Ed George edgeorge at usuarios.retecal.es
Mon Jul 19 08:02:48 MDT 2004


Brendan Young.

DAPSE (Democracy and Public Services in Europe. dapse at eircom.net)

April 3, 2004.

The discussion in this paper on the draft EU Constitution represent the
views of the DAPSE group. Other analysis and arguments are the views of
the author. I would like to thank Miriam Murphy for her advice and
comments in the drafting of this paper.

The years 2004-05 will be seen as a turning point in both European and
world history. Unlike 2003, which was marked by a return to US military
adventurism unseen since the Vietnam war, the markers for 2004-05 are
the qualitative changes that are taking place in processes already in
train. Closest to home is the enlargement of the EU to 25 member states
of approximately 450 million people, and the (likely) establishment of
an EU Constitution associated with this enlargement.

Further afield is the transition whereby the urban population of the
world will, for the first time in human history, outnumber the rural.
But within the urban population of 3.2 billion (now equal to the rural
population), almost one billion marginalised and impoverished people are
living in sprawling slums (see Davis 2004). While on the face of it
there is no apparent link between EU enlargement and the growth of the
world's slum population, the neo-liberal forces that are shaping them
are the same.

This paper will discuss the enlargement of the EU in the context of the
conditions under which it is taking place; the existing inequality and
regional dynamics of the Eurozone economy and their implications for
enlargement; the draft EU Constitution in relation to enlargement and to
the GATS (General Agreement on Trade in Services); and the further
erosions to sovereignty, democracy and accountability inherent in this

Setting the Scene: after the fall of the Wall

The fall of the Berlin Wall and with it the disintegration of the CMEA
(Council for Mutual Economic Assistance - the inter-state trade network
of the USSR and CEECs) were the preconditions for an enlargement to
include the Central and East European Countries (CEEC's) now joining the
EU: Estonia, Latvia, Lithuania, Poland, Hungary, the Czech Republic,
Slovakia and Slovenia - with two more (Bulgaria and Romania) in the
process of implementing Accession Agreements with a view to entry in
three or four years time. But prior to the fall of the Wall, these
countries - especially Poland and Hungary - had substantial debts to
Western European states and Germany in particular (Gowan, 2000).

All of these countries experienced debt crises-the need to reduce state
spending in order to pay the interest on their debt (as instructed by
the IMF and agreed by the EU) - during the 1980s. Faced then, with a
choice of re-federation with the Russian-dominated CIS or turning
'West', the experience of Stalinism in the CEECs and the pre-existing
financial relationships dictated that the Western road would be the one
to be followed. After German re-unification came a series of Accession
Agreements between the CEECs and the EU - the precursors to full

The collapse of the CMEA created a deeper crisis for the CEECs. Collapse
of trade led to increased debt. The IMF solution was the 'shock
treatment' of privatisation of state enterprises, cuts in state
expenditure (especially subsidies to industrial enterprises) and
economic policies geared to servicing debt-particularly the creation of
conditions for export-oriented FDI (foreign direct investment). This
resulted in de-industrialisation, with falls in GDP of more than 20%,
and unemployment of more than 20%. It also resulted in the growth of
trade deficits with the EU countries (especially Germany). The IMF
'shock treatment' applied in the CEECs is similar to the 'structural
adjustment' enforced upon debt-laden countries in Africa and Latin
America-and produced similar results (Fagan and Kilmister, 2001).

The Treaties of Association concluded with the EU from the early 1990s
created what was in essence a free trade area in Eastern Europe. They
required the privatisation of state enterprises, facilitated increased
imports from western Europe, and promoted FDI that bought up existing
enterprises and set up new plant. But the pattern of inward investment
was towards capturing the market for consumer goods (foodstuffs,
tobacco, detergents, textiles) and some production (cars and heavy
electrical) for export to the EU, using the cheap labour available. The
trade deficits of the CEECs are primarily in consumer goods rather than
capital goods, indicating that the de-industrialisation of the 1980s and
90s has not been reversed (see Heidenrich, 2003; DiW data set, 2001).

