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EU Enlargement: Options and Mistakes

CAMBRIDGE: Across Latin America, pressures to engage with the US to increase regional integration are mounting. Mexico’s incoming president Vincente Fox has made free labor market integration an important item on his agenda. Argentina hopes to achieve a free trade agreement as a way of moving closer to the US, at least in the eyes of investors, and thus shed the risk premiums on capital that have been imposed recently. In Asia, in the wake of the financial crisis of 1997, Japan is aggressively promoting regional economic integration. Swap credit lines have been negotiated between regional central banks; a free trade pact has been offered by other Asian economies to a reluctant Japan. Monetary integration is being urged on the South Koreans, who are terrified by this attempted Japanese embrace.

It is in Europe, however, that the boldest attempt at regional integration is in prospect, as the European Union opens itself to the East. After the Southern wave (Portugal, Spain and Greece) of two decades ago, this new wave involves, in various stages, 10 postcommunist economies. Most prominent in terms of economic size and proximity are Poland, Hungary and the Czech Republic. But the list goes deep into the Balkans, with Romania and, who knows, even Turkey as potential EU members.

Europe does not relish this opening eastward; after all, exports to the east have been wonderful since 1989. Manufacturing production, too, is somewhat successful. Integration, however, is another matter, particularly if it includes free labor mobility, participation in Europe’s rich social safety net, and access to European subsidies. The East, of course, can’t join fast enough; the West, never mind the supposed inevitability, wishes it could find a way to black ball them all. But expansion is Europe’s destiny, never mind high unemployment (i.e. people paid not to work), never mind European agricultural protection and regional subsidies. The East is knocking, and everyone knows that if no answer comes, they will jump the fence.

In the East there is no doubt about the benefits of joining the West: everybody accepts that access to markets and capital can do only good. The remaining doubters should look to Mexico and the stunning success its northern regions experienced by integrating with the US. Nor is there any sign of stress in the US - the long predicted "giant sucking sound as jobs go South" never happened. In fact, Mexican workers are returning home, attracted by the boom in Mexico’s North. But for Western Europe the discussion seems more dubious. Surely, labor opposes the competition, and taxpayers agree, awed by the burden of spreading the welfare state and subsidy system eastward. Why not just say, "No thanks" people ask?