Rien ne se crée sans les hommes. Rien ne dure sans les ...rjea.ier.ro/sites/rjea.ier.ro/files/revista/rjea_vol.12_nr.2_site... · Rien ne dure sans les institutions. Jean Monnet

Rien ne se crée sans les hommes. Rien ne dure sans les institutions.

Jean Monnet

ISSN 1582-8271

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RomanianJournal of European AffairsVol. 12, No. 2, June 2012

European Institute of Romania

Founding Director - Niculae IduDirector - Gabriela DrăganEditor-in-Chief - Oana MocanuAssociate Editors - Mihaela Papa, Mihai Sebe, Gilda Truică

Editorial BoardFarhad Analoui – Professor in International Development and Human Resource Management, the Center for International Development, University of Bradford, UKDaniel Dăianu – Professor, National School of Political Studies and Public Administration, Bucharest, former MEP, former Minister of FinanceEugen Dijmărescu – Deposit Guarantee Fund RomaniaGabriela Drăgan – Director General of the European Institute of Romania, Professor, Academy of Economic Studies, BucharestAndras Inotai – Professor, Director of the Institute for World Economics, Budapest Mugur Isărescu – Governor of the National Bank of RomaniaAlan Mayhew – Jean Monnet Professor, Sussex European InstituteCostea Munteanu – Professor, Academy of Economic Studies, BucharestJacques Pelkmans – Jan Tinbergen Chair, Director of the Department of European Economic Studies, College of Europe - Bruges Andrei Pleşu – Rector of New Europe College, Bucharest, former Minister of Foreign Affairs, former Minister of CultureCristian Popa – Vice Governor of the National Bank of RomaniaTudorel Postolache – Member of the Romanian AcademyHelen Wallace – Emeritus Professor, European Institute, London School of Economics and Political Science, UK

© European Institute of Romania, 2012

Romanian Journal of European Affairs is published by the European Institute of Romania7-9, Regina Elisabeta Blvd., Bucharest, Code 030016, RomaniaTel: (+4021) 314 26 96, 314 26 97, Fax: (+4021) 314 26 66E-mail: [email protected], http: www.ier.ro/rjea

DTP and cover design: Monica DumitrescuPrint: Alpha Media Print, www.amprint.ro

ISSN 1582-8271

Contents

European Cohesion Policy: A Proposed Evaluation Model .........................Alina Bouroşu (Costăchescu)

Comparative Analysis of South Eastern Europe Economies facing the Crisis. Future Prospects for the Region ...................................................Andreea Paul (Vass), Ileana Alexe

Changing Borders, Stable Attitudes: The National and European Identity Before and After the Most Recent EU Enlargements ..................................Sergiu Gherghina

Les présidents de la Commission européenne: entre trajectoires professionnelles et circonstances politiques ..............................................Victor Negrescu

Euros(c)eptic - The Theory of the Optimum Currency Area and the Practice of the Euro - ..................................................................Annamária Artner, Péter Róna

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Guidelines for Authors

Romanian Journal of European Affairs (RJEA) is a quarterly publication, issued by the European Institute of Romania, which deals with a wide range of topics pertaining to the realm of European Affairs. Its articles focus on issues of significance in the EU today, such as: institutional building, economic and monetary affairs, internal market, energy, migration, security, neighbourhood policy, the effects of the European integration process on the new member states (with a particular focus on Romania), as well as the EU’s relations with other global actors.

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For more general information on the journal, please visit www.ier.ro/rjea or contact us at [email protected].

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ROMANIAN JOURNAL OF EUROPEAN AFFAIRS Vol. 12, No. 2, June 2012

European Cohesion Policy: A Proposed Evaluation Model

Alina Bouroşu (Costăchescu)*

Abstract: The current approach of European Cohesion Policy (ECP) is intended to be a bridge between different fields of study, emphasizing the intersection between “the public policy cycle, theories of new institutionalism and the new public management”. ECP can be viewed as a focal point between putting into practice the principles of the new governance theory, theories of economic convergence and divergence and the governance of common goods. After a short introduction of defining the concepts used, the author discussed on the created image of ECP by applying three different theories, focusing on the structural funds implementation system (SFIS), directing the discussion on the evaluation part of this policy, by proposing a model of performance evaluation of the system, in order to outline key principles for creating effective management mechanisms of ECP.

Keywords: Cohesion, structural funds implementation system, efficiency, public policy, governing the commons, new governance, principal - agent

Introduction to the Research Field

The first concept used that requires more attention is cohesion, which assumes various inequalities related to the living standard, income, access to resources, opportunities, etc. Economic/social convergence is a long term process, which reflects the ability of economic groups to be competitive. In the European context, we can identify another effect related to the disproportionate distribution of benefits/resources of EU integration, in order to dispose/recover economic disparities/social differences between regions, to create a competitive framework between regions. As already anticipated, the cohesion concept includes three aspects: economic, social and territorial cohesion.

Measuring the social/economical cohesion by the convergence concept explains the way of attaining a certain limit, even if that limit is a point, a function or a value1, and the perspective of reducing the economical disparities seems to be the closest image of the concept used in ECP`s context. Having all this in mind, these concepts are not identical, economical

1 Robert C James, Matematics dictionary, (Chapman & Hall, NY,1992, 5th edition) p.89-90

* Alina Bouroşu (Costăchescu) obtained her PhD in Political Science in 2011 at the National School of Political and Administrative Studies Bucharest, studying new governance theories, as well as the evaluation process of the European Cohesion Policy. Within her doctoral studies, she was a beneficiary of the project “Doctoral scholarships supporting research: Competitiveness, quality, and cooperation in the European Higher Education Area”, co-funded by the European Union through the European Social Fund. She also graduated the Faculty of Political Science and she attended the Master studies in Public Policies and European Integration. Her practical experience is due to her work in the non-governmental and governmental area, within projects financed by different international organizations, in international relations and European integration. E-mail: [email protected]

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Alina Bouroşu (Costăchescu)

convergence is only one part of the ECP`s objectives, among regional competitivness and cross-border cooperation2. So, the cohesion concept does not involve only the mathematical relations of certains indicators, but also the idea of generating a certain competitive behaviour between different units.

Other key concepts are that of region and regional disparity. The concept of region is quite extensive with multiple connotations, in the foreground, a spatial component, referring to a given territory, whose boundaries can be defined historically, culturally, religiously, statistically, etc. For ECP, the region is statistically defined by the Nomenclature of Territorial Units for Statistics (NTUS) - Level II. Taking into consideration the sociological definition of the region, regional policy implies not only reducing economic and social disparities, but also the development of harmonious relations between these spaces and groups located in a certain area and across territorially defined groups. “Regional policy covers all areas that affect the normal functioning of a social group in a given space, whether it is economic, social, cultural, demographic, administrative, and ecological.”3

Another concept of this approach comes from the sphere of management and relates the performance management of organization/institutions/policies, thus outlining the management system of implementing the ECP. It can be defined as “a set of elements whose nature can be decisional, organizational, informational, motivational, etc. through which all relationships and management processes are exerted in order to achieve greater effectiveness and efficiency”4. This definition can be applied with some ammendaments detailed in the following sections to all areas of the ECP.

Also, the concept of efficiency is defined by a high absorption capacity as well as the ability to effectively distribute the resources in order to achieve objectives set in strategic programming documents.

Implementation System of ECP

ECP is defined as a „spatial combination of a variety of sectoral policies, each of them organized according to a particular boundary and decision making rules. L. Hooghe considers this policy as an integrated summum of policies/measures that work together to achieve the general objective of eliminating regional disparities, including taking items from other EU sectoral policies, eg: transport, energy, IT&C, environment, industry, urban planning, etc5. Also, ECP is a “mix of financial instruments that would allow resources necessary to achieve the policy objectives and rules, which determine the economic and social stakeholders to achieve certain policy actions relevant to the objectives”6.

Strengthening this policy is closely related to EU`s consolidation process, by developing the territorial dimension of European community`s enlargement process. The reform of structural funds (SF) was based on the following principles: thematic, geographic and financial focus on using the financial instruments in line with strategic objectives; subsidiarity and

2 http://ec.europa.eu/regional_policy/policy/object/index_en.htm 3 Dusan Sidjansky and Charles Ricq, Les politiques regionales (Editions Regionales Europeennes, 1985), p. 194 Ovidiu Nicolescu and Ion Verboncu, Fundamentele managementului organizaţiei, (Tribuna Economică, 2002)5 I Liesbet Hooghe, “Introduction” in Liesbet Hooghe (ed), Cohesion Policy and European Integration. Building Multi-level governance, (Clarendon Press Oxford, 1996): p. 106 Willem Molle, European Cohesion Policy (Routledge, 2007): p. 109

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decentralization, which aim to implement accountability of actors involved in the management system; streamlining of SF intervention and simplification of financial management; increased transparency in the use of SF7. Thus, ECP reforms sought to apply geographical and functional criteria to the management of SF, concentrating expenditures in less developed regions and states, claiming solidarity of more developed countries, targeting the creation of a more competitive Union, at the same time more uniform in terms of economic and social development8. Designing the implementation system is a key factor in applying a public policy, influencing both its inputs, outputs and strategic decisions on resources` allocation during the implementation period9, and the same idea can be put into discution by establishing in building the SFIS, at European level, certain regulations and principles which influence the national design of implementing ECP.

David Allen identifies four elements around which the ECP implementation system is designed: programming, by which multi-annual and multi-regional programs are being financed, additionality, through which SF allocations for each country are co-financed from the national budget; partnership at the national, regional and local levels in order to implement multi-annual programs, subsidiarity - solving problems within a system occurs at the level of the subsystems in which they appear.10 All these elements have been consolidated during the reforms made on the implementation system of ECP, evolving “from a policy based on national strategies to a strategic European policy”11.

Logical Diagram of ECP12

EU- global objective

Achieve balanced and sustainable developmentStrenghten economic and social cohesion by reducing regional disparities

Strategic objectives

Improving the economic situation of the regions

Promoting links between regions

Operational objectives Competitiveness

Promoting social inclusion and suitable jobs

Promoting quality of the environment

Developing trans-regional connections

Supporting trans-regional cooperation

Instruments ERDF ESF CF ERDF ERDFInstitutions /governance/partenership/rules/procedures

interventions

Business environment, innovation, research

Education, training, skills, social inclusion

Infrastructure, services

Exchange, networking, partenership, cross-border cooperation

7 Gian Paolo Manzella and Carlos Mendez “The turning points of EU Cohesion policy”, Report Working Paper, January 2009, http://ec.europa.eu/regional_policy/policy/future/pdf/8_manzella_final-formatted.pdf 8 idem9 Sjaak Boeckhout, Luc Boot, Menno Hollanders, Klaas-Jan Reincke and Jan Maarten de Vet, “Key indicators for Candidate Countries to Effectively Manage the Structural Funds”, Principal Report, Final Report, prepared by the NEI Regional and Urban Development for the EC DG REGIO/DG ENLARGEMENT, Rotterdam (2002), http://www.evaluace.cz/dokumenty/hodnot_zpr_eu/souhrnna_studie.pdf 10 David Allen “Cohesion and structural funds. Multiple pressures towards reform” în Helen Wallace, William Wal-lace and Mark Pollack (eds) Elaborarea Politicilor în Uniunea Europeană, ed. V (IER, 2005) pg. 203-23111 Gian Paolo Manzella and Carlos Mendez “The turning points of EU Cohesion policy”.12 Table processed after Dirk Ahner “What do you really know about European cohesion policy?”, http://www.notre-europe.eu/fileadmin/IMG/pdf/ECP_rational_and_objectives.pdf

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Based on the diagram above, the practice of ECP`s implementation brings into light a vast plateau of institutions, procedures and interactions. Objectives laid down above are sorted by the interaction of three levels: the national authorities, the regional and European plateau. The complex institutional system and the multiple intersections between the levels referred above, make implementing and tracking ECP goals difficult. Thus, at the European level, the European Commission (EC) proposes the budget for this policy and respectively a series of implementation rules for a programming period of 7 years, on which the European Union Council (EUC) and the European Parliament (EP) must decide. After approving the ECP budget, amounting to EUR 347 billion, it is distributed to MS after a process of consultation and negotiation with the EC on eligible regions, distribution criteria, objectives, etc. Some of these negotiations turn into regulations on implementing SF, others in strategic documents such as national strategic reference frameworks (NSRF), on which operational programs (OPs) would be designed, creating the means that would finance investment projects.

SFIS is based on a number of requirements imposed by regulations and guidance documents governing EU’s ECP, following the complete cycle of a public policy`s implementation process. With the exception of EU regulations and financial instruments, fixed at European level, the rest of ECP`s implementation system is plied on the legal and institutional specificity of each individual MS. For example, the degree of decentralization of the implementation systems depend on the type of organization of each MS - centralized, decentralized, federal, confederate, its level of democratization, determined by historical over-centralization, etc. Thus, SFIS differ fundamentally in federal states such as Spain, Belgium and in centralized states as Romania and Hungary etc., differences arising especially from the institutional inter-relation background and the regionalization process of the two types of states. This is reflected in the distribution of competences in managing the regional, local, national, political interests, in the number and purposes of the existing OPs, in the existing administrative structures and how they are organized - partnership structures, governmental agencies.

Theoretical Perspectives on SFIS

SFIS emerged and developed along with new perspectives of public management, determined by the diversification of the stakeholders’ typology, through partnerships and coalitions, in order to fulfil administrative functions at a social level, closely linked with the theoretical approaches to European integration. In the context of this research, I analyzed SFIS` characteristics taking into account three theories, underlining their advantages and disadvantages.

Aplying new governance theory/ networking theory on ECP

The assumptions on which this theory is based upon is related to preference of market mechanisms and abandoning bureaucratic mechanisms in the approach of public administration, given that the competitive market system cannot cope with all the problems of society, highlighting the idea of collective solutions proposed by networks

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of actors within which the state no longer has the central role. The concept of multi-level governance, developed by Gary Marks to describe EU as a “system of continuous negotiation among nested governments at several territorial tiers—supranational, national, regional and local,”13 has been extended to decisions taken within the information networks in shaping public policies,14 enabling multiple actors to collaborate in a system in which power is dispersed. This approach has been underlying the ECP` reforms and it is considered “the most influential current approach to studying the role of regions and cohesion policy in the EU”. 15

The principles of the new governance theory are applied at all stages of the cohesion policy cycle, starting from the negotiation of financial allocations, of the institutional framework for implementing the OPs and reaching to the structural programming phase for setting down the allocation`s priorities of SF. Public and private stakeholders can be found in all phases of SFIS, but their extent varies from one MS to another, depending on historical patterns of the associative life in these countries. Thus, in some countries, the degree of participation of actors interested in the political decision process is higher than in others, and this is reflected in different degrees of involvement of societal actors in many stages of SF`s management and control system.

The governance concept applied to SFIS manages to provide a comprehensive view on how various societal actors intersect with the creation, implementation, monitoring and evaluation of public policy. The new governance puts the management system on a higher level of accountability to citizens and to other societal actors through their awareness of public policy implementation issues.

Z. Rosenblatt et al.16 discuss on the benefits of new management approaches, its emphasis on flexibility, on the assumption of risk by all participating actors in the policy making process, since this is a participatory process with flexible structures, in which consensus and proactive attitude are the main principles.

Governing the commons and ECP

Starting from “The Tragedy of the Commons” by Garrett Hardin, I have analised the implementation system of ECP from the perspective on “tragedy of common resources”17. These represent classical exemples of market-failure due to the fact that markets aren`t effective decision mechanisms to ensure a constant equilibrium between supply and demand in the context of limited goods to which different actors demand access in market conditions. The failure occurs in situations where competitive market rules apply to certain limited public goods, where individuals are not being motivated to produce

13 Liesbet Hooghe and Gary Marks, “Unraveling the Central State, but How? Types of Multi-Level Governance”, The American Political Science Review 97, no. 2 (2003): p. 233-243, http://www.unc.edu/~gwmarks/assets/doc/hooghe.marks.unravelingcentralstate.apsr.2003.pdf 14 Christopher Ansell, John Peterson, etc15 Chris Rumford, The European Union. A Political Sociology, (Blackwell Publishing, 2002), p. 15916 Zehava Rosenblatt, Kathryn S. Rogers, Walter R. Nord, “Toward a Political Framework for Flexible Management of Decline”, Organization Science 4, no. 1 (1993): p. 76-91.17 In a situation with limited resources, every actor wants to maximize their resources and their rational action will destroy the asset/resource in question – Garrett Hardin, “The Tragedy of the Commons”, Science 162 (1968) p. 1243-1248 , http://www.sciencemag.org/content/162/3859/1243.full.pdf

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these goods or it may be too costly to produce them at optimal levels. Following this theoretical approach it is necessary to clarify certain issues that can be regarded as a “tragedy of common resources” situation. First, not any policy can produce certain goods for all actors involved, in any conditions for access to those goods, being necessary to establish certain criteria that limit the use of goods in order to ensure the achievement of certain strategic objectives, of optimal capacity of goods production.

We can identify two levels on which actors try to maximize their resources, taken into consideration MS` preferences:

1. Regarding financial resource distribution throughout European policies (common agriculture policy, cohesion policy, commercial policy, security policy, etc). It is rational for a state that faces small disparities not to be interested in increasing financial allocation for ECP, taking into consideration that, in the actual distribution system (GDP/inhabitant, unemployment rate, population density, etc.), this country would probably not benefit much from these allocations.

2. Regarding financial allocation within ECP. Is rational for each MS to fight for a more advantageous allocation, this behaviour is evident on the actual debate for reforming the allocation criteria for the next programming period. This behaviour of maximizing its own income within ECP could even lead to a situation of jeoperdizing ECP`s objectives and decisional mechanisms within the policy.

Thus, the ECP budget can be viewed as a common good, which would suffer, if its use would not lead to the expected results. In this respect, the allocated budget for future periods could be reduced or the policy could be abandoned in an extreme case. In addition, it could bring into question the fact that the ECP budget cannot be considered as a result of the policy, but rather “a need” to the entire implementation system, a claim which would be partially true because the building and budget allocation of ECP is part of the system, of the implementation of ECP. Also, actors/MS are in a position to manage a common property for a specific purpose - to reduce socio-economic disparities between regions. Resource destruction is seen as a bad distribution of the asset, leading to complaints from some MS and extrapolated, to their refusal to help finance this policy. Also, inefficiency in the use of funds, not generating economic growth leads hypothetically to much less future budget resources for the policy.

Also, I detailed the elements of ECP`s implementation system, using the levels of analysis of E. Ostrom “constitutional, collective choice and operational choice”18, identifying the rules and regulations used by participants to organize interactions (setting rules), the attributes of the status quo on which they act (physical and material conditions, free-rider problem, production substractibility, and resources mobility) and the structure of the general community (community characteristics, its culture)19. By this theory, the ECP implementation system in a mix between governing and self-governing, the two regulation forms can be found in their true shape in certain sectors of the system.

18Elionor Ostrom, Guvernarea bunurilor comune, (Polirom, 2007): p. 59-6919Elionor Ostrom, “Doing institutional analysis. Digging deeper than markets and hierarchies”, in Claude Menard și Mary. Shirley (eds), Handbook of New Institutional Economics, (Springer, 2005): p. 819-848

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Application of institutional analysis developed by E. Ostrom, to the ECP`s implementation system

Constitutional level of analysis

1. Identifying the problem The problem concerning reducing the economic and social dissimilitude among the

developing regions was identified in the initiating treaties of the European Communities20, giving constitutional status to this policy, if we are to make a parallel between the fundamental law within a state and the fundamental EU treaties.

2. Rules configurationAt this level, positioning rules are set by the EU membership itself, in the sense that,

only MS can beneficiate from this policy, and the criteria for meeting ECP objectives are defined by implementation regulations of the SF and the Cohesion Fund. For instance, in order to benefit from allocations within the Convergence objective, for the 2007-2013 period, the value of the GDP per inhabitant within the beneficiary region should be smaller than the average GDP per inhabitant of EU15.

In terms of authority and sanctionatory rules, these are generated by the provisions of the Community regulations concerning annual reporting requirements for each program, and maintaining separate accounting records for the management of these funds, the role of monitoring committees. Furthermore, in regard to ECP funds, the rule of “disengagement from the office” was laid down, which establishes that the unused funds within the first two years of the programming period of 2007-2013 and then within an interval of two years after their payment are to be reintegrated into the community budget21. In a case of improper spending of the ECP allocated funds, EC can block the payments for a certain OP until actions are taken in order to remedy the situation.

3. The status quo atributesECP budget is a resource that reduces while being used by multiple actors. The

government system of this resource was established through the cooperation between MS in order to achieve a common goal - EU integration and operation of the common market. Cooperation at this level occurs between states which, through negotiations, impose rules that must be followed at the lower levels of the system in order to make use of the common good. In comparison to regular common goods, governing this type of property is based on international cooperation in the regulated field by establishing some principles to achieve common goals. At this level, the diversity of involved actors

20 The first official document attesting to the idea of ECP is the Treaty of Rome in 1957, stipulating the need to “strengthen the unity of their economies in order to ensure harmonious development by reducing disparities that exist between different regions, and to reduce disparities between disadvantaged regions, including rural areas” EU, Rome Treaty, IIIrd part - Community Policies, XIV –Economic and Social Cohesion, art. 130a, 1957, http://eur-lex.europa.eu/en/treaties/index.htm , a goal clearerly reiterated in the Single European Act in 1987 - EU, European Sin-gle Act, subsection III, Title V –Economic and Social Cohesion, art. 130a, 1987, http://eur-lex.europa.eu/en/treaties/index.htm. 21 Bruno Alomar, Sebastien Daziano and Christophe Garat. “Mari probleme europene”, Institutul European 2010, p. 184

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represents an issue of the action coordination in order to manage that common good. Even if there is no question of failure situations in terms of participation in the formation of the budget of the ECP, such situations can arise in the case of influencing attempts on distributing the financial resources and on setting down the criteria for funds allocation or for budgetary amendments in favor of certain states. Relevant in this respect, is the budgetary rectification for UK, which was enounced as a general principle, through the Fontainebleau European Council (June 1984): “any MS that has an excessive budgetary burden in relation to its relative prosperity is likely to benefit, at the right time of a rectification22”. Thus, every year, the UK is being reimbursed two-thirds of the difference between its contribution owed under the EU’s own resources system and the overall community spending in its favor. Initially, this “British check” was funded by all other MS in proportion to their contribution to the EU`s GNP, except for Germany, which enjoyed a reduction from the start because of its internal imbalances23. Another similar case would be the EU resque plan for Grece in 2011 in the imminent context of world economic crisis and the payment incapacity of this country. Due to an enormous internal deficit of Grece and then of Irland and Spain, EU and the other MS were in such a position that destroying the euro area and the single market would have higher danger costs than assuming a new compromise on saving these countries.24 The case is unique in EU history and has led to some exceptions to the established rules at European level so that the European project on the Euro area would not disappear. On the other hand, a precedent has been created and the countries can use it in their favour if the EU does not take further action on harmonizing the economic policies to avoid such situations.

4. The attributes of the Community The community within which the common property/good is being managed has an

important role in this regard; its attributes are identified by E. Ostrom through the concept of “culture” and they are related to “behavior norms generally accepted in the community, to the homogeneity degree of the preferences of those living in the community, to the distribution of resources among those affected.”25 At a constitutional level the community can constitute a special case due to the following aspects: the community is made up of MS as actors, actors with strong personalities and different cultures. These elements are counterbalanced by a high confidence in how the good is being used, mainly due to the creation of supranational institutions (EC, European Court of Justice) that monitor the utilisation of funds and due to the existance of some monitoring and control mechanisms that intersect all sections of the ECP`s implementation system.

