Scrutiny of the accession process – after the progress report and the Nice summit

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

The Nice summit and the publication of the
progress report by the commission cast a new light on the two main
aspects of the enlargement process, the EU’s readiness for
enlargement and the candidates’ preparations. The results of
the Nice summit have fallen far short of what is possible or
required. The positive aspect is that the government conference
concluded in formal adherence to the timetable in which the EU
regards itself as ready for enlargement from 2002. However, the
reforms hammered out in Nice can hardly guarantee an enlarged
EU’s capacity to act in the long term. While the new
distribution of votes in the council of ministers has improved the
balance between large and small member states, the unanimity
principle was not abolished except in a few areas. The complex and
non-transparent provisions for majority decisions will hardly
streamline the decisionmaking process. However, it has become
easier for the member states to cooperate more closely with one
another. In 2004 another government conference is to deal with the
problem of how the competencies of the different levels of
government in Europe are to be delineated. This will be an
opportunity to improve the Nice result.

Despite the justified criticism, the Nice summit
is likely to boost the preparations of the Central and Eastern
European candidates. A big hurdle on the way to accession has
fallen. The countries’ individual preparedness will again be
the main focus. In this respect the EU commission’s progress
report that was published in early November has painted an overall
positive picture.

Good marks for accession preparations

According to the Commission’s report, all
countries have come closer to fulfilling the three Copenhagen
criteria since the last year, yet substantial differences between
the countries remain. The main findings:

  • Political criteria: Democracy, the rule of law and
    protection of minorities have been further strengthened in all
    countries, which consequently continue to fulfil the basic
    political criteria. Concerns were noted only with regard to the
    high level of corruption and the weakness of the judiciary and
    public administration in some countries.
  • Economic criteria: Real economic convergence
    advanced in the past year backed by the restructuring made possible
    by firm growth in most CEEC. Privatisation of large enterprises and
    the financial sector has progressed, while trade integration with
    the EU has further intensified. The candidates are now the
    EU’s second largest trade partner after the US. Remaining
    weak spots are high inflation rates in some countries (Poland,
    Hungary, Romania) as well as considerable current account deficits
    (Poland, Baltic countries) and rising unemployment due to economic
    restructuring.
  • Assumption of the obligations of membership (acquis
    communautaire):
    Concerning this crucial point for the
    enlargement process, the Commission underlined a growing
    discrepancy between the legislative adjustment, which has proceeded
    well, and the actual implementation and enforcement of the laws,
    which has lagged behind. The weak performance of regulatory
    institutions and the limited effectiveness of the public
    administration have burdened the preparations and increased the
    need for transitional periods. The required convergence with the
    Common Agricultural Policy and the need for timely liberalisation
    of capital movements continue to be a stumbling block for many
    countries, whereas internal-market and transport legislation are
    generally adopted more quickly.

Clear differentiation between countries is missing

Despite the voluminous country-by-country
studies, the Commission again avoids giving a very differentiated
(or comparative) picture of the preparedness of the individual
countries. Only with regard to the economic criteria did the
Commission present a more detaile d picture: the so-called
Luxemburg countries (Poland, Czech Republic, Hungary, Slovenia,
Estonia) will be able, it is said, to withstand the competitive
pressures of the common market “in the near term” due
to their good pace of economic modernisation. Slovakia, Lithuania
and Latvia are expected to be ready only “in the medium
term”. This corresponds with our convergence indicator
ranking (see chart) which also sees the Luxembourg group ahead.
With regard to the overall country assessments (including the
implementation of the acquis communautaire), the Commission report
has brought little that is new or surprising.

For Poland the Commission presented a largely
political assessment underlining the progress that has been made in
regional policy, consumer protection and the institutional
co-ordination of the accession preparations. As far as the
standstill in the negotiations in agriculture is concerned (the
dispute about the liberalisation of agricultural trade soured
relations), the Commission only noted the absence of progress. In
view of a number of unresolved core issues, the positive assessment
can be read as an indication that a first enlargement round without
Poland still seems unfeasible to the Commission.

The Czech Republic’s remarkable progress
over the last 12 months has been possible thanks to considerably
more stringent legislative work and the economic turnaround. Yet
postponed reforms of the public administration and neglected
regulative reforms are still causing problems. Hungary, Estonia and
Slovenia have all maintained a good pace of adjustment and continue
to profit from their relatively well developed institutional
framework. All three seem set to be among the first countries to
join. Slovakia got most praise for the progress achieved over the
last 12 months in economic and political reforms. It could soon be
the first country to bridge the gap between the Luxembourg and
Helsinki country groups. In Latvia and Lithuania the alignment to
the acquis has continued, especially with regard to the
modernisation of the public sector. Bulgaria and Romania are not
yet considered functioning market economies despite their having
achieved some reform targets.

Subdued market reaction to Nice summit and progress
report

Market reaction to the Nice compromise was
subdued, as it had been to the progress report in early November.
The fact that targeted entry dates before 2004/05 have become
unrealistic in view of the ratification periods had been realised
some time ago. However, the largely positive outcome of the Nice
summit for the enlargement process should stabilise investor
confidence in the medium term. Investors could also focus more on
the prospects of Helsinki-countries such as Slovakia or Latvia,
where the convergence assumptions are not yet priced in to the same
extent as in other countries.

