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Meet the neighboursA survey of the EU’s eastern borders | June 25th 2005

The European Union has been expanding by leaps and bounds. RobertCottrell asks what happens if it stops

Western European Union, to become anorganisation with much less political andlegal authority, or none at all. This wouldbe manageable for existing members, solong as the single market and the euro con-tinued in business by other means. Itwould, on the other hand, be seen as a ca-tastrophe by nearby countries counting onUnion accession to rescue them from theirother neighbours or from themselves. Anend to enlargement, of which some EU

politicians now talk, would be just as bad.

Keep looking eastThis survey looks to the east, where thelimits to Europe are most changeable. Thequestion of where to situate those limitshas returned in force since the fall of theBerlin Wall. Last year’s enlargement �xedthe Union’s eastern borders at the distantedges of the Baltic states, and of Poland,Slovakia and Hungary. Now, of 15 contigu-ous countries lying to the east and south-east of those new borders, at least 11 morehope to become EU members, most ofthem within the next ten years or so, sub-ject to various ifs and buts.

Romania and Bulgaria have alreadysigned their accession treaties and expectto join in 2007 and 2008, though the trea-ties have yet to be rati�ed by all EU parlia-ments. Turkey has a date to start accessiontalks in October, though that process, if itdoes begin then, may drag on for a decadeor more. Croatia hopes to begin detailedtalks once it can persuade the EU that it is

TransformedEU membership has worked magic in centralEurope. Page 4

Climate changeWhat post-communist countries need to�ourish. Page 5

Taming the BalkansCould EU accession do the trick? Page 6

A bearish outlookThe EU’s relations with Russia are bad andmay get worse. Page 8

Too big to handle?Turkey’s application to join the EU is causinganxiety on both sides. Page 10

The 4% solutionGetting closer to Europe is good for economicgrowth. Page 12

The shape of things to comeThe European Union should go its di�erentways. Page 13

The Economist June 25th 2005 A survey of the EU’s eastern borders 1

1

Meet the neighbours

�WE MUST not let daylight in uponthe magic,� said Walter Bagehot, a

former editor of this newspaper, contend-ing that the authority of the British crownresided more in the mystique of the institu-tion than in what we might now call hardpower. Awe-struck politicians and publicopinion in Bagehot’s 19th-century Britainbehaved as though the monarch wasabove criticism, the incarnation of wis-dom and virtue. But for that to go on work-ing, Bagehot said, the precise mechanicsand limitations of the o�ce, and of its in-cumbents, should remain obscure.

The European Union used to pro�tfrom a similar indulgence. It enjoyed amystique founded on its claim to be a newand more perfect type of political order,capable of guaranteeing a lasting Euro-pean peace. The complexity of its laws andinstitutions helped, by blurring popularunderstanding of what the Union did, andthus allowing both admirers and critics tomake exaggerated claims about its powers.

Now the daylight is streaming in on Eu-rope, and the magic has gone. Last year’senlargement of the Union, from 15 to 25countries, has played a big part in thischange, as has the recent constitutional de-bate. Almost nobody now imagines thatall 25 countries are heading for political un-ion in the way that the founding six oncetalked of doing. It is by no means outlan-dish, as it would have seemed ten yearsago, to suggest that the Union may go theway of the United Nations, or even the

Also in this section

www.economist.com/audio

An audio interview with the author is at

www.economist.com/EUenlargement

Past articles on EU enlargement are at

AcknowledgmentsThis survey borrows ideas from many people. Some areidenti�ed in the text. In addition, and without implyingthat they would necessarily agree with the views expressedhere, the author would like to thank: Lajos Bokros, RobertBraun, Martin Bruncko, Robert Cooper, Pavol Demes, Je-remy Druker, Michel Foucher, Andrew Gardner, HeatherGrabbe, Charles Grant, Istvan Gyarmati, David Kral, MartLaar, Alina Mungiu-Pippidi, Jiri Pehe, Sandra Pralong, OlliRehn, Gyorgy Schop�in, James Sherr, Pirkka Tapiola,Emma Udwin and Alexandr Vondra. Three books, all pub-lished this year, proved of particular value: �The New Po-litical Economy of Emerging Europe�, by Laszlo Csaba; �TheSystem Made Me Do It�, by Rasma Karklins; and �How theEast Was Won�, by Charles Paul Lewis.

www.economist.com/surveys

A list of sources can be found online

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2 A survey of the EU’s eastern borders The Economist June 25th 2005

2 co-operating fully with the UN’s war-crimes tribunal in The Hague. The othercountries of the western Balkans�Alba-nia, Bosnia, Macedonia, Serbia and Mon-tenegro�have been promised EUmember-ship in principle, but without a timetable.

Ukraine wants to join, but may be tenyears away from starting talks. Moldovaand Georgia would love to follow. At theback of these countries looms Russia. Ithas no desire to join the Union as an ordin-ary member, but it fears loss of in�uencein eastern Europe, and it has long tried toconstruct a countervailing block of ex-So-viet countries, with itself at the centre.

This survey will look beyond the recentpost-constitutional doom and gloomabout Europe’s future, to argue in favour ofcontinued enlargement of the Union asthe best way to manage relations withneighbouring countries, save for Russia.But it will base that argument on the pro-position that enlargement is turning theUnion into a more loose-knit and prag-matic undertaking into which new mem-bers can more easily be �tted�if necessaryby denying them some of the rights andprivileges which older members enjoy. Itpresumes that the French-led rejection ofthe EU constitution, once the dust has set-tled, will encourage movement towards alooser Union, even if that is not whatFrench voters intended. The French �no�said, in e�ect, that even France, long the

champion of ever closer union, wanted tobe less in thrall to the thing it has created.

The history of the Union can almost bewritten in terms of its struggle to �nd alter-natives to membership which it could of-fer to keep its neighbours happy but ex-cluded. Each time the Union has failedbrilliantly, agreeing to an enlargement andmaking it work. That is a thought to en-courage Turkey, Albania or Ukraine, noneof which will be inside the Union for yearsyet, but none of which can decently be ex-cluded for ever, or while the Union lasts,whatever Europe’s current mood.

The EU’s latest non-membership strat-egy for nearby countries, launched twoyears ago, goes by the name of the �Euro-pean Neighbourhood Policy�. Under thispolicy, the Union o�ers the countries ofNorth Africa, the Mediterranean, thesouthern Caucasus and eastern Europegraduated access to the single market, plus�nancial and technical aid, in exchange forreforms bringing them closer to the Un-ion’s political and economic models. Butthese things are presented as a substitutefor membership, not as a precursor to it.Countries can aim for a partnership withthe Union so close that it brings them�everything but the institutions�, saidRomano Prodi in 2002, when he was presi-dent of the European Commission.

That makes the European Neighbour-hood Policy something bigger, but not nec-

essarily better, than the �Barcelona Pro-cess�, a programme the EU launched in1995 to o�er the countries of the southernMediterranean market access, plus cashand technical aid, in exchange for econ-omic and political reforms, but with noprospect of membership. The EU will havespent almost �9 billion in the region by theend of 2006, with very little to show in re-turn. �The economic performance of theregion has stagnatedpolitical reform hasalso been almost non-existent. Societaltrends, for example tendencies in favour ofradical Islam, are deeply worrying,� ac-cording to a recent study by Michael Emer-son and Gergana Noutcheva of the Centrefor European Policy Studies in Brussels.

The carrot of choiceIf the European Neighbourhood Policy of-fers the countries of eastern Europe andthe southern Caucasus much the same in-centives that the Barcelona Process o�eredthe countries of the southern Mediterra-nean, it is in danger of producing much thesame results. �So far, it is easier to �nd rea-sons for scepticism than optimism� aboutthe European Neighbourhood Policy, sayBen Slay and Susanne Milcher, econo-mists with the United Nations Develop-ment Programme in Bratislava. The Unionspreads its values most e�ectively throughpeer-pressure for change, linked to hopesof accession. Without such hopes, govern-ments lose motivation. Aid, even marketaccess, is no substitute.

This survey therefore recommends re-versing the headline aims of the EuropeanNeighbourhood Policy, at least where theUnion’s neighbours to the east are con-cerned. It suggests o�ering membership inname to any country that can meet Eu-rope’s basic criteria (of functioning demo-cratic institutions, a market economy, andthe capacity to implement EU law), butmembership with restricted rights. If onedecisive objection to Turkish membership,for example, is that Turkey’s big popula-tion will give it too large a voting weight inthe EU’s Council of Ministers, then betterall round if Turkey is allowed to join theUnion but with its voting rights restricted,perhaps giving it no vote on �constitu-tional� issues, and no veto at all.