The collective level of analysis

The collective-choice level includes, as I previously mentioned, rules of collective choice, which generate the processes of policy development, the management and

22 Idem, p. 19223 ibidem24 http://ec.europa.eu/economy_finance/eu_borrower/efsm/index_en.htm 25 Elionor Ostrom. Understanding Institutional Diversity, Princetown University Press, 2005,

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implementation of a certain policy. When applying E. Ostrom’s institutional analysis scheme with the three components mentioned above, the attributes of the status quo are in many ways the same, and I will not discuss the characteristics of the common property again. Regarding the community attributes, the European community certainly represents a much more homogenous community than the ensemble of actors within each member state. At a lower level, respectively a national level, the actors and their areas of origin and action are more numerous.

The authority rules are generated by the strategic documents approved by the European Commission, more exactly the national strategic frameworks and the content of OPs. The approval of projects outside the rules of these documents is not permitted, and the expenditures are eligible to EC`reinbursement starting with the approval date of each OP.

The Operational Level of Analysis

Technical rules for the system are established at the operational level of analysis; respectively the selection, evaluation, contracting and monitoring procedures, the pre-financing and reimbursement procedures, control and audit procedures, etc. For instance, the criteria are established at this level for a project to be declared eligible, the list of eligible expenditures according to the programming documents, the way in which the evaluation procedure and the project submitting are carried out. This way, for the evaluation procedure, the managing authority of each programme can choose independent experts or an internal evaluation, or it can choose submitting projects on a cut-of-date procedure or on an ongoing-call for proposals. Also, regarding the reimbursement procedure, there are different rules that can be established: trimestrial reimbursment or only one final reimbursement. Pre-financing can be fractional or in one payment depending on the specific regulation of each member state. Reagarding the community attributes, the diversity of actors at this level is at its peak, the challenge for the whole ensemble consists in converging all the objectives of these actors with the ECP`s objectives. The free-rider behaviour can be identified at the final beneficiary in a situation similar to the state in the collective level of analysis; therefore the probability of its occurrence is low, as described before.

Principals, agents and SFIS

The principal-agent theory has been developed in the economic area as an application of incentives, contractual and risks theories. Also, it had connotations in the field of information management26, given the fact that the proposed model implies a contractual relationship between private agents (managers, owners), in which one part has an informational advantage27 over the other part. The issue brought up by this relationship is that of creating an efficient stimulant structure and adequate monitoring mechanisms. The negative part of the theory is given by the definition and the agent’s role: “by definition, the agent is selected for his specialized knowledge, and the principle can’t ever hope

26 Jack Hirschleifer, Joseph Stiglitz, Andrew Weiss, Kenneth Arrow 27 Terry Moe, “The new economics of organization”, American Journal of Political Science 28, no. 4 (1984): p. 739-777

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to verify completely the performance of the agent.28” The implications of this aspect in the area of mandating attributions and applying it to the bureaucratic model of public institutions led to the exemplification of corrupted relationships and to the development of control and monitoring mechanisms. This aspect is of great importance in applying this theory to the ECP`s implementation system. In the ECP`s implementation system, Jens Blom-Hansen brings into attention the monitoring and control mechanisms. Thus, the concepts and relationships previously identified in the description of the principal-agent theory, is found in the implementation system of ECP, their effect having the possibility to be shaped in the context of a system with multiple contractual and control levels.

Within the ECP, by applying this theory I identified the scheme of contractual relations, multiplied on European, national, regional, individual levels (of beneficiaries) of the implementation system. In this context, some actors can be P (Principal) on one level and A (Agent) on the lower level or P on one level and S (Superviser) on another level. This intersection between levels ensures the system`s safety and the impossibility to escape control, since there are circular relationships, some players having different roles in different aspects of the model.

The system is becoming more complicated from top to bottom, through the introduction of numerous bodies of monitoring and control29. Also, the intersection between the levels makes control mechanisms effective.

After applying the above mentioned theory, I am able to argue that the two perspectives (principal agent theory and new governance) are not mutually exclusive, but rather can be considered complementary in creating the complex image of ECP’s implementation system. The principal-agent theory brings into discussion contractual relationships and the control function of the system with all the contractual implications that may arise. Also, through the lens of this theory, we see the system as a sequence of contractual relationships between different levels with the intersection of the control system between community, national, regional and individual levels. New governance theory brings in this system of contractual relations the partnership principle, applied through lobbying and advocacy over strategic decision making process. So, applying this theory is exemplified in the next figure30:

28 J. Marschak apud. Jean – Jaques Laffont and David Martimort, The theory of incentives. The principal –agent model : p. 229 It should be noted that we did not distinguish between them at the level of Supervisor to simplify the application of the theory of principal-agent relationship.30 A. Bourosu, “Theoretical approaches of the implementation system of European Cohesion Policy”, The Inter-national Conference on Economics and Administration, Faculty of Business and Administration, University of Bu-charest, Romania ICEA – FAA Bucharest, 4-5th June 2010, http://www.itchannel.ro/faa-sesiune/sites/default/files/ICEA_FAA_2010_final.pdf

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Legend: P - Principal, A - Agent, S - SupervisorIB - Intermediate BodyMA - Managing AuthorityOP - Operational programmeAA - Audit AuthorityMC - Monitoring CommitteePA - Payment AuthorityNSRF - National Strategic Reference FrameworkEC - European Commision

EP - Cohesion Policy Budget Approval

European level

National level

Regional level

Individual level

P - EC

A –member states

S-European Court of Auditors / EP

Contract / contractual benefits / NSRF and OP / funds

Negotiates the contract

Monitors

Monitors

P – MA NSRF

A –MA OP

Contract / contractual benefits / NSRF and OP / funds


S –AA/ACP/MC/EC

Monitors

Monitors

P – MA OP

A –IB OP S –

AA/ACP/MC/A from MA

Delegation of tasks agreement / negotiation / funds


Monitors

Monitors

P – IB each OP

A –beneficiaries

Financing contract

S –AA/PA/MC/ IB and MA Monitors

Monitors

16


Evaluation of SFIS Evaluations conducted in ECP`s context are generally made to comply with obligations

imposed by Community regulations on ex-ante, mid-term and ex post evaluations, namely those related to the functioning of OPs, with a few exceptions related to attempts to develop a methodological framework for evaluating the contribution of SF interventions to sustainable development31, to assess the administrative capacity in MS, to identify issues encountered in achieving such an approach in a context of inter-relationship of multiple actors in shaping and implementing public policies,32 to thematic evaluate the impact of certain OPs designed for certain areas of conflict and instability,33 to evaluate social programs from a regional perspective and the implementation of those programs financed by the social component of ECP.34

Considering the above, the ECP assessment includes an image of the programme design in relation to available resources and objectives. Also, ECP`s evaluation is close to the evaluation line of “complex policy systems”, given the dynamic context of inter-relationships between different societal actors, their multiplicity, all these elements being generated by the vision imposed by the new institutionalism on cross-cutting approaches of social problems through multi-sectoral programs.

Thus, evaluations swing between: rational-modernist paradigm, which emphasizes the fact that policies must be understood as actions for a certain purpose and result and that implementation processes must be seen as a “black-box” and modernist paradigm, which focuses on methodological aspects of efficiency evaluation of the public policies` implementation systems and post-modernist evaluation paradigm, influenced by the chaos theory, creating the notion of complex systems that defy linearity, causality, consistency, predictability of the rationalist-modernist paradigm, actors` behavior being considered the result of dynamic interaction of system components and factors influencing it.

It is important to note that, although in recent years, the EC has provided an increasingly important role to ECP`s evaluation in order to create adequate premises for financial allocations and effective control of funds use in MS. In present, we can not yet speak of a magic formula (a methodology and certain guidelines) folded for any type of evaluation in SF management. Although there are a number of criteria (relevance – the association of needs to the priorities of a program/ project; efficiency - the association of results with the paid costs in order to obtain the estimated results; effectiveness – achieving the objectives of the OPs; utility - the answer to the economic and social needs and improving the quality of life by such interventions; sustainability - the possibility to continue such interventions

31 Paul Ekins and James Medhurst, “European structural funds and sustainable development: A methodology and indicator framework for evaluation”, Evaluation 12 (2006): p. 474-495, DOI: 10.1177/135638900607129432 Frans-Bauke Van Der Meer and Jurian Edelenbos, “Evaluation in multi-actor policy processes: Accountability, learning and co-operation”, Evaluation 12 (2006): p. 201-218, DOI: 10.1177/135638900606697233 Catherine Lynch, “Evaluating the peace-building impact of structural funds programmes: The EU programme for peace and reconciliation in Northern Ireland”, Evaluation 13 (2007): p. 8-31, DOI: 10.1177/1356389007073679; Jochen Lang, “Improving structural policy under conditions of hybrid governance: Multi-actor constellati-ons, integrated feedback instruments and the use of evaluation results”, Evaluation 7 (2001): p. 7-23, DOI: 10.1177/1356389012220949634 Cristina Lion, Paola Martini and Stefano Volpi, “Evaluating the implementation process: A contribution wi-thin the framework of the European Social Fund (ESF) Programme”, Evaluation 12 (2006): p. 313-329, DOI: 10.1177/1356389006069137

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after the financing has stopped)35 to guide the evaluation process in implementing SF, they translate the complexity of these interventions financed by financial instruments, highlighting the need for an integrated approach36 for this process.

Issues in defining an appropriate evaluation framework of ECP

ECP assessments involve a duality of paradigms which make this process a complex step that must address multiple dimensions and perspectives, not imlplying a single phase of evaluation, but of a coagulated system of evaluations located on multiple levels, which, at least in theory, should converge towards the ECP macro assessments. There is a risk of lack of adaptations and interconnections between different segments of the evaluation system - program evaluation, sectorial evaluation within programs, sectorial evaluation between OPs, national evaluations, community evaluations, etc. Descriptive approaches must be integrated into the evaluation of complex systems as that of ECP, giving an insight into how policies and programs are implemented in practice, how they generate effects and how they change in time, how these effects depend on contextual circumstances and their inter-relationship with other policies and processes. The application of the concept of “policy mapping”37 in ECP`s evaluation process can cause difficulties in identifying patterns of similar situations in the context of multiple OPs and in the diversity of MS, in testing the hyspothesis considered, generating practical constraints.

Multi-annual programming and the timeframe, which this policy is addressing, also creates difficulties in the evaluation process. Intangible objectives and the difficulty of measuring them, the complexity of cause and effect relationship in integrated interventions, progressive reforms of ECP, has completely changed the fundamentals of this policy, arguing the difficulty of systemic evaluation in a dynamic context and flexible social life. Furthermore, this multitude of dimensions requires a variety of specializations of assessors and working with experts from different fields. In support of these arguments, A.M. Diez argues the impossibility of classical type assessment models – the black-box models – to be used in evaluating the SFIS and the need to revise them, bringing into discussion the following:

1. The character of the programs` objectives financed by SF, which seeks rather to induce changes in the behavior of beneficiaries in the regions. The effects of these policies are not only of economic nature (such as increasing competitiveness), but also of a behavioral nature for societal actors.

2. The holistic perspective would be more appropriate to assess regional policies and case studies would provide a detailed picture on the complexity of relational structures. Implementation of a program affects the whole society on different levels: economic, social, educational, institutional, etc.

35 CE, “Guidelines for the ex post evaluation of objective 5 B programmes 1994-1999 programming period”, http://ec.europa.eu/agriculture/eval/ben.pdf 36 An integrated approach involves a logical and systematic management regarding strategic decision-making and the creation of operational tools, taking into account all related aspects leading to the effective functioning of a program/ strategy. 37 The concept that refers to a technique to assess the relationship of the community through their hierarchy and multidimensional groups scaling. Colin Knox, “Concept mapping in policy evaluation: A research review of com-munity relations in Northern Ireland”, Evaluation 1, no. 1 (1995): p. 65–79, DOI: 10.1177/135638909500100105

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3. The particularity of regional policies that respond to specific issues. Distributions of roles between different organizations are influenced by the channels and mechanisms of interaction and communication in a given context. The principle of subsidiarity calls for particularism and the ECP`s decentralization process reflects this trend.

4. The dynamics of the implementation process and the permanent inter-actions that take place between social, economic, cultural and financial capital while implementing a program. You can not control all the external variables that could intervene with the program. This inter-relationship is obvious and continous and must be taken into account in the assessment process.

The above arguments assume the development of design multidimensionality of evaluation, taking into account the impact of this policy in several domains and cross-sectoral relations generated by the field of study.

A model of public policy analysis applicable to ECP

The evaluation of SFIS in new MS from the perspective of absorption capacity represents a true competence exam, which these states must pass in order to achieve the assumed socio-economic objectives.

The premise on which the analysis model is based is linked to the idea of ensuring an adecquate design in order to create the preconditions of an efficient management and a high absorption rate, so the purpose of this paper is to identify those elements that would influence this performance indicator.

The main elements that influence the performance of national implementation systems of ECP are detailed in the next figure.

In this regard, C.B. Rosenberg and R. Sierhej question the institutional setups for the management of SF, proposing two models, but they do not reach a conclusion on their effectiveness due to insufficient available data at that time. The two models of SFIS

The

exte

rnal

env

ironm

ent

Econ

omic

cris

is im

pact

C

entra

lized

/fede

ral s

tate

R

egio

nal p

olic

y

Management system 1. Institutional staff 2. Institutional bariers 3. Degree of system

centralization/descentralization 4. The politicization of the

administration 5. Human resources quality

Performance

Applicant’s ability to generate feasible projects

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identified for the new MS (those that joined EU in 2004 and 2007) are: the Baltic countries model, built around the ministry of finance, with dual role, acting both as management authority as well as certification and payment authority and that of the Central European countries, less centralized, with managing authorities and paying authorities in the separate institutions but keeping the finance ministry’s role as the paying authority38. Also, the following elements may affect MS’ capacity to absorb Community funds:

1. The institutional barriers created by the local and national authorities involved in managing the SF (at the decision and implementation level) may generate delays in the adoption of rules concerning the implementation of programs and may be characterized by a lack of clarity into their formulation, etc.;39

2. Institutional changes. Each change of the government structure, which leads to changing roles of the institutions involved in the management of SF, can constitute significant barriers in the absorption of SF, due to the need of readjusting the internal working documents, due to personnel changes. However, the establishment of new organizations, accumulation of responsibilities and functions to simplify the management system for ensuring consistency of financial interventions can lead to increased efficiency in the implementation system. A. Horvat identifies several elements that must be taken into account when institutional changes occur in the management of SF40;

Table 14: Factors to be taken into account in the institutional changes of the structural funds implementation system 41.

Nr. Situation description Factors to be taken into consideration

1

When there is political decision to concentrate/ deconcentrate duties of the management authorities into another institution

Continuity in institutions does not guarantee good performance of staff. However, continuity of staff ensures a minimum knowledge required in perpetuating the system of implementation and it’s functioning.

The new institution and its position in the institutional system national/regional/local should receive the highest possible political support.

Ensure compatibility between local, regional governance systems of MS with the EU and the requirements of Community regulations.

If changes within the system are made during a programming period, it must take into account the adapting period of the system to new institutional realities , the time needed for the re-approving the work procedures, all these elements an lead to delays in the evaluation, selection and contracting process and, in this case, to achieve a high degree of absorption.

38 Christoph Rosenberg and Robert Sierhej, “Interpreting EU funds data for macroeconomic analysis in the new MS”, IMF, 2007, : p. 11, http://www.imf.org/external/pubs/ft/wp/2007/wp0777.pdf39 Judit Kálmán, „Possible SF absorption problems.The political economy view with application to the Hungarian regional development institutions and financial system” (2002), http://lgi.osi.hu/publications/2002/105/Marcou-Hungary.pdf; Tony Verheijen, Administrative capacity in the New EU Member States: The limits of innovation (World Bank Working Papers no. 115, 2007) http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/08/28/000020953_20070828155717/Rendered/PDF/405590ECA0Admi1LIC0disclosed0Aug271.pdf ; Gheorghe Zaman and George Georgescu, “Structural funds Absorbtion: A new challenge for Romania?”: p. 136-154.40 Andrej Horvat,“Why does nobody care about the absorption?, Some aspects regarding administrative absor-ption capacity for the EU structural funds in the Czech Republic, Estonia, Hungary, Slovakia and Slovenia before accession”, WIFO Working Papers 258 (2005), http://www.wifo.ac.at/wwa/downloadController/displayDbDoc.htm?item=WP_2005_258$.PDF 41 Tabel adapted; idem 39

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3. Involvement of societal actors in various stages of the implementation of OPs;42 This factor can be applied on each level of the institutional – individual, regional, national, community system, on each programmatic separate component (ECP, national strategic document, OPs) as well as on the implementation cycle of the public policy. The MS` option to adopt a decentralized system in implementing SF includes determining the level on which the management authorities and intermediate bodies are designated (central/local level) and the decentralization level of OPs` strategic objectives. Thus, the degree of societal actor’s involvement in various stages of OPs` implementation is itself a variable dependent on the degree of the democratization of state, on the permissiveness of regulations regarding lobby and advocacy.43

4. The degree of centralization/decentralization in the Ops` implementation;44 by applying the principal-agent theory on SFIS and identifying how players relate between different levels of the system. If we consider the SFIS from the national level down, then multiplying the number of Ops or IBs leads to a deviation of the model on several levels, which implies its operational decentralization. This variable is specific to each MS and OP.

Alongside these factors, the quantity (number) and quality of human resources (experience in funds management, appropriate training) involved in the management structures and their performance in managing the challenges of OP`s implementation45 represent other important factors to be taken into consideration. Wage and human resources policies to stimulate these factors are needed to ensure continuity in the management system and to avoid information and management syncopes in the system. Also, the administrative management capacity is linked to the program management and is defined in relation to the system`s performance.Factors taken into account include training, motivation of human resources involved in the management of these funds, their experience, and their ability to be effective and of complying with a series of procedures and rules.

In a study conducted for the EC concerning the administrative capacity of the new MS that joined the EU in May 2004, T. Verheijen argues about “the unhealthy development (he refers to the politicization of the administration) of management systems and lack of skills and experience in public services46”. This is defined as the involvement of the political plateau in the recruiting policy of the personnel that acts in the SF domain as well as at the level of program implementation: “Politicization is generally seen as a key impediment to successful administrative development, as it runs contrary to the principles of merit, professionalism and permanence that are essential ingredients of a functioning civil service47”).

If so far I have identified internal/endogenous factors of the system that can influence the absorption capacity of MS, the next element is external/exogenous to the system

42 Idem 3943 See the model of “advocacy coallitions” in the development process of public policies developed by Paul Saba-tier – “An advocacy coalition framework of policy change and the role of policy-oriented learning therein”, Policy Science 21 (1988): p 129-16844 Alina Bourosu, “Fondurile Structurale. Probleme, soluţii şi perspective pentru România.” Mirela Cerkez (ed), Eva-luare de programme şi politici publice”: p. 175-20345 Tony Verheijen, Administrative Capacity in the New EU Member States: The Limits of Innovation: p. IX46 Idem , p. V47 Tony Verheijen, “Administrative Capacity in the New EU Member States: The Limits of Innovation”: p. 10

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and refers to the impact of the global economic crisis, with its negative effects, namely contracting crediting markets and with its positive effects like relaunching the competition on the labor market. The shrinking of the economies, the instability of credit markets and restricting access to these markets may be important factors in slowing the absorption rate. Also, exchange rate movements may be another factor to be taken into account.

The synthesis of all the elements mentioned above is linked to the idea of performance/ efficiency/absorbtion capacity of the system and the variables that influence this indicator, creating the reaseach model`s premises. For further discussion it is necessary to clarify that the performance of the management system is considered equivalent with the term “efficient” contained in the phrase “efficient management system”. Contextualized on the present analysis, “an efficient management system” refers to the absorption capacity translated into actual money spent in relation to the amounts allocated for a certain period of time.

Absorption capacity involves three aspects: an administrative/management, a financial and an economic one. These three issues seem inter-related, leading eventually to the economic one, the other two working toghether to achieve economic convergence. For this analysis, the system`s efficiency can be defined by an index calculated as the average of the positioning of the analised countries in the context of payment rate (% of funds actually paid on allocated funds), contracting rate (% contracted funds of the allocated funds) and compliance rate with the expected results (% indicators realized at the program level related to the estimated value of indicators), calculated on the same period. For this paper the data used are for 2007-2010.

The model of comparative evaluation used for this research is described in the following scheme:

Assumptions considered in a comparative analysis, for instance, of Poland, Romania, Bulgaria, Hungary and Czech Republic involved demonstrating a negative monotonicity relationship between the efficiency index of SFIS on the one hand and

Choosing the implementation system Variables

� Centralization/decentralization

� Number of operational programs

� Number of intermediary institutions

Structural funds implementation system

� Application procedures

� Reforms

Performance � Level of

contracting/absobtion rate

� Degree of satisfaction indicators

input input

External factors: � Economic crysis. � Government` decisions adjacent to the

implementation system, but with influence on it.

� The ability of beneficiaries to write acceptable projects.

� Corruption, political influence

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the politicization and centralization of the system on the other. Also, another hypothesis to be taken into consideration was related to a monotonicity relationship between the beneficiaries` capacity to generate acceptable projects, the degree of decentralization and democratization (societal actor’s involvement) of the system and the upward evolution of the performance index of SIFS.

SFIS comparative analysis was based on system inputs (options of MS in the construction of the implementing the system of ECP), contextualized with other factors related to the political environment and the global economic crisis.

The comparative analysis showed that the principal-agent system can also be applied in this context, highlighting some changes to its centralized OPs. Its applicability is obvious in the regional component of the system, with some variations in countries with decentralized implementation system, in which I no longer saw the agent descending from the national level to the regional one. The agent from the superior level became the principal of the inferior level. In the case of these countries I noticed a rupture of this relationship between national and regional levels, but keeping coordination at national level. The analysis also revealed many intersections of P-A relations at national level and a precarious decentralization at regional level of sectoral OPs of environment, transport, administrative capacity and human resources.

At the level of performance of the management system greater effectiveness has been demonstrated for countries with a decentralized implementation with regional OPs built on the specifics of each development region. Also, the analysis revealed the specific case of Hungary that combines the decentralization of the system with centralized coordination and a high transparency of the system, generating an efficient management system, compatible with the other two systems that generate the highest performance (Czech Republic and Poland). In addition, there was correlation between financial motivation of personnel, the quality of the projects and a high efficiency index.

A greater collaboration with non-govermental actors in centralized systems and with a lower efficiency index, except Hungary was also observed.

The economic crisis has caused a slowdown in the absorption rate, creating difficulties in analysing the expected results in implementing the OPs. In this respect, it is necessary to redefine the macro-economic indicators in the context of the actual situation.