Fagan & Kilmister (2001) have argued that the combination of IMF
conditions and EU Accession Agreements have placed the CEECs in a
peripheral position relative to the core countries / economies of the
EU: Germany, France, Britain, the Benelux countries and Italy. There is
a persistent indebtedness: the CEECs run continuous and significant
debts with the EU core countries, especially Germany. There is a
dependence on the core countries for imports and exports-on the EU in
general, and especially Germany. (see OEF 2004) There is a dominance by
the core states over the international division of labour (what is
produced where): western European multinationals are dominant in the
CEEC economies and further economic development is dependent on FDI,
which is inadequate and damaging to the domestic economies (destruction
of indigenous industry). And there is a dominance over the
legal/financial systems: the Association Agreements and imposition of
the acquis communautaire (the body of EU law and practice) are really an
opening up of the CEEC economies to international finance and the
establishment of legal systems that preserve the dominance of the
western financial institutions. EU social legislation is secondary to
legal frameworks for the accumulation and movement of capital.

As to agriculture, the present enlargement will double the area of
agricultural land in the EU, and more than double the agricultural
workforce. The number of Polish farmers is at present more than the
total for France and Germany combined (Boduszynski, 2003). Agricultural
unemployment, almost 40% in south-eastern Poland, (Third Cohesion
Report, 2004) will be worsened by the CAP, which favours large-scale
farming over smaller units. 27% of the Polish workforce is in
agriculture; and EU estimates are that only 600,000 of the estimated 2
million Polish farms will survive full EU membership.

The Commission's plans for the implementation of the CAP in the CEECs
merely stave off the point at which its complete revision is required:
farmers in CEE member countries will only get CAP payments in stages,
with full payment available only in 2013. In the meantime Bulgaria and
Romania - both with substantial agricultural output and workforces -
will probably be EU members. And with 'decoupling' - payment of farm
subsidies unrelated to current output but based on previous farm output
- unlikely to work in the CEECs due to the lack of administrative
capacity and infrastructure, a serious crisis for the rural population
of Eastern Europe is on the cards. This of course, will have significant
knock-on effects in Ireland, especially on small farmers.

Within this peripheral framework a degree of development is taking
place, but in a very uneven fashion. The indications are that the
capital city regions and the western border regions of the CEECs will
have a growth of investment and employment (Heidenrich 2003; DIW 2001).
The EU's Third Cohesion Report 2004 also acknowledges that FDI is
concentrated in western and city regions. So the de-industrialisation
that has occurred in the CEECs and the subsequent pattern of uneven
development are likely to become entrenched.

Several factors underpin this process. There is a general problem of
slow growth in the Eurozone economy and of structural unemployment
(underlying unemployment that persists unrelated to the capitalist cycle
of expansion and recession) of between 7 and 8% (see Boltho 2003). The
performance of the European economy is also intimately related to that
of the US economy. A substantial part of European (especially German)
exports go to the US and European recessions have closely followed those
in the US over the past 20 years. (see Brenner 2004).

Combined with this is the more global phenomenon of a declining rate of
profit, especially in manufacturing, over the past 20 years (see Brenner
1998). The present capacity use in US manufacturing is approximately
73%, which means 27% of industrial plant is not being used because the
owners can't sell what they produce. At the same time the US is running
a record trade deficit - importing (buying) more than it exports (sells)
- to the tune of $450 million per annum. But most of these imports are
coming from China and East Asia, where labour costs and regulations on
production are very low.

For European manufacturers and capitalist investors therefore, there is
no incentive to sharply increase industrial investment other than to
increase the productivity of existing plant. This is the stimulus for
the 'Lisbon Agenda' - "to make the EU the most competitive
knowledge-based economy in the world" during the coming years. The
ideology of 'Lisbon' propounds life-long learning, e-integration,
amelioration of regional poverty, etc. What's really at stake is market
share in the world economy; and the needs for European-based capital to
increase labour productivity and reduce costs. But for European workers,
competition with an increasingly capitalized Chinese economy, where
millions of peasants are moving to growing cities and providing a vast
pool of cheap labour (see Davis 2004), is a race to the bottom. What's
not in the Lisbon Agenda is the re-industrialisation of the CEECs or any
effective measures to redress the regional imbalances in production,
employment and income levels that exist not only in Eastern Europe but
across the countries of the 'existing' EU 15.