This approach would mean that EU

membership, certainly for new members,would count for less. But if this survey isright to see a more fragmented Unionemerging, with more limited political am-bitions, then membership is starting tocount for less anyway.

The idea that the Union is needed toS Y R I A

I R A Q

I R A N

A

R U S S I A

SWITZ.

KAU K R A I N E

7

8

9

1011

GEORGIA

B E L A R U S

ROMANIA

BULGARIA

6

NORWAY

A L G E R I A

TUN

ISIA

MOROCCO

F I N L A N D

SWEDEN

DENMARK

IRELANDUNITEDKINGDOM

S P A I N

F R A N C E AUSTRIA

ITALY

G R E E C E

MALTA

CYPRUS

LITHUANIA

L A T V I A

ESTONIA

T U R K E Y

P O L A N D

CZECH REP.

HUNGARY

G E R M A N Y

1

3

2

4

5

A T L A N T I C

O C E A N

B l a c k S e a

N o r t h

S e a

B a y o f

B i s c a y

Mediter ranean Sea

PO

RTU

GA

L

SE

RB

IA

C

B a l ti

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ea

European Union members

Current:

Probable:

Pre-2004

Hoping to join in 2007 or 2008

Prospective:

Hoping to start accessiontalks soon

Might join some day

Since 2004

1. Netherlands2. Belgium3. Luxembourg4. Slovakia5. Slovenia6. Croatia7. Moldova8. Bosnia9. Montenegro10. Macedonia11. Albania

The Economist June 25th 2005 A survey of the EU’s eastern borders 3

2 stop its founding members from going towar with one another has long faded.Stripped of its early Utopian rhetoric, theUnion can be seen as the sum of its func-tions and nothing more. Some of thosefunctions are good (such as the single mar-ket, and the Schengen agreement to openinternal borders). Some are bad (such asthe common agricultural policy). All areopen to debate. It is external securitythreats, and relative economic stagnation,that worry European countries now, andcountries di�er about how best to tacklethem. Flexibility is needed.

Conventional wisdom in Brussels hascome round to the idea that not everycountry needs to take part in every Unionproject. This is already being put into prac-tice, but as the exception rather than therule. Only 12 of the EU’s 15 pre-2004 mem-bers have joined the euro zone, for exam-ple, and only 13 of the 15 have imple-mented the Schengen conventionabolishing internal borders.

This is the trend that used to be called,disparagingly, �Europe à la carte�, mean-ing the freedom for countries to pick andchoose between the projects they wantedto join and the commitments they wantedto make within the Union. Once countrieswere allowed to diverge in some things,the argument went, they would diverge inall things, and the Union would break upaltogether.

In some ways, the Union is indeedgrowing weaker. The supranational insti-tutions are losing ground against nationsand governments. Just look at Germany’sand France’s revolt this year against the sta-bility and growth pact, which was sup-posed to be a foundation of Europe’smonetary union; or at France’s overturn-ing of the services directive, which wouldhave doubled the scope of the single mar-ket; or at the debacle over the constitution.

But �Europe à la carte� may yet mean ahappier and more e�ective Union, if itmeans that more things get done. Not allEU countries want to harmonise their cor-porate taxes, or share a public prosecutor,or pool their votes in the InternationalMonetary Fund, but that is no reason whysub-groups of them should not agree to doso. Any trade-o� between the �widening�and the �deepening� of Europe is provingless simple than advocates of either coursehave usually claimed. A widening Europeis a more uneven Europe, deep in someplaces and shallow in others.

What matters externally is that Eu-rope’s political and economic valuesshould go on penetrating and changing thecountries round about. It may sound arro-gant to talk of the Union as o�ering theonly viable model for European states, butso far the alternatives are not encouraging.Ukraine and Georgia have revolted againsta post-Soviet model of crony capitalismand rigged democracy. Moldova is half-way to following, and Belarus may do soone day. European liberalism o�ers Turkeythe best hope of preserving its delicate bal-ance between moderate Islamic societyand secular state. For the Balkans, Europeappears to be the only possible escapefrom post-war poverty and isolation.

The main organised challenge to theEuropean model comes from Russia,which covers or dominates the rest of theextended continent. Russia is still in a pro-cess of self-discovery, but seems to show acontinuing strong bias towards authoritar-ianism, so far of a mild and partial kind. Itis enough to worry most western coun-tries but not yet to repel them. EU countriesdisagree about how best to manage rela-tions with Russia, because of their di�er-ent interests and di�erent experiencesthere. The main common strand in their re-lations is an imprudent but increasing reli-ance on Russian energy.

The United States is also deeply inter-ested in the countries to the east of the EU,bringing its own priorities and policies tobear. America has most to fear from ananti-democratic Russia allied with an anti-democratic China. It needs either a strongdemocratic Russia, or a weak Russia re-gardless of government. In either case,prising away the countries around Russia’sborders, and building friendly democra-cies there, is a step in the right direction.That is what George Bush has been doingthis year�reassuring the Baltics, praisingUkraine, encouraging Georgia’s new pro-western government, and inciting theBelarussians to get rid of their dictator,

Alexander Lukashenka. This puts pressure on Europe to take

sides. Either it o�ers these new and futurepost-Soviet democracies the prospect ofmembership in some form, which is whatthey and America would wish. Or it saysto them that they do not belong to theWest, but to some vague domain betweenthe EU and Russia�where, in e�ect, Russiacould dominate them.

Given the de�ciencies of Russia’s politi-cal and economic institutions, there is astrong case for Europe to reach out moreboldly to Ukraine, and Moldova, andGeorgia, just as it should to the westernBalkans and Turkey. But it is important torecognise the resistance to further enlarge-ment that has grown within the Unioncountries, and the reasons for it. Furtherenlargement of the Union in its presentform would mean open borders with theBalkans, Chinese-level wages in some la-bour markets, and Turkey as the greatestpower at summits in Brussels. Therewould be much to be said for each of thesethings, but not nearly enough to win overpublic and political opinion.

Ever wider unionThe issue for the EU is no longer how to ex-port stability and prosperity to the coun-tries around it. It has learnt how to do thatthrough enlargement. The issue is how tocontinue enlarging, how to persuade pub-lic opinion within the Union that stabilityand prosperity can be exported withoutimporting instability and poverty in ex-change. That is doubly di�cult when pub-lic scepticism cuts so deep. A majority ofvoters in France, and perhaps in othercountries too, seems to doubt that the Un-ion is a force for stability and prosperityeven across its present membership. Thisis dangerous disenchantment.

To meet the neighbours, and to con-sider further what continued enlargement,or the lack of it, might mean to them, thissurvey will begin with those countriesthat joined the EU last year, and those onthe point of joining in a couple of years’time, Bulgaria and Romania. It will thenadventure into the wider and wilder Eu-rope beyond, moving through the Balkansand eastern Europe before coming to reston Turkey’s Black Sea shores. It will seeRussia as a country set apart from the restof Europe by history and geography, but itwill look to a Russian monarch, Catherinethe Great, for the pithiest summary of Eu-rope’s place in the world. �I have no way todefend my borders�, she once said, �exceptto extend them.� 7

George speaks, Georgia listens

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4 A survey of the EU’s eastern borders The Economist June 25th 2005

BY CULTURE and language, by historyand landscape, the countries that

joined the European Union last year of-fered more of a complement than a con-trast to the existing membership. Slovakia,the Czech Republic, Hungary and Sloveniawere recognisably still the Habsburg cous-ins of Austria, if a little countri�ed by sepa-ration. Poland and the Balts echoed anolder Hanseatic order.

It was only when you asked peoplewhat they earned that the real division be-tween the West and the rest became clear.When you crossed the border from Ger-many into Poland in 2003, average incomeper head fell by four-�fths, from $27,600 inGermany to $5,400 in Poland. When Ro-mania and Bulgaria join the EU in 2007 or2008, they will be poorer even than thecentral Europeans. According to DeutscheBank, Romania’s average income per headin 2005 will be $4,084 and Bulgaria’s only$3,735, roughly half Poland’s current level.

Figures like this help to explain why theEU has lost so much of its enthusiasm forenlargement, despite the relative successof the 2004 round. It has grown panickyabout competition for jobs and invest-ment from the countries it has just em-braced. It is reluctant to add to that compe-tition by promising to admit even morelow-wage countries later. �The Polish bor-der is 1,800km (1,120 miles) from Londonbut 80km from Berlin,� says one Germano�cial, asked why Britain has opened itslabour market to the eastern newcomersbut Germany has not. Germany fears afree �ow of Polish workers, and even moreof Turkish ones. Turkey’s population of al-most 70m is about the same as the com-bined total of all ten countries that joinedthe EU last year, and it is poorer than anyof them. Ukraine, another would-be mem-ber, has 47m people, with an income perhead of around $1,000 in 2003.