Based on the analysis carried out, I can say that SFIS is a colossus difficult to manage, and how the system is built clearly influences the results generated by the system`s performance. Decentralization and involvement of non-governmental actors play an important role in influencing the absorption of SF. The construction of the system is an individual choice of each Member State to mix institutions with a role in implementation, coordination, monitoring and control, in compliance with the principles laid down in Community regulations. Depending on the perspective from which the system is regarded, the implementation of EPC can be an accumulation of contractual relations between actors with different responsibilities. Regarding the monitoring/evaluation/implementation of the system, it is considered a test of democratization of administrative systems in the new MS and of generating competitive administrations, a knot in reforming these administrations by promoting the principles of partnership and subsidiarity. While on the one hand we can conclude that the administrative reform is achieved by promoting transparency and inclusion of new public management principles, on the other hand it is

23


trying an excessive bureaucratisation at the level of work procedures in the evaluation, selection and contracting process. For example, at empirical level, I would say that in Romania the emphasis is more on process than goals. It is important to establish a balance between the auditing pressures on the system, the bureaucratic process and the idea of not losing sight of the program objectives.

Starting with the comparative analysis on national performance management of SF and with the common problems identified, I advanced some principles on building SFIS. These follow the public policy implementation structure, the common problems identified by the actors involved in the management system of the analysed countries and encourage ECP`s reform for the next programming period 2014-2020.

Maintaining the idea that the regional development and convergence are best stimulated by a multilevel governance, achieved through coordinated actions of the Union, MS and regional and local authorities, the latest report on the EPC, launched in 2010,48 indicates a revision of the EU budget, for this policy through a focus of resources on the objectives Europe 2020 strategy49; by obtaining the commitment from the MS in terms of the implementation of necessary reforms to ensure the improvement of the policy efficiency, with more emphasis on results. In this respect, a debate on the limitation of the areas of intervention is launched through the 5th Report on cohesion which is a step forward regarding the criticism brought to the EPC implementation system regarding the loss of resources between different policy areas and the difficulty in measuring the impact of measures financed through structural instruments and Cohesion Fund50. In this sense, a concentration of resources on a few priorities probably to be defined in a thematic list within specific future Community regulations is projected in the report. Depending on the value of the European funding in question, the countries and regions would be required to concentrate on more or fewer priorities. Emphasizing the assumption of this policy at a local level through emphasizing the importance given to co-financing projects, reviewing the level of co-financing and its differentiation to better reflect the level of development, the European added value, types of action and beneficiaries are important directions to be followed for the next programming period51.

Besides these visions at a strategic-community level of the ECP review, the structure of the new EPC system implementation should take into account the links between the economic efficiency, subsidiarity and decentralization, and also the regional and local actor’s involvement in designing, implementing and monitoring development strategies.

48 EC communication to EP, Council and CES, CR SI BEI of conclusions of the 5th report regarding economic, social and teritorial cohesion: future of the cohesion policy, (2010), http://ec.europa.eu/regional_policy/sources/docoffic/official/reports/cohesion5/pdf/conclu_5cr_part1_ro.pdf 49 The main topics on the agenda of reform of the cohesion policy include correlation with “Europe 2020 strat-egy”, reformulation of goals and strategies of the cohesion policy, economic efficiency and simplifying it in the economic crisis, the integration of territorial cohesion, “EC Communication, Europe 2020 A European strategy for smart, eco-friendly and inclusion favorable growth”, (2010), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:RO:PDF 50 Daniel Tarschys, Reinventing cohesion: the future of European Structural Policy, (SIEPS, Stockholm, 2003), CE, Andre Sapir and all. “An agenda for a growing Europe. Making EU economic system deliver” (2003), http://www.umic.pt/images/stories/sapirreport.pdf 51 EC communication to EP, Council and CES, CR SI BEI of conclusions of the 5th report regarding economic, social and teritorial cohesion: future of the cohesion policy, (2010), http://ec.europa.eu/regional_policy/sources/docoffic/official/reports/cohesion5/pdf/conclu_5cr_part1_ro.pdf

24


In addition, Article 4 of the Lisbon Treaty, which entered into force on 1 December 2009, added territorial cohesion to economic and social cohesion objectives52. Therefore it is necessary to address this objective in the new programs, with particular emphasis on the role of the cities, on the functional geographical boundaries, on the areas that are experiencing specific geographical or demographic problems and on macro strategies. Urban areas can be growth engines and creativity and innovation centers, but can also generate spatial disproportionate economic concentrations. Balancing these tendencies is one of the challenges of strategig development programming of MS for the next programming period.

Starting with the analysis developed in this paper, taking into consideration the directory lines included in the 5th Report on economic, social and territorial cohesion and the actual debates regarding the future of ECP, I argue that along with strategical simplification of SFIS already brought into discussion by the previously mentioned report, the technical sismplification of the system should be based on the following measures:

a. Deepening the decentralization process of the system and stimulating regional competitiveness, focusing on the integrated promotion of OPs.

b. Simplifying the system by creating similar implementation systems for all OPs, by reducing the number of institutions involved in the management system and greater concentration of the OPs.

c. Increasing the importance given to integrated approach to the detriment of the sectorial one, both at the level of the programs’ conception and funding projects.

d. Simplifying the procedures, in particular, of the methods of reimbursement and promoting on a large scale an approach based on a standard unit cost and lump sum payments.

e. Simplifying the correlation of eligibility criteria by adopting common standards regarding common elements of several funds, measures, operations and programs. A harmonization of eligibility rules of expenditure between different areas of intervention, financial instruments and funds would simplify the access to funds and their management by the national authorities, reducing the risk of errors and allowing at the same time, a distinction that reflects the specificities of this policy, of the financial instrument and of the beneficiaries. Also, the standardization of the evaluation and selection process would be an important step in eliminating long periods of evaluation, selection and contracting the applications.

f. Ensuring the implementation of projects in reasonable intervals and encouraging financial discipline. However, the behavior of MS and of Regions can be altered by focusing too much on a rapid absorption - and less on an effective use - of resources. It is necessary to ensure a careful balance between guaranteeing the quality of investments and their implementation.

g. Emphasizing on the concentration of public investments in the hands of regional and local authorities and stimulating the public-private partnerships in the investments financed through the public sector.

52 EU, Lisabon Treaty, 2007, JOUE, 2007/C 306/01, http://eur-lex.europa.eu/JOHtml.do?uri=OJ:C:2007:3 :SOM:ro:HTML

25


h. Interconnecting a computer monitoring system at European level should be based at a basic information level, and this information should be standardized at European level, because it is a very difficult process to gather information into the system from a multicultural environment and types of procedures. Also, entering the information into the system needs time, specialized people and an informaticised evaluation, selection and contracting process. . These elements may lead to delays in the process.

i. Reducing the pressure on the implementation part in terms of reports and reporting formats by providing functionality of the unique monitoring system.

Thus, at the tehnical level, SFIS`s reform should develop the stimulation capacity of regional competitiveness through the development of regional comparative advantages, the simplification of the system regarding the number of priorities, of OPs, of institutions involved, and through descentralization and democratization of the system. These elements should be analized and applied according to the specificity of the institutional background of each state.

Conclusion

In this work I have stressed the elements of the ECP implementation system operation through applying three different theories as premises for development. Thus, the theory of common property governance that focuses on cooperation, the rules and institution of the community budget management as a common resource, the principal-agent theory underlines the construction of the contractual relationships within the ECP and their intersection between the different implementation levels of the system, and the new governance perspective offers a more comprehensive image on the dynamic way of policy making in the EU, including the ECP. A model for the evaluation of the performance of the ECP was proposed, model in the construction of which all the aforementioned theoretical breakdowns were required in order to have a clear picture of the relationships and junctions within the institutional implementation system of this policy.

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Comparative Analysis of South Eastern Europe Economies Facing the Crisis. Future Prospects for the Region

Andreea Paul (Vass), Ileana Alexe*

Abstract**: This paper analyses the effects of the global economic crisis in ten South Eastern European countries (Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Greece, Kosovo, Macedonia, Montenegro, Romania and Serbia), within a European perspective. It also points out the main transmission channels of the economic crisis, by outlining the strong economic and financial ties with the EU, acting like contagion corridors in the event of global downturns. In terms of macroeconomic policy responses of the countries, these mainly led to increased fiscal deficits and public debts. Taking as benchmark the Romanian experience during the crisis, we outline several important structural reforms intended to boost competitiveness in the area. The paper concludes that, in spite of the recent negative evolutions, the SEE-10 region has an important economic potential for the future. In the final recommendations we explore the creativity potential of the region, as a strategic opportunity for putting the region on the global competitiveness map.

Keywords: South Eastern Europe, growth, economic crisis, competitiveness

JEL classification: O11, F15, F4

1. Introduction

During the last ten years, South-Eastern Europe has been going through major transformations. The region has attained important progress in economic development, regional cooperation and integration in the global markets. However, the financial crisis that affected the western markets in the second half of 2007 made it clear that the region would face a major economic slump (Sanfey, 2010). The global economic crisis has also severely affected the European economies. After more than three years from the onset of the economic crisis, the efforts to mitigate the negative effects, to render public expenditure more efficient and to ensure sustainable economic growth have not vanished. Neither has the fear of a crisis revival worldwide.

*Andreea Paul (Vass) is Lecturer, PhD, within the International Business and Economics Department of the Academy of Economic Studies in Bucharest, and former State Adviser of Romania’s Prime Minister. E-mail address: [email protected]. Last published book: Political Power of Women (Forţa politică a femeilor, 2011, Editura Polirom).Ileana Alexe is PhD candidate within the International Business and Economics Department of the Academy of Economic Studies in Bucharest. E-mail address: [email protected]. Acknowledgements: this contribution was co-financed from the European Social Fund through Human Resources Development Sectoral Operational Programme 2007-2013; project number POSDRU/107/1.5/S/77213 “Ph.D. for a career in interdisciplinary economic research at the European standards”.** The revised form of this article was submitted to the editors on March 20th,2012

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The European Union (EU) and the Economic and Monetary Union have been experiencing the most challenging period since their inception. The Treaty on Stability, Coordination and Governance has been recently signed by 25 EU members states (all with the exception of the United Kingdom and the Czech Republic) and will pave the way for more fiscal discipline in the euro area: the structural deficits will not be allowed to exceed 0.5% of GDP at market prices and public debts exceeding 60% of GDP will be reduced by an average of 1/20 per year.

Taking into consideration this difficult economic context and the changing rules at the European level, the integration of South Eastern Europe (SEE) requires further scrutiny. This region has also been negatively affected by the crisis. That is why the paper focuses on the economic experience of these countries during the recent economic crisis. More precisely, the study considers 10 countries in SEE (SEE-10): Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Kosovo, Macedonia, Montenegro, Romania and Serbia. Greece became an EU member state in 1981, while Romania and Bulgaria took the challenge in 2007.

Croatia, which has gone through major structural reforms, is going to join the EU in 2013. Montenegro, Macedonia and more recently Serbia have been granted candidate status to the EU. In the case of Montenegro, the European Council launched the accession process with a view to open accession negotiations in June 2012. The other countries, Albania, Bosnia and Herzegovina and Kosovo are considered potential candidates for EU accession (European Commission – Directorate General for Enlargement, 2012).

The EU membership represents a continuous race to improve the economic performance and to diminish the real convergence gap with the core countries of the Union. Furthermore, each country has to define its identity and its place in the EU, avoiding the complex of “fax democracy”, which means that public policies are designed in the EU and then simply applied in the region. Indeed, the fact these countries are so many and small highlights the need for cooperation and for a regional axis that could act as a powerful voice able to make itself heard and able to balance the strength of larger Member States.

The region faces important common features, such as a history full of conflicts, multi-ethnic composition of their societies, low GDP per capita levels in comparison to the EU – 27 averages, and a strategic orientation towards the EU. The European integration is widely recognized as key strategy towards economic development in the region. However, these countries have to be prepared to respect the rules, even though they will probably not be euro area members from the beginning. For instance, Romania joined the Euro Plus Pact and the Treaty on Stability, Coordination and Governance, without being an EMU member.

In this paper, we offer a comparative analysis of the crisis effects on the SEE-10 countries. Section 2 presents the economic and political framework of the region from the fall of the iron curtain up until now. Section 3 explores the main contagion channels of the financial crisis in these countries, emphasizing the strong linkages with the EU. The next section describes the effects of the financial crisis in terms of economic growth rates, GDP, employment opportunities, foreign investments and credit ratings. Section 5 outlines the macroeconomic policy responses of the countries, as regards the evolution of fiscal

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Andreea Paul (Vass), Ileana Alexe

deficits and public debts during the crisis. Section 6 emphasizes structural reforms needed to boost economic growth and competitiveness, based on the Romanian experience.

The final recommendations point to the reshaping of the economic growth model in the SEE-10, within the European integration perspective, and to a possible strategic positioning of the region in order to take advantage of the new creativity era.

2. Economic and political framework of the region

The fall of the iron curtain in 1989 has invalidated to a big extent the mentality of half a century, forcing us to rethink Europe as a whole (Wolff, 2000). The isolation of Eastern Europe led to the development of economic inequalities. This concept of Eastern Europe has served to define Western Europe as opposed to a poor and underdeveloped region. Throughout its history, the region has been known for conflicts, wars, dictatorships and poor development tracks (Bislimi, 2010).

Furthermore, starting from the early phases of transition to the market economy, two major challenges appeared in the region. The first one was the socio – economic collapse of the countries and the important waves of immigration that were created. The second one had to do with the disintegration of Yugoslavia and the implications it had for the constitutional name of the Former Yugoslav Republic of Macedonia (Monastiriotis and Tsamis, 2007).

After the wars in the 1990s, there has been a positive change in the perspectives of the region. The main reason for this was the hope for the European integration.

The last decade has changed the landscape for the SEE-10 region. There has been a major transformation of economic relations after the collapase of communism. The new economic space meant new opportunities in terms of resource exploitation, new markets and trade partners. It also gave the countries in the region the opportunity to explore the potential of the international competitiveness in a globalized world.

These developments required a holistic regional approach to the region from the EU in order to implement a coherent model for it. If multilateralism and regional integration would have been effectively promoted and implemented at that time, maybe the countries had not been in such a bad situation during the 1990s: the countries suffered from transition shocks that took a lot of time to recover and from tensions that led to the events in Bosnia and Kosovo (Monastiriotis and Tsamis, 2007).

The idea that there is a serious need for commitment from the EU in the region has become a common opinion among European policy-makers. Otherwise, the countries would have become more isolated from the neighbouring developments and they could have endangered the stability of the entire continent (Bărbulescu and Troncotă, 2012). The studies regarding the Europeanisation of the region have largely developed after 2000 at the same time with the emerging enlargement agenda of the EU. For the region, the core of the Europeanisation is represented by the creation of democratic institutions and a stable community.

The European perspective of the region has played a major role in defining the future path for the Balkans. However, accession to the EU does not represent a short or easy process. In fact, this is a long process which implies the implementation of reforms. The enlargement process comes along with conditionalities. The admission conditions, known

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as the Copenhagen criteria, listed the conditions that each country had to meet before they become members of the EU. More precisely, eligible countries for EU admission must have representative democratic institutions, market-based and competitive economies, must uphold the rule of law, protects minorities and their rights, respect human rights and must have the ability to meet the obligations of the EU (Bislimi, 2010).

It is clear that the future of the EU is interlinked with that of South Eastern Europe. It is in the self-interest of the EU to stabilise the SEE region and the debate regarding the enlargement process should not be considered in terms of cost of enlargement, but in terms of costs of non-enlargement (Kühne, 2010).

This is why the paper evaluates the economic developments in the SEE region during the crisis from a European perspective. Even though only three of them have become EU members, this work looks at the evolution of macroeconomic indicators during the recent crisis in comparison with the EU average for all SEE countries.

3. The main contagion channels of the financial crisis in the region

The strong economic relations of the SEE-10 countries with the EU represent both an evidence of their European orientation and a challenge during times of crisis. In fact, the global financial crisis acted as an important external shock for this region. Even though the banking system was not directly exposed to “toxic assets”, the crisis has been transmitted through indirect channels (Bartlett and Monastiriotis, 2010). These included international trade, foreign direct investments, remittances from migrant workers and monetary policy. The banking system has also been affected through the presence of foreign banks in the region. However, it is noticeable that the contagion channels mattered differently for each country.

In terms of trade relations, the EU is the main export market for SEE-61 countries accounting for 58.2 percent of total exports, mainly to Italy and Germany (World Bank, 2011b). In this case, these strong relations are underpinned by Stabilization and Association Agreements with the EU. As regards the three EU members, Romania, Bulgaria and Greece, the shares are even higher: more than 70% of Romania’s exports and imports are carried out within the EU; approximately 60% of the Bulgarian trade is within the EU; 62% of the Greek exports and 51% of the imports are within the EU.

Foreign direct investments (FDI) are largely provided by the EU in the region. Net FDI inflows are over 2 percent of the GDP in SEE-6 countries (World Bank, 2011b). Austria was the largest FDI provider to Montenegro from the EU in 2010. The main FDI providers to Romania are also EU countries: the Netherlands, Austria, Germany, France and Greece. Greece also benefited from strong investment coming from the EU during 2003 – 2010: Germany, France, UK, Belgium, Luxembourg and the Netherlands. It is quite clear that the financial crisis in the EU has led to a slump in the investments to the region.

The crisis has had a negative impact also on the level of remittances from people working in the EU.

The remittances of the Albanian diaspora, concentrated in Greece and Italy, decreased from EUR 838.4 mil. in 2008 to EUR 784.4 mil. in 2009. It is also the case of emigrants

1 SEE-6 refers to Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia.

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from Bosnia and Herzegovina that chose Croatia, Germany and Austria as top destination countries: workers’ remittances decreased from EUR 1.299 bn. in 2008 to EUR 1.030 bn. in 2009. Workers’ remittances to Greece decreased as well, from EUR 1.489 bn.in 2008 to EUR 1.157 bn. in 2009 (World Bank, 2011a).

The economic crisis has halved workers’ remittances inflows to Romania, from EUR 5.156 bn. in 2008 to EUR 2.398 bn. in 2010. More than 80% of the remittances come from the EU, with Italy and Spain being the major remittance corridors for this country.

There are, however, also exceptions from this rule. It is the case of Serbia, where a large diaspora of workers is located in the USA and due to the measures taken to preserve employment, the remittances increased from EUR 1.99 bn. in 2008 to EUR 2.7 bn. in 2009 (World Bank, 2011a). Bulgaria also managed to increase the remittances during times of economic crisis, from EUR 694 mil. in 2008 to EUR 760 mil. in 2010, even though approximately two thirds of the inflows come from the EU (Eurostat, 2012).

As regards the banking system, its assets are held by the foreign banks in a proportion of 89% in the SEE-6 countries. The region has a comparatively high share of Greek- and Italian-owned banks. In Romania, 85% of the banks are owned by foreign capital. Taking into account the EU calls to increase banks’ capital, this could put pressure on the local subsidiaries and could lead to a credit crunch in the region.

The monetary policies of these countries also represent an important transmission channel of the crisis in the region, because they are well-linked to the EU. Apart from Greece, which is a member of the euro area, many of these countries use the euro as reference or have adopted the euro currency. Macedonia has a managed currency using the euro as reference. The Macedonian central bank was faced with pressures on foreign exchange reserves and it increased the reference rate in the months following the crisis; Kosovo and Montenegro have unilaterally adopted the euro; Bosnia and Herzegovina has a euro-based currency board and Bulgaria’s currency board is pegged to the euro, which puts pressure on the competitiveness of exports.

Romania, Albania and Serbia have flexible exchange rates. In the case of Romania, the National Bank has been reducing the monetary policy interest rate from 10.25% in 2008 to 5.50% in February 2012, in order to boost economic growth.

All these contagion channels have led to the transmission of the financial crisis in the region and caused the negative economic developments that we will further present in the next section.

4. The effects of the financial crisis in the region

Rapid credit growth has been one of the main drivers of growth in the region during the recent years and it has led to increased consumption. As a result of this rapid financial deepening, the ratio of domestic credit to GDP has reached relatively high levels in Montenegro, Croatia and Bosnia and Herzegovina. Credit to households had expanded by more than 130% on annual average in Montenegro during 2005-2007. The allocation of credits was in many cases biased towards consumption rather than productive or investment activities (European Commission, 2009).

The economies of the SEE region have been seriously affected by the global recession, in fact more than other regions in the world (Mitra et al., 2010). In 2009 both the EU-27

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and the SEE-10 economic growth averages had recorded negative values. The decline marks an end to nearly a decade of accelerating growth in household incomes and employment.

However, while Romania and Croatia have been the most severly hit by the crisis in 2009, with negative growth rates of 6.6% and 6% respectively, Albania and Kosovo managed to keep positive growth rates that year (Table no. 1). This suggests that there are economies in the region that performed better than the EU.

Table no. 1 - GDP real growth rates (%), 2007 – 2012Country 2007 2008 2009 2010* 2011** 2012**Croatia 5.1 2.2 -6.0 -1.2 0.6 0.8Macedonia 6.1 5 -0.9 1.8 3.1 1.8Albania 6.0 7.7 3.3 3.5 1.8 1.2Bosnia and Herzegovina 6.8 5.7 -3.1 0.8 1.8 0.5Kosovo 6.3 6.9 2.9 4 5.3 5Montenegro 10.7 6.9 -5.7 2.5 2 1.9Serbia 5.4 3.8 -3.5 1 1.9 1.1Romania 6.3 7.3 -6.6 -1.6 2.5 1.6Bulgaria 6.4 6.2 -5.5 0.4 1.7 1.4Greece 3 -0.2 -3.3 -3.5 -6.9 -4.4Area average 6.2 5.2 -2.8 0.8 1.4 1.1EU - 27 average 3.2 0.3 -4.3 2 1.5 0

* Estimations of World Bank. Sources: World Bank Report, “South East Europe Regular Economic Report”, November 2011, p. 1, Eurostat database for Romania, Bulgaria, Greece, EU – 27 average and Croatia.** Data for 2011 and 2012 come from the European Bank for Reconstruction and Development, January 2012, with the exception of Romania, Bulgaria, Greece and Kosovo.

According to the estimates, the economic growth has resumed in 2011 and positive trends are also forecasted for 2012, with the notable exception of Greece. The average economic growth for this year amounts to 1.1%, more than the EU average equal to 0%. Romania ranks 4th in the region with a GDP increase of 1.6%. However, the growth rates are definitely lower than the pre-crisis levels and very dependent on the international and European evolutions.

The SEE-10 countries lag behind the EU living standards, as proxied by GDP per capita in each country compared to the EU average (adjusted for purchasing power) in 2010. Apart from Greece which has been an EU member for 31 years, among these countries only Croatia reached 61% of the EU average. In 2010, Romania ranked 3rd, after Croatia and Greece, in terms of GDP per capita as share of the EU average (Table no. 2).

Furthermore, the negative international outlook led also to a shift in the trend of real convergence with the EU in these countries. More exactly, more than half of the SEE-9 region (without Kosovo) recorded lower GDP per capita levels as share of the EU-27 average in 2010 as compared to 2008. Only Macedonia, Albania and Bosnia and Herzegovina managed to increase their share of GDP per capita in the EU average, while Bulgaria stagnated (Table no. 2).

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Table no. 2 - Dynamics of the share of GDP per capita in the EU-27 average (PPS), 2008-2010

Country 2008 2009 2010The effect of the financial crisis:2010 level as compared to 2008 (p.p.)

Montenegro 43 41 41 -2

Croatia 64 64 61 -3

Macedonia 34 36 36 2

Albania 26 28 28 2

Bosnia and Herzegovina 30 31 31 1

Serbia 36 36 35 -1

Romania 47 47 46 -1

Bulgaria 44 44 44 0

Greece 92 94 90 -2

EU - 27 average 100 100 100 -Source: Eurostat database, March 2012. We lack data for Kosovo.