The European Commission acknowledges the critical situation facing the
CEECs in its report 'The impact of eastern enlargement on employment and
wages in the EU member states', May 2000, which says: "any realistic
policy scenario has to acknowledge the fact that large differences in
per capita incomes... between the EU and CEECs will persist not just for
years but for decades." And again: "Current investment rates demonstrate
that the convergence of capital stocks [industrial plant] between the
present EU members and the CEECs will take a very long time. Even if
viewed optimistically, the convergence of capital stocks and per capita
incomes will require decades rather than years."

This means continuous trade deficits (see OEF 2004), debt, low levels of
industrial development and chronic mass unemployment. It is worth noting
that more than ten years after re-unification and financial transfers
that dwarf anything on offer from the EU to any country - approx €100
billion per annum 1991 to 1999 - 'East' Germany remains
de-industrialised, due to privatisation and competition from the 'West';
and unemployment is over 20% in the 'Eastern' Lander, as compared to 9%
for Germany as a whole. Meanwhile the EU has agreed a 2004-07
development budget of €22 billion for the ten new Member States (Irish
Times 20/12/2003) - €7 bn p.a. for approx 75 million population, a far
cry from recent transfers to Ireland and quite inadequate to reverse
current economic trends.

To summarise: the conditions of entry into the EU of the CEECs have
peripheralised these countries and created large regions of low GDP per
capita, high unemployment and poverty - which EU policies will do little
to qualitatively change.

Regional inequalities across the EU

Can the EU, and especially EU Cohesion and Regional policies, reverse
this? I would argue not, since regional inequalities are a structural
feature of the EU. Regions that are already peripheral to the core
regions of advanced accumulation in Europe include those with long
standing under-development in which agriculture predominates and where
there are high levels of unemployment. The south of Italy has 12 - 24%
unemployment, as to 9% average for Italy as a whole; Greece, 10%
average; west, central and southern regions of the Spanish state, + 18%
as to 11.4% average; south-west and central France +12% as to 8.7%
average; Portugal 5.1%, but with low GDP per capita and low income
levels, and Ireland (BMW 5.5% as to East 3.8%).

Others are once-industrialised regions now in decline:
Nord-pas-de-Calais 13.4% as to 8.7% French average; the north of England
7% and Wales 6% as to 5.6% average (though official UK unemployment data
can be of questionable accuracy - see Morgan & Price 1999 who cite
economic inactivity rates of up to 30% in the South Wales Valleys);
Wallonia, 12.6% as to 8.6% Belgian average; and some German regions:
Nordrhein-Westfalen 8% as to Baden-Wurtemberg 4.7%. All Data for 2002.
(Data source: EU Third Cohesion Report, Main Regional Indicators. 2004).

The top ten regions of the EU in terms of capital investment,
productivity, GDP per person, wages and other socio-economic indicators
are in the 'golden banana' (so-called because of the pattern of the glow
of lighting as seen from space) running from Greater London, the
Netherlands and Belgium, the Paris Basin, the Rhinelands, Switzerland
and Northern Italy.

Notwithstanding historical changes in the location of production,
agglomeration (the geographical concentration of advanced production and
accumulation of capital) is a persistent feature of capitalist
development. It is a fundamental feature of 'combined and uneven
development', whereby advanced production and accumulation in one region
is necessarily accompanied by backwardness in production,
underemployment and lower incomes in other regions (see Mandel, 1995;
Lowy, 1993).