The political reactions to the progress report
varied in the individual countries. In Poland, there was relief at
the positive basic tenor, for the report might have focused more
heavily on the need for further adjustment. This relief outweighed
disappointment over the fact that the officially targeted accession
date, 2003, has become unrealistic in light of the
Commission’s time framework. In the Czech Republic the report
initially met with fierce criticism as people objected to the
impression that the country lagged behind Poland economically. But
the annoyance faded on a closer reading of what is basically a very
positive report on the country.

How to deal with requests for transitional periods

Weaknesses in administrative structures –
which the Commission emphasised for all accession countries –
complicate the full adoption of the complex body of EU law.
However, transitional arrangements, which can provide temporary
relief, are a double-edged sword:

  • They are extremely difficult to implement and monitor in a
    borderless single market.
  • It is doubtful whether the necessary legal and planning
    certainty for business and investors could be achieved with a broad
    spectrum of individually designed transition periods.

The Commission is confronted with roughly 510
requests from the candidates for transitional arrangements (mostly,
namely 340, concerning agriculture). In responding, the Commission
will distinguish between three categories:

  • acceptable: these are measures mainly of a technical nature
    that are limited in time and scope;
  • negotiable: where requests have a more significant impact, e.g.
    in terms of competition or the internal market; and
  • unacceptable: i.e. requests which are likely to pose severe
    problems and will thus be rejected.

On most of the issues, the EU has not yet
reached agreement on a common negotiating position of its own
members, and this is substantially slowing down negotiations. In
other words, the EU’s internal co-ordination process is still
in the early stages. The Commission’s invitation to the
member states (and the candidates) to take up the substantial
issues in the negotiations is therefore more than justified.
However, a more concrete strategy on how to deal with the various
transition periods in agriculture or the free movement of capital
and persons would have been welcome in order to speed up the
necessary co-ordination of EU policy. The bold statement that
“The Commission reserves the possibility, where appropriate,
to propose transitional measures in the interest of the
Union” is not very helpful for progress with the
negotiations.

A road map to advance negotiations

On the whole, detailed negotiations on sensitive
subjects raising substantial economic, political or social issues
or dealing with requests for transitional measures have not yet
begun. The ”numbers game”, i.e. a purely quantitative
view, on how many chapters (topics) have been dealt with, does not
reflect the substance. Real advancement depends more on the quality
of progress each applicant has made in the critical areas than on
the number of chapters opened or provisionally closed.

In order to push negotiations towards the
crucial points the Commission has proposed a ”road
map”. This road map – which deals with chapters still
subject to negotiation, notably because of requests for
transitional measures – identifies priorities for
negotiations in the next three semesters: it suggests that the
accession conferences take up most of the outstanding chapters in
the course of 2001. In the first half of the year most
internal-market-related matters, social matters and the difficult
environmental sector are to be dealt with, with the aim of
provisionally closing these chapters in the second half of the
year. Only issues with major budgetary implications would be
addressed later. They are to be tackled in the first half of 2002,
along with the “institutional” chapter (into which the
reforms to be adopted in Nice have to be incorporated) and
remaining unresolved issues. With the road map, the Commission
wants to ensure that by June 2002 all chapters have been opened,
the common positions of the member states have been formulated and
the candidate countries have given the necessary replies and
commitments.

The schedules (see boxes) are indicative and
can, as the Commission stated, be adjusted to the individual
candidate’s preparedness – be it in the sense of
bringing forward the agenda or of slowing it down. For some
candidates, the chapters listed have in fact already been
provisionally closed, or it is clear that the negotiations can
progress more rapidly. The Commission even considers it possible
that in the course of 2001 talks will be opened on all chapters of
the acquis with the most advanced countries in the Helsinki group
(negotiations with this group started only in February 2000; with
the exception of “Institutions” and “Other
matters” all chapters have already been opened with the
countries of the Luxembourg group). Monitoring of all candidate
countries will continue to establish whether commitments concerning
the adoption and, especially, the implementation of the acquis have
been fulfilled. This is particularly important in fields such as
competition where the actual enforcement track record is considered
to be primordial for the definitive closure of the chapter.

The Commission states that this timetable should
make it possible to conclude negotiations with the most advanced
candidates in 2002 thus repeating its conclusion from last
year’s report. This in turn should allow the attainment of
the EU’s objectives of welcoming new member states from 2003
on.

Commission’s road map might be overrun by
reality

Generally speaking, the Commission’s
timetable for the negotiations seems plausible. However, the
ratification of the accession treaties alone will take at least 18
months, allowing accession by 2004 only if accession talks with the
best performers are finished in 2002. This seems very optimistic.
Yet even this time schedule deals a blow to the hopes of countries
such as Poland or Hungary that have been publicly targeting 2003
– and continue to do so.  