Despite the negative effects of the recent crisis, these countries have an important growth potential on the medium and long term. The last three decades have seen an increase in GDP per capita of 94% in Bulgaria, followed by Albania (+85%). Romania’s GDP per capita increased by 39% between 1980 and 2010. By comparison, China and India, which had significantly lower levels of GDP per capita than SEE-10 countries in 1980, increased by 1197% and 255% respectively, by 2010. Also Brazil’s GDP per head increased by 34% during this period. Russia saw an increase of 36% in the last two decades (Table no. 3).

The SEE-10 countries could repeat the successful experience of the BRIC countries in the next decades if they manage to define their strategic position in this globalized world.

Table no. 3 – GDP per capita in USD, constant prices 2005, 1980 – 2010 Country 1980 1990 2010 Dynamics 1980-2010

Albania 1,763 1,618 3,265 +85%Bosnia and Herzegovina - 530* 4,268 -Bulgaria 2,284 2,915 4,419 +94%Croatia - 6,363* 10,619 -Greece 15,272 15,520 21,944 +44%Macedonia - 2,526* 3,267 -Romania 3,752 3,829 5,210 +39%Brazil 4,205 3,999 5,629 +34%China 229 477 2,965 +1197%

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India 285 403 1,011 +255%Russia - 4,611* 6,293 -World 4,988 5,707 7,466 +50%

*Data for 1992. Source: UNCTAD, March 2012.

Taking into account the European perspective of the countries that are not yet EU members, it is interesting to assess the progress made in the recent years with an emphasis on the effects of the crisis. From 2005 onwards, the SEE-10 countries have been slowly making progress towards the EU average levels of GDP per capita in PPS. The front-runner in the region has been Romania, with a speed of 11 percentage points (p.p.) in bridging the gaps with the EU during 2005-2010, followed by Montenegro with 10 p.p. However, except for Greece that recorded a negative evolution, Serbia seems to be the under-performer: its GDP per capita increased by only 3 p.p. (Chart no.1). This represents an important challenge for the countrie’s future accession process to the EU.

Chart no. 1 - Dynamics of the share of GDP per capita in the EU-27 average (PPS), 2005-2010

Source: Authors’ work based on Eurostat data. We lack data for Kosovo.

As we have seen before, the crisis had an important impact on the living standards of the countries. The social conditions of the people have also been strongly affected during the recent period of time. The number of unemployed workers and unemployment rates rose across the region and income poverty levels certainly increased, particularly for vulnerable groups.

The most recent evaluations state that the negative effects on the people are already noticeable: 75% of the households in Bulgaria and 72% of the households in Serbia have

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been significantly affected by the economic crisis. The least negatively affected were households in Croatia (only 55% of them). In Romania, 62% of the households have been affected by the crisis (EBRD, 2011).

As expected, the economic crisis led to a decrease in the level of employment both in the area and in the EU. The challenge is two-fold for the region: to reverse the declining trend in the employment opportunities and to fill the 14.4 percentage points gap with the EU. There are also countries that perform better than the SEE-10 area average: Romania, Croatia, Albania, Serbia, Bulgaria and Greece (Table no. 4).

The unemployment rates are generally well above the EU-27 average, with Kosovo displaying the highest unemployment rate, of 45.4%, in 2009. The area average was double than the EU-27 average in 2009. Only Romania and Bulgaria recorded unemployment rates below the EU average in the same year (Table no. 4).

As a concluding remark, labour participation and employment opportunities remain fairly low and unemployment rates in SEE-10 are in doublue-digit figures in most of the economies. Along with the improvement of skills and overall productivity, increased investment could contribute to employment creation, by accelerating growth and helping solve some of the social problems that the region is confronted with (European Commission, 2009).

Table no. 4- Employment and unemployment rates (%), 2006-2009

CountryEmployment rates (%), 15-64 years Unemployment rates (%)

2006 2007 2008 2009 2006 2007 2008 2009

Croatia 55.6 57.1 57.8 56.6 11.1 9.6 8.4 9.1

Macedonia 39.6 40.7 41.9 43.3 36 35 33.8 32.2

Albania 46.23 56.43 53.76 53.4 13.8 13.5 13 13.8

Bosnia and Herzegovina

35 36.8 40.7 40.1 31.1 29 23.4 24.1

Kosovo 28.7 26.2 24.1 26.1 44.9 43.6 47.5 45.4

Montenegro 41 49.2 50.8 48.7 29.6 19.3 16.8 19.1

Serbia 49.85 51.5 53.7 50.39 21 18.3 13.6 16.12

Romania 58.8 58.8 59 58.6 7.3 6.4 5.8 6.9

Bulgaria 58.6 61.7 64 62.6 9 6.9 5.6 6.8

Greece 61 61.4 61.9 61.2 8.9 8.3 7.7 9.5

Area average 47.4 49.9 50.8 50.1 21.3 19 17.6 18.3

EU - 27 average 64.4 65.3 65.8 64.5 8.3 7.2 7.1 9Source: Eurostat, March 2012 Foreign direct investment (FDI) is important for capital formation, because it increases

the capital stock and it leads to technological spill-overs. The literature on the relation between FDI and economic growth states that FDI effiency spill-overs exist and that FDI is positively correlated with growth (Lim, 2001).

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However, FDI in the region was more than 3 times lower in 2011 than in 2008, because of the crisis. The investments resumed slightly in 2011 as compared to 2010, but remain under the high levels recorded in 2007-2009. In the years prior to the economic crisis, the foreign investment was concentrated in only a few sectors: the manufacturing and financial sectors, which were very vulnerable to the crisis. The banking sector of the SEE region has attracted substantial foreign investment and, as a consequence, in most economies foreign-ownership is above 80% (European Commission, 2009).

During 2008 - 2010, Romania was the leader in attracting FDI among the SEE-10 countries. In 2011, the highest level of FDI inflows was attracted by Serbia. In terms of FDI stock per capita at the end of 2010, the ranking changes: Montenegro recorded the highest level (6,480 euro), followed by Croatia (5,855 euro). Romania ranks 4th in the region, with 2,444 euro per capita (Table no. 5).

As regards the nationality of the investors in the region, the biggest part of foreign investments comes from neighbouring countries or from European countries with a regional approach to the SEE market. For example, Austrian banks have acquired local banks in all countries, except for Macedonia, and Deutsche Telecom (or its subsidiary Magyar Telecom) owns the incumbents in Croatia, Macedonia and Montenegro (European Commission, 2009).

In the case of Montenegro, the largest FDI inflows came from Russia (90.4 mil. euro), followed by Serbia (81.8 mil. euro) and Switzerland (64.7 mil. euro) in 2010 (Central Bank of Montenegro, 2011).

Table no. 5 - FDI inflows, 2007 – 2011

CountryFDI inflows (bn. euro) FDI stock/capita,

2010, euro2007 2008 2009 2010 2011

Albania 0.481 0.665 0.696 0.831 0.650 1,019

Bosnia and Herzegovina 1.52 0.684 0.18 0.174 0.250 1,427

Bulgaria 9.052 6.728 2.437 1.779 1.064 4,801

Croatia 3.651 4.219 2.38 0.281 1.20 5,855

Macedonia 0.506 0.4 0.145 0.159 0.210 1,636

Montenegro 0.683 0.656 1.099 0.574 0.300 6,480

Romania 7.25 9.5 3.49 2.22 1.92 2,444

Greece 1.54 3.07 1.75 0.281 1.3 2,245

Serbia 2.513 2.018 1.41 1.003 2.0 1,566

Total 27.2 27.94 13.59 7.3 8.9 -Source: WIIW – Vienna Institute for International Economic Studies, National Banks

and UNCTAD, March 2012. We lack data for Kosovo.

An acceleration of structural reforms on labour and product markets and the improvement of the public spending quality would increase the capacity of these economies to compete with other emerging markets in attracting foreign investment in the recovery phase (European Commission, 2009).

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There is another important effect of the financial crisis in the region. The international conditions determined credit rating agencies to pay a lot of attention to the macroeconomic stability of the countries. The SEE-10 region has also been hit by credit ratings downgrades during 2008-2012 (Chart no. 2 and no. 3), which affect the costs of financing from the markets. Greece has been recently downgraded by Standard and Poor’s (S&P) rating agency to selective default category in response to the country’s decision to involve the private sector in its debt restructuring.

Chart no. 2 - Evolution of S&P sovereign ratings, 2008-2012

Source: Authors’ work based on Bloomberg data, March 2012

Countries in the SEE-10 region have also been downgraded by the Fitch agency during the last four years, though to a lesser extent than S&P. The most noticeable negative evolution is that of Greece, whose rating was revised down from A in July 2008 to C in February 2012, followed by a surprising increase to “B-“. The decision came as a consequence of the debt writedown in a bond swap with private creditors.

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Chart no. 3 - Evolution of Fitch sovereign ratings, 2008-2012

Source: Authors’ work based on Bloomberg data, March 2012

According to S&P, at the moment only Bulgaria and Croatia are included in the investment grade category among the countries in the region. Romania’s rating has been stable since November 2008. Greece holds the lowest credit rating: selective default. Fitch agency rates Romania also in the investment grade category together with Croatia and Bulgaria. In the case of Romania, the rating was revised up in July 2011. Macedonia, Serbia and Greece are rated below this category by Fitch (Table no. 6).

Table no. 6 - S&P and Fitch sovereign ratings as of March 2012

CountryLong-term sovereign foreign currency rating

by S&PLong-term sovereign foreign

currency rating by Fitch

Albania B+ -

Croatia BBB- BBB-

Macedonia BB BB+

Montenegro BB -


B -

Serbia BB BB-

Romania BB+ BBB-Bulgaria BBB BBB-

Greece SD (Selective default) B-Source: S&P and Bloomberg, March 2012

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5. The macroeconomic policy responses of the region

All SEE-10 countries have experienced growing fiscal deficits in response to the financial crisis. They have exhausted their modest fiscal buffers created in the pre-crisis period, which make it difficult to resist in the case of worsening global conditions. If in 2007 Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Bulgaria recorded a fiscal surplus, in 2009 and 2010 all the countries in the region were recording deficits. The average budgetary deficit in the area reached a peak of 5.78% of GDP in 2009 and decreased to 4.72% of GDP in 2010 (Table no. 7).

Romania applied severe austerity measures in order to reduce the budgetary deficit. Two-thirds of the Government’s efforts to reduce the budgetary deficit focused on improving and reducing public expenditure and one third on increasing the revenues. Consequently, after the 7.3% fiscal deficit in 2009, 6.9% in 2010 and 4.35% in 2011, it is heading for a 3% fiscal deficit in 2012.

Table no. 7 - Budgetary deficit (% GDP), 2007-2011Country 2007 2008 2009 2010 2011

Albania -3.7 -5.5 -7.1 -3 -

Bosnia and Herzegovina 0.6 -3.5 -5.6 -4.2 -

Kosovo 7.3 -0.2 -0.7 -2.7 -

Macedonia 0.6 -0.9 -2.7 -2.5 -

Montenegro 6.7 -0.4 -5.7 -4.9 -

Serbia -1.9 -2.7 -4.5 -4.6 -

Average SEE-6 -0.5 -2.7 -4.6 -3.8 -Croatia -2.5 -1.4 -4.1 - -

Romania -2.6 -5.7 -7.3 -6.9 -4.35Bulgaria 1.2 1.7 -4.3 -3.1 -2.5

Greece -6.5 -9.8 -15.8 -10.6 -8.9

Area average -0.08 -2.84 -5.78 -4.72 -Source: World Bank Report, “South East Europe Regular Economic Report”, November

2011, p. 20; Eurostat data for Greece, Bulgaria and Croatia; national data for Romania; European Commission for 2011 data

Despite the increases in public debt generated by the fiscal expansions, all the SEE-10 countries, with the exception of Greece, continue to report public debt levels that are below the 60% of GDP reference point in the EU’s Stability and Growth Pact. This is partly due to large privatizations conducted prior to the crisis. This way, the current account deficits of the region have been financed by FDI inflows and not by external debts.

However, there have been important increases of government debt to GDP ratios during the crisis. In 2009 Croatia had the highest level of public debt in GDP (35.3% GDP, data not available for Albania), followed by Serbia (31.3% GDP). Romania’s government

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debt in GDP increased from 13.4% of GDP in 2008 to 31% of GDP in 2010 (Table no. 8). Within the EU, Romania had the 4th lowest public debt in the EU, as share of GDP both in 2010 and 2011 (31% of GDP in 2010, 34% of GDP in 2011).

Table no. 8 - General government gross debt (% GDP), 2000-2010Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Croatia - 40.1 40 40.9 43.2 38.3 35.5 32.9 28.94 35.3 -

Macedonia 47.92 48.8 42.89 38.96 36.6 39.54 32.93 24.73 21.32 24.07 -

Albania 60.17 58.5 63.92 61.53 58.33 56.83 56.77 54.83 53.89 - -


34.7 35.18 31.04 27.67 25.54 25.33 21.15 18.2 17.17 21.81 -

Serbia - 104.8 71.9 63.3 50.7 50.5 39.8 30 25.3 31.3 -

Romania 22.5 25.7 24.9 21.5 18.7 15.8 12.4 12.8 13.4 23.6 31

Bulgaria 72.5 66 52.4 44.4 37 27.5 21.6 17.2 13.7 14.6 16.3

Greece 103.4 103.7 101.7 97.4 98.6 100 106.1 107.4 113 129.3 144.9

Area average 56.87 60.35 53.59 49.46 46.08 44.23 40.78 37.26 35.84 40 -

EU-27 average

61.9 61 60.4 61.9 62.3 62.8 61.5 59 62.5 74.7 80.1

Source: Eurostat, March 2012. We lack data for Kosovo.

Most SEE-10 countries have adopted some sort of regulation limiting the level of public debt. The commitment of the authorities to these targets is yet to be tested. Albania, Kosovo and Serbia have capped government debt through legislation, while Macedonia and Montenegro have done it through strategy-level documents (World Bank, 2011b).

Bulgaria currently debates the issue of incorporating the EU budget deficit rule in the Constitution. In Romania, constitutional limitation of public debt and budgetary deficit is subject to analysis given that it signed the Treaty on Stability, Coordination and Governance in EMU.

As regards the external financing of the countries in the region, the levels of gross external debts increased during 2008 and 2011, in line with the need to finance fiscal deficits in order to smooth out the effects of the crisis. Macedonia’s gross external debt increased significantly by 39%, between December 2008 and September 2011. During the same period of time, the gross external debt of Romania increased by 35.3% (Table no. 9). However, Romania had the 10th lowest gross external debt in the EU-27 in September 2011.

Bulgaria has been the best performer, as it recorded a decrease of the gross external debt during a period of economic crisis.

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Table no. 9 - Gross external debt, bn. euro, Dec. 2008 – Sept. 2011

Country Dec. 2008 September 2011Growth (%),

Dec. 2008 – Sept. 2011

Albania 3.2 4.16 +30%

Bulgaria 37.2 36.26 -2.5%

Croatia 40.6 46.6 +14.8%

Greece 364.4 405.04 +11.2%

Macedonia 3.3 4.6 +39%

Romania 72.35 97.9 +35.3%

Serbia 21.0 23.86 +13.6%Source: National Banks

When reported per inhabitant, Romania recorded the 4th lowest gross external debt per inhabitant among the countries in the region in September 2011 (Table no. 10). Romania had the lowest external debt per inhabitant among the EU countries, in September 2011: 4,570 euro/inhab. as compared to 4,810 euro/inhab. in Bulgaria or 7,002 euro/inhab. in Poland.

Table no. 10 - Gross external debt per inhabitant, September 2011

Country Gross external debt

(bn. euro)Population (mil. pers.)

Gross external debt / inhab. (thousand euro)

Albania 4.16 3.0 1.39

Bulgaria 36.26 7.5 4.83

Croatia 46.6 4.4 10.59

Greece 405.04 11.3 35.84

Macedonia 4.6 2.06 2.23

Romania 97.9 21.4 4.57

Serbia 23.86 7.3 3.27

Source: National Banks and Eurostat database

6. Reform priorities for South Eastern Europe economies. The Romanian experience The economic development of the SEE-10 countries depends both on evolutions at the

international and European level and on structural reforms required to boost growth and competitiveness.

In the case of Romania, it has made important steps to increase its competitiveness in times of severe recession. Despite the resistance to change, it has opened 11 battle fields

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of reforms, namely: the fiscal framework, the public administration, the public sector employees’ payment, the internal administration, the public pension system, the labour legislation, the social dialogue, the health system, the social assistance, the legal system, the education system.2

The need to limit the increase of the budgetary deficit and of the public debt required difficult, but necessary austerity measures that were applied in 2010. Some of these measures were: the 25% wage reduction in the public sector, freeze of the pension point, increase of the retirement age, layoffs in the public sectors (202,690 people have been dismissed between 2008 and 2012), elimination of the meal and gift vouchers and the VAT increase from 19% to 24%.

The economic evolutions have been positive and Romania recorded four consecutive quarters of economic growth. In 2011, GDP growth was 2.5%, the 10th highest in the EU, and exports have reached the highest level in the last 22 years in 2011 (45 bn. euro).

The economic crisis has made the need for structural reforms more pressing than ever in the region. There are several reform priorities to be addressed (World Bank, 2011b), already implemented by Romania:

a. Macroeconomic management – the introduction of fiscal consolidation plans; the reinforcing of tax compliance; the broadening of the tax base; strengthening of the supervisory authorities in the financial sector.

• Business environment reforms – shorten registration procedures; complete privatization programs; address the non-payment culture.

b. The Romanian experience:- Diminishing the fiscal and administrative burden: • 237 non-fiscal taxes and tariffs out of 491 were reduced or unified;• Fiscal statements have been unified and can be submitted online;• Establishment of a One-Stop Shop (http://www.immoss.ro/);• Reduction of the period necessary to set up a company from 14 to 3 days.- Financial support for the business environment: • Governmental programs for supporting entrepreneurship. Outcome: more than

1,500 SMEs received financing from 2011 up to present;• Guarantee schemes and state aids: EUR 1.35 bn. guarantees for supporting credits

to SMEs during 2009-2011 and EUR 229 mil. state aids for 19 large investment projects during 2009-2011.

b. Social sectors – address demographic challenges in pension reforms; accelerate reform in health and social protection.

• The Romanian experience: - Pension system: gradual increase of the retirement age to 65 years of age for men and

to 63 for women by 2030; enforcement of the contributiveness principle in the public pension system.

- Health system: decentralization of the health care system (370 public hospitals out of 435 were transferred to the local public authorities) and the introduction of a clawback tax.

2 For further information, please visit http://www.romtradeinvest.ro/images/stories/brosura%20guvern/Reforms%202009-2012%20-%2031%20ian%202012.pdf.

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- Social protection: resizing the social protection measures only for the genuinely vulnerable categories.

d. Labour market rigidities and skill mismatches – implementation of a more flexible labour legislation; vocational training; life-long learning and tertiary education sector reform.

• The Romanian experience: - Implementation of a new Labour Code: hiring and firing practices are more flexible;

employers can conclude limited duration employment contracts of maximum 36 months, as compared to 24 months before; they can reduce the working hours or can fire more easily their employees during difficult economic conditions for their business.

- Implementation of the new National Education Law: defining a system based on the formation of skills, implementing the principle of financing per student and redefining the National Curricula according to the labour market needs.

e. Trade and service liberalization – liberalization of network industries (e.g. logistics, energy), privatization of state owned companies (SOEs) and removal of non-tariff barriers. Trade liberalization in the region advanced due to World Trade Organization (WTO), Central European Free Trade Agreement (CEFTA) membership and Stabilization and Association Agreements with the EU.

• The Romanian experience: - Natural gas price liberalization – starting with 1 July 2011, the price of natural gas for

the industrial consumers was increased by 10%.- Establishment of priorities in the privatization of the state companies (e.g. Petrom,

Transelectrica, Hidroelectrica, etc.).- Restructuring of the state-owned enterprises: prevention of new arrears and losses

and improved governance.f. Governance reforms – acceleration of judicial and anti-corruption reforms; ensuring

integrity and transparency in the public administration.• The Romanian experience: - Implementation of the National Anti-Corruption Strategy 2011-2014 based on three

main pillars: prevention, education and control.• Transparent financing of the political parties, electoral campaigns and public

procurements.• Enforcement of Anti-Corruption National Department (DNA) and National Agency

for Integrity (ANI) as main pillars in the fight against corruption.

As regards the last point, all the SEE-10 countries are deeply involved in the race to reduce the corruption perception. According to the Heritage Foundation index of freedom from corruption, the area average increased by 11.56 points in the last 10 years. Montenegro has made the most important progress (+27 points), closely followed by Serbia (+25 points). The least successful country has been Bulgaria, with an increase of just 1 point in the index of freedom from corruption. Romania is better placed than Bulgaria, with an increase of 8 points in this period. Only Greece has taken substantial steps back (-14 points) (Table no. 11).

In 2012, the countries with the highest index of freedom from corruption in the region are Croatia and Macedonia. Romania ranks 3rd in the region, sharing its position with Montenegro.

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Table no. 11 - Index of freedom from corruption, 2002 – 2012

Country 2002 2003 2009 2010 2011 2012Difference 2012-2002

(points)Albania 10 10 29 34 32 33 23


10 10 33 32 30 32 22

Bulgaria 35 39 41 36 38 36 1

Croatia 37 39 41 44 41 41 4

Macedonia 33 33 33 36 38 41 8

Montenegro 10 10 33 34 39 37 27

Romania 29 28 37 38 38 37 8

Greece 49 42 46 47 38 35 -14

Serbia 10 10 34 34 35 35 25

Area average 24.78 24.56 36.33 37.22 36.56 36.33 11.56Source: Heritage Foundation, March 2012

Overall, the Romanian experience could serve as a relevant example of structural reforms undertaken during the crisis for the countries in the region. However, the most important issue the region should focus on is the competitiveness deficit it has at European and international level now and in the post-crisis period.

The average competitiveness score of the area increased from 3.9 in 2008 to 4.1 in 2011, but the average ranking remained the same. There has been a general upward trend of the competitiveness scores in these countries in 2011 as compared to 2008, with the exception of Greece and Croatia (Table no. 12).

In the most recent Global Competitiveness Report 2011 – 2012, Romania ranks 77th in the world and 4th in the region, after Montenegro – 1st, Bulgaria – 2nd and Croatia – 3rd.

Table no. 12 - Global competitiveness index (GCI), 2008-2012

CountryGCI 2011-2012 GCI 2010-2011 GCI 2009-2010 GCI 2008-2009

Rank Score Rank Score Rank Score Rank ScoreAlbania 78 4.1 88 3.9 96 3.7 108 3.6Bosnia and Herzegovina

100 3.9 102 3.7 109 3.5 107 3.6

Bulgaria 74 4.2 71 4.1 76 4 76 4

Croatia 76 4.1 77 4 72 4 61 4.2

Macedonia 79 4.1 79 4 84 3.9 89 3.9

Montenegro 60 4.3 49 4.4 62 4.2 65 4.1

Romania 77 4.1 67 4.2 64 4.1 68 4.1

Greece 90 3.9 83 4 71 4 67 4.1

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Serbia 95 3.9 96 3.8 93 3.8 85 3.9

Area average 81 4.1 79 4.0 81 3.9 81 3.9Source: World Economic Forum, Global Competitiveness Reports

However, in order to compete with other fast growing economies and to reach the EU living standards, these countries need national competitiveness strategies on the long term. Romania has already set up the National Competitiveness Council (CoNaCo) in October 2011, a governmental think-thank, whose main goals are to define its strategic interest and to elaborate the National Competitiveness Strategy 2020. So far, CoNaCo has adopted the competitiveness declaration stating that Romania can become ‘Europe’s creativity heart’ and that Romania has the potential to be within the first seven competitive economies in Europe. Romania has a huge potential to develop the creative industries sector, due to their economic power: they make up 7% of GDP, one quarter of the companies activate in these industries and almost 2 out of 10 employees work in this sector. Croatia, Serbia and Macedonia have also established Competitiveness Councils to draft proposals for increasing their economies’ competitiveness.