Combined and uneven development is a generally accepted concept in
Marxist discussion on development. But whether we posit our analysis
within this theoretical framework, or use world systems theory as Fagan
& Kilmister do, the pattern is easily observed in the levels of GDP per
person in different regions in any country. For example, GDP per person
is over 120% of the Irish average in Dublin, while it is below 70% in
parts of the West. It is also noteworthy that Ireland's Western
Development Commission has reported that of 20 IDA-backed projects
initiated in the first half of 2003, only 7 were outside Dublin and Cork
(Irish Times 14/7/2003). The Commission has also warned of significant
job losses in the BMW region if Ireland loses Objective 1 funding due to

This would indicate that EU Cohesion funds have not stimulated the
accumulation of capital and productive activity in the West of Ireland
to the degree that employment at current levels can be sustained without
continuous direct payments from the EU. This is in a context of €7
billion transfers to Ireland between 1997 and 2002. It is also
noteworthy that the Spanish government demanded that its Objective 1
funds should be sustained after enlargement as a condition for its
support. And that the German Finance Minister has argued for a reduction
in EU contributions from 1.24% GDP to 1% in the coming EU Budget on the
grounds that payments to the poorer regions of the CEECs will take from
payments to impoverished German regions (Irish Times 11/2/2004).

The 'golden banana' pattern and other regional disparities have
persisted in Europe since the founding of the EEC in 1958. (see Dunford
1988; Heidenrich 2003) Neither EU regional policy nor the setting up of
the European Regional Development Fund (ERDF) in 1975 have altered the
pattern. Both the Second and Third Cohesion reports from the EU indicate
that regional disparities - differences in GDP per capita, income and
employment levels - have not changed significantly and in some cases
have actually increased since the 1980s in the EU 15 countries (see DIW

EU Regional policy uses infrastructural development and education as the
levers to encourage capital investment in poorer regions. But as the
overriding political drive of EU policy is neo-liberal, removing any
obstacles to capital accumulation, the economic effects of its regional
policy are marginal - since the underlying tendency is towards
agglomeration in the core regions. The ERDF and EU regional policy are
in reality more important as political instruments to placate,
incorporate or undermine social or national movements that might pose a
challenge to the political status quo in economically peripheral

In summary: EU Regional policy will not bring an end to regional
inequality in the CEECs or elsewhere in the EU.

So the chickens are coming home to roost. Flowing from the EU and IMF's
neo-liberal policies, an enlarged Union including Bulgaria and Romania
would have approximately 153 million people living in regions with GDP
per head below 75% of the present EU average, almost a third of a total
population of approximately 485 million people (EU Third Cohesion
Report, 2004).

We can therefore expect to see an increase in the scale of regional
disparity, and a deepening of disparities as the instruments for
amelioration become increasingly ineffective. Calls for increased
competitiveness will do little for impoverished regions other than drive
down wages and conditions for production of labour-intensive goods, (see
Janicki & Wunnava 2004) since the tendency is for high-value-added
production to locate in core EU regions where such activity is already
located - a fact acknowledged passively in the Third Cohesion Report

None of the core EU states is willing to increase its EU contributions
to bail out peripheral regions in the CEECs at the expense of their own
constituencies; and even if they were to do so, the levels of taxation
required would be such as to make European-based production less
profitable than capital located elsewhere - a project that is
politically untenable for any of the present mainstream political

Competition between poor and very poor

So what we are faced with is a competition for scarce resources between
the poor of the peripheral regions of the EU 15, whose GDP per capita is
below 75% of the EU average (the criterion for receipt of Cohesion funds
in the Objective 1 category), and the very poor of the CEECs, where
average GDP per capita is approximately 50% of the EU average (not to
mention Bulgaria and Romania, where GDP per capita is approx 30% of
present EU average - Third Cohesion Report 2004). As the EU's budget
Commissioner Michaele Schreyer put it, enlargement poses "huge
difficulties in economic terms" since the EU population will increase by
28%, but overall income by 6%. This change in relative incomes will mean
that having received €1.5 billion from the EU in 2002, Ireland will pay
€21 million into the EU budget in 2004 (Irish Times 7/2/2004).