Western Europe’s fears are understand-able but counterproductive. Low-wagecountries next door should be seen moreas a resource than a threat: they attractbusiness that would otherwise go to low-wage countries on the other side of theworld. But can Europe come to see it thatway? The would-be members among theEU’s neighbours can only hope so. They

have seen their friends and neighbours incentral Europe transformed by EU acces-sion. Having failed to catch that �rst waveof enlargement themselves, they are nowpraying for a second chance.

The EU’s newest members, thoughmuch poorer than France or Germany, arealready a lot richer than they were imme-diately after communism’s collapse. In1991, Poland’s GDP per head was just$1,998. The EU led the way in central Eu-rope’s rehabilitation, helped by America’sUSAID and other international agencies,giving or lending $18 billion to central Eu-rope in the 1990s. Just as valuable was thework of multinational companies thatbought or built operations in central Eu-rope. They set new standards for wages,training, workplace safety and technologytransfer, creating a �meritocracy in whichhard work, ethical behaviour and a desireto learn� were properly valued locally forthe �rst time in decades, says Charles PaulLewis, author of a study on these compa-nies’ role in post-communist Europe.

But even this intervention broughtdeep change only because the central Eu-ropeans really wanted to anchor their de-mocracies and raise their long-term livingstandards, even at the cost of short-termdisruption. The accession process gavepoliticians an alibi for unpopular reform.Civil servants spent so much time in Brus-sels that they felt as accountable to theEuropean institutions as to their govern-ments at home. Voters wanted the West, ifnot for themselves then for their children.

Soon they will have it. From the view-point of the western European countries,the transition in central Europe hasworked almost embarrassingly well. Bythe end of the 1990s, the countries therehad reached a level of political and institu-tional development that made it impossi-ble to refuse them membership of the Un-ion, even though their incomes and wageswere still only a small fraction of those inthe older member states. Now their econo-mies are continuing to grow at rates sham-ing the ones that used to be their models(see chart 1). This year even the laggard ofcentral Europe, Hungary, is likely to growmore than twice as fast as the euro zone.The Baltic countries look set to grow atmore than four times the euro zone’s pace.

Watch them growExtrapolate from that, and the implica-tions are startling. Latvian incomes are cur-rently the lowest in the EU, but if the Lat-vian and the German economies were togo on growing at last year’s rates of 8% and1.6% respectively, then, all other things be-ing equal, Latvian incomes would over-take German ones in 2032�which is to say,within the working lifetime of a youngadult. That should be a thrilling thoughtfor Latvians. It should be a thrillingthought for Germans too, since theywould then no longer have to worry aboutlow-wage competition. In reality, how-ever, the thought of becoming poorer thana former Soviet republic is likely to makeGermans unhappier still.

The fear of workers �ooding in from Po-land or Estonia has caused all but threecountries in western Europe to close theirlabour markets to the new members for upto seven years. This year France and Ger-many blocked an EU law opening up na-tional markets to services from anywherein the Union, for fear that self-employedworkers would arrive by this route. ThisFrench-led move was inexplicable to any-body from a more consumerist society.French trade lobbies gave warning thatPolish plumbers would swamp the coun-try, yet they also agreed that France wasdesperately short of plumbers. The arrivalof Polish plumbers, even by the thousand,could only have been a blessing.

Transformed

EU membership has worked magic in central Europe

1New bloodGDP, annual increase, %

Source: IMF

0

1

2

3

4

5

6

2000 0302 0401

EU10

EU15

1

The Economist June 25th 2005 A survey of the EU’s eastern borders 5

2 The new members have also upset theold with their taste for �at and often lowrates of personal income tax and corporatetax, chosen mainly for ease of collection.Other payroll taxes and indirect taxesmean that the overall tax burden in thenew member states is still similar to that inthe old. But France, Germany and Belgiumhave accused the newcomers of unfair taxcompetition, and called for minimumrates for corporate taxes across the Union.Nicolas Sarkozy, when French �nanceminister last year, suggested cutting EU

budget payments to new members that in-sisted on setting low tax rates.

Investors, by contrast, love the newmembers for their low wages, high pro-ductivity and simple taxes. Build a factorythere, and you get EU market access at farless than average EU costs. According to theBoston Consulting Group, if you want tosell refrigerators or cars in western Europe,it can be cheaper to make them in Polandthan in China. A.T. Kearney, another con-sulting �rm, reckons that the acceptance ofUkraine as an EU candidate could quicklytriple the recent rate of foreign direct in-vestment there.

But it was not only EU market access,granted progressively to the central Euro-pean countries through the 1990s, that at-tracted investors to the region then andcontinues to attract them today. It was alsothe expectation that the rule of law and thequality of government would rise towardsEU levels as the accession process contin-

ued. Firms will build factories in di�cultplaces if they have to, but they much preferplaces where contracts can be enforced,property rights are secure, taxes are pre-dictable, executives feel safe, and workersget basic social services from the state.Conditions like that help to mobilise do-mestic investment too.

In our back yardIf Ukraine and Turkey are brought insidethe EU, they will create, together with Ro-mania and Bulgaria, a low-wage industrialpowerhouse in Europe’s back yard, a zoneof 150m people able to compete even withChina or India (see table 2). That thoughtmight frighten highly paid workers in Ger-

many or France. But it is better for all of Eu-rope if new investment goes to eastern Eu-rope and not to faraway China or Brazil.More investment and more growth in low-wage Europe generates more demand forgoods and services from high-wage Eu-rope. That helped Germany to run a tradesurplus with Poland last year, for example.

The EU countries with more to fearfrom further enlargement should be thosein central Europe which are the Union’slowest-cost producers right now. Slovakiahas had spectacular success in attractingforeign direct investment, especially fromthe car industry. Soon it will produce morecars per head of population than any othercountry in the world. But in �ve or tenyears, says Ivan Miklos, the Slovak �nanceminister, the country’s competitive advan-tage in mass production will slowly butpermanently decline as Romania, Turkeyand Ukraine catch up. Slovakia wants toencourage more high-tech and serviceindustries by improving the education sys-tem and the business climate.

The Slovaks have it right. Enlargementis globalisation in miniature. If the EU

holds its neighbours at bay, it is putting o�a shock of adjustment that will get biggerand bigger the longer it is delayed. Ger-many has 5m unemployed, not so muchbecause old jobs in old industries are van-ishing there (though they are) but becausean in�exible German labour market deters�rms and individuals from creating newjobs in new industries in which German

2

*Gross wages in industry †2004

Europe’s low-cost back yardMonthly minimum wage, 2003, ¤

Sources: IMF; China Daily

0 50 100 150 200 250

Croatia

Hungary

Poland

Czech Republic

Turkey*

Slovakia

Romania

Shanghai†

Bulgaria

THE further east you went in the �rstdecade after communism, the more

remote the European Union became, andthe easier it got for crooks and populists tocapture power. In every post-communistcountry, the rejection and collapse of theold order forced at least some shaky �rststeps towards democracy and the marketeconomy. But this progress soon falteredif predatory groups of rich and violentpeople could invade and capture govern-ment, rigging privatisations, stealing pub-lic money and blocking further reformsthat might encourage more competitionin business or in politics.

This was the story of �reform� in

much of the Balkans, and in much of theCommonwealth of Independent States(the ex-Soviet Union minus the Baltics).Often, the new ruling groups defendedthemselves by claiming that conditions inthe country were not suited to reformsalong western lines. The most commonfeature of laggard countries was a �drift inpolicymaking and a search for a peculiarnational model of development at thelevel of theorising�, says Laszlo Csaba, apolitical economist at the Central Euro-pean University in Budapest.

The inverse of reform in post-commu-nist countries was, for all practical pur-poses, corruption. The term covers a

multitude of sins, but the kind mostharmful to a whole country is �state cap-ture�, whereby a group of political andbusiness insiders bribes or bullies its wayinto control of a ministry or a govern-ment agency and then runs it for its priv-ate pro�t. State capture �may establish ahidden political regime at odds with theconstitutional purpose of state institu-tions�, says Rasma Karklins, a political sci-entist at the University of Illinois. Itundermines democracy as well as econ-omic growth. That may be a large part ofthe reason why democracy and growthhave gone hand in hand in the post-com-munist world.

What post-communist countriesneed to �ourishClimate change

1

6 A survey of the EU’s eastern borders The Economist June 25th 2005

2 companies are still world-beaters. All the same, tactically it may be a good

idea to accept that free movement of la-bour is incompatible with further EU en-largement, not for economic reasons butfor political ones. If rich countries want toblock cheap labour, let them do so. Europehas capital mobility to compensate. Ifworkers cannot come looking for the jobs,the jobs will go looking for the workers.