Studies regarding the emerging creative industries in South Eastern Europe have been developing since the beginning of the 2000s’. The official definition of the term states that creative industries are those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property (UK Department of Culture, Media and Sport, 2005). They range from software, architecture, design, game industries, film or advertising, to any form of art.

These industries stem from the tradition of industrial and market-oriented cultural production unfortunately undermined during times of socialism (Institute for International Relations in Zagreb, 2005). Redefining cultural identity for this region is both socially and economically reasonable. However, such a project would need the support of regional and intra-regional cooperation in order to succeed. By promoting creative industries as major development strategy in the region, the countries in South Eastern Europe would mix talent with tolerance and multiculturalism in a sector in which young people prevail.

7. Final recommendations

As we have seen in the paper, the recent financial crisis had significant negative effects on the South Eastern Europe economies. The contagion channels have enabled the transmission of the shocks to every country, although not evenly. The most affected countries by the crisis were Romania and Croatia, which recorded very serious decreases in GDP in 2009. However, according to the forecasts, their economic growth rates are positive in 2011 and 2012. In fact, the average growth of the whole region is back on a positive trend.

The macroeconomic policy responses led to important increases in the fiscal deficits, the highest level in the region being reached by Greece in 2009. However, the budgetary deficits are on a decreasing path, the best performers being Albania, Kosovo and Macedonia which respect the budgetary deficit criterion included in the Maastricht

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Treaty. Romania is also heading for a 3% fiscal deficit in 2012. In terms of gross debts, all SEE-10 countries, apart from Greece, managed to maintain relatively low levels of public debts, below the 60% ceiling imposed by the Maastricht Treaty.

In order to boost economic development in the post-crisis period, there is an urgent need for structural reforms in the region and for measures to increase competitiveness. Overall, the growth model developed by these countries, which relies on a deeper integration with the EU remains the first – best option on the long term. However, in order to fully exploit the benefits, growth needs to be driven more by investment, productivity and competitiveness, and less by the capital inflows in the next decade.

Countries in South Eastern Europe should explore the potential of creativity as a new, major driver of competitiveness in the new economic era. At the EU level, the development of creative industries is one of the five priorities of the next financial period 2014 – 2020. These industries might drive South Eastern Europe countries on an accelerated growth map. They would make up a Creativity Club, within which Romania could act as a regional axis, ensuring stability and prosperity to the region.

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Changing Borders, Stable Attitudes: The National and European Identity Before and After the Most Recent EU Enlargements

Sergiu Gherghina*

Abstract: This article investigates whether changes occur in the national and European identities of the citizens from the old and new Member States following the 2004 and 2007 enlargements. Complementary, it seeks to identify the major attitudinal determinants of national and European identities for the EU citizens. The analysis focuses on the 27 EU Member States and uses individual level data from the 2002-2009 Candidate Countries and Standard Eurobarometers. The descriptive statistics and multivariate quantitative analyses reveal that no relevant changes occur in the levels of national and European identities. The two types of identities coexist and are shaped at various levels. Their determinants appear to be quite stable over time, thus indicating no major alterations after the enlargement.

Keywords: identity, EU enlargement, attitudinal determinants

Introduction1

The most recent enlargements of 2004 and 2007 meant the formal inclusion of approximately 90 million citizens into the European Union (EU). The inclusion of 12 new Member States moved the EU border eastward and diminished the heavy influence of some Old Member States (e.g.: the Polish and Czech influence on the Lisbon Treaty). The macro-consequences of the enlargement were within a few years: faster circulation of capital throughout Europe, higher migration flows, rapid economic growth in Eastern Europe, and increased support for extreme right parties in many European countries. However, it is unclear if the enlargement coincides with changes in the attitudes of individuals towards their country or the EU. In this respect, this article investigates whether changes occurred in the national and European identities of the citizens from the old (EU15) and new Member States (NMS). Additionally, it focuses on determinants of national and European identities and their explanatory power before and after the enlargements. Accordingly, this analysis is driven by two interrelated research questions:

1An earlier version of this article was presented at the international conferences Identity in the Era of Globalization and Europeanization (Skopje, November 2011) and The European Union and the Politicization of Europe (Vienna, December 2011).

* Sergiu Gherghina is Research Officer at the Department of International Data Infrastructure, GESIS Leibniz Institute for the Social Sciences Cologne. He holds a PhD in Political Science from Leiden University. His areas of research and interest are: political parties, democratization, legislative and voting behavior, and public opinion. E-mail: [email protected]

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Is there a change in the identity attitudes after the enlargement? If so, how do determinants of identity attitudes change over time?

To answer these questions, I focus on the 27 EU Member States and use individual level data from the 2002-2009 Candidate Countries (CCEB) and Standard Eurobarometers (EB). I use descriptive statistics and multivariate quantitative analyses to investigate the changes in national and European identities and their possible causes across years and countries. The tested explanations are density of political discussions, political attitudes (i.e. trust in the national institutions and EU), general retrospective attitudes (life satisfaction), economic variables (prospective evaluations), EU membership evaluations, and the left-right positioning.

The first section conceptualizes the term of identity and scrutinizes the layers of identity formation. The second section formulates a few testable hypotheses to explain the levels of national and European identity. Next, I briefly discuss the research design and variable operationalization. The fourth section provides general empirical evidence and includes the multivariate analyses of determinants for the national and European identities in the old and new Member States. The conclusions summarize the main findings and elaborate on their implications.

Identity Formation: From National to European Identity

The concept of “identity” has contextual meanings (Brubaker and Cooper 2000, p. 1). In its basic form, social identity is the complex of emotional and rational factors derived from the awareness of belonging to a group (Tajfel 1978, p. 63). This process implies both the positive identification with one owns’ group and the strengthening of particular features through a comparison with other groups (Tajfel and Turner 1979). At individual level, identity refers to the abilities of persons to acquire and internalize values characterizing the group to which they belong (Festinger 1954). The development of the group is modeled by the sense of common identity (Smith 1995). The modern period projected the state as a major driving force of identities. Various theories from the field of nationalism studies consider identity as a social, cognitive (Turner 1981; Turner 1991) and elite construct (Hobsbawn and Ranger 1983) or as a product of ethnic (Smith 1998) and cultural interactions (Hutchinson 1994).

Defining “who we are” is a dynamic process, not static irrespective of the level of identity. The reasons for which individual attach loyalty to a certain group2 are constantly evaluated and, consequently, the belonging is redefined. This happens as the sense of common identity that bound the members (Smith 1995), the value and emotional significance attached to the membership (Tajfel 1978, p. 63; 1981) are sometimes lost. There are instances in which the modification is rarely possible. For example, once the identity is formed on the basis of experiences accumulated within specific social culture, the bonds can hardly be broken (Dijkink 1996). However, the key point to remember is that identity shifts can sometimes occur. This process is not primarily based on exclusion. Although Huntington’s claim (2004) according to which we can define our belonging

2 Identity is defined as the belonging to a certain group perceived by its members as different from other groups. For details, see Cottam et al. (2004, 45-46).

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to a group as soon as we know the principles we are against does not completely lack empirical support, it also fails to capture the reality. In order to maintain the collective/group identity, the members have to retain particular norms, values, interests, and attitudes which provide a self-contained image shaping both their identity and relationships with other groups.

Following Anderson’s (1983; 1991) conceptualization of the nations as “imagined communities”, the rise of nationalism within contemporary Europe cannot be neglected However, identity is not confined solely to the state, especially in Europe where the fully sovereign nation-state has reached an end (Habermas 1994). In this context, previous studies revealed two possibilities: a divergence between the national and European identity or a multi-stage identity formation. On the one hand, individuals consider their national identity as being threatened within a broader European context in which they interact with a multitude of cultures (McLaren 2002). As a result, they display negative attitudes towards the EU and thus provide solid bases for Euroskepticism. On the other hand, there are multiple layers of identity (Madens et al. 1996) in which the nation-state becomes the propeller of identity formation at the European level (Jannsen 1991; Anderson 1998). According to the latter view, individuals often identify with several territorial communities simultaneously (Brewer 1993). The coexistence of national and European identities is thus possible; they are not opposites but heavily intertwined (Marks 1999; van Kersbergen 2000; Haesly 2001; Brutter 2003; Risse 2003).

The differences between the national and European identities are not limited to territoriality. The multiple identities interact differently with each other: some are separate identities (no overlap), others are cross-cutting (overlap without integration), others are nested (integrated), and marble cake (reciprocal influences) (Risse and Grabowski 2008, p. 2). Empirical evidence supports the idea that the European citizens display multiple identities. While there are continuous debates regarding the core common elements of such an identity (e.g. cultural vs. political vs. economic), there is a certain trend towards the European becoming a secondary identity for many citizens. Even if we consider the multi-layered approach and we refer to European identity as a second layer, there are a few relevant obstacles. First, the EU is a young community composed of old communities – the nation states – animated by individual strong feelings of separate belonging (Jansen in Boari and Gherghina 2009). Second, the European identity is built upon the national one. Very few characteristics shaping group identity – language, culture, historical experience, single economic and geographic areas, and shared necessity for security – can be reproduced at European level without being mediated by national layers. Consequently, very few people consider themselves Europeans without belonging initially to a country (Jacobs and Maier 1998). On a complementary key, European identity means allegiance to broader political values and principles such as democracy, tolerance, and transnational cooperation (Citrin and Sides 2004, 49). Third, the diversity of the 27 Member States creates a heterogeneous entity that adds a supplementary component to cognitive mobilization towards identity: the acceptance of other cultures (McLaren 2002). Such instances could fuel lower degrees of identification at European compared to national level.

Earlier studies provide empirical evidence supporting the coexistence of the national and European sets of loyalties: recent figures from survey data illustrate how dual national

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and European attachments increased by 10% in less than a decade starting 1992 (Citrin and Sides 2004, 50). Such shifts in attitudes take place even in countries known for their Euroskeptic traditions such as the United Kingdom. The national and European layers of identity are strongly interconnected in contemporary EU. The debates from 2005 in France and the Netherlands reveal these two different identity perspectives: the cosmopolitan project corresponds to the elite-level appealed to political citizenship and rights, whereas the national-populist project centers on social citizenship, ethnic elements, and cultural authenticity, emphasizing the economic and cultural threats of enlargement (Fossum and Menendez 2005; Checkel and Katzenstein 2009, pp. 11-12).

Explaining Identity

One of the bases for group identity is the interaction between individuals. When the layer of reference is a political community – such as the nation-state or the EU – the complex decision making mechanisms and the sophisticated institutional arrangements can be understood mostly through communication and interaction. The high level abstraction of these processes is worsened by the inattentiveness and ignorance of people (Bennett 1996; Blondel et al. 1998). Accordingly, people who communicate may be better able to follow what happens and thus their identity will be enhanced. We expect intense political communicate to positively influence the level of identity (H1).

The level of satisfaction with life can foster national and European attachments (H2). Such satisfaction is not limited to political or economic aspects, but it entails cultural and social components. Furthermore, earlier research explains how perceptions of favorable national and personal economic conditions positively correlate with attitudes towards the EU (i.e. support) in the Member States (Anderson and Kaltenthaler 1996; Anderson and Reichert 1996; Palmer and Whitten 1999; Tverdova and Anderson 2000). Thus, I expect positive assessments of the economic future to have a similar impact on the national and European identities (H3).

The relationship between political trust and identity is bidirectional. Berg and Hjerm (2010) illustrate how national identity can shape political trust in various ways, differentiating between civic and ethnic types of identification. At the same time, the causal arrow goes in the opposite direction as the political state is the reference object of the national identity. This is why citizens are expected to develop a higher sense of belonging to a state in which they have confidence. As the political institutions of the central administration – Parliament and government – are the primary tools for decision making within a state, I expect citizens trusting them to display a higher level of national identification. Rohrschneider (2002) argues that citizens that trust their national institutions have the tendency to vest confidence in the EU institutions as they trust the stances adopted by the national leaders at European level. This tendency of citizens to display attitudes towards the EU according to their evaluation of domestic political institutions is mostly observed with respect to the integration process (Franklin et al., 1994; Rohrschneider 2002). A similar logical mechanism is employed by identity formation and thus I expect trust in domestic political institutions to positively influences the national and European identities (H4). A similar argument can be developed about the trust in the EU that is expected to have a higher impact on the European identity than on the national one (H5).

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The benefits of EU membership can also influence positively the sense of belonging (H6). Benefits are not restricted only to the economic dimension, but involve in addition freedom of movement, access to labor markets etc. it is intuitive to expect that respondents who perceive their country as being part of select club of prosperous and democratic states to foster a higher sense of national belonging. Similarly, the perception of EU as a source of benefits advances identification with it. For this hypothesis, I expect a stronger effect for the European rather than for the national identity. Finally, left and right have different meanings on the political spectrum. Traditionally, a positioning to the right of the spectrum indicates a tendency to favor the national entity. This is the only variable for which I expect divergent effects of the positioning: a positioning to the right to enhance the national identity, whereas a positioning to the left to favor a European identity (H7). However, differences may occur between old and new Member States as left and right have a different meaning in Western and Eastern Europe. Age is used as control variable.

Research Design

When referring to identity, the qualitative analysis is the most appropriate tool to examine and to explain the development over time and across countries. However, the quantitative analysis can help identifying general trends – the goal of this article. I use descriptive statistics to estimate how citizens from the EU Member States perceive who they are and to observe the relationships between the two levels of identity – national and European – across time. The analysis covers the 2002-2009 time period, i.e. two years before the largest enlargement from 2004 and two years after the most recent enlargement. The used data do not come from panel surveys that allow observing the shift in identity over time at the same individuals. Instead, I rely on data where different individuals are included in the surveys: Consequently, I cannot draw conclusions regarding the individual behavior. Whenever I refer to a change in the direction of national identity, I imply the general trend of the respondents from a specific country to position themselves more in this category than before.

The individual level data come from the CCEB and EB surveys, one from each year. I selected those with questions about identity or related items: CCEB 2002.1, EB 57.1 (2002), CCEB 2003.1, EB 60.1 (2003), EB 62.0 (2004), EB 64.2 (2005), EB 66.1 (2006), EB 69.2 (2008), and EB 71.3 (2009). The year 2007 is not included in the analysis as none of the surveys had questions about the European identity. These surveys are appropriate to map trends as they include large comparable datasets in terms of standardized questionnaires, sampling method, and data collection. All the “do not know“ or “do not answer” responses are eliminated from the sample, being considered missing values.

The national and European identities are operationalized through two proxies. For the 2002-2006 surveys, the identity is considered the answer of the respondents to the following question: “Would you say you are very proud, fairly proud, not very proud or not at all proud to be [NATIONALITY - refer to citizenship]/European?” There are four initial response alternatives: “very proud”, “fairly proud”, “not very proud”, and “not at all proud”. The variable is recoded, the categories being merged two by two: the first two form the national identity category, whereas the last two form the category of people who lack national identity. For 2008 and 2009, when the battery of questions is modified

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and these items no longer appear in the questionnaire, I use a different proxy. The asked question is: “People may feel different degrees of attachment to their town or village, to the region, to their country or to Europe. Please tell me how attached you feel to (…) our country/Europe?”. The available answers are “very attached”, “fairly attached”, “not very attached”, and “not at all attached”. These are recoded into two categories, similar to the procedure from the 2002-2006 surveys. The proxies used for the identity variable are not identical. The pride of belonging to a nation is not the same thing with feeling attached to the same nation. However, they are functional equivalents for the purpose of this study. They both capture specific attitudes towards the country and Europe. The association coefficient between pride and attachment (run for the 2004 EB) is 0.9** (statistical significant at the 0.01 level).

The density of political discussions is operationalized as the answer provided to the question about how often a respondent discusses politics. The responses may be 1) never, 2) occasionally, and 3) frequently. The life satisfaction variable is operationalized as the answer to a question asking directly this; available responses were: 1) not at all satisfied, 2) not very satisfied; 3) fairly satisfied, and 4) very satisfied. The prospective economy is a dichotomous variable assessing the expectations of respondents about the future of their economic situation (as answer to a question using these words). Trust in domestic political institutions is an index reflecting the trust people have in political parties, legislature, and government. It ranges from 0 (no trust) to 3 (trust in all three); trust in the EU and EU membership are dichotomous variable. The left-right positioning is a three scale variable with three values (left, centre, and right), whereas age is a four category variable. All variables were scaled from the smallest to the highest assessment.

The Coexistence of National and European Identities

The logic emphasized in the theoretical framework indicates the coexistence of national and European identities. Two expectations are derived from those arguments: 1) the national identity to be stronger than the European one and 2) the dynamic of the two type of identities to be relatively independent. This section provides empirical evidence supporting both expectations. In this respect, it presents the general trends of national and European identity. It uses individual level data from CCEB and EB between 2002 and 2009 and distinguishes between the old and new Member States. Figure 1 reflects the longitudinal evolution of national identity with similar levels in the two types of Member States. Approximately 90% of the European citizens display attachment to their national identity, slightly more in the EU15 compared to the NMS. However, following the last wave of enlargement, the level of national identity in the NMS exceeds that from the EU15. Whereas the stability of national identity appears to characterize the citizens from the EU15, the NMS register a continuous (although minor) increase (with one drawback in 2006) throughout the examined period of time.

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Figure 1: Level of National Identity among the citizens from Old and New Member States

By comparing the percentages in Figures 1 and 2, we can easily notice that there are more respondents attaching loyalty to their country than to Europe. The European identity is displayed, on the average, by three quarters of respondents; there are slightly more individuals from NMS feeling Europeans than those from the EU15. Overall, the European identity gravitates around the same values, with minor oscillations cross the years. A major downside appeared to be in 2005 when the consequences of the Constitutional Treaty’s failure were visible and when some of the NMS encountered difficulties in the aftermath of their accession. Apparently, the year following the accession registers drawbacks with respect to the European identity (see 2008 in the figure). In general, two conclusions can be drawn. First, there are no relevant differences between the attachment to Europe of citizens from the old and new Member States. Although the beginning of the analyzed period marked a relatively high difference, by 2004 the levels were almost equal due to an initial decrease among the citizens of the NMS. Second, the enlargements do not appear to influence the levels of European identification on medium term; there are only short term effects (one year).

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Figure 2: Level of National Identity among the citizens from Old and New Member States

One explanation for these low oscillations is the understanding attached by citizens to Europe. The theoretical framework emphasized the fuzzy meaning that a broader community like the EU can have to its citizens. Table 1 includes the different meaning attached by citizens to the EU in three different moment (2004, 2007, and 2009). These are not exclusive categories; the figures indicate the percentage of people who mentioned those features for the EU. The most popular meaning attached to the EU is the mobility of people, followed by peace. The latter is somewhat normal if we recall the theory mentioning that democracies do not go to war with each other. Two economic features are also pointed out by a relevant percentage of citizens: the Euro and economic prosperity. Such evidence confirms earlier findings that mentioned the support for the EU as mainly driven by economic and mobility factors. It is somewhat surprising that a relatively small percentage attaches the meaning of democracy to the EU given its positive efforts in Eastern Europe resulting in democratization (Pevehouse 2005: Schimmelfennig 2005; Gherghina 2009). Unemployment and bureaucracy are the two negative perceptions observable for a share between one fifth and one quarter of the European citizens.

Overall, two general trends are visible. First, there are some differences between the meaning attached to the EU by citizens from the old Member States compared to the meaning attached by citizens from NMS. For example, peace, Euro, being stronger in the world and the EU as waste of money are features identified much more by citizens from the EU15; the citizens from NMS see more the EU in terms of economic prosperity, social protection, and mobility. Thus, citizens associate the EU either with features broader than their nation-states (the case of the EU15) or with features corresponding to their needs (the NMS). Second, and more important for this longitudinal investigation,

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there are rare instances in which the meaning changes over time. Peace is one of those features, quite likely determined by the presence of troops belonging to some EU member State in Iraq or Afghanistan. Cultural diversity is another example, relevant for our case. In a nutshell, the stability of meanings can explain the relative stability of European identity across time.

Table 1: The EU Meaning for Citizens from the Old and New Member States (%)

Peac

e

Econ

omic

pro

sper

ity

Dem

ocra

cy

Soci

al p

rote

ctio

n

Free

mob

ility

Cul

t. di

vers

ity

Stro

nger

in w

orld

Euro

Une

mpl

oym

ent

Bure

aucr

acy

Was

te o

f mon

ey

Loss

cul

t. Id

entit

y

Crim

e

Ext.

bord

er c

ontro

l

2004

EU15 38 25 25 13 55 31 32 48 18 25 24 15 21 24

NMS 38 34 29 23 57 25 26 30 17 19 15 11 17 14

2007

EU15 37 21 21 11 54 28 29 46 15 26 23 13 21 21

NMS 31 27 25 14 60 23 20 28 11 14 12 9 15 9

2009

EU15 29 18 22 11 44 20 25 38 14 22 22 12 16 17

NMS 22 19 23 14 54 16 19 27 13 14 15 8 12 8

Figure 3 presents the percentages of citizens in the EU15 and NMS holding both identities. the levels and general trend are similar to those from the European identity. There are minor oscillations over time. Unlike the European identity, the dynamic of the citizens holding both identities differs between the EU15 and the NMS. The latter have a higher tendency of stability: with the exception of 2005, the percentage of citizens with the national and European identities is similar. Although there are visible some oscillations for the EU15 respondents, there are no clear connections between them and the enlargements.

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Figure 3: Percentages of Citizens having both National and European Identity

These general trends lead to three conclusions. First, consistent with previous findings, there is a priority of the national over the European identity: more individuals identify themselves as nationals rather than Europeans. However, as illustrated in Figure 3, a large number of respondents has both identities. Second, neither national nor European identities appear to be influenced by enlargement. Whenever oscillations occur, they appear random. The major failure of the Constitutional Treaty and the first impact of accession in some new joiners had only minor consequences with respect to identity. if the stability of national identity is not surprising, at European level one could have expected a different dynamic given the increased number of Member States. However, the empirical evidence illustrates stable identification of citizens with Europe, primarily due to a similar understanding of the EU across time. Third, there are no relevant differences in the attitudes of citizens from old and new Member States, their degrees of identification and trends are fairly similar. The following section takes this discussion one step further; it investigates to what extent the determinants of the national and European identity function and change over time.

Converging Explanations

Table 2 includes the logistic regression coefficients for national identity at three moments in time: two years before the largest enlargement and the years following the two most recent enlargements. The evidence generally supports the hypothesized relationships with no relevant differences between EU15 and NMS respondents. There are two exceptions. First, the density of political discussions has a counterproductive role in the case of the citizens from EU15: those respondents who discuss less politics with their friends attach more loyalty to their country. For NMS the relationship is weak. Second,

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the effect of the EU membership on national identity is mixed in the EU15 countries. For example, in 2005 respondents who consider that the EU membership is negative are more likely to have national identity, whereas in 2008 the situation is reversed. The third best predictors for national identity are life satisfaction, trust in political institutions and age (older respondents are more likely to have attachments to their country). At the same time, the prospective economy does not perform greatly in explaining national identity. Similarly, the EU related factors do not perform quite well indicating that national identity is shaped somewhat independently from the European processes. From a longitudinal perspective, two observations are relevant. The explanatory potential of the statistical models is quite stable across time. Second, there are isolated cases (e.g. the left right positioning in 2008) in which the direction and statistical significance of predictors suffers modifications. Consequently, similarly to the general trend from Figure 1, the explanations are relatively stable over time indicating no major changes in the attitudes of individuals.