The political effects of regional inequality within the EU 15 are
already evident. In Italy the Liga Norde and in Belgium the Vlaams Blok
campaign for reductions in transfers to the poorer regions. In Germany
people from the former 'East' are scapegoated for the socio-economic
problems of the country as a whole, as are Turkish and other migrant
workers (the ones who build the Mercedes and BMWs). And throughout
Europe there is increasing suspicion and hostility to immigrants, with
Commission President Romano Prodi recently arguing for the proposed
1.24% EU-GDP budget on the grounds that citizens would in the future
want increased protection against illegal immigration (Irish Times

It is not as yet clear how social tensions in the peripheral regions of
the CEECs will pan out. Should the regional inequalities be contained as
regional issues within the countries concerned, the political impact may
remain one of being a problem for domestic politics. But should the
regional inequality continue to be of national proportions (for example,
the relative impoverishment of whole countries and persistent high
levels of unemployment, as in Poland at +20% - OEF 2004), then there may
be destabilizing effects on the EU as a whole. The Commission will, no
doubt, do what it can to ensure the former scenario is the one that

Draft EU Constitution

So how does the proposed new EU Constitution fit into this
socio-economic situation? There are a number of areas in which the
Constitution advances the further centralization of power into the
institutions of the EU: the establishment of a 'legal personality' for
the EU, which will enable it to act in the manner of a state in
international diplomacy. Concomitant to that is the creation of a
Foreign Affairs Committee and an EU Foreign Minister; and of a related
military and security structure.

But the burning issue of the moment is the decision-making process at
the heart of the EU's institutions: voting weights for Qualified
Majority Voting in the Council of Ministers. The present disputed
proposals are that a QMV vote should be based upon a double majority: at
least 50% of the Member States, representing at least 60% of the
enlarged EU population. Recent reports (Guardian, 27/3/2004) suggest
that the Polish government would compromise on a double majority
comprising 54% Member States representing 64% of the population.

What is not being publicly discussed however, are the new issues on
which QMV would apply. Changes from the provisions of the Treaty of Nice
that would facilitate the further advance of the neo-liberal project are
the introduction of QMV into decisions on international trade in public
services. Nice provided Member states with a veto on decisions to open
international trade negotiations in Health, Education, and Audio-visual
Services. Apart from a weak caveat on trade in Audio-visual Services,
the veto on these services has been removed from the EU's Common
Commercial Policy as contained on the draft Constitution. Under the new
Constitution, the final decisions on trade in these services would be by
QMV (see Draft Treaty, Constitution for Europe, July 2003: Article
III-216 and 217, Common Commercial Policy).

The European Commission would have exclusive right to make agreements at
the WTO through the GATS agreements. As at present, these negotiations
would be secret until deals are finalised. The Irish government does not
say what services it is willing to put on the Commission's 'list of
offers' to trade nor does the Commission publish the list of offers it
takes to the GATS. No details of voting are published, so Irish citizens
do not know how Irish representatives in the Council of Ministers vote.
We only find out what services they decide to open to trade after the
deal is finally agreed - by which time it is too late to seriously
challenge the agreement.

This process entails a serious erosion of accountability and democracy,
since neither citizens nor legislators are told what the Irish
government (nor any other government) is offering or requesting from
other countries in the GATS. We know neither what they are doing, nor if
they are doing what they say they will.

A recent request by 22 TDs and a number of MEPs for access to Irish
government documents being presented at a meeting of the Art. 133
Committee (which formulates the EU's submission to the GATS) in Dublin
on February 20, 2004 was refused by the Department of Trade and Industry
and Minister Mary Harney (DAPSE. Feb 20, 2004). And leaked documents
from the EU's submission to the GATS in 2002 show that the European
Commission has submitted requests to a number of developing countries to
open their water supply and treatment services to international bidders
- contrary to the EU's publicly stated positions (see WDM Sept. 2003).

The exclusive right given to the European Commission to negotiate GATS
trade deals in all Services, combined with the commitment in the Common
Commercial Policy to liberalise trade in all Services, means that the
draft Constitution would create a framework that would facilitate
Education, Health and Cultural / Audiovisual Services being provided on
a commercial or business basis. This framework, as part of the
Constitution, is one that democratically elected governments would be
powerless to change in the future.

