From now on, the bigger economies of the North - Germany and the United Kingdom - will have a broader range of natural supporters in the European Council and the European Commission when they go into bat on a wide range of economic and commercial issues, including financial services, trade, agriculture and aviation.
No longer will the more protectionist, state dominated culture of the southern European countries - the Club Med of Spain, Greece, Portugal, Italy and France - have the dominant role in economic and political decision making. The wider European Union, if it gives itself a chance, could with the more greatly empowered European Parliament in Strasbourg help to break down the Euro-culture which has made the EU so difficult to sell politically in sceptical countries such as Britain.
As well as bringing a more determined approach to solving problems of fraud and wastage, this also means that there may be a chance to rationalise a curious budgetary structure which has undermined the consensus of the Union. Germany, Britain and, to a lesser extent, France and the Netherlands have been net contributors to economic development in countries like Luxembourg, Ireland and Greece. In future, this burden will be shared more broadly and these subsidies could eventually vanish if the common agricultural policy is modernised and the culture of dependence challenged.
The new members will bring a new dimension to aviation debates in Brussels. They are likely to oppose state aid for airlines, and to favour freedom in such areas as airport access and ground handling.
The extra muscle developed with the addition of the four former Efta countries will be important in developing trade, both within the Union and externally, and in creating a counterweight to the rising power of the other trade blocs, the North American Free Trade Association (Nafta) and the Asia-Pacific Economic Cooperation countries (Apec).
In terms of the economic cycle there could not be a better time for EU enlargement. After the deep European recession of the early 1990s, there are finally indications that growth and industrial confidence are returning. Those countries outside the exchange rate mechanism, including the new Nordic members, already have reaped benefits from the autumn 1992 devaluation against the German mark, which prepared the way for lower interest rates and an improved export performance. Now the rest of the EU is catching up.
A recent survey by UBS Global Research shows that across Europe both domestic and export order books are filling up, stocks are being run down, capacity utilisation rates are rising, and consumer sentiment is moving upwards. However the improvements in employment and household financial expectations still lag behind, a legacy of the period of high unemployment and economic dislocation.
At the forefront of this recovery is the strong pick-up in exports. UBS says export orderbooks are now back to where they were before mid-1990. The biggest potential for expansion is in Belgium, Luxembourg, Denmark and Ireland - with Greece and Spain somewhat behind. In Germany, while still negative, industrial confidence is at its highest level since 1991.
The enlarged Union offers the chance for growing economies to share trade opportunities. A recent document published by the UK government shows that world trade picked up sharply in 1994, particularly in Europe. It is estimated that trade in 1994 grew by 9 per cent, more than three times the rate of growth in the previous year. With more open markets in 1995, as a result of the bigger Union and the gradual implementation of the Uruguay Gatt round, trade growth within Europe and between Europe and the rest of the world is forecast to continue in 1995 and 1996. Trade between the enlarged Union and the rest of the world is expected to increase by more than 7 per cent in both 1995 and 1996.
Nevertheless, as yet the benefits of the single market are far from being fully shared. The barriers of different languages and legal systems have remained daunting, and in the absence of a single currency smaller companies doing business across borders fall foul of currency exchange costs, despite the lack of tariff barriers. Nonetheless, the opportunity of tapping into the combination of the EC and former Efta countries makes the new EU a highly attractive venue for inward investment: from 1985-93 annual inward investment in the region climbed to $74.6 billion, against $8.8 billion in the period 1970-84.
Analysts believe that the EU could be an even more attractive venue and offer greater prospects were some governments to give up their obstructionist approach to implementing statutory commit ments approved by the Council of Ministers. Of the 282 measures needed to create the single market many have still to be converted into national laws. Of the 222 measures which have been implemented in some way, only half have been passed by all existing member states. The British and the Danes, despite their European scepticism, have been most active in implementing the measures.
The addition of the other Nordic countries could speed the process, since they have a more single minded attitude towards treaties than some of the other member states. The delays in implementation have been costing the EU dearly. For instance, open competition in procurement could save member countries as much as 21 billion ecus ($17 billion) a year from the controversial Euro budgets.
Recovering economies and a new balance of political power could be a powerful combination in Europe. Greater prosperity within a free-market structure will be the inevitable result.
Recovering economies and a new balance of political power could be a powerful combination in Europe. Greater prosperity within a free-market structure will be the inevitable result.
Source: Airline Business