The central Europeans’ experience sug-gests that the more assured Turkey and Uk-raine can be of EU membership, the moreforeign investment they will get.

If, on the other hand, these countriesare kept outside the EU, investors will ex-pect political and economic reform thereto be slower and less secure. Investmentwill be lower, and growth with it. Some-thing of the sort has been visible in Turkey

where, despite a customs union with theEU, foreign direct investment has beenmuch lower than in most central Europeancountries relative to the size of the econ-omy�a �fth of the Czech Republic’s leveland a third of Poland’s between 1994 and2003. Less investment means fewer jobs athome, lower incomes, less trade and morepressure on workers to �nd jobs else-where. Everyone loses. 7

FOR a gruelling decade, the worldviewed the Balkans through the prism

of the region’s most strife-torn country,says Ivan Krastev, a Bulgarian political sci-entist. In the early 1990s that country wasCroatia or Bosnia. By 1999 it was Kosovo, il-luminated by the bombing of Belgrade.Two years later attention shifted to Mac-edonia, brought to the brink of civil war byethnic tensions between Macedoniansand Albanians. These successive crisespromoted the image of a whole region incontinuing turmoil, even though the worstwas over by 1995.

This pessimistic view did at least haveone redeeming quality. It allowed outsid-ers to hope that, when peace was restoredacross the region, everything else wouldstart to come right. Economic recoverywould provide the foundations on whichdurable and free-standing democraciescould be built. But now peace has indeedbeen restored, and yet the good news moreor less ends there. Economic recovery hasbeen patchy, and has not yet led to irre-versible and locally rooted politicalchange in most of the region.

The International Commission on theBalkans, a non-governmental body of ex-perts led by Giuliano Amato, a former Ital-ian prime minister, published a report inApril that gloomily re�ected:

The region is as close to failure as it is to suc-cess. For the moment, the wars are over butthe smell of violence still hangs heavy in theairEconomic growth in these territories islow or non-existent; unemployment is high;corruption is pervasive; and the public ispessimistic and distrustful towards its na-scent democratic institutions.

The Foreign Investors’ Council of Ser-bia sounded only slightly less bleak when

it published its annual White Book onbusiness conditions in March. On paperthings might be looking better, it said, but:

The adoption of laws without implementa-tion and enforcement achieves little[The]momentum which Serbia’s transition pro-cess had gathered in earlier years has nowdissipated.

There are patches of relative optimismhere and there. This year the InternationalMonetary Fund praised as �remarkable�and �commendable� the economic perfor-mance of Albania, where real incomeshave doubled since 1998. Macedonia’sconstitutional order has been lookingmore robust since voters allowed a newlaw on local government to pass late lastyear. But by and large, the coming of peaceto the Balkans has merely allowed thedeep problems of state weakness, and ofincomplete state-building projects, to beseen more clearly.

The �open status� issues of Kosovo andMontenegro obstruct the normalisation ofpolitical life in Serbia, the western Balkans’biggest country, and thus overshadow thewhole region. International talks on the fu-ture of Kosovo, which legally is still part ofSerbia, are due to begin later this year andmay well lead to eventual independence.The future of Montenegro may be decidedby a referendum next year. The choice isbetween independence on the one handand the status quo�a loose federationwith Serbia�on the other.

Outsiders hoped and assumed a fewyears ago that peace in the Balkans wouldfree people in the region to concentrate oneconomic development. Voters wouldpush leaders to worry much more aboutraising living standards and much lessabout re-opening quixotic and violent na-

tional questions. Why have things notturned out quite that way?

Part of the problem is that, even intimes of peace, the power and assets of aweak state are still up for grabs, especiallyif the state has been federalised and if theconstitutional order has not been en-trenched beyond any expectation ofchange. The country will be restless, com-munities will compete, the rule of law willbe fragile, the government will be frac-tious, private investment will be risky. So itis across the Balkans. Whatever the �nalconstitutional order is going to be for anyof these countries, the important thing isthat its �nality should be obvious to every-one, and universally accepted.

No loose endsThat is one argument for giving indepen-dence to Kosovo and Montenegro now. In-dependence for both would have an air of�nality about it which a loose federationor a special jurisdiction never could. Sepa-ration would allow those new countries,and Serbia, to concentrate on the quotid-ian business of economic reconstruction,and of capacity-building in government,without national questions to distractthem, and with nobody else to blame fortheir problems.

Opinion polls show that most commu-nities in the Balkans are ready to accept thesort of order which most western govern-ments would like to see installed there.This would mean independence for Ko-sovo, probably in stages, severing it fromSerbia but denying it union with Albania.It would mean independence for Monte-negro. And it would mean making the bestof Bosnia as a hybrid state, half run bySerbs and half by Bosniaks and Croats.

Fears that independence for Kosovo

Taming the Balkans

Could EU accession do the trick?

1

The Economist June 25th 2005 A survey of the EU’s eastern borders 7

2 might inspire fresh independence strug-gles among Serbs in Bosnia and Albaniansin Macedonia may be exaggerated. Pollsshow that Bosnia is no longer what theAmato commission calls a �highly con-tested state�. Most Serbs in Serbia, and al-most half the Serbs within Bosnia, do notwant to break Bosnia up and join its Serbhalf with Serbia. Across the region, there isa consensus view that Serbia and Monte-negro will probably go their separate ways(even though most Montenegrins cur-rently want to keep the status quo), andthat this separation will be a good thing.

Most Macedonians strongly reject theidea of dividing Macedonia into Macedo-nian and Albanian statelets, and joiningthe Albanian part of it with Albania itself.Albanians are very slightly in favour of it,but most do not think it will happen. Theone possible upset is over the question ofjoining Albania with an independent Ko-sovo. Kosovo Albanians are keen on theidea, Albanians in Albania just about in fa-vour, and both think it is more likely tohappen than not.

If the commission and its polls areright, therefore, the public mood in the Bal-kans may be ready for some big steps for-ward. The acquiescence of the Serbiangovernment in Belgrade will be the key to apeaceful break-up of the country and itsapproval by the United Nations. If the gov-ernment in Belgrade objects, then Chinaand Russia will probably take its side in theUN Security Council, blocking progressand perhaps provoking fresh unrest in Ko-sovo. The question is how to win Serbiaover. Probably the only answer is by givingit a faster track towards EU membership.

The next question is whether the EU isready for that. If that strategic bargain canbe struck, then it will become harder todeny the remaining countries of the Bal-kans a fast track too. Otherwise, what willbe left there? A sink of countries seeminglyunable to generate the hope and con�-dence needed to trust their own govern-ments, let alone the neighbouring ones,and obliging the rest of the world to keep

them in order and in funds. On a per-headbasis, the world has put 25 times as muchmoney and 50 times as many troops intoKosovo as it has put into post-con�ict Af-ghanistan. The aid the EU has given to theBalkans in recent years dwarfs theamounts given to other countries on itsborders (see table 3).

Croatia’s credentialsThe road to EU membership is currentlybeing explored by Croatia, which �nishedits territorial war and its ethnic cleansingin 1995. The completion of those projects,followed by the death in 1999 of the coun-try’s veteran leader, Franjo Tudjman, al-lowed a line of sorts to be drawn betweenwartime Croatia and its post-war continu-ation. Croatia re-cast itself as a more or lessliberal democracy where nationalism hadbeen tamed, a country still a little roughround the edges but ready and willing inprinciple to form part of a peaceful and or-derly Europe, a place where �moderate na-tionalists could provide a soft landing forexhausted or failed nationalist projects�, inthe words of Jacques Rupnik, a French po-litical scientist.

But Croatia exaggerated the depth of itstransformation for foreign consumption,and perhaps ended up believing some ofits own publicity. It thought, wrongly, thatother European countries were so keen toput the ghosts of the Balkan wars behindthem that they would forgive Croatia’s fail-ure to co-operate fully with the United Na-tions war-crimes tribunal in The Hague.The tribunal’s most wanted fugitives in-clude Ante Gotovina, a Croat generalcharged with ethnic cleansing duringCroatia’s war with the Serbs. Carla delPonte, the tribunal’s chief prosecutor, saidthe Croats could do much more to help�nd him; the Croats said they had no ideawhere he was.

That was enough to derail Croatia’shopes of opening talks with the EU in mid-March. The EU postponed them the daybefore they were due to start, mainly at theurging of Britain, and over the objectionsof Austria and Hungary. The right out-come would be a reform of Croatia’s intel-ligence services and special police to sackor demote those responsible for shieldingMr Gotovina. Even if that does not pro-duce the man himself, it would at leastshow that the elected government hadgained full authority over the state secu-rity services, which in March was still farfrom clear.