Supporters of the draft Constitution may argue that Articles 16,
III-179-7 on Health, III-183-1/4 on Education and III-217-5 of the
Common Commercial Policy on the delineation of the competences of Member
States as against those of the EU would protect the rights of the Member
States to determine policy on Health and Education. But these Articles
would offer little legal protection against the provisions of Article
12-1, which gives the Union exclusive right to determine Common
Commercial Policy. And thence 217-1 of the Common Commercial Policy,
which includes the right to make 'trade agreements in relation to trade
in goods and services'.

Trade proposals would be in any aspect of a service that could be
defined as commercial. That would include any part of the service that
could be contracted out. What comes to be defined as the commercial
aspect of a service may be determined by the Art. 133 Committee, the
Commission, the WTO, or may result from a offer / request made by a
another member in the GATS negotiation process. Article 217-1 of the
Common Commercial Policy would allow the Commission to make deals in the
GATS based on these definitions, subject to a final QMV vote in the
Council of Ministers.

At present the availability of a veto on trade in Health, Education and
Audio-visual services means that bartering within the Art. 133 Committee
and the Commission on trade offers is limited, because all parties know
that a Member State can use their veto in the final vote in the Council
of Ministers. But if the veto goes, pressure to barter trade commitments
for the GATS in the previously state-provided services will grow. And
the proponents of QMV are aware of this (see below).

The commercial aspects of these Services are not defined in the
Constitution or elsewhere. So in the event of pressure, or of a QMV
vote, to include in a GATS offer sectors that a Member State did not
wish to open to trade, the final recourse of that State would be a
challenge to the Council decision (which would be based on Commission
proposals) in the European Court of Justice. That state would have to
show that the Commission was opening trade in non-commercial aspects of
these Services. This would be a very difficult legal argument to make,
since many parts of these Services can be broken into individual
functions and contracted out. Examples of this can be seen in the
education and health services both in Ireland and especially in Britain.

Article 1.3 of the GATS Treaty (see discussion below) is instructive as
to the inadequacy of the protection provisions in the draft
Constitution. The arguments that the existence of commercial competition
between providers means that there should not be exemptions from trade
in the health and education sectors could easily be put to the Article
133 Committee and the Commission, flowing from pressure to make offers
to open services in the GATS and from the EU Common Commercial Policy.
Conflicts over the Commission's / Council's proposals would have to be
finally resolved in the European Court of Justice.

Effectively therefore, decisions on the way Health or Education services
are provided could be made by a Court of Justice interpretation of the
Constitution. Or such conflicts could end up being decided upon by the
Disputes Resolution Panel of the WTO - where States representing the
interests of 'their' businesses fight for market access that is most
favourable to them. The victory for the US against the EU's preferential
trade in bananas with its African-Caribbean-Pacific ex-colonies in the
WTO is a harbinger for the future (WDM April 2003).

If we are concerned with sovereignty and democracy, then we must take
very seriously the potential for a serious erosion of our sovereignty
that these trade policy decisions entail. The Art. 133 Committee is
appointed by the Council of Ministers. It operates in secret, both at
national and EU level, and lacks any mechanism for transparency or
accountability. Neither the European Court of Justice nor the WTO
Disputes Resolution Panel are accountable to any electorate. Nor are
they tied by democratically decided policy decisions. Rather they make
decisions based on legal arguments flowing from international treaties,
which are framed to advance the liberalisation of trade and protect
property rights within capitalist norms.

To those who say that Member State control of Education, Health and
Cultural / Audiovisual Services is protected by various Articles in the
draft Constitution, DAPSE would say this: protection by such Articles is
contradicted by giving the EU exclusive rights to make international
agreements to open trade in these Services and by the likely
pre-eminence of the Common Commercial Policy in any conflict of

If democratic control is to be retained, decisions to open trade in
these key services must remain unanimous. Any Member State must have the
right to use a veto in the Council of Ministers against proposals to
open trade in these Services that would conflict with its commitments to
provide services on a non-commercial basis.

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