Bridging Europe’s solidarity gap

 This piece originally appeared in EU OBSERVER

COMMENT – The Wall that represented the geographical and political division
of Europe was taken down 20 years ago,
bringing euphoric hopes of unity. Yet today there is a new division in Europe – a solidarity gap.

After the accessions of 2004 and 2007, the new EU member
states believed that they were finally sitting in the same boat with their
neighbors to the West.

But right now, from the point of view of the new members, the EU states of
long standing are comfortably aboard a luxury cruise ship heading for the
horizon while they themselves bob behind on a leaky dinghy in troubled waters.

How the EU will succeed to bridge this solidarity gap perception will be
crucial to its own survival.

The January gas crisis left hundreds of thousands of East Europeans without
heating and forced many businesses to suspend operations – and many were right
to say that those mainly to blame were the respective governments that had
failed to take pre-emptive steps to ensure gas supplies.

The Russian-Ukrainian dispute became the opening act of the East-West drama
that called into question the EU’s credibility among its new members. The lack
of long-term support on the part of the European Commission for the integration
of Europe’s gas transmission systems and the
initial reluctance of key European leaders such as Sarkozy, Merkel or
Berlusconi to enter the fray resulted in a 14-day stalemate for a number of recently-admitted
EU members.

One immediate result was that previously high levels of support for the
union fell by nearly 20% in Bulgaria
during the weeks of the crisis. Last week, fresh news of Ukraine firm
Naftagoz’ inability to pay Gazprom has conjured the spectre of a new gas
crisis, raising new fears in EU’s East.

The recent call by German Chancellor Merkel to the European Commission for
support for the Nord Stream project, which would diversify the gas route to
Europe but would not ameloriate dependence on Russia, worsens concerns that
there will be no common European policy vis-a-vis Moscow.

Europe cannot seem to accept the argument that the recent crisis has
highlighted the uselessness of bilateral agreements with Russia.

Meanwhile, the protectionist statements by French President Nicolas Sarkozy
amid the growing financial difficulties of the new member states became an
alarming signal for the prospects for their economies. With their banks owned
mostly by West European banking institutions and their financial balances
highly dependent on foreign direct investment from the established industrial
countries, the new member states face the risk of financial turmoil in the
months to come.

The recipes for their transitions that the West preached and that were
adopted by the domestic elites – that Central and Eastern Europe (CEE)
economies should be opened to foreign investment and trade – seem to be at the
heart of their current economic difficulties.

Moody’s Investors Service warned in a report last week that Western owners
of East European banks are coming under pressure to withdraw capital from
countries already reeling from budget deficits and foreign borrowing.

For Central and Eastern Europe, which
enjoyed breakneck growth spurred by a splurge of credit from these banks, the
squeeze could not have come at a worse time. Already bruised by the global
downturn, they are on the verge of a downward spiral as credit dries up.
Average growth among countries in the region slid to 3.2 percent last year,
from 5.4 percent in 2007. This year, it is forecast to contract further,
economists say.

French, Italian and Spanish plans to support their car industries by pumping
billions in exchange for “staying domestic” cause further concern in
the eastern part of the EU. President Sarkozy’s announcement that he would like
PSA Peugeot Citroen and Renault SA to shift production from low-wage nations
back to France
in return for €7 billion in soft loans provoked fierce reaction by the Czech
presidency of the EU Council. Growing unemployment, along with declining
currencies that are making imports and foreign debt payments more expensive,
are forcing governments to cut back on spending and public services, leading to
a wave of increasingly violent protests across the region.

Last Friday, the coalition government in Latvia
– where the economy contracted more than 10 percent on an annualised basis last
month – became the second European government, after that of Iceland, to
collapse.

The East Europeans will hold a mini-summit this Sunday, preparing for the EU
summit in Brussels.
The Hungarian and Polish governments will seek support for a “European
Stabilization and Integration Program” that they hold would help them find
a way out of the crisis. Along with short-term financial injections, the
package will suggest faster financial integration of Europe.

Apart from Slovenia and Slovakia, the
Eastern European EU members are not part of the Eurozone. The predicted
“hard landing” of their economies may imperil the currency boards in Lithuania, Estonia
and Bulgaria
and will make it more expensive to rescue them than the countries that have
already introduced the euro. Including all of them in the ERM II mechanism,
which would allow many of the EU’s eastern members to adopt the euro in the
next two to three years, could be a reasonable political measure to bridge the
solidarity gap between East and West.

But as Philip Stephens said in a recent commentary in the Financial Times,
some of the old members “would like to undo the enlargement.” And as
perceptions matter most in politics, the solidarity gap has become a political
fact in the EU today.

It will be up to the old member states to send the right signal: not only
that solidarity means more that re-distributing structural and cohesion funds,
but that the pains of transition were still the right path to take – for we all
want to sit in the same boat. And that the political influence of Russia in Europe
– the one East Europeans have been trying to diminish by accessing the euro-Atlantic
club and now comes back through the gas pipes – should not be a major factor in
European politics.

Vessela Tcherneva is senior policy fellow and head of the European
Council on Foreign Relations Sofia
office