Croatia can scarcely a�ord to drag itsfeet. The job of reforming its public admin-istration and its economy looks like at least�ve years’ hard work. The state controlstoo much and delivers too little. Publicspending accounts for fully half of GDP.Public debt rose from 30% of GDP in 1995to 55% in 2003. External debt doubled from41% of GDP in 1997 to 82% in 2003. Keyhealth indicators are far below EU aver-ages. Half the bene�ciaries of social assis-tance are able-bodied but unemployed.Only 60% of adults have had more thaneight years of schooling.

Working in Croatia’s favour are twomain factors. By the standards of EU candi-dates it is relatively rich, with a GDP perhead of $7,700 last year, more than twicethe level in Bulgaria or Romania. And ithas a beautiful Adriatic coastline, makingit a favourite holiday destination for mil-lions of Europeans, a sentimental factornot to be underestimated. It can be hopefulof EU entry by, say, 2010 if only it can solvethe Gotovina problem (and, of course, ifthe EU is still in business then).

But the graduation of Croatia from thebadlands of the Balkans to the safe havenof the EU will only increase the sense ofisolation and abandonment across its hin-

Nearest and dearestDevelopment aid received per person, 1995-2002

Region ¤

Balkans 246

South and east Mediterranean 23

European CIS 9

Central Asian CIS 4

Source: “European Neighbourhood Policy: Strategy or Placebo?”

by Michael Emerson, Centre for European Policy Studies, 2004

3

One day, Croatia’s boat may come in

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8 A survey of the EU’s eastern borders The Economist June 25th 2005

2 terland. The International Commission onthe Balkans proposes a general solutionthat is admirable in its detail and its direct-ness. It says that Kosovo should belaunched on a phased transition towardsfull independence and sovereignty, for the�rst few years of which the internationalcommunity would reserve powers overhuman rights and minorities. Once thatwas agreed, and Montenegro had decidedwhether to stay with Serbia or go it alone,the EU should convene a Balkan confer-ence in 2006 and give each country its road

map to membership. Macedonia would be invited to start EU

accession talks by the end of that year. Ser-bia and Montenegro, as one or two coun-tries, would also be invited to start negotia-tions or, failing that, would be o�ered a�Europe Agreement� similar to those givento central European countries before theybegan negotiations. Albania would be of-fered the same sort of deal, and invited tojoin NATO. The powers of the O�ce of theHigh Representative in Bosnia would betransferred to the European Commission

in Brussels, and vested in an EU accessionnegotiator there. The hope would be thatall these processes could be completed,and the EU enlarged into the Balkans, by2014. Europe’s present mood does not fa-vour that outcome, but it is hard to think ofone that might work better.

The solution proposed by the Amatocommission mixes practicality with ro-mance, optimism and desperation. Proba-bly all those things are needed in equalmeasure if the Balkans are ever to behelped to help themselves. 7

FOR most of the past 500 years, the ideaof �Europe� has served to de�ne a shift-

ing huddle of western countries seeking todistinguish themselves from two great Eur-asian powers in the east: the Turks and theRussians. Now both Turkey and Russiathink that they should be seen as part ofEurope too. And Europe, as represented bythe European Union, more or less agrees.The idea is pleasing, but the implicationsare perplexing.

Turkey wants to become a full memberof the Union (for its chances of getting in,see next article). Russia does not seriouslywant to join the Union, mainly because,like America and China, it sees itself as acountry too great to accept constraints onits sovereignty. But at the same time Russiahates the thought of being excluded fromanything. Ideally, it would like a specialrelationship giving it visa-free travel in EU

countries; generous access to the singlemarket through what it calls the �Com-mon European Economic Space�, a looselyde�ned agenda of trade and market poli-cies; and a voice but not a vote in EU poli-cymaking, of the kind it already has inNATO a�airs.

Those hopes are ambitious but not ab-surd. They could all be realised within thespace of �ve years if Russia now pos-sessed, or was moving con�dently to-wards, a liberal and democratic politicalmodel. But for the moment, to judge fromthe way President Vladimir Putin’s secondterm has gone so far, Russia is moving inthe opposite direction, towards increasedauthoritarianism. As one liberal Russianpolitician, Grigory Yavlinsky, summarisedthe trend in a talk last year:

There are six major features of Russia whichmust be taken into account today. First, to-day Russia has no independent judicial sys-temSecondlyRussia has no elements of[an] independent parliament. Third, Russiahas no public or parliamentary control onsecret services and law-enforcement struc-tures. Fourth, Russia has no [powerful] inde-pendent media. Fifth, elections in Russia are[subject to] very substantial pressure fromthe authoritiesLast, but very important,Russia has an economic system which is infact a 100% merger between business andauthoritiesEvery single important bureau-crat in Russian government or Russian ad-ministration is at the same time deeplyinvolved in businesses or represents their in-terests.

Very roughly speaking, and ignoringthe rest of the former Soviet Union, Russiatoday is arguably where it might havebeen if it had avoided perestroika and thecollapse of communism, choosing insteada Chinese path of strictly limited freedom.Under Mr Putin it has moved close toChina’s model of a one-party state, inwhich the ruling party (which in Russia ismore of a clan), though a monopoly, culti-vates real popularity as a source of stabil-ity and legitimacy.

The EU would be foolish to institution-alise closer ties while there is any risk thatRussia will go on moving in this direction.Even if the EU feels comfortable with Rus-sia now, that may change. Cutting new tieswould be far more awkward, and far moreinsulting to Russia, than avoiding them inthe �rst place.

EU members di�er widely in their atti-tudes towards Russia. To the Balts and thePoles, Russia is a clear and present danger.

It invaded them, unprovoked, within liv-ing memory. France sees Russia as a greatdiplomatic ally, another counterweight toAmerica. Germany sees it as a vital econ-omic partner, an indispensable supplier ofgas. Britain is somewhere in the middle,shifting from optimism about Russia to-wards scepticism. The result is an absenceof common policy, and in place of it a com-petition for Russia’s friendship betweenFrance and Germany, which Britain usedto join but rarely does now.

Relations could probably carry on thatway, save that America’s policy towardsRussia and its neighbours has been chang-ing, with and since the �orange revolution�in Ukraine. It is forcing choices on Europe.

To most west Europeans, the orangerevolution was an inconvenience, some-thing that would trouble relations withRussia and bring Ukraine to the EU’s dooras an unwanted candidate. Americanssaw it di�erently, as the most inspiringevent in Europe since the fall of the BerlinWall and the revolt of the Baltic states.They were pleasantly surprised by thescale and the relative ease of Viktor Yush-chenko’s triumph over a Russian-backedchallenger, and by what it revealed aboutthe weakness or incompetence of Russiaunder Mr Putin. A stronger or cleverer Rus-sia would have found a way to keep con-trol. Russia also damaged itself in Ameri-can eyes by renationalising the Yukos oilcompany. That has depressed potential in-vestment and output across the Russian oilindustry, just when America would haveforgiven Russia almost anything in ex-change for more and cheaper oil.

Perceptions of Mr Putin’s weakness

A bearish outlook

The EU’s relations with Russia are bad and may get worse

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The Economist June 25th 2005 A survey of the EU’s eastern borders 9

2 and drift, revealed and increased by theloss of Ukraine, appear to have become anew driver of American policy. Americacalls openly for the ousting of AlexanderLukashenka, the pro-Russian dictator ofBelarus, implying another revolutionthere. In May George Bush visited Tbilisi togive public support to Mikhail Saakashvili,the pro-western president of Georgia, whois trying to close down Russian militarybases on his soil�Russia says it will leaveby 2008�and regain control over Russian-backed separatist enclaves. Only a yearago, America, although sympathetic toGeorgia, was far more reticent.

This American assertiveness leaves theEU struggling to decide how to react. So farEurope’s record has not been good. WhenUkraine’s orange revolution was gatheringpace, west European governments wereconspicuous by their hesitation. Luckilyfor Europe’s self-respect, Poland sized upthe situation and, helped by Lithuania,joined America in pushing for a fair elec-tion and an orderly transfer of power.More recently, the EU has spurned Geor-gia’s plea for a mission to monitor its bor-der with Russia.

Few doubt that durable democracy-building in Ukraine will be much easier ifUkraine has a clear prospect of EU mem-bership within a meaningful time-frame.Ten years might be manageable, so long asother institutional ties came much sooner,giving Ukraine the sense of having joined,irreversibly, the European �family�. NATO

is sending the right signals: it started an�intensi�ed dialogue� with Ukraine inApril that is widely seen as a prelude tomembership.

Nothing of that sort is currently in pros-pect on the EU side, however. The EU hasnudged Ukraine not to press publicly forearly membership, in exchange for whichthe EU maintains a studied ambiguityabout Ukraine’s hopes of ever joining. Uk-raine has done its best to obey that gaggingorder, but its hard-pressed new govern-ment is starting to hunger for some moreconstructive arrangement. Mr Yush-chenko has proposed opening the ques-tion of Ukraine’s candidacy if and whenUkraine successfully completes an �actionplan� of economic and political reforms al-ready agreed on with the EU, whichshould take about three years.