More significant are the impediments caused by
the domestic policy agenda of EU member states, such as the
parliamentary elections in France and Germany (spring and autumn
2002, respectively). The Commission’s road map tries to avoid
the most critical phases: the free movement of persons, for
example, is to be addressed early in 2001, while talks on
agriculture are to be held later, after the French elections.
However, it seems almost impossible to avoid debates and
negotiations on these most contentious issues coinciding with the
runup to the elections. Since the attitude of EU citizens towards
enlargement is ambivalent it is rather doubtful whether governments
will risk negotiating seriously on these issues in 2001/2002.
Furthermore, the hope that the topics can be concluded one after
the other might also be disappointed. It is more likely that the
negotiations will be concluded in “high-noon” manner
with a large package deal combining requests and contentious issues
from the various areas, hence the Commission’s deadline will
probably be overrun.

Recommendations for exchange rate policy

The candidate countries have also received
guidance from another quarter. Parallel to the strategy paper of
the Commission, recommendations were issued by the Economic and
Finance Minister (ECOFIN) Council for a three-stage exchange rate
strategy:

  • During the pre-accession stage exchange rate strategies –
    which can essentially be chosen at the candidate countries’
    discretion – should help to ensure progress on real economic
    convergence with the EU and the fulfilment of the economic
    criteria.
  • In the second phase, after accession, new member states will be
    expected to join the exchange rate mechanism II (ERM II). The
    Council finds that the ERM II is sufficiently flexible to
    accommodate different existing exchange rate regimes. It regards as
    clearly incompatible with the ERM II, however, fully floating
    exchange rates or pegs to anchors other than the euro (currency
    board system). This means that of the exchange rate regimes of the
    ten CEEC candidates only the euro-based currency boards of Estonia
    and Bulgaria are currently compatible with the ERM II.
    Hungary’s fluctuation band against the euro constitutes a
    certain degree of alignment with EU exchange rate policy.
  • In the third phase the new members finally adopt the euro
    provided they comply with the relevant Treaty requirements.

“Euroisation” is explicitly
rejected. Unilateral adoption of the euro by a candidate country
cannot be seen as a way to circumvent the three phases of currency
convergence. The ECB has in the past already stressed that
candidate countries definitely must have a two-year track record of
stability.

EU summit in Nice approves strategy paper

The European Council adopted the road map for
the enlargement process (together with the other elements of the
strategy paper) at the summit in Nice. The European Council, once
again, showed no readiness to discuss concrete accession dates.
However, once the schedule is publicly debated, it could well
become a type of benchmark for the willingness of the EU to proceed
swiftly with the enlargement process, and exert pressure on its
member countries. The road map is also welcome for another reason:
any more concrete formulation of the enlargement schedule can
possibly help to speed up the modernisation process underway in
Central and Eastern Europe.

The recommendations of the ECOFIN Council on
exchange rate policy, which have also been adopted by the heads of
state and government in Nice, provide the candidate countries with
greater clarity on the requirements associated with accession to
the EU and EMU.

After the lukewarm approach of the French EU
presidency towards enlargement, fresh impetus can be expected from
Sweden‘s EU presidency, which follows in the first half of
2001. Enlargement will be the priority and Sweden intends to push
ahead with a broad economic and financial policy dialogue
(including questions of exchange rate strategies between the
respective EU bodies and the accession countries). Since Sweden
does not have special stakes in sensitive areas such as free
movement of persons, agriculture or regional policy – and
obviously not in EMU membership – it may be a good moderator
of diverging interests both between the applicants and the EU and
within the EU itself. The European Council will examine what
progress is being made under the enlargement strategy in Göteborg
in June 2001. It cannot be ruled out that concrete accession dates
will be discussed then for the first time for the candidates that
have made the greatest advances.

With no new insights on group formation…

Since the progress report avoids comparing the
countries’ different degrees of preparedness with regard to
the implementation of EU legislation, it gives no new information
on the likelihood or composition of any entry groups. According to
the report, neither have the candidates come closer together, nor
have greater differences developed between them. The old
differentiation between the candidate countries on the basis of the
economic criteria alone is only a weak substitute since it fails to
take into account the politically sensitive and technically
complicated issues, such as the integration of countries into the
Common Agricultural Policy or the structural policy. In this sense,
the stance of the Commission should be seen as a compromise,
leaving the door open for a big-bang scenario but without taking
peer pressure off the candidates’ shoulders.

… the report backs our main scenario for
accession

However, in our view the accession of one large
group consisting of all current candidates with the exception of
Bulgaria and Romania continues to have major political and
institutional advantages vis-à-vis the formation of smaller groups
or successive accessions. We expect negotiations to end in the
first half of 2003 at the latest. This will then be followed by the
ratification of the accession treaties. Most candidates will hold a
referendum, which could prolong the process. Nevertheless, it
should be possible for this large group of candidates to become
members by 2005. While the Nice summit voiced the
“hope” that the first candidates would join in time for
the elections to the European Parliament in mid-2004, this seems to
be based on very optimistic assumptions.

and

For in-depth analysis, see the Deutsche Bank
Research

Enlargement Monitor.
 

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