Table 2: Determinants of National Identity

Variables 2002 2005 2008

EU15 NMS EU15 NMS EU15 NMS

Frequency of political discussions

0.62** (0.06)

0.98 (0.05)

0.62** (0.05)

1.04 (0.08)

0.90 (0.07)

1.14 (0.13)

Life Satisfaction 1.52** (0.05)

1.77** (0.04)

1.37** (0.05)

1.60** (0.07)

1.19** (0.06)

1.46** (0.10)

Prospective Economy 1.08 (0.04)

1.17** (0.04)

1.12* (0.05)

1.02 (0.07)

1.08 (0.07)

1.05 (0.12)

Trust in Political Institutions 1.29** (0.04)

1.55** (0.04)

1.34** (0.04)

1.36** (0.06)

1.20** (0.05)

1.39** (0.11)

Trust in the EU 1.07 (0.09)

1.03 (0.08)

1.24** (0.08)

1.21 (0.13)

0.96 (0.12)

1.46* (0.19)

EU Membership is Good 1.08 (0.06)

1.16** (0.04)

0.91* (0.05)

1.21* (0.09)

1.19* (0.07)

1.47** (0.13)

Left-Right Placement 1.51** (0.05) - 1.42**

(0.05)1.21** (0.07)

1.12 (0.06)

0.95 (0.10)

Age 1.16** (0.04)

1.13** (0.03)

1.15** (0.03)

1.31** (0.05)

1.30** (0.05)

1.16 (0.08)

Constant 1.08 0.34 2.27 0.44 2.65 1.96

Nagelkerke R2 0.08 0.13 0.08 0.07 0.03 0.06

N 8,815 6,991 10,575 6,288 10,553 6,383

Notes: Reported coefficients are odd-ratios (standard errors in brackets).** p<0.01; * p<0.05.

A similar story is told by the statistical analysis for European identity (Table 3). The statistical models – performing much better than for national identity – have similar explanatory potential over time. There is general support for the hypothesized relationships, two exceptions are again observable. The political discussions have an ambiguous role in shaping the European identity, whereas the respondents positioned

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to the right of the political spectrum are more likely to have this type of identity in the EU15 countries (contrary to our expectations). The most prominent variables are those connected to the EU: trust in the EU and the positive evaluation of EU membership. A citizen having confidence in the EU or considering the EU membership as positive is on average two times more likely to display European identity compared to those who do not trusty the EU. A positive evaluation of life and the favorable economic prospects foster European identity to a greater extent than in the case of the national identity. Moreover, contrary to what observed for the national identity, younger people appear more inclined to display European identity; however, the likelihood is somewhat weaker. Compared to the coefficients in Table 2, the European identity reveals slightly more differences between the EU15 and NMS, but they remain quite reduced in the overall picture.

Table 3: Determinants of European Identity

Variables 2002 2005 2008

EU15 NMS EU15 NMS EU15 NMS

Frequency of political discussions

1.06 (0.04)

0.96 (0.05)

1.10* (0.04)

1.12* (0.06)

1.25** (0.03)

1.19** (0.05)

Life Satisfaction 1.36** (0.04)

1.64** (0.04)

1.22** (0.03)

1.27** (0.05)

1.12** (0.03)

1.35** (0.04)

Prospective Economy 1.12** (0.03)

1.19** (0.04)

1.16** (0.03)

1.04 (0.05)

1.22** (0.04)

1.14** (0.05)

Trust in Political Institutions 1.12** (0.03)

1.02 (0.03)

1.10** (0.02)

1.00 (0.04)

1.12** (0.03)

1.02* (0.04)

Trust in the EU 1.99** (0.07)

2.95** (0.08)

2.24** (0.06)

2.16** (0.08)

2.07** (0.06)

1.74** (0.08)

EU Membership is Good 2.30** (0.04)

1.32** (0.04)

2.02** (0.03)

2.03** (0.06)

1.96** (0.04)

1.92** (0.05)

Left-Right Placement 0.98 (0.04) - 1.02

(0.03)1.22** (0.05)

0.96 (0.03)

1.20** (0.04)

Age 0.97 (0.03)

1.09** (0.03)

0.91** (0.02)

0.92* (0.04)

1.02 (0.03)

0.95 (0.03)

Constant 0.08 0.19 0.14 0.13 0.13 0.12

Nagelkerke R2 0.21 0.18 0.22 0.19 0.20 0.15

N 8,494 6,702 10,478 6,447 10,523 6,358

Notes: Reported coefficients are odd-ratios (standard errors in brackets).** p<0.01; * p<0.05.

Conclusions

This article aimed to identify whether changes in the identity attitudes occurred after the EU enlargements from 2004 and 2007 and what elements drive these changes. The first major conclusion, derived from the evidence presented in Figures 1 and 2, is that enlargement appears to have no effect on national or European identity; no relevant changes occur over time in either EU15 or NMS. The visible drawback occurred for

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European identity around the fuzzy period following the failure of the Constitutional Treaty. Although more citizens identify themselves with their nation rather than with Europe, the European identity registers quite high and stable values. Such a stability can be caused by similar meanings attached to Europe by citizens over time (Table 1). The same holds true when analyzing the percentages of people holding both identities. The latter leads to a second conclusion: the national and European identities are not exclusive, rather complementary. However, their determinants are different. The national identity is primarily shaped by domestic components, whereas the European identity is related to the European processes. Third, the determinants of national and European identity have fairly similar explanatory power over time. Thus, no changes appear to be produced by the EU enlargement in the attitudes of the citizens.

By departing from the trends identified in this article, further studies can distinguish between identity components (e.g. social, cultural, political or economic) and focus on cross-national variation. In this respect, the meaning of identity for the EU citizens requires a detailed exploration to combine qualitative assessments and micro-level investigation focusing on the content of the self-declared belonging. Future analysis can explore the identity formation in the European societies and thus address the nuances arising from the various minority-majority relations or the nexus between national and European identity.

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• Citrin, J. and Sides, J., 2004. “Can There be Europe without Europeans? Problems of Identity in a Multinational Community” in R. Herrmann, M. Brewer, and T. Risse (eds.) Identities in Europe and the Institutions of the European Union, Lanham, Md.: Rowman and Littlefield, 41-70.

• Cottam, M. L., Dietz-Uhler, B., Mastors, E., Preston, T., 2004. Introduction to Political Psychology. New Jersey: Lawrence Erlbaum Associates.

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fiction” in M. Gastelaars and A. de Ruijter (eds.). A United Europe. The Quest for a Multifaceted Identity. Maastricht: Shaker.

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Les présidents de la Commission européenne: entre trajectoires professionnelles et circonstances politiques

Victor Negrescu*

Abstract: The important impact of the international economic crisis on the national European economies led to the strengthening of the role of the European Commission and of its president who started to play a double role by preserving the bureaucratic image while dynamically acting as a spokesman for the European austerity measures. This situation confirms the importance of the personality of the European leaders on the role they play at European level, therefore it would be important for us to study the social and professional background of the EC presidents to understand their role in the European Union’s evolution. This research will enable EU specialists to render more important the social dimension of their studies and appreciations on different policy-making styles.

Keywords: European Commission, professional and social background, public policies, European communication, European institutions

INTRODUCTION

Le caractère international de la récente crise économique et son fort impact sur les économies nationales des pays européens a augmenté le rôle de la Commission européenne qui est devenue pour les gouvernements nationaux une modalité d’échapper à la pression de l’opinion publique nationale.

Ainsi la Commission européenne s’est fut assignée le rôle de garant des décisions programmatiques et bureaucratiques au niveau européen tandis que son président est devenu le porte-parole des politiques d’austérité. Cette nouvelle position est due notamment aux modifications techniques des dernières années dans la construction européenne qui ont amené à l’élaboration d’un échafaudage institutionnel à la tête duquel se trouve, du moins pour l’instant, cette institution, en tant que pouvoir exécutif de l’Union européenne.

* Victor Negrescu, Dr., est un ancien conseiller du Parlement européen et roumain et à present il enseigne à l’Université chretienne « Dimitrie Cantemir ». Avec un master en Etudes européennes et internationales à IEP Grenoble et un doctorat en relations internationales à l’Ecole nationale d’etudes politiques et administratives avec une spécialisation en politique européenne au Collège européen de Belgique. Courrier électronique : [email protected].(Victor Negrescu, PhD, is a former adviser at the European and Romanian Parliament and presently teaching at the Dimitrie Cantemir University. MA in European and International studies at IEP Grenoble and a PhD in International Relations at the National School of Political and Administrative Studies with a specialization in European politics at the European College in Belgium. E-mail: [email protected])

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À cause de ce fait là le rôle des commissaires européens et surtout du président de la Commission est un de premier plan dans le déroulement quotidien des politiques européennes et ceci explique l’intérêt accru que les pays et les groupes politiques accordent à cette haute fonction. En partant de ce constat nous avons décidé de réaliser une étude qui cherche à mettre en évidence la personnalité des présidents de la Commission européenne car cette institution a été souvent accusée d’être trop éloignée des citoyens européens. Pour faire cela nous allons établir des liens entre les trajectoires socioprofessionnels des présidents de la Commission et leur parcours à la tête de l’exécutif européen.

Cette perspective nous offre la possibilité d’inclure dans notre étude tant l’approche individualiste, selon laquelle le parcours professionnel est déterminé par les choix rationnels de l’acteur, que l’approche structuraliste qui met au premier plan les relations qui existe au niveau des structures et des institutions. Une telle démarche, inspirée par les théories de Boudon, nous permettra d’identifier les variables qui viennent d’influencer la nomination du président de la Commission européenne.

Afin de mener à bien notre étude, l’ouvrage sera structuré en trois parties dont chacune traite des aspects différents du problème. La première partie sera consacrée à l’étude du rôle de la Commission européenne et du fonctionnement interne de l’exécutif européen, et se concentrera notamment sur la mise en évidence du rôle assumé par le président de la Commission dans l’échafaudage institutionnel mais également dans l’histoire de l’Union européenne.

La seconde étape de notre étude traitera de l’existence ou non d’une typologie du président de la Commission européenne à partir de l’étude statistique des trajectoires socioprofessionnelles des présidents de la Commission depuis 1958 jusqu’à aujourd’hui. Cette approche individualiste permettra d’établir s’il existe bel et bien un modèle de parcours socioprofessionnel qui puisse amener quelqu’un à la tête de la Commission.

Finalement, la dernière partie sera réservée à la mise en évidence des relations qui peuvent exister entre la typologie du président de la Commission, sa nomination et ses résultats dans cette haute fonction. Il s’agit en réalité d’étudier à travers une perspective structuraliste, les facteurs contextuels et institutionnels qui ont pu déterminer la nomination de certaines personnes à la tête de l’exécutif d’une part, et les résultats obtenus de l’autre.

I. COMMISSION EUROPÉENNE, ROLE ET FONCTIONNEMENT

Notre étude des trajectoires socioprofessionnelles des présidents de la Commission européenne suppose une connaissance approfondie du rôle que cette institution occupe dans l’échafaudage de la construction européenne. En effet c’est seulement ainsi qu’on pourra déterminer l’importance de cette fonction sur le plan européen et les nécessités que suppose un tel poste.

La Commission européenne est la première institution permanente de l’Union européenne appelée dans le Traité de la C.E.C.A, « l’Haute Autorité ». Son objectif principal est d’assurer à chacune des communautés membres de l’Union européenne son identité propre, en mettant avant tout en valeur les intérêts communautaires au détriment des intérêts partisans des États membres.

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L’institution rempli le rôle du pouvoir exécutif et se compose au présent de 27 membres, soit un commissaire par pays membre. Les commissaires sont élus en fonction de leurs compétences générales et doivent offrir toutes les garanties d’indépendance vis-à-vis du pays qui la nominalisé.

En échange de leur indépendance et du fait qu’ils ne peuvent pas exercer d’autres fonctions durant leur mandat, les commissaires européens jouissent des droits comme l’immunité de juridiction pour les actes réalisés durant le mandat et le non payement de l’impôt sur le revenu.

Initialement les commissaires étaient nommés pour un mandat de 4 ans mais depuis le 23 janvier 1995, ce mandat a été prolongé jusqu’à 5 ans avec possibilité de renouvellement. La Commission doit être investie par le vote du Parlement, et est responsable devant le législatif européen et le Conseil européen. Malgré cela la procédure de renvoi pour les deux cas est complexe, ce qui garantie à la Commission un certain degré d’inamovibilité. Comme dans le cas des ministres, chaque commissaire est responsable d’un certain portefeuille ou d’un domaine politique de même que du Directorat général dans le domaine respectif1 :

Le président de la Commission européenne est nommé par le Conseil européen en fonction de ses compétences. Une fois choisi il préside la Commission mais pour l’instant il ne joue qu’un rôle faible dans la nomination des commissaires, une situation qui risque de s’agrandir dans le cas où les récentes propositions de modification des règlements européens seront adoptées par les pays membres. Pour l’instant la couleur politique du président de la Commission n’est déterminée, en général, que par le poids que les groupes politiques ont au niveau des présidents européens mais il est prévu que le futur président de l’exécutif soit de la même couleur politique que la majorité du Parlement européen2 : Le président de la Commission est celui qui représente l’exécutif dans les relations avec les autres institutions européennes et les pays non-membres de l’Union européenne. Le président est responsable du bon fonctionnement de la Commission et des politiques entreprissent par l’ensemble des commissaires européens qui décident ensemble sur toute politique importante qui devra être entreprise par l’exécutif européen.

La Commission européenne s’assume un rôle multiple : de garant des Traités communautaires, d’initiateur des lois et de vérificateur du bon fonctionnement des normes communautaires. Il faut mentionner pourtant qu’en ce qui concerne le rôle d’initiateur législatif la Commission se trouve de plus en plus en contradiction avec le Parlement européen qui cherche à se légitimer en s’assurant un certain monopole sur cette procédure. Ainsi, à partir des années 1970, on a remarqué une modification de ce pouvoir pour la Commission qui apprécie cela plus comme un pouvoir de négociation dans le sens où elle a introduit dans l’élaboration de ces propositions une étape de pré-négociation avec les acteurs sociaux et la consultation par sondage de l’opinion publique ou des personnes visées. Cette démarche n’a pas ralenti seulement une fois la procédure législative et on peut à ce titre donner l’exemple du livre vert sur « les Perspectives des

1 Dacian Cosmin Dragoş, Uniunea Europeană. Instituţii. Mecanisme, All Beck, Bucureşti, 2005, pp. 95- 121:2 Koen Lenaerts, Piet van Nuffel, Constitutional Law of the European Union, Sweet & Maxwell, London, 2005, pp. 100-138:

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finances du budget européen » qui est resté pendant pas moins de 4 ans bloqué avant de prendre une nouvelle forme3.

En effet, un rôle important assumé par le président de la Commission européenne est celui de négociateur. Celui-ci doit premièrement régler les conflits qui peuvent exister au sein de l’exécutif concernant certains propositions qui nécessitent l’unanimité des commissaires, deuxièmement discuter avec les États membres et les convaincre de la nécessité d’appliquer certaines politiques européennes qui peuvent être à premier abord défavorables à leurs pays, et finalement s’entretenir avec les autres États et organisations internationales concernant le rôle de l’Union européenne sur la scène internationale.

Cette fonction politique, accompagnée d’un certain nombre de prérogatives administratives, confère au président de la Commission européenne beaucoup de pouvoir mais également de responsabilités pour le fonctionnement et l’avenir de l’Union européenne. Dans ce sens le support moral et politique que le président de la Commission européenne peut avoir au niveau européen est extrêmement nécessaire au bon fonctionnement de l’appareil exécutif.

II. LA TYPOLOGIE DU PRESIDENT DE LA COMMISSION EUROPÉENNE

D’après l’analyse qu’on a pu faire du rôle de la Commission européenne et du président de l’exécutif européen, on est arrivé à la conclusion selon laquelle la personnalité du leader politique qui se trouve dans cette position est extrêmement importante pour le bon fonctionnement de l’institution.

Ainsi il semble recommandable de poursuivre notre analyse par une étude des diverses personnalités qui ont occupé ce poste à travers l’histoire en se concentrant sur leurs parcours socioprofessionnels. Cette perspective nous permettra de mettre en évidence les caractéristiques statistiquement démontrables nécessaires pour devenir président de la Commission européenne.

Premièrement il faut savoir que le premier président de la Commission européenne a été Walter Hallstein qui a été nominalisé pour ce poste en 1958 et l’a occupé pendant pas moins de 9 ans, chose qui a permise à la nouvelle organisation naissante d’avoir une certaine continuité dans son fonctionnement. Depuis lors la Commission européenne a eu 12 présidents, le dernier, José Manuel Durao Barroso, étant encore en place.

En regardant les résultats, obtenus à travers notre étude, des parcours socioprofessionnels on apprend tout d’abord que les présidents ont été tous des hommes qui avaient en moyenne 55,17 ans lors de leur nomination, ayant des âges comprises entre 43 (3ième président : Franco Maria Malfatti) et 65 ans (2ième président : Jean Rey). Cette moyenne d’âge semble indiquer l’existence au niveau européen d’un compromis concernant le fait qu’une position de ce type nécessite une personne dynamique mais également dotée d’une certaine expérience politique qui lui permettra d’exercer à bien cette fonction.

Concernant la langue maternelle des présidents de la Commission il faut savoir que pas moins de 5 étaient francophones soit 41,7%, suivi par 2 italiens qui représentent 16,7%. Le reste des présidents de la Commission étaient de pays différents, soit allemands, hollandais, espagnols, portugais ou anglais. On note donc une répartition inégale selon

3 Augustin Fuerea, Instituţiile Uniunii Europene, Universul Juridic, Bucureşti, 2002, pp. 69-78.

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la langue maternelle chose qui indique un poids importants des pays francophones au niveau européen. Malgré cela il ne faut pas oublier que tous les présidents de la Commission parlaient au minimum deux langues étrangères chose qui limite un peu notre première appréciation.

S’il s’agit d’étudier l’orientation politique des présidents de la Commission on verra que 5 sont de gauche-socialiste, 5 sont de droite-conservateurs et 2 sont libéraux. Cette répartition politique indique bien évidemment le poids des deux groupes sur l’échiquier politique européen suivi de loin par les libéraux qui ont su profiter, lors de leur nomination, des clivages existants entre les principaux groupes politiques et des contextes socio-économiques4.

On a ainsi parlé de soutien politique et bien évidemment cela est le plus visible à travers la durée du mandat des commissaires européens qui s’élève en moyenne à 50,36 mois, plus qu’un mandat de 4 ans mais moins que le mandat actuel de 5 ans des commissaires européens. À ce titre l’homme politique qui a passé le plus de temps à la tête de la Commission européenne, n’est plus ni moins que Jacques Delors, 120 mois, artisan d’une réforme profonde de l’Union européenne et de la relance de la construction européenne dans les années de la chute du communisme. À l’opposé les mandats les plus courts furent celui de l’hollandais Sicco L. Mansholt, qui dura 7 mois et qui n’a pas pu régler rapidement les problèmes provoqués par la crise pétrolière de 1971, et celui de l’espagnol Manuel Marin (6 mois) qui étant nommé par intérim n’a pas pu conserver d’avantage sa place malgré le soutien dont il bénéficiait de la part de plusieurs leaders politiques importants de l’époque.

Si nous analysons la profession des présidents de la Commission européenne on conclu que la plupart sont des juristes, soit 7 présidents équivalant à 58,3%. La deuxième profession est celle d’économiste (2 – 16,7%) suivie par 1 journaliste, 1 agriculteur et 1 philologue. On remarque ici une nette domination des juristes qui semblent être les mieux préparés pour s’assumer ce rôle hautement problématique et régi par énormément de procédures juridiques qu’il est difficile de pouvoir se les assumer sans une bonne connaissance des lois européennes.

Il est également important de noter que la plupart des présidents de l’exécutif européen ont été auparavant soit ministres (4 – 33,3%), soit premiers-ministres (4 – 33,3%). De même nous remarquons la présence de 3 anciens commissaires et d’un ancien haut-fonctionnaire. Ces chiffres indiquent une réelle préférence pour les personnes ayant déjà eu une expérience exécutive dans leur propre pays ou au niveau européen.

Il faut noter que la plupart des présidents de la Commission décident de rester dans la politique après la fin de leurs mandats (6 – 54,5%) tandis qu’un d’entre eux va même occuper une haute fonction exécutive et plus précisément celle de Premier Ministre, il s’agit bien évidemment de Romano Prodi. Les 4 autres présidents de la Commission se sont dirigés quant à eux vers les affaires où ils ont fait profiter de leur expérience les grandes multinationales qui ont payés leurs services.

Ce qu’il faut savoir c’est que les mandats les plus courts en moyenne ont été durant la première période de la construction européenne, quand durant les premières 16 années

4 Steven van Hecke, Paolo Alberti, « Les groupes parlementaires au Parlament européen. Changements et continuités », in (édité par) Pascal Delwit, Philippe Poirier, Parlement puissant, électeurs absents? Les élections européennes de juin 2004, Editions de l’Université de Bruxelles, 2005, pp. 273-294.

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de son existence on a eu pas moins de six présidents de la Commission tandis que les six autres présidents qui ont suivi sont restés en place pendant pas moins de 33 ans. Cette chose souligne une fragilité de la fonction au début de la construction européenne malgré le long début de la commission Hallstein.

De même, si on met en parallèle le nombre de pays membres, le nombre de présidents de la Commission et l’intervalle de temps entre chaque élargissement, on arrive à la surprenante conclusion que l’agrandissement du nombre des pays membres n’a pas amené à une fragilisation de la Commission européenne. Ainsi les données indiquent que lorsqu’il y avait 6 membres, la Commission a changé pas moins de 3 présidents pour un intervalle de temps de 7 ans, tandis qu’à l’opposé lorsqu’on avait 12 membres on n’a eu qu’un seul président pour une période de 9 ans. Par conséquent les périodes avec le plus de difficulté semblent avoir été lorsque l’Union européenne ne comptait que 6, 9 et 15 pays. Cependant on peut préciser le fait que la fragilité de la Commission à ses débuts était due à la difficulté à saisir une construction européenne concertée entre les pays membres dans une période encore de tension. A l’opposé lorsqu’on parle des problèmes rencontrés durant la période avec 15 membres, il faut souligner que ceux-ci ont été bien et bel réels et que la baisse occasionnelle de la fragilité de la Commission en rapport avec l’augmentation du nombre ne signifie aucunement une baisse des difficultés engendrée par le poids du nombre dans la prise de décision.

D’après l’ensemble des données qu’on a pu ressortir de notre étude des trajectoires socioprofessionnelles des présidents de la Commission, on est arrivé à la conclusion qu’un président type de la Commission devrait être tout d’abord un homme, âgé d’environ 55 ans, ayant le français comme langue maternelle et étant soit de gauche soit de droite politiquement. De plus le modèle type de président de l’exécutif européen doit également être juriste, avoir eu des fonctions dans un exécutif européen et viser par la suite une continuation de sa carrière politique. Pour finir le portrait robot il n’est pas inutile de préciser que les présidents qui sont restés le plus dans leurs fonctions sont ceux qui ont présidé la Commission dans la période postcommuniste.