That sounds a good compromise, thesort of thing the EU should endorse. Butthe view in most western European capi-tals is that it will be at least ten years beforethe EU is ready to start talks about talkswith Ukraine, and then only if it has moreor less �nished negotiations with Turkey.One or two EU governments may even betemporising deliberately as a way to reas-sure Russia, a more important goal in theireyes than reassuring Ukraine.

None of this is to say that bringing Uk-raine into the EU would ever be an easyjob. Ukraine is a big and very poor coun-try, with a strongly russi�ed east. TheYushchenko government has yet to inspire

complete con�dence. It has spent most ofthis year ��ghting �res� instead of stickingto the intended agenda, says one adviser.Rivalries between ministers have madethings worse. Anders Aslund, head of theCarnegie Endowment’s Russian and Eur-asian programme, says Mr Yushchenko’sprime minister, Yulia Timoshenko, hasbeen pursuing �socialist and populist�policies by raising state wages sharply,weakening property rights and increasingthe tax burden. That contributed, Mr As-lund says, to a fall in the rate of economicgrowth from 12% last year to 5% in the �rstfour months of this year.

In one sense, that might seem to holdsome comfort for the EU. If the Yush-chenko government does badly, there iseven less pressure on the EU to take Uk-raine seriously as a candidate. But thatanalysis is dangerously short-sighted. Uk-raine has to come right, for its own sakeand for Russia’s. Russia is too big and tooobstinate (and too tired of bad foreign ad-vice) to take any notice of the EU’s preach-ing on democracy and political reform. Itmight possibly be in�uenced, on the otherhand, by the spectacle of a �ourishingEuropean-style market democracy in Uk-raine, a country which Russians still feel tobe an extension of their own.

Leading by exampleThis is a long shot. If a more authoritarianRussian regime is well entrenched and theeconomy is doing �ne, a democratic Uk-raine might well make very little impact atall. But if Ukraine’s orange revolution doescollapse, it is certain to extinguish any lastsupport for liberal democracy which mayhave gone on �ickering in Russia under MrPutin. If Ukraine fails, with it goes anyhope of changing Russia for the better inthis generation, and with it any hope of aRussia that can rub along with Europe ingenuine friendship.

The stakes are lower when dealingwith the two other countries caught be-tween Russia and the EU. But they are stillworth playing for. One of them, Belarus, isa poor, sad place, isolated from the Westsince Mr Lukashenka took power 11 yearsago. In that time he has descended fromcrude paternalism to outright dictatorship,supported by Russia. Popular revolutionwill be much harder in Belarus than it wasin Ukraine or Georgia, because Mr Luka-shenka has left no room for dissent to mo-bilise. He has bankrupted local NGOs anddriven out foreign ones. His governmentcontrols all broadcast media and mostprint media too. Sparse private businessWhere Europe leads, will Russia follow?

1

10 A survey of the EU’s eastern borders The Economist June 25th 2005

2 survives only with the state’s blessing. Po-litical challengers risk being kidnapped orkilled.

The other post-Soviet state, Moldova, iscrippled by a Russian-sponsored separat-ist regime in its eastern province of Trans-dniestria. Russian troops helped local Rus-sian settlers win a brief but bloody war ofsecession there after the Soviet Union col-lapsed in 1991, amid spurious claims thatMoldova might be swallowed by Roma-nia. The Transdniestrian enclave now�oods the rest of Moldova with untaxedspirits and consumer goods smuggled inthrough Ukraine. It exports steel and smallarms through Ukraine by day, and muchnastier things by night. Transdniestria is, ine�ect, a big criminal racket with a smallpiece of land attached. Partition has para-lysed and disoriented Moldova, making itthe poorest country in Europe and the onlypost-communist country to have re-elected an unreformed communist party.But even Moldova’s communists haveswitched their allegiance from Russia tothe West, unable to stomach Russia’s con-tinued support for Transdniestria.

It beggars belief that Russia can claiminternational respectability while at thesame time propping up Transdniestria andtwo other separatist enclaves in Georgia,South Ossetia and Abkhazia, which are

just as far outside the law. And Mr Luka-shenka’s dictatorship in Belarus wouldhave trouble surviving three months with-out Russian support. �The Kremlin doesnot like Lukashenka, but it likes the orangerevolution even less,� explains Anatoly Le-bedko, one of Mr Lukashenka’s brave op-ponents.

Straight talkingHere lies one way forward for Europe, andeveryone else, in relations with Russia:brutal honesty. Whatever else Russiacraves, it always craves respect. If westernleaders challenge Mr Putin publicly aboutthe smuggling and criminality in Trans-dniestria and South Ossetia each time theymeet him, and if they press him publicly to

condemn the dictatorship in Belarus, theywill make these adventures much moreexpensive for Russia politically, at no greatcost to themselves.

That will probably not spell the end forMr Lukashenka, at least until Russia �ndssomeone tamer who can still keep Belarusa no-go area for the West. But Transdnies-tria, South Ossetia and Abkhazia are an-other matter. Their continued existenceserves the interests of crooks and national-ists and generals inside Russia, not the Rus-sian government or state. Russia might letthese enclaves go if they were doing seri-ous damage to its standing in the world.

At the moment, however, most Euro-pean leaders prefer to �atter Mr Putin.Even if they see his faults, they fear thatwhatever comes next will be worse. Thismay be so. But the answer, surely, is to dosomething to reverse that trend.

Europe has a better political and econ-omic model to o�er, but it has to make thevirtues of that model clear to everyone.That means criticising Mr Putin’s govern-ment for its undemocratic behaviour athome and its anti-democratic behaviourabroad. It means giving support to coun-tries around Russia that want to do thingsdi�erently. The aim of all this is not toweaken Russia, but to strengthen it, by en-couraging it to govern itself better. 7

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THE desire of Turkey to join the Euro-pean Union may well be the greatest

tribute ever paid by an outside power tothe EU’s brand of liberal democracy. BothTurkey’s secular elite and its moderate Is-lamic-backed politicians think that Eu-rope’s pluralist model can best protecttheir values and interests. With a lot ofluck, both might be proved right.

But reaching an accommodation withTurkey also presents one of the biggestchallenges faced by the EU in more than 30years of admitting new members. Turkeyis big, poor and populous. It sprawls fromEurope into Asia. Its people are over-whelmingly Muslim, although its politicalinstitutions are secular. The EU’s decisionto declare Turkey a candidate for member-ship in 1999, 12 years after Turkey formallyapplied, was a bold move. Turkey was juststarting to emerge from a �lost decade� in

the 1990s, marked by �civil war, secular-Is-lamic polarisation, authoritarian procliv-ities, economic crisis and systemic corrup-tion�, in the words of Omer Taspinar,co-director of the Turkey programme at theBrookings Institution, an American think-tank. It had su�ered three military coupssince 1960, four if you counted the army’shelp in bringing down a government in1997. Weak and shifting coalition govern-ments were the rule until the centre-rightAKP party, appealing to moderate Islamicvoters, won a landslide victory in 2002.

Turkey still falls far short of Europeanstandards in many areas of human rights,despite recent bold reforms. The Germanchancellor, Gerhard Schröder, one of Tur-key’s staunchest friends within the EU,said in May that the country’s heavy-handed policing methods, limits on free-dom of expression, and discrimination

against women, were �incompatible with[Europe’s] common values�.

Last year the EU declared itself ready toopen negotiations with Turkey this com-ing October so long as Turkey met somelast pre-conditions, mainly by bringing anamended penal code into force and ex-tending its customs-union agreement withthe EU to cover all the new members, in-cluding Cyprus. Turkey duly implementedthe code in June and was also expected toextend the customs-union agreement,though without meeting Cypriot de-mands for access to Turkish ports and airspace. Cyprus has been a sore point inTurkish-EU relations since Turkey invadedthe northern part of the island in 1974 andinstalled an illegal government there. Cy-prus joined the EU last year despite this defacto partition. Hopes for reuni�cationhave come to rest mainly with a United

Too big to handle?

Turkey’s application to join the EU is causing anxiety on both sides

1

The Economist June 25th 2005 A survey of the EU’s eastern borders 11

2 Nations peace plan that Turkey is willing toswallow, but which Cyprus thinks is toogenerous to the occupier.

Even if the accession talks do get startedin October, the EU has gone out of its wayto say that a successful completion cannotbe presumed, still less guaranteed. At best,an accession treaty with Turkey may be tenyears away. Even if one does comes then,France has promised a referendum on fur-ther EU enlargement, which in the presentclimate of opinion would certainly goagainst Turkey. Fear of Turkish entry prob-ably played a signi�cant role in the Frenchrejection of the EU constitution in May.

