THE IMPACT OF THE EUROPEAN UNION ON TRANSITION IN CENTRAL AND EASTERN EUROPE 3nd PhD Summer School: Governance and Democracy in CEE Lüneburg University, Center for the Study of Democracy August 23, 2007 Darina Malová Comenius University, Bratislava, financial support accorded by the Slovak Research and Development Agency (No. APVV ) to fund research on new member states’ strategies in the EU is gratefully acknowledged.

Outline of the presentation 1. The outcomes of the transition to market economy. What kind of capitalism has emerged in the eight new member states? –Mostly liberal market economies have emerged in NMS (with exception of Slovenia), characterized by the absence of inclusion of social actors in ‘building capitalism by democratic design’. 2. What is the role of the external and internal political actors in the transformation process? –Has the European Commission working closely with other IFIs promoted liberal market economy in CEE and three Baltic states? Are domestic actors political and social actors weak vis-à-vis EU? Why there are differences among NMS? 3. Does it matter? (for the European Union and/or the European Social Model and/or quality of democracy)

The return to Europe: the triple transition and EU Copenhagen criteria The candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities (transition to democracy) The existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union (transition to market economy) Membership presupposes the candidate’s ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union (the state building process).

Theory of varieties of capitalism (Peter Hall and David Soskice, 2001) Two ideal types according to the “social” role of industrial firms: 1. Coordinated market economies –high union density –strong employers organizations –strong social dialogue on national and/or sectoral level –high level of collective bargaining coverage –significant workers’ participation in firm –employer’s participation in vocation training oriented on specific skills 2. Liberal market economies –low union density –weak employers organizations –weak social dialogue on firm level or no existent at all –weak or non-existent workers’ participation in firm –formal vocation training oriented on general skills

Economic and social outcomes of the triple transition Sources: Union density (1. National statistics, self-reported date (Maria Lado, ILO), 2. World Values Survey , Vaughan-Whitehead, Gini: UNDP, LIS UnionDensity( ) Dominant level of bargaining Giniindex Slovenia41.3Intersectoral 28.4 (1998) 22.0 (2002) Hungary Firm 24.4 (1998) 26.0 (2000) 24.0 (2002) Poland Firm 31.6 (1998) 31.0 (2002) Czech republic Sectoral 25.4 (1996) 25.0 (2003) Slovakia Sectoral 26.6 (1998) 31.1 (2003) Lithuania15.0Firm 36.4 (2000) 30.4 (2002) Latvia30.0Firm 32.4 (1998) 34.1 (2002) Estonia Firm 37.6 (1998) 34.2 (2003) EU average out of 14 sectoral

Institutions of labor inclusion in 2003 Sources: Visser J. (2005): Patterns and Variations in European Industrial Relations. Report prepared for the EC. Centralization of wage bargaining index Coordination of wage bargaining Collective bargaining coverage rate Estonia Latvia Lithuania Baltic avg Czech R Hungary Poland Slovak R Visegrád avg Slovenia EU-8 avg EU-15 avg , variations from 40 (UK) to 90 (Be, Fi, Swe,Fr, It)

Varieties of Capitalism in CEE: Macroeconomic Indicators ( according to D. Boehle, 2007 ) Index of Economic EconomicFreedom(2006) Governmen t expenditure /GDP (2003) Budget Deficit ( , % GDP) Public Debt ( , % of GDP) State Aid (% of GDP) of GDP) Neoliberalism(BalticStates) EmbeddedNeoliberalism (Visegr á d) Neocorporati sm (Slovenia) Germany

Varieties of Capitalism in CEE: Social and Labor Market Indicators Social Expenditur e (% GDP, (% GDP, 2003) 2003)Gini(2002) Real wages (2004, (2004, 1989 = 1989 = 100) 100) Unemployme nt ( )LaborMarketFlexibilityTradeUnionDensity (2002 or 2001) Neoliberalism (Baltic (Baltic States) States) EmbeddedNeoliberalism (Visegr á d) Neocorporatis m (Slovenia) Germany N.A

The role of the European Commission in transformation process agenda setter direct influence - promoting policies, laws and institution indirect influence - encouraging emergence of political and social actors.

European Union as agenda setter Why the EC opted for the ‘neoliberal’ agenda? 1. First of all, a coordinated market economy is more difficult to “promote” than a liberal market economy. It is a result of negotiated forms of non- market coordination. 2. The EC promotes and guards the competition rules within the Single European Market. 3. The EU market agenda is mostly compatible with that of the IFIs, „Washington consensus“ - what is good for transition.