III. RÉUSSITE, ENTRE SUCCES PERSONNEL ET FACTEURS STRUCTURAUX

L’objectif de notre étude, spécifié dès l’introduction, était d’identifier le poids que pesait la trajectoire socioprofessionnelle sur la réussite du mandat de président de la Commission en comparaison à l’influence exercée par les facteurs structuraux.

Dans les variables prises pour la réalisation de notre étude il faut mentionner que nous comprenons la réussite du mandat de président de la Commission à travers la durée dont ce mandat fut exercé par le président. De même la trajectoire socioprofessionnelle a été étudiée comme nous l’avons déjà remarquée dans la partie précédente à travers des caractéristiques comme l’âge, le sexe, la langue, la carrière ou l’option politique. Ce que nous essayerons de faire dans cette partie de l’étude c’est d’identifier si derrière ces caractéristiques personnelles se cache une réalité structurelle déterminée non pas par le parcours individuel de l’homme politique mais par les nécessités politiques de l’époque.

Ainsi dans un premier temps nous avons pris comme première variable principale la durée du mandat des divers présidents que nous avons comparé avec les divers variables socioprofessionnelles des chefs de l’exécutif européen. Le premier constat fut que les

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présidents de droite ont résisté d’avantage à la tête de la Commission, en moyenne 57 mois, contrairement aux socialistes qui sont restés 48,4 mois et les libéraux avec seulement 42 mois (voir figure 1). Cette réalité est déterminée par le fait que les hommes politiques de droite ont dominé le début de la construction européenne lorsqu’il y avait un besoin réel de stabilité exécutive tandis que les hommes de gauche, même s’ils détiennent le record avec Jacques Delors en termes de durée du mandat, ont présidés la Commission pendant plusieurs moments de crises durant la construction européenne. L’échec des présidents libéraux, qui réunissent moins d’un mandat complet de 4 ans, est du au poids restreint que ce group politique occupe sur la scène européenne.

S’il s’agit de mettre en rapport la durée du mandat et la langue maternelle des présidents de l’exécutif européen on remarquera que les allemands dominent, étant suivis par les francophones, tandis qu’à la fin du pluton se trouvent les espagnoles et les hollandais. Cela s’explique par le poids réel que pèsent les deux ensembles linguistiques en Europe et au niveau des institutions européennes qu’elles ont fondés ensemble (voir figure 2).

Concernant la relation entre les âges et les mandats, une chose ressort c’est que les plus jeunes et les plus anciens ont les mandats les plus courts tandis que ceux ayant entre 53 et 60 ans réussissent à garder la maîtrise de l’exécutif européen pendant la durée la plus longue. Comme nous avons déjà mentionné auparavant ces chiffres indiquent un besoin ressenti par l’ensemble des pays européens à avoir à la tête de la Commission une personne dynamique mais également dotée d’expérience.

En se concentrant sur le rapport avec les professions ont remarque que les économistes restent le plus longtemps à la tête de la Commission européenne. En effet un économiste reste en moyenne 84 mois tandis qu’un juriste 51 mois et un agriculteur seulement 7 mois (voir figure 4). Nous notons également que parmi les six derniers présidents de la Commission, cinq sont des juristes ce qui souligne l’importance croissante de la connaissance juridique de la législation européenne dans la nomination à cette fonction. Remarquons cependant la présence des économistes dans les années ’80 et le début des années ’90, moments marqués par de profonds changements économiques générés par une libéralisation du marché, la chute du communisme et une hausse constante des cours du pétrole. Ainsi la nomination des présidents de la Commission qui soient économistes n’est pas le jeu du hasard chose qui démontre une influence structurelle sur la nomination à la tête de l’exécutif.

Autre fait notable est que contrairement aux espérances les présidents de la Commission qui ont précédemment été des commissaires sont ceux qui ont eu les mandats les plus courts soit 16 mois seulement. A l’opposé les hauts fonctionnaires restent 108 mois tandis que les anciens ministres environ 60 mois. La conclusion qui résulte de ces résultats est la différence notable qui existe entre la posture de commissaire et de président de la Commission, rôle qui suppose encore plus d’art de négociation et de soutien de la part des hommes politiques des pays membres. De la même façon on peut en déduire une pression interne des structures de l’Union européenne qui semble réclamer un fonctionnaire à la tête de la Commission plus qu’un homme politique avec de l’expérience exécutive.

Après avoir analysé les rapports entre les mandats et les caractéristiques socioprofessionnelles nous allons poursuivre avec une analyse des rapports entre le nombre des pays membres et les variables personnelles.

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A partir de l’étude de la relation entre l’option politique et le nombre de membres il en résulte que le début de la construction européenne fut dominé par la droite qui commence à reprendre de nouveau du poids dans les dernières années (voir figure 3). Ces deux périodes soulignent deux étapes différentes de l’approfondissement de la construction et des institutions européennes, soit respectivement le début de l’Union européenne et la prise de décision dans une Europe à 25 ou 27 membres. Les libéraux quant à eux réussissent à prendre la tête de l’exécutif européen dans les moments de profonde libéralisation du marché soit avant le début de la première crise pétrolière et le début des années ’80 avec la période dominée par les conceptions économiques de Friedman visibles à travers la gouvernance de Margaret Thatcher en Angleterre et Ronald Reagan aux États-Unis. La gauche est quant à elle à la tête de la Commission européenne dans les principaux moments d’élargissement de l’Union européenne chose qui souligne l’attachement de ce group aux processus d’élargissement.

De même si nous faisons une analyse des rapports existant entre la langue maternelle des présidents de la Commission et le nombre de pays membres, nous observons que les francophones sont présents dans tout les moments de la construction européenne quelque soit le nombre tandis que les italiens lorsqu’il y a avait 6 et 15 pays membres. Il faut également noter qu’aucune communauté linguistique ne prend plus d’une fois la tête de la Commission entre deux élargissements. La présence de la communauté francophone souligne le poids réel de cette communauté dans l’espace européen, l’Organisation internationale de la Francophonie comptant pas moins de 12 pays membres de l’Union européenne et désirant profondément s’appuyer sur les structures européennes pour aider aux développements de ses politiques.

Les résultats obtenus à la suite de l’étude des relations existantes entre les caractéristiques socioprofessionnelles des présidents de la Commission européenne et la durée des mandats rapportée au nombre de pays membres nous ont révélés l’existence au niveau de la nomination à la tête de l’exécutif européen de facteurs structuraux importants. En effet, il semblerait donc qu’en réalité la qualité personnelle des leaders politiques ayant occupé cette fonction n’a eu qu’une faible, mais réelle, incidence sur leurs nominations.

CONCLUSIONS

Aujourd’hui l’Union européenne compte dans ses rangs pas moins de 27 États membres, un nombre qui peut parfois devenir difficile à gérer surtout dans les moments de la prise de décisions. Ce constat, accentué par « une guerre des positions » entre les institutions européennes, rend parfois difficile à gérer la tâche de la Commission européenne à mener à bien les politiques communautaires.

Par conséquent, la fonction de président de la Commission devient aujourd’hui plus importante que jamais si on tient compte de l’importance des prérogatives de l’exécutif européen. En effet la réalité communautaire montre qu’un président de la Commission doit être très habille dans l’art des négociations avec les États membres et les autres institutions, chose qui serait impossible sans une certaine expérience professionnelle et un soutien réel dans les hauts cercles européens.

L’étude que nous avons réalisée permet à ce titre de mettre en évidence le poids que joue la trajectoire socioprofessionnelle dans la nomination à la tête de la Commission

75


européenne mais souligne également l’existence de facteurs structuraux encore plus importants. Ainsi il semblerait que les circonstances socio-économiques et l’évolution politique de la construction européenne sont déterminantes dans la nomination à la tête de l’exécutif européen et la réussite du mandat.

Cependant afin que notre étude puisse englober des résultats encore plus concluants, il nous semblerait important d’inclure dans une prochaine recherche les variables socioprofessionnels de l’ensemble des commissaires européens depuis 1958 à nos jours.

BIBLIOGRAPHIE

• Boulouis, J., Droit institutionnel de l’Union Européenne, Montchrestien, 6e éd., 2004.

• Cartou, L., L’Union européenne. Traités de Paris, Rome, Maastricht, Dalloz, 2e éd., 2004.

• Dragoş, D.C., Uniunea Europeană. Instituţii. Mecanisme, All Beck, Bucarest, 2005.

• Fuerea, A., Instituţiile Uniunii Europene, Universul Juridic, Bucarest, 2002.• Isaac, G., Droit communautaire général, Armand Colin, 2004 • Lenaerts, K., Van Nuffel, P., Constitutional Law of the European Union, Sweet &

Maxwell, London, 2005.• Magnette, P., Europa politică. Cetăţenie, constituţie, democraţie (traduit en

roumain par Ramona Coman et Ana Maria Dobre), Institutul European, Iaşi, 2003.• Manin, P., Les Communautés européennes – L’Union européenne, Pédone, 3e

éd., 2004.• Rideau, J., Droit institutionnel de l’Union et des Communautés européennes,

LGDJ, 2e, éd., 2004. • Van Hecke, S., Alberti, P., « Les groupes parlementaires au Parlament européen.

Changements et continuités », in (édité par) Pascal Delwit, Philippe Poirier, Parlament puissant, électeurs absents? Les élections européennes de juin 2004, Editions de l’Universite de Bruxelles, 2005.

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Victor Negrescu

Table 1 : L’origine socioprofessionnelle des présidents de la Commission européenne

No. Président Age Durée du mandat

Profession de base

Langue maternelle

Fonction pré-ministérielle

Destination postcommission

1 Walter Hallstein

57 ans 108 mois Juriste allemand Haut fonctionnaire politique

2 Jean Rey 65 ans 36 mois Juriste français commissaire politique

3Franco Maria Malfatti

43 ans 24 mois Journaliste italien Ministre politique

4 Sicco L. Mansholt

64 ans 7 mois Agriculteur hollandais commissaire affaires

5François-Xavier Ortoli

48 ans 48 mois Économiste français Ministre affaires

6 Roy Jenkins

57 ans 48 mois Philologue anglais Ministre politique

7Gaston Edmont Thorn

53 ans 48 mois Juriste français Premier ministre affaires

8 Jacques Delors

60 ans 120 mois Économiste français ministre politique

9 Jacques Santer

58 ans 48 mois Juriste français Premier ministre affaires

10 Manuel Marin

49 ans 6 mois Juriste espagnol Commissaire politique

11 Romano Prodi

60 ans 61 mois Juriste italien Premier ministre Premier Ministre

12

José Manuel Durão Barroso

48 ans - Juriste portugais Premier ministre -

77


Table 2 : Les présidents de la Commission européenne

No. Président Commission Couleur politique Début Fin Origine Affiliation

politique

1 Walter Hallstein

Commission Hallstein

Droite/conservateur 1958 1967 RFA CDU

2 Jean Rey Commission Rey Libéraux 1967 1970 Belgique PRL

3Franco Maria Malfatti

Commission Malfatti

Droite/conservateur 1970 1972 Italie DC

4 Sicco L. Mansholt

Commission Mansholt

Gauche/socialiste 1972 1972 Pays-Bas PvdA

5François-Xavier Ortoli

Commission Ortoli

Droite/conservateur 1973 1977 France Gaulliste

6 Roy Jenkins Commission Jenkins

Gauche/socialiste 1977 1981 Royaume-uni Labour

7Gaston Edmont Thorn

Commission Thorn

Gauche/socialiste

12 Janvier 1981 1985 Luxembourg Parti

démocratique

8 Jacques Delors

Commission Delors

Gauche/socialiste 1985 1995 France Parti socialiste

9 Jacques Santer

Commission Santer

Droite/conservateur 1995 15 Mars

1999 Luxembourg CSV

10 Manuel Marin Interim Gauche/

socialiste Mars 1999 Septembre 1999 Espagne Coalition de

lPSOE

11 Romano Prodi

Commission Prodi

Gauche/socialiste

Septembre 1999

18 Novembre 2004

Italie Coalition de l’olivier

12

José Manuel Durão Barroso

Commission Barroso

Droite/conservateur

18 Novembre 2004

(président actuel) Portugal PSD

78

Victor Negrescu

libérale droite- conservateur

gauche- socialiste

Orientation politique

60

50

40

30

20

10

0

42,0

57,048,4

Durée du mandat

Anglais Espagnol Hollandais ItalienFrançais Allemand

Langue maternelle

120

100

80

60

40

20

0

48,0

6,0 7,0

42,560,0

108,0

Durée du mandat

Figure 1 : La relation entre l’orientation politique et la durée du mandat

Figure 2 : La relation entre la langue maternelle et la durée du mandat

79


25

15

12

10

9

6

libérale droite-conservateur gauche-socialiste

Orientation politique

2,0

1,0

0,0

2,0

1,0

0,0

2,0

1,0

0,0

2,0

1,0

0,0

2,0

1,0

0,0

2,0

1,0

0,0

1 2

1 2

1

1 2

1

1

Pays membres de l'UE

Philologue Agriculteur Economiste Journaliste Juriste

Profession de base

100

80

60

40

20

0

48

7

84

24

51

Philologue Agriculteur Economiste Journaliste Juriste

Profession de base

100

80

60

40

20

0

48

7

84

24

51

Durée du mandat

Figure 3 : La relation entre l’orientation politique et les pays membres de l’UE

Figure 4 : La relation entre la profession de base et la durée du mandat

80


Euros(c)eptic - The Theory of the Optimum Currency Area and the Practice of the Euro -

Annamária Artner, Péter Róna*

Abstract: The article examines whether the euro crisis can be entirely attributed to factors such as regulatory failure or fiscal indiscipline, as opposed to the mechanisms built into the euro itself. It concludes that the euro contains a built-in bias that would result in the divergence of the path taken by the developed members on the one hand and the less developed ones on the other. The original the optimum currency area („OCA”) theory appears to have been valid, and the departure from it, as embodied in the Maastricht Treaty, amounted to an unjustified departure in light of the experience of the five weak countries of the eurozone (PIIGS). These experiences have proved that after the introduction of the common currency overcoming significant differences in initial conditions seems quite difficult. Only the countries having international companies with very strong positions on the world markets could take advantages of the euro, and the disadvantages resulting from the deterioration in competitiveness were left to the weaker ones. This also implies that the advantages for the stronger countries to the extent actually experienced were enhanced by the competitiveness of the weaker ones.

Keywords: euro, PIIGS, optimum currency areaJEL classification: 011, 016, 052

The euro area is in an enormous crisis that is jeopardizing even the architecture of the European Union. So far three countries have required massive rescue packages, for Greece even the third one was not enough, Spain and Italy are facing the risk of insolvency, their ratings from the rating agencies have seriously deteriorated. Indeed, it has become a matter of doubt whether any of the euro zone countries will retain their current credit rating.

* Peter Róna is Senior Research Fellow in Economics. He was born in Hungary, moved with his family to America in 1956, and obtained an Honours degree in economics at the University of Pennsylvania before further studies with first class honours at University College, Oxford, and a distinguished career in law and business in America where he became in 1986 President and Chief Executive Officer of J. Henry Schroder Bank & Trust Company. He returned to Hungary in 1991 to serve as Deputy Chairman and CEO of The First Hungary Fund from which he retired in 2003. Between 2004 and 2010 he has taught economics and law at ELTE (Eotvos Lorand University) in Budapest, being named professor of the international law department of the Law Faculty in 2006. In December 2010 he was appointed to the Supervisory Board of the Central Bank of Hungary. Prof Rona has been in Oxford as a Visiting Fellow of Blackfriars for much of the current academic year, and has given a series of seminar papers on the philosophical foundations of economics. During Michaelmas term 2011 he delivered a series of lectures on the moral component of complex adaptive system theory as applied to economics.Dr. Annamária Artner, C.Sc., is a senior research fellow of the Institute for World Economics, at the Hungarian Academy of Sciences since 1984, and professor at the King Sigismund College Budapest since 2005. Her main study fields global labour market, employment policies, social impacts of globalization, globalization-critical movements, competitiveness at macro- and micro level, problems of development within the European Union with special regard to Ireland and Greece, financial and economic crisis, crisis management in different regions and countries., outward foreign direct investment and labour market of China. E-mail: [email protected]

81

Euros(c)eptic- The Theory of the Optimum Currency Area and the Practice of the Euro -

Greece’s ability to avoid default is increasingly doubtful and, in any case, it is compelled to cut domestic consumption significantly. The situation is similar, if not quite as dramatic, in the other weak euro zone members. The only means available to them for the improvement of competitiveness is “internal devaluation”, but the measures imposed on them in the pursuit of this end only reduce the effective demand with no sign of the promised result and, not unnaturally, meet with social resistance.

In December 2011 the long term government bond yield of Greece stood at more than 21%, the yield of the Portuguese bonds was more than 13%, the Irish ones at 8.7%, the Italian ones at 6.8 and the Spanish government bonds was also more than 5.5%, which represents nearly three times more than the German yields (PEEI Online 2012). Moreover, the European Central Bank has sought to offset the weakening of the euro by raising the interest rates (April and July 2011), although it makes the borrowing more expensive. „Rescuing” Greece strengthens the euro and thus reinforces the real appreciation of the „Greek euro”, which increases the debt ratio and deteriorates the competitiveness of Greece, so further internal depreciation (cuts) is required. It is a vicious circle.

Euro zone countries in trouble would have to reach extremely high, for most of them unattainable (4-6-8%), annual growth rates for more than a decade in order to be able to clear their debt.

In our article we do not intend to deal with the present situation. Instead we want to detect the reasons for it by analyzing the developments of the first decade of the euro and the effects it had on the weaker economies in the zone. The lessons are tremendous since if the single currency does not fit all the different members than the project of the European Union is questioned too.

We examine whether the euro crisis can be entirely attributed to factors such as regulatory failure or fiscal indiscipline, as opposed to the mechanisms built into the euro itself. Although we do not dispute the deleterious effects of mistaken national policies, we conclude that the euro contains a built-in bias that would result in the divergence of the path taken by the developed members on the one hand and the less developed ones on the other. It is a separate and in this study unexamined question whether policy tools could be fashioned to counteract the centripetal dynamics of the euro. Instead, this article focuses on the original theory of the optimum currency area („OCA”), the history of the glosses and modifications in the service of policy thought to be appropriate for the realization of the „European Dream”, and the historic experience of the member countries since the introduction of the common currency with respect to the most commonly used economic indicators. We conclude that the original theory appears to have been valid, and that the departure from it, as embodied in the Maastricht Treaty amounted to an unjustified departure in the light of the experience of the 5 weak eurozone countries, namely Ireland, Greece, Spain, Portugal and Italy, which are known as PIIGS.

1. The theory

The theory of optimum currency area (OCA) was established half a century ago by two seminal studies published nearly simultaneously, Balassa [1961] and Mundell [1961]. Both authors saw the primary conditions of a viable OCA in the similar reaction of the member countries to exogenous shocks, in the synchronicity of the business cycles and in the creation of policy instruments needed to manage the differences between these factors. If the reaction is

82

Annamária Artner, Péter Róna

more or less symmetrical, the factors decomposing the unity of the common currency can be kept under control. Although any asymmetric transient reaction may cause confusion, a serious problem arises from asymmetric shocks that are the consequences of structural factors. The last chapter of Balassa’s 12 chapter book deals with the preconditions for creating the monetary union. These include the successful integration of an impressive list of economic institutions and phenomena – namely markets, prices and wages, the labour market, capital and financial markets, institutions etc. – analysed in the previous chapters. Balassa put a great emphasis on the order of integration processes and saw a serious threat in integration taking place in the wrong sequence. According to his logic the common currency is not a tool of integration, but, rather the fruit of the already successfully implemented real integration, which can be the platform of further development. The importance of structural similarities was brought to the fore by Myrdal in 1957 and Káldor in 1966, and a similar position was represented in Peter Kenen’s study published in 1969.

The first significant cracks were caused by Mundell himself, who in 1973 thought that the sequence problem could be managed with the help of „the interim solution”. If the members of the OCA invest their savings in each others’ securities – according to Mundell’s new theory – the asymmetric shocks can be compensated by the price movement of securities. In 2001 MacKinnon followed Mundell’s theory, and claimed a similar intermediating role for diversified sources of income.

An even more serious departure from the original theory occurred in 1992 by Emerson’s report entitled „One Market, One Money”, the debate on Phillips curve versus NRU (Natural Rate of Unemployment), and the growing number of literature on the longer-term ineffectiveness of monetary instruments (See Frankel [1998] and Frankel and Rose [2002]). According to Emerson, on the basis of OCA theory, the advantages and disadvantages of entry into OCA cannot be sufficiently established. The two other papers aimed at minimizing the consequences of the abandonment of monetary instruments by states joining an OCA.

As so often, economists understood the changing requirements. The political will of Europe has decided on the rapid integration, and the original OCA-theory posing an obstacle as it did, required some restyling. The writings of Giavazzi and Giovanni in 1989, as well as of Goodhart in 1989 and of Rogoff in 1996 served to further pave the road to Maastricht. According to them price stability in the countries struggling against inflation can only be achieved if they give up their independent monetary policy, and peg their currency to a stable, low-inflation currency. Along this idea the theory of „nominal anchor” has taken shape, the role of which was enthusiastically assumed by the reunified Germany. To eliminate the risk of asymmetric shocks, instead of achieving the full integration, the discussions about the options for the management of shocks came to the fore. Kenen’s warning [1969] that the countries with less diversified economies may face major shocks was sidelined, instead of a well thought out convergence path for the small, open, and insufficiently diversified countries (such as Portugal or Greece) all EU members were to observe at all times the Maastricht criteria, which were thought to enjoy universal validity, and the elimination of indisputable differences was to be achieved by temporary aid instead of suitable economic policy instruments.

From the common currency point of view it is an issue of key importance that the treatment of different inflationary dynamics has remained, but the sufficiency of the significantly narrowed instruments with which such dynamics could be managed has not been examined.

83


Those who gathered in Maastricht assumed with a noble simplicity that compliance with the fiscal indicators stipulated in the treaty can keep the inflation in the determined range (Issing 2008). But in reality, the reverberations of the institutionalized wage outflow (e.g. Italian scala mobile), the Balassa-Samuelson effect inevitably associated with convergence, the demand and supply shifts arising from the difference in structure, the competitive differences stemming from differing levels of technological development, the different reliability and efficiency of public and private institutions, the legal system and the judiciary thwart the development of uniform prices and inflation dynamics, while the unified monetary policy forces single nominal interest rates on the member states of the OCA.

Since the introduction of the euro the expected convergence of prices and wages has not been achieved, the more advanced gained further competitiveness and the less developed lost competitiveness. The convergence came to a halt. Different real interest rates developed. The countries struggling with traditionally higher inflation have had access to cheaper sources in real terms than the more advanced economies. The associated cheaper source resulted in the development and the intensification of asset bubbles, especially in unbridled real estate development. The real value of the common currency increasingly diverged, which further worsened the competitiveness of the periphery. Confidence in the favourable endogenous effect of the OCA [Kenen 1969] – that the increased dynamics of trade due to the common currency successfully eliminates the still remaining structural difference – proved unfounded.