Member or partner?A change of government in Germany maydo even more to hurt Turkey’s perceivedchances, if Mr Schröder loses the earlyelection which he has called for the au-tumn. Opinion polls say that the next Ger-man government will be led by the Chris-tian Democrats. Their policy is to makeTurkey a �privileged partner� of the EU,but not a member. The rest of Europeknows that relations with Turkey are a vi-tal national issue for Germany, which hasa resident Turkish minority of almost 3m.Germany is also the biggest net contribu-tor to the Union’s budget. Germany alonecould not secure Turkey’s admission to theUnion, but it could certainly block it.

A �privileged partnership� with Turkeymight sound like a good compromise tomany on the EU side. It may even sound at-tractive to a rising number on the Turkishside, where enthusiasm for Europe hasbeen declining, though it is still high. A pollin May found that two-thirds of Turkswanted to join the EU, down from three-quarters a year earlier. Commentators saidthat the social and political changesneeded to please the Europeans were up-

setting nationalists and traditionalists. This friction on the right may have

played a part in the slowing of Turkey’s re-form programme this year, after the EU’sagreement in December to open accessiontalks. The EU’s chief of mission in Ankara,Hansjörg Kretschmer, in March spoke of�slippage�. He had in mind restrictions onforeign property ownership and on reli-gious minorities, together with policingmethods. The last of those made westernheadlines on March 6th when Turkish po-lice beat women demonstrators in Istan-bul. Instead of condemning the police, thegovernment defended them.

Turkey’s international image slippedfurther in April, with the commemorationof the 90th anniversary of Turkey’s massmurder of Armenians in 1915. The govern-ment struggled to defend the Turkish ver-sion of events, and above all to rejectcharges of attempted genocide, when anapology for the many deaths that un-doubtedly occurred, or simply a respectfulsilence, would have gone down much bet-ter abroad.

But if the government of Recep TayyipErdogan has not been looking its best thisyear, it can still point to some impressiveachievements since the prime ministertook o�ce, including scrapping state secu-rity courts, cementing civilian control ofthe army, allowing Kurdish-languageteaching and broadcasting, and shakingup the judiciary. These are the sort ofthings a country does when it is very seri-ous indeed about trying to join the EU.

They are not, however, the sort ofthings a country does merely to have a�privileged partnership�. Russia claims apartnership with the EU, but makes noconcessions to the EU’s political or socialagenda at all. If Turkey was to be told now,on the brink of starting its membership ne-

gotiations or even after, that the EU hadchanged its mind about membership, thenTurkey would not feel �privileged� at all.On the contrary, it would feel frustratedand embittered, and understandably so.

The politicians who had bet their credi-bility on taking Turkey into the EU, andwho had carried out controversial reformsas part of that project, would be discred-ited. Their reforms would be reviled, per-haps reversed. The country might retreattowards radicalisation and polarisation, ina geopolitical climate much more danger-ous than that of the 1990s. Italy’s foreignminister, Gianfranco Fini, said in May thata rejection from Europe at this stage mightbe enough to turn Turkey from moderatetowards fundamentalist Islam. What pricea privileged partnership then?

A Turkey successfully integrated intothe EU, on the other hand, would be a greatachievement in many ways. It would beevidence, to quote Mr Fini again, of the�compatibility of Islam with democracy�,setting an example for the Middle East be-yond. It would bring an end to the divisionof Cyprus, removing the main potentialtrigger of fresh strife between Turkey andGreece. It would align more closely the in-terests and the memberships of the EU andNATO, so reducing the scope for tensionsbetween the two: a separate European de-fence capability would become both eas-ier to manage and less necessary.

With Turkish accession, the EU wouldextend into the southern Caucasus, help-ing to stabilise new pipeline routes bring-ing oil and gas westward from the Cas-pian. These will lessen Europe’s energydependence on Russia. A pipeline runningfrom Baku in Azerbaijan, through Georgia,to Ceyhan in Turkey, loaded its �rst oil inMay. A European Turkey would also be un-der strong diplomatic pressure to normal-ise relations with Armenia, drawing Ar-menia closer to the West and opening upnew possibilities for peace between Arme-nia and Azerbaijan. Georgia’s hopes of fol-lowing Turkey into the EU would be quick-ened, which would be all to the good.Georgia deserves much more support andencouragement from the EU for the politi-cal and economic reforms it has pushedthrough since President Saakashvili wonpower in the �rose revolution� of 2003.

America would like few things morethan to see the EU and NATO working to-gether to stabilise the Black Sea and thesouthern Caucasus. Energy exports aside,the region o�ers a bridgehead into whatAmerica calls the Greater Middle East, use-ful for projecting democratic values and

Turkey’s policing methods didn’t go down well in Europe

1

12 A survey of the EU’s eastern borders The Economist June 25th 2005

2

entering a di�cult and problematicstagethe ruling AK party seems to havetaken a turn for the worse, characterised bystrident anti-Americanism, cultural anti-Europeanism and a resurgent xenophobia-Perhaps most worrying are reports ofTurkish-Russian discussions of a co-ordi-nated policy in the Black Sea region whichwould inevitably be conducted at the ex-pense of smaller pro-European democra-ciesTurkey has entered a dangerous

military force. America has lobbied Eu-rope repeatedly in past decades to be morewelcoming to Turkey. Bringing Turkey intothe EU would probably be easier now ifboth could turn to Washington as a com-mon friend.

Iraq’s shadowWorryingly, however, relations betweenTurkey and the United States have deterio-rated signi�cantly since Turkey refused useof its territory for the invasion of Iraq in2003. Turkey has fretted since about thepossibility of a Kurdish state emerging innorthern Iraq, giving fresh impetus toKurdish separatism across the border ineastern Turkey. The choice this year of aKurd, Jalal Talabani, as president of Iraq,may have helped calm Turkish fears, bygiving the Iraqi Kurds a stronger interest innational unity.

In testimony to the Senate this year,Bruce Jackson, an in�uential Americanlobbyist for NATO expansion, said re-newed tensions in Turkish-American rela-tions were a sign that

Turkey’s national and geopolitical identitycrisis is far from over and that Turkey may be

period both for itself and for US-Turkish rela-tions, which deserves serious attention.

That may be a harsh assessment. TheTurkish government would certainlyclaim so. Its ministers have been insistingrepeatedly this year that the talk of pro-blems with America has been overblown.As if to argue the point, Mr Erdogan madehis third o�cial visit to Washington, DC, inearly June. A month earlier he had been

The old way for Turks to join the EU

TURKEY’S population of 70m is grow-ing at 1.1% a year, whereas that of most

EU countries is stable or shrinking. Ac-cording to Deutsche Bank, by 2020 themedian age in Turkey will be only 32,compared with 45 in western Europe.Around the same time Turkey’s popula-

tion is forecast to pull ahead of Ger-many’s, reaching 85m or more in 2035,whereas Germany’s may fall below 80m.If west European countries ever get seri-ous about liberalising their labour mar-kets and creating jobs, Turkey can supplyall the manpower they will need. Con-versely, if they decide to keep cheap la-bour at bay, Turkey is the last countrythey will want at the door.

Deutsche Bank suggests three possiblescenarios for Turkey over the next 15years. In the �rst, Turkey pursues theeconomic and political reforms needed toconverge with the EU; in the second, itdrifts back to the weak governments ofthe 1990s, but with less economic volatil-ity; and in the third, it is destabilised bygeopolitical uncertainty, kept at bay bythe EU and polarised by tensions be-tween secular and religious forces. Thelong-term annual growth rates associatedwith these scenarios are, respectively,4.1%, 3.1% and 1.9% (see chart 4).

Daniel Gros, director of the Centre forEuropean Policy Studies in Brussels, ar-gues that if Turkey can improve its busi-ness climate, attract more foreign invest-ment and redeploy its workforce moreproductively as part of a successful EU ac-cession, then over the long term its an-nual growth rate could be 3-6 percentagepoints a year ahead of that in west Euro-pean countries and 1-3 points a yearahead of central European countries.

Long-term forecasting is a particularlyinexact science as applied to Turkey, MrGros notes, because its recent perfor-mance has been so volatile. Given themacroeconomic instability of the past de-cade, it is almost a surprise to �nd Turkeynotched up any growth at all over thatperiod. But Mr Gros �nds perverse en-couragement in its recent record. If theTurkish economy could survive the politi-cal ill-treatment it received in the 1990s,he says, then deep down it must be veryrobust indeed.