European Union as agenda setter 4.5.Since 1989, the European Commission has coordinated aid from the G24 (including the OECD, World Bank, IMF and Paris Club). 6.The EC required to include “the social dimension” into the Acquis just before the entry (1999 the social dialogue and 2000 Lisbon Agenda). Too, late, however.

Development of EU market conditionality During it primarily involved trade relations via trade agreements that do not lead to accession. During it primarily involved trade relations via trade agreements that do not lead to accession. It moved onto regulatory alignment via Association Agreements, that aimed at extending the four freedoms of the Single Market to EU-CEE relations. It moved onto regulatory alignment via Association Agreements, that aimed at extending the four freedoms of the Single Market to EU-CEE relations. Since 1998 via Accession Partnership the EU has shaped many policy areas covered by any modern state. Since 1998 via Accession Partnership the EU has shaped many policy areas covered by any modern state. Regular reports as an instrument for monitoring and evaluating candidate countries based on the implementation of Copenhagen Criteria. Regular reports as an instrument for monitoring and evaluating candidate countries based on the implementation of Copenhagen Criteria. Monitoring by EC continues due to the Maastricht criteria. Monitoring by EC continues due to the Maastricht criteria.

Economic priorities for the short term Source: National Accession Partnerships (1998) Czech Republicimplement policies to maintain internal and external balance improve corporate governance by accelerating industrial and bank restructuring; implementing financial sector regulation; enforcing Securities and Exchange Commission supervision Estoniasustain high growth rates, reduce inflation, increase level of national savings accelerate land reform start pension reform Hungaryadvance structural reforms, particularly of health care Latviaaccelerate market-based enterprise restructuring and complete privatization strengthen banking sector modernize agriculture and establish a land and property register Lithuaniaaccelerate large-scale privatization restructure banking, energy and agro-food sectors enforce financial discipline for enterprises Polandadopt viable steel sector restructuring program by 30 June and start implementation restructure coal sector accelerate privatization/restructuring of state enterprises (including telecoms) develop financial sector, including banking privatization improve bankruptcy proceedings Slovakiatackle internal and external imbalances and sustain macroeconomic stability progress on structural reforms privatize and restructure enterprises, finance, banking and energy-intensive heavy industries Sloveniaact on market-driven restructuring in the enterprise, finance and banking sectors prepare pension reform

Explanations: I. EU and its ‘neoliberal’ agenda The nature of the accession process characterized as a one-way transfer of EU rules and norms. EU set priorities of macroeconomic and also economic policies. CEE governments (with exception of Slovenia) mostly favored with TINA approach This type of EU conditionality continues and EC monitors NMS and their economic performance as a condition to adopt Euro.

Explanations: II. Influence of domestic political actors How far fomestic politics, especially party composition of governments in CEE during the transition and accession period can explain variations in the state of market economies and societies? 2. Is there any left-right „logic“ in public policies in CEE?

Election outcomes and government orientation Source: Parties and Elections in Europe, at: First elected government Second elected government Third elected government Fourth elected government Estonia1992- Right Centre Center-Right 2003 Center-Right Latvia1993- Center-Right Right Center-Right 2002 Right Lithuania1991 Right Left Right 2000 Center-Left Baltic patternRight hegemony (except in Lithuania) Czech R Right Right Left (minority) 2002 Left (minority) Hungary1990- Right Left Right 2002 Left Poland1991- Right Left Right Left Slovak R Left Left Right 2002 Right Visegrád patternRight-left alternation Slovenia1990 Left 1992 Left 1996 Left 2002 Left Slovenia trendLeft hegemony

Explanations: III. Influence of domestic social actors? Changes in the type market economy can be conveyed also by social actors against the ‘will’ of the ruling parties in government. At least, social actors can have a role of veto players There is dominance of business groups over trade unions Influence of pro-market oriented think-tanks in policy making was and is important The recent developments in Slovakia illustrate the power of foreign investors and Slovak managers, which asked for the state intervention in vocational training and also push for introducing Euro. (VW, PSA- Pegueot, Kia-Slovakia)

Conclusions and discussion   EC performed as the agency, influencing transition to market economy.   Since the early 1980s the EU has promoted a new mode of integration that seeks to reshape European states with the aim of advancing the overall competitiveness of the European economic space.   The Lisbon strategy requires all member states to implement structural reforms (EU push for deregulation, privatization, within a general framework of macroeconomic stability.

Conclusion adn discussions ‘Old’ member states and EU neoliberal agenda   The „emulation“ of policies may continue. This time just in the other E-W direction. According to some leading politicians in the old member state, such policies should be implemented also in their countries.   The leading figures and financial institutions behind the reform packages are strongly convinced of the merits of their case and of the superiority of their ideological stance.   Margaret Thatcher’s dream came true, the eastern enlargement has weaken the EU, at least its social cohesion.