Why does the cure, namely the reduction of wages and the increase of productivity supported by theory and confirmed in practice in Germany, not work in the countries of the periphery? Why cannot the less developed economy regain its competitiveness without devaluation even with the most severe austerity measures? After all, the reunification of Germany on the basis of 1 DMark = 1 OstMark resulted in a significant over appreciation of the DMark, that Germany successfully corrected by limiting the increase in real wages and boosting the efficiency.

In our view the answer lies in the original intuition of the OCA-theory. The common currency is not only an inadequate tool to eliminate the differences inherent in the real sector, but it makes the task even more difficult by limiting the range of instruments of economic policy. The limitation may mean increased challenges for the less developed countries. Although there are a number of overlaps between the levels of development and competitiveness, the two phenomena are not identical, because the access to high technology necessary to improve efficiency – i.e. the competitiveness – is primarily not an economic policy, but a development issue. The developed country can enhance the performance of its advanced technology – including organizational and institutional culture (soft technology) – while the less developed does not have the technological stockpile, the better use of which would ensure the required result. In other words, the drop in the real wages of the employees in the production of primary and semi-finished goods, can improve the competitiveness of primary and semi-finished goods, but does not contribute to the development of the economy. If real wages are coupled with technology producing lower instead of higher value added goods, the yield of their reduction is obviously modest. The development gap is not filled, and this kind of improved competitiveness does not lead to real convergence. The introduction of the common currency, as the original OCA theory made it clear, does not affect the micro-level factors of the real sector, such as the development of technology, and does not serve actual convergence.

84


2. The validity of the theory in figures

2.1 InflationThe Eurostat data clearly show that since the introduction of the euro the expected

harmonization of inflation dynamics did not materialize, the „nominal anchor” did not work. Whether this failure can be attributed entirely to fiscal indiscipline – as it is now claimed in the context of revising the requirements for membership – is a complex question that is not addressed in this paper. We are concerned only with the validity of the original claim to the effect that a nominal anchor would in and of itself bring about this end and find that the evidence invalidates this expectation. Entrusting responsibility for price stability exclusively to monetary policy under the exclusive mandate of the European Central Bank not only failed to bring about the hoped for harmonization, but posed very serious challenges for the peripheral economies. Whether some sort of combination of the existing monetary tools with enhanced fiscal discipline would fare better is not examined in this paper, but our intuition guided by the evidence compiled here suggests caution.

The countries in question became more expensive compared to the strong eurozone countries, especially to Germany, which, of course, meant a decline in their competitiveness. In this respect Ireland got into the worst situation (despite a slight improvement after 2002), but the others also registered significant deterioration compared to the situation in 1999 (Figure 1).

Figure 1

While between 1996 and 1999 the consumer prices of PIIGS, with the exception of the Greek Drachma essentially were in line with the eurozone-12 and Germany, the trends subsequently diverged at an accelerating rate: between 1996 and August 2008 (last month before the collapse of Lehman Brothers) the prices in Germany and the consumer prices of

B as e index of na�onal c ompara�ve pric e levels of final

c ons ump�on by private hous eholds inc luding indirec t taxes . (R ela�on to euro12 in 1997=100)

80.0

85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

1997

=10

0

Ireland

S pain

G reece

Ita ly

P ortugal

G erm any

S ource: E uros tat O nline D atabas e

85


the PIIGS increased by 21% and 31-54% respectively (see Figure 2). Compared to the price levels of 1996 the base inflation index of Ireland, Portugal, Spain and Italy in early 1999 was only 2-3% higher than that of Germany and 8.5% higher in Greece. However, the gap had increased to 10-25% by the last months before the crisis.

Figure 2

Naturally, this has affected the export performance and the external balance of these countries.

2.2 Balance of tradeAs the data show, Kenen’s thesis [1969], namely that the common currency eliminates the

structural differences by encouraging the dynamics of trade did not find empirical confirmation.The accession to the eurozone, instead of improving the foreign trade position of the

inherently weaker eurozone economies, that had become the focal point of the crisis by that time, showed a worsening trend. As Figure 3 and 4 shows, between 1999 and 2007 the deficit in external trade (i.e. trade with the non-EU-27 countries) has increased significantly in the case of Spain and Greece, it stagnated in Portugal, the growth of Ireland’s trade surplus came to a halt and in Italy the surplus turned into a deficit. As for the intra-EU trade the loss of positions is more marked, since in this relation the balance has deteriorated in all countries. Only Italy could improve the balance somewhat and achieve a modest surplus in 2007-2008, but this success quickly faded. The export surplus of Germany, however, showed a dynamic, and constantly increasing trend in the intra- and a slower rate in the extra-EU trade.

HICP (1996=100)

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

160,0

170,0

180,0

1996

M01

1996

M05

1996

M09

1997

M01

1997

M05

1997

M09

1998

M01

1998

M05

1998

M09

1999

M01

1999

M05

1999

M09

2000

M01

2000

M05

2000

M09

2001

M01

2001

M05

2001

M09

2002

M01

2002

M05

2002

M09

2003

M01

2003

M05

2003

M09

2004

M01

2004

M05

2004

M09

2005

M01

2005

M05

2005

M09

2006

M01

2006

M05

2006

M09

2007

M01

2007

M05

2007

M09

2008

M01

2008

M05

2008

M09

2010

M08

2010

M12

2011

M04

1996

=100 Greece

Ireland

Spain

Portugal

Italy

Euro (16)

Germany

Source: Eurostat Online Database

86


Figure 3

Figure 4

Between 2000 and 2007 Germany’s total exports in goods (intra- and extra-EU) tripled, while the surplus of the most successful exporter of PIIGS, namely Ireland, increased by less than 20% (see also Figure 5).

Balance of non-EU27 trade 1999-2010 (millions of euro)

-80000

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. 2010.

Germany Ireland

Portugal Greece

Spain Italy


Balance of intra-EU27 trade 1999-2010 (millions of euro)

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

120000

140000

1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. 2010.

Germany

Ireland

Portugal

Greece

Spain

Italy


87


Figure 5

2.3 Income balanceFigure 6 clearly shows how the income balance of PIIGS (further) deteriorated as well after

the eurozone entry, while the balance of Germany rose steeply upward from 2002.

Figure 6

Balance of trade in goods and services (total) in 1999 and 2007 (millions of euro)

-150000

-100000

-50000

0

50000

100000

150000

200000

250000

1999 2007

Germany

Ireland

Italy

Portugal

Greece

Spain


Current account, balance of income 1997-2010 (millions of euro)

-40.000

-30.000

-20.000

-10.000

0

10.000

20.000

30.000

40.000

50.000

60.000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mill

ions

of e

uro

Germany

Ireland

Greece

Spain

Italy


88


2.4 Balance of paymentsAfter the accession to the eurozone all five countries’ balance of payments (goods, services,

incomes, balance of current transfers and capital) declined compared to Germany, whose balance changed from a deficit into a briskly rising surplus (see Figure 7).

Figure 7

2.5 DebtHowever, the difference in inflation rates and low interest rates at the same time, as well as

financial instruments mushrooming after the end of the information technology boom in the world, led necessarily (and on the basis of the borrowers’ rational decisions) to a real estate boom and the indebtedness of the households. We note that without this the crisis would have appeared earlier, though probably in other forms (such as stagnation), since the competitive disadvantage of the, by now obsolete, production structure of the periphery could be concealed with the help of higher consumption. All the countries involved in the transatlantic economy were participants of the processes leading to the crisis in 2008, though not with the same consequences due to their various national, economic, political and historical features and, most importantly, their different levels of participation in the hierarchical division of labour of the world economy.

The debt has been incurred, above all, by the population, rather than the public sector. After eurozone entry until the crisis, among the countries we examined, only the public debt of Portugal, Greece (and Germany) to GDP increased, while in the case of other countries a decline can be witnessed. The current rise in public debt is largely due to the bailout of the banks.

In the 2000s, the financial obligations of the households and the nonprofit institutions serving them (briefly called “population”) sector of PIIGS increased at a rapid pace. The indebtedness of the PIIGS’ population relative to GDP had already increased before the creation

Balance of payments 1996-2010 (millions of euro)

-150000

-100000

-50000

0

50000

100000

150000

200000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mill

ions

of e

uro Ireland

Greece

Spain

Italy

Portugal

Germany


89


of the eurozone, but a similar trend can be seen in Germany as well. After 1999, however, the situation changed: while the indebtedness of the PIIGS’ population to GDP continued to grow at an accelerating rate with the exception of Portugal having already a high level of population’s debt portfolio, the German population’s financial obligations began to fall, and this trend persisted until the crisis (see Figure 8). Before 2000 (as for Portugal 1998) even the PIIGS population’s net assets to GDP increased but subsequently began to fall while the net assets of Germany’s population – after a few years of hesitation – showed a continuing upward trend (see Figure 9).

On the basis of the Eurostat data we have looked into the financial position of the population in other eurozone countries during the credit boom period (2002-2007) until the crisis. We found that, although the population’s net financial assets of some advanced countries declined (Belgium) or financial obligations increased significantly (Finland and France, more than 27%), one can say that only the population of the PIIGS countries were in both groups, namely their net assets diminished, while their liabilities increased significantly. Between the strong and weak eurozone countries’ population a rearrangement in the financial positions has occurred in favour of the strong countries.

Figure 8

Financial liabili�es of households; non-profit ins�tu�ons serving households as a percentage of GDP 1995-2010

0

20

40

60

80

100

120

140

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

per

cent

Ireland

Portugal

Spain

Germany

Greece

Italy


90


Figure 9

2.6 REER (Real effective exchange rate)All of these above processes are explained by changes occurred in the real effective

exchange. On the first chart below we can see the Eurostat base REER index compared to the eurozone 16 partner countries. A small circle indicates the year of the exchange rate fixing in the case of countries that entered the eurozone after 2000. It is clear that after the fixing, the REER line breaks in all countries: the decline turns into growth, or the growth is accelerating. It can be seen as well that the real exchange rate of the strong economies, albeit at different rates, has further improved after 2000, in some cases such as Finland, at a better rate than in the period before 1999 (see Figure 10).

Figure 10

Net financial assets of households; non-profit ins�tu�ons serving households as a percentage of GDP (1995-2010)

0,00

50,00

100,00

150,00

200,00

250,00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Italy

Portugal

Germany

Spain

Greece

Ireland

EU27


Real Effec�ve Exchange Rate (deflator: consumer price indices - 16 trading partners - Euro Area) 1999=100

90,00

95,00

100,00

105,00

110,00

115,00

120,00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Germany

Ireland

Greece

Spain

Austria

Portugal

Cyprus

Slovenia

Malta

France

Finland

Italy


91


The deflated real effective exchange rate of the eurozone 40 partner countries is published monthly by the European Central Bank. Besides the five examined countries we have formed a control group consisting of Germany, France, Finland and Austria. The data clearly show that the situation of the PIIGS markedly worsened and the one of the control group improved in the 2000s. Before the eurozone entry, the REER of the PIIGS with the 40 partner countries is more favourable than in the control group, but thereafter the situation is clearly reversed (see Figure 11).

Figure 11

2.7 Catching up Convergence came to a standstill just at the time of the euro area membership in the

countries in question. Previously, Ireland had rapidly approached the average of eurozone-12, but the rate of convergence has slowed down after 1999. It is worth drawing attention to Greece, now seen as a bad manager, who produced the most spectacular catching up trend in the 2000s besides the Irish. The catching up of Greece was particularly strong up to 2003 (the GDP grew by 5.9% in that year), most probably under the influence of the early years of the euro and the impact of the Olympic preparations, but after that period the trend breaks in Greece too. Similarly, the catching up of Spain also lost momentum. In Portugal, the former trend of catching up reversed, lagging behind stagnating Italy. As a mirror image, Germany’s position shows an improving trend throughout the period (Figure 12).

REER (real harmonised compe��veness indicator CPI deflated, ECB EER-41 group of currencies and Euro area 16 country currencies) 1993-2010

85

90

95

100

105

110

115

120

125

130

1993

-01

1993

-06

1993

-11

1994

-04

1994

-09

1995

-02

1995

-07

1995

-12

1996

-05

1996

-10

1997

-03

1997

-08

1998

-01

1998

-06

1998

-11

1999

-04

1999

-09

2000

-02

2000

-07

2000

-12

2001

-05

2001

-10

2002

-03

2002

-08

2003

-01

2003

-06

2003

-11

2004

-04

2004

-09

2005

-02

2005

-07

2005

-12

2006

-05

2006

-10

2007

-03

2007

-08

2008

-01

2008

-06

2008

-11

2009

-04

2009

-09

2010

-02

2010

-07

2010

-12

per

cent

Ireland

Spain

Greece

Portugal

Italy

France

Austria

Finland

Germany

Source: ECB

92


Figure 12

One can raise an objection that the comparison to the average of eurozone-12 includes an autocorrelation as the per capita GDP growth of the members increases the average as well and thus inevitably lessens the convergence percentage rate. Therefore, we investigated the trend of the PIIGS’ per capita GDP compared to the German data. In Figure 13 the base index of each of the 13 countries’ GDP/capita compared to Germany’s GDP/capita is shown. The downward trends clearly emerge; the halt of the initial spectacular catching up is clearly visible in the case of Greece after 2003.

Figure 13

Change in share of na�onal GDP/cap to Euro12 average 1995-2007 (percentage point)

-10,0

-5,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

1995-1999 1999-2003 2003-2007 1999-2007

Ireland

Greece

Spain

Germany

Portugal

Italy


Base index of GDP/cap rela�ve to Germany 1995-2010 (the rate in 1995=100)

90,0

92,0

94,0

96,0

98,0

100,0

102,0

104,0

106,0

108,0

110,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Ireland

Greece

Spain

Italy

Portugal


93


Finally, we investigated the standard deviation of the GDP/capita of the eurozone-12. It turned out that the standard deviation of both the nominal and the real values increased over the years of the eurozone membership. Only the crisis has brought a temporary change of the trend, but it proved to be also short lived (see Figure 14).

Figure 14

3. Deterioration in competitiveness

As for the unit labour cost, the competitiveness of the PIIGS has unquestionably worsened over the past decades. And not just outside the euro area, but within it as well. We could state that the euro has been the catalyst and the amplifier of the deteriorating competitiveness of the PIIGS.

In consequence of the tendency to inflation, characteristic of the weak countries, the euro appreciated for them, while the low euro interest rates induced a boom in demand. The boom in the economy pushed up the wages (Balassa-Samuelson effect) and – as a result – the public welfare expenditures as well.

The change in the real effective exchange rate reflects the change in the value of the national labour as a function of change in price levels. Thus, social welfare may increase, but this does not cause the deterioration in competitiveness only if strong efficiency and productivity raise more than the wages and the competitors’ productivity, or even – and often – a kind of historical monopoly situation is behind. PIIGS increased “welfare” in such a way that the latter conditions were unfulfilled, so the REER declined in their case.

According to Eurostat, between 2000 and 2007 the productivity (GDP per hour worked) virtually stagnated (increased only by 1.1%) in Italy and increased in all other 4 countries. The productivity stepped up the least in Spain (by 6.3%), but the influx of cheap labour compensated this backwardness and ensured the increase of competitiveness (the drop in ULC). During

Standard devia�on of GDP/cap in the Eurozone12 1995-2010 (euro per inhabitant)

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1995 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nominal GDP/cap

Real GDP/cap


94


the examined period, Portugal showed a productivity growth of 7.8%. These rates, however, lagged behind Germany’s productivity growth (11.8%). However, at the same time Ireland and – despite any surprise – Greece has considerably improved their position compared to Germany. Between 2000 and 2007 the Irish GDP per hour worked and that of Greece as well increased by 17.5% and 19% respectively and the high rate continued even until 2009! (It is also less known that in the eurozone between 2000 and 2007 the Greeks worked the most, an average of 42-43 hours per week.) But the rate of increase in wages and social benefits has exceeded the productivity, therefore their competitiveness slowed as shown below.

First, we examine the change in wages and other compensations (collectively „wages”) of labour. Figure 15 shows that between 1999 and 2007 the wage/GDP ratio in the eurozone increased only in Greece, Italy, Ireland and Portugal. Among the PIIGS the ratio of labour in the GDP has declined only in Spain, but less than in most other eurozone countries (Belgium, Finland and France) (see Figure 15)

Figure 15

The combined ratio of pension and other social expenditures in the examined period is a much more eloquent proof. Again, Germany is at the top in the reduction of expenditures and PIIGS lead the increase (see Figure 16).

Wage share* 1971-2012 (per cent)

20,00

25,00

30,00

35,00

40,00

45,00

50,00

55,00

60,00

65,00

70,00

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

per

cent

EU (27)

Euro area (17)

Belgium

Germany

Ireland

Greece

Spain

France

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Estonia

Slovenia

Slovakia

Malta

Cyprus

* Compensa�on of employeesSource: Eurostat Online Database

95


Figure 16

The income of the people living on salary, aids (i.e. not on capital) consists of two factors, namely labour compensation (“wages”) and social benefits. The ratio of this amount to GDP in the eurozone between 1999 and 2007 declined only in Germany, Austria and Luxemburg, while the largest increase (5-10 percentage points) is observed in Ireland, Greece, Portugal and Italy and with a slight drop, so to say, remained unchanged in Spain. The relatively favourable indicators of Spain are explained to a large extent by the immigration between 2000 and 2007, when three and a half million people arrived in the country increasing greatly not only the labour supply, but also the social security payments. As the immigrants’ wages are about 30% lower than the ones of the natives, the unit labour cost was positively affected (Éltető 2011).

It should, however, be added that the ratio of wages and social benefits to GDP, together and separately was the lowest in the PIIGS among the eurozone 12 member states between 2000 and 2007. The only exception is wealthy Luxemburg in this group. It is to be noted that inside the eurozone, outstanding real GDP/capita of Luxemburg is followed by Ireland, while the ratio of Irish wages, social benefits is lagging far behind that of Luxemburg. The Irish attempt to „trickle down the welfare” is difficult to question, or to call causeless. Yet, in relative terms it has worsened the country’s international competitiveness.

4. Whose interest is served by the euro?

The euro is the final decisive stage of the European economic integration: its fall threatens that the integration progress gets bogged down, and if it does so, it can turn back. But the condition of the common currency itself is the integrated market either under common government and/or consisting of equally advanced and developing parts. The eurozone does not meet these criteria.

Change in wage share* between 1999 and 2007 (percentage point)

Greece**; 2,2

Italy; 1,1

Ireland; 0,9

Portugal; 0,2

France; -0,4

Finland; -0,5

Belgium; -1,3

Spain; -1,9

Netherlands; -2,1

Luxembourg; -2,8

Austria; -3,8

Germany ; -4,2

-5,0 -4,0 -3,0 -2,0 -1,0 0,0 1,0 2,0 3,0

* Compensa�on of employees per GDP** 2000-2007Source: Eurostat Online Database

96


The positions of the stakeholders interested in the global economy are illustrated by an example of vital importance, namely by the outstandings of the banks.

According to the Bank of International Settlements in December 2010 nearly half of the outstandings of the European banks are claims on debtors within the eurozone, and more than a quarter of this (12.1% of all their claims) are in the examined 5 countries. At the same time the foreign claims of German and French banks within the eurozone together exceeded USD 6,100 billion (about EUR 4,300 billion). The European banks were involved in the five countries with a total amount of approximately 1,500 billion Euro. The total claims of the German and French banks together represent 53% of all claims of the PIIGS! At the end of 2001, the five weak eurozone economies represented 17.8% of the total foreign outstandings of the German and 20.6% of the French banks respectively (BIS [2010-2011]).

Due to the secrecy of the banks only sparse data are available about the involvement of the individual banks. It is known, for example, that the German Hypo Real Estate Holding placed more than 80 billion euro in loans in the 5 countries in question, and the Deutsche Bank purchased Greek government bonds in an amount of 500 billion euro (Ewing [2010]).

It is no coincidence that Germany and France, though it was difficult, finally agreed to a hidden restructuring rescue package for Greece in the summer of 2011. Strong economies of the euro area protect their own banks and companies, when the weaker countries are bailed out from public money. The limit of the financial rescue is ultimately determined by the protected value.

The weak countries could have been “released” from the eurozone, if the costs of keeping them in are more expensive than the losses of their quitting. Leaving the eurozone would be promoted if the claims of the banks diminished on the unproven markets. Such a process also took place in the recent years.

Between March 2008 and June 2011 the outstandings of the banks in the PIIGS countries were reduced as follows: German banks by 391 billion dollars and French banks by 291 billion dollars, i.e. totally by 683 billion US dollars (about 520 billion Euros), i.e. by more than 36% (see Figure 17). All of the European banks reduced their outstandings a little more quickly in the same period, 38% of their share was withdrawn from the countries in question.

Figure 17

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

Germany France Germany France

Italy

Spain

Portugal

Ireland

Greece

Source: Bank of Interna�onal Se�lements

End-March 2008 End-June 2011

Consolidated foreign claims of German and French banks in PIIGS(millions of USD)

97


Under the influence of the crisis, the companies in the real economy turn away from the countries in trouble. According to UNCTAD WIR the stock of foreign direct investment has diminished between 2007 and 2010 in three countries of the PIIGS (in Greece, Portugal and Italy).

5. Lessons to learn

We have shown above that the current problems of the euro-area integrating countries of different development level – according to the original theory of OCA – do not originate solely from mistaken macroeconomic policies, but are the results of the misdesigned and prematurely created currency zone. The inflation rates diverged, the real effective exchange rate of the inherently less developed countries became „overvalued”, their population became heavily indebted, their external balance deteriorated and their catching up stopped. They have suffered a drop in competitiveness primarily because of this and the associated increase in the wage ratio, but it would not have taken place (or not to this extent) on the one hand, and it would not have caused a problem similar to the present one on the other hand, if their equilibrium problems due to their position in the euro area had not fallen apart. Developments over the past decade show that in contrast to intentions and expectations, the introduction of the common currency served neither the micro-level factors of the real sector, nor promoted the technological progress in the weaker economies and, thus, did not bring about real convergence.

Only the countries having international companies with very strong positions on the world markets could take advantages of the euro, and the disadvantages resulting from the deterioration in competitiveness were left to the weaker ones. This also implies that the advantages for the stronger countries to the extent actually experienced were enhanced by the competitiveness of the weaker ones.

These findings carry some disturbing implications. First, the current emphasis on fiscal retrenchment as a means for closing the competitive

gap seems not to reckon with the historical evidence, which suggests that fiscal difficulties and growing indebtedness may be at least as much the result of a loss of competitiveness, as the cause of that loss. It may well be, that we are facing here a Myrdal-type circular cumulative effect that condemns the less developed to a downward spiral.

Second, it does not seem feasible to formulate a monetary policy with similar consequences for all if the initial conditions of the members differ significantly.

Third, the idea, that a more centralized fiscal regime will reduce the divergence in the Real Effective Exchange Rate and thereby contribute to closing the gap in competitiveness seems ambitious. The formation of the German Zollverein in 1818 was followed by fifty three years of real integration, including institutional convergence before the common currency was introduced in 1871. By contrast, the Italian lira was introduced almost immediately after the unification of Italy, without regard to the dramatically different initial conditions between the North and the South of the country. The contrast between these two historical precedents is entirely consistent with the findings above.

After the introduction of the common currency overcoming significant differences in initial conditions seems quite difficult. Accordingly, fiscal centralization may improve sentiment in the capital markets, particularly if coupled with centralized bank supervision, but there seems to be a lack of empirical evidence to suggest that it would enhance real convergence.

98


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