Getting closer to Europe is goodfor economic growthThe 4% solution

Pick your scenarioGDP per person, $’000, PPP

4

Source: Deutsche Bank Research

6

8

10

12

2003 1209 15 18 2106

“Back to the 1990s”

“Turkey in the Middle East”

“Turkey in Europe”

1

The Economist June 25th 2005 A survey of the EU’s eastern borders 13

2

�THIS is my grandfather’s axe,� as aPolish saying has it. �My father

changed the blade, and I have changed thehandle.� Almost everything about theEuropean Union has changed since it was�rst put together. The six founding coun-tries are outnumbered threefold by thosewho have joined since. There is no longer acommunist threat from the east, unitingwestern Europe against it, with America atits back. There is no credible threat orexpectation of war anywhere in Europe,save perhaps for the fear of civil con�ict inthe Balkans or Moldova. Of course historymust be remembered, for fear that it maybe repeated. But the question now is whatthe EU can do for its citizens in the future,not what it has done for them in the past.And from there it is a short step to askingwhether the Union can hold together at all.

This survey has guessed that it will, butargued that the disaggregation of Europeinto overlapping projects and groups willcontinue and that any future memberswill have to accept some exclusions. Theymay not share in the Schengen zone ofpassport-free travel, nor enjoy free move-ment of labour, nor receive direct farmsubsidies, nor have a vote on �constitu-tional� issues touching on the Union’s ba-sic rules and powers. Indeed, the Union re-served some of these options last yearwhen it decided in principle to open nego-tiations with Turkey. Such restrictions willanger countries waiting to join the Union.But by answering to the main worries inwestern public opinion about further en-largement, they may be decisive in makingit possible for Turkey, or Ukraine, or thecountries of the Balkans, ever to join at all.

The big unknown is whether the pros-pect of a more restrictive form of member-

ship would still be enough to promotedeep political and economic change incandidate countries, of the kind alreadyseen in central Europe. The answer is prob-ably yes. And it is certainly worth trying, ifit is the best o�er the EU can hope to make.A restrictive membership could still be�sold� as a membership to voters in thecandidate country. It would give them a vi-tal sense of belonging. The accession pro-cess would expose politicians and civilservants to the full weight of peer pressurewithin the EU institutions. And any restric-tions would probably prove to be tempo-rary, once the newcomer had a track re-cord as a Union member.

The Union is, moreover, betterequipped than ever to integrate new mem-bers, however big and di�cult they maybe. The countries of central Europe are onhand to give advice and pass on experi-

ence to their neighbours to the east. Theycan o�er reassurance that the principles ofreform, properly applied, do work on eventhe most vandalised economies.

The European Commission has be-come a highly skilled manager of the ac-cession process. It has written the book onmember-state-building. Any country thattruly wants to adopt a European model,and is prepared to give that project a clearrun of �ve years or so, under the tutelageof Brussels, can reasonably expect success.Even if a country decides in the end not tojoin the Union, or is rebu�ed, it will havehad �ve years of institution-building andpolicy-anchoring. A country made readyto join the European Union is a countrybetter able to compete in the world what-ever course it chooses.

A Union accommodating shifting alli-ances of members, sometimes pulling in

The shape of things to come

The European Union should go its di�erent ways

It worked for them

reaching out indirectly to America by visit-ing Israel, trying to repair relations whichtouched a low point last year when he ac-cused Israel of practising �state terrorism�against Palestinians.

But still, America must doubt verymuch that Turkey shares its vision of radi-cal change in the Middle East. The funda-mentals of Turkish policy there include im-proved ties with Syria, touchy relationswith Israel and fear of further upheaval in

Iraq. It is rather as though Turkey’s pro-Americanism worked well so long asAmerica kept a respectful distance. Itworks less well when America is in Tur-key’s back yard, shaking up countriesnearby and casting covetous eyes on theBlack Sea. At such a point, says one west-ern diplomat, Turkey’s older instinctsbreak ground. Where regional politics areconcerned, it shows itself to be a �statusquo� power, not a force for change.

Now that Turkey is approaching its EU

entry talks, it may be discovering that Eu-rope, too, looks better from a distance. Ac-cession talks can be humiliating at times,and Turkey may be less good than the cen-tral Europeans were at quietly puttingaside national pride. It is, after all, therump of an empire with a history as longand lofty as Europe’s own. That makes itsaccession to the EU all the more desirable,and all the more di�cult. 7

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14 A survey of the EU’s eastern borders The Economist June 25th 2005

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Countries and regionsAmerica July 16thJapan October 8thCanada November 19thItaly November 26th

Business, �nance and economicsHigher education September 10thThe world economy September 24thIT/telecoms October 22ndMicro�nance November 5th

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di�erent directions, is inevitably going tobe less cohesive and less e�ective as an in-ternational actor. If countries no longerthink that they are moving towards a fullpolitical union, they have much less incen-tive to align on big issues of foreign policy.But perhaps the idea of a common foreignpolicy for Europe has already lost itscharm with the Iraq crisis. Whether yousubscribed to the British position on Iraqor the French one, you would not havewanted to be trapped in the opposite campand forced to support a policy which youbelieved would ruin relations with theMiddle East, or with America, or both.

Smaller alliances will become the rulein foreign policy�and even these will beshifting ones. France and Germany havebeen remarkably intimate under PresidentChirac and Chancellor Schröder, enoughto promote periodic talk of a much deeperbilateral union, for example. But relationsmight be less indulgent between a Ger-many run by Angela Merkel and a Francerun by, say, Nicolas Sarkozy.

The weaker a common foreign policy,the weaker any European Defence Iden-tity, or whatever it comes to be called. In-stead, NATO can reassert its historic role asthe sole plausible vehicle for commonEuropean defence. The countries of centraland eastern Europe will put even moreweight on NATO, and on their bilateral tieswith the United States, as guarantees ofthe hard security that Europe looks lessand less likely to provide, especially withrespect to Russia. Traian Basescu, whenelected president of Romania in Decem-ber, caught the mood of his region by an-nouncing that he would pursue a �Bucha-rest-London-Washington� axis in foreignrelations, pointedly neglecting to mentionBrussels or Paris or Berlin. He appears tohave decided that, although the prosperityof his country will best be assured by join-ing the EU, its security will best be assuredby making it conspicuously useful to theUnited States.

Taken together, the great trends of themoment touching upon Europe and itsneighbours�the weakening of the EU, thehardening of Russia, the confrontation be-tween Islam and democracy in the greaterMiddle East, and the resurgence of Ameri-can interest in eastern Europe and theBlack Sea region�suggest a period of whattwo American commentators, Ronald As-mus and Bruce Jackson, have called �stra-tegic �uidity�, in which countries mayglimpse new possibilities and be temptedto make bold changes of direction. Mr As-mus and Mr Jackson argue, for example,

that Israel should draw much closer toboth the EU and NATO, perhaps joiningthem, as the Middle East and Europemerge into the same �security space�.

The idea of �uidity is inseparable fromthat of unpredictability. Look back to 1995,and it was much easier to predict what theEU and its neighbours would look like inten years’ time. You would have bet on anEU that had enlarged, or was about to, intocentral Europe; a Turkey still banging at thedoor; a messy but probably no longer war-ring Balkans; and a Russia gruy going itsown way, dragging neighbouring coun-tries in its wake. You would have beenright on all counts, save for the revolt ofUkraine, and even that is not irreversible.

Looking ten years ahead from today,we might bet that nothing in that land-

scape will have changed at all, save thatthe Balkans will continue their slow recov-ery. If so, that would count as a good re-sult�compared with, say, a decade inwhich the EU fell apart, Turkey grew morepolarised and radicalised, the Balkansstayed restless, and civil strife broke out inthe southern Caucasus and Moldova.

Give it timeThis survey has argued for a best-case re-sult in which the EU goes on using thepower of membership to change the coun-tries around it for the better. But Europe ismuch less likely to �nd the energy and thegenerosity for that strategy, now that it haslost its sense of purpose and con�dence initself. How can those things be restored?

The best hope is democracy itself.Given enough time, voters have a great giftfor getting things right. Economic stagna-tion has forced an early election in Ger-many. When France emerges from its cur-rent identity crisis, it must surely also wantbig changes in national policy. If these twostruggling giants of Europe, Germany andFrance, can regain some of their poise andcon�dence, then so can the EU as a whole.

We may, in other words, have to wait�ve years or so before we can even sketchin the political contours of a wider Europeten years hence, before we can saywhether the EU will be strong and inclu-sive or weak and exclusive. That uncer-tainty must make the EU an infuriatingpartner with which to deal. It is so oftenmoody, self-absorbed and hard to under-stand. But of all the powers and empires inthe world, it is still the one that most coun-tries on its fringes would want as theirneighbour. 7

Basescu picks his axis