Two Summits, One City, and the Big Fudge: Insights from Research in the Automotive Industry Suggest That Competition Rules Are Not Yet Working in Eastern Europe

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Eastern Europe's candidate countries must have functioning market economies in order to join the EU, according to key conditions for enlargement laid down by the Copenhagen Council in 1993. Yet, as another important EU summit in Copenhagen loomed in the closing months of 2002, one might have been forgiven for considering the fulfilment of this criterion as merely a secondary issue.

EU leaders will, of course, formally have to pass final judgement on the suitability for membership of the applicant states. Yet what is really at stake before the negotiations can be wound up is not whether the candidate countries are in a position to enter the EU, but whether the EU is ready to take them in. This has precious little to do with the attainment of a market economy or with the other two accession criteria--political democracy and solid institutions--so solemnly announced in 1993.

What will shape the final outcome of this process are the EU's own internal issues of house-keeping (and house-cleaning). Irish voters have had to consent to the Treaty of Nice which remained as unintelligible as when they rejected it the first time round. Net transfer recipients such as Spain, or France in agriculture, will have to reconcile their demands for maintaining their absolute and relative slice of the EU subsidy cake with the arrival of new, poorer members and the increasing reluctance of net EU budget contributors such as Germany and the Netherlands to foot the bill. That said, political expediency will doubtlessly win the day lest the EU be written off by the rest of the world as a bunch of bickering incompetents.


Thus before long some of the candidates will become EU members, adding their own agendas to the cacophony of horse-trading over petty interests, while at the same time EU institutions will be preoccupied with ensuring that their effectiveness is not compromised because of the enlarged membership.

It is anyone's guess how successful they will be. What we do know is that before long active scrutiny of the evolving market economies in the East will be replaced by a presumption of the existence of the requisite and attendant institutions. That presumption is politically expedient because otherwise enlargement negotiations would have dragged on forever. But much like in the West where the theory and practice of EU integration are often at odds, it is also a problem.

Confusing a future goal with present reality takes policymaking into the realm of fiction.

Institutions and the rules they embody take time to come into existence. The decade or so that has passed since Eastern Europe opened up is at the lower end of what it is needed to engineer a major change in the rules of the game. Contrast the monumental task of transforming a planned into a market economy with the seemingly much simpler agenda of completing the internal market--a project that continues to elude the EU even though it has been at it for half a century or, if you count merely the latest phase, since the 1985 Single European Act.

Rules and how the game is played

As important as the rules of the game is how it is actually being played. In principle the two levels are connected; institutions inform governance and, ideally, how governance plays out feeds back to the institutional level. When this works well, in other words when properly enforced, institutions reduce the costs of doing business and thus enhance economic performance at large.

In a nutshell, this is much of what is behind the history of capitalist development. It is also one of the reasons the negotiators for candidate countries have such an enthusiastic--and distinctly non-British--attitude to EU regulation. Parts of the acquis, to be sure, may be inappropriate and prohibitively costly for their level of development. But signing up to these rules is their best bet to consolidate the still relatively recent and incomplete achievement of open and accountable government and of a competitive business environment. …