constitution referenda? What will be the outcome of the German elections? Will the accession talks between Turkey and the EU start in October? Most importantly, will the member states address the real reasons of their economic problems and undertake structural reforms? We will get the answers to these questions soon. Once they tackle the real reasons of their economic problems, Europeans might even see the brighter side of enlargement.
Copyright © August 6, 2005 |
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