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EU Accession - What Has Happened Since
By Art Van Bodegraven |
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In Summary The new European Union remains potentially an economic powerhouse. But, its potential is not being realized, and attempts to interleave political union with economic union are getting in the way. The EU’s nation-states face major challenges in a world of globalized economies. The clock is still ticking.
Background Over a year ago, we reported the 1 May expansion of the European Union with the overnight admission of 10 new members, for a new total of 25. We also predicted the impact of the enlarged EU in a number of dimensions – consumption, production, and logistics. Our observations were reported in the December 2004 issue of CLM Logistics Comment. We’ve followed events closely since then, with the aim of updating our commentary.
News Sources Through July 2005 There has, for better or worse, been no shortage of EU news since accession day. In fact, it’s been difficult to pick up any publication that has not contained some note of EU interest. Some sources for the observations that follow, and which were included in our presentations in Germany and Greece earlier this year, have included:
OK, I’ll confess a bias, which may be evident in the sources – the point of view presented herein has a decidedly Anglo-Saxon leaning. Another key point - one really can’t comment on the economic issues without acknowledging and commenting on the political. With that, herewith a sampling of indicators, which seem to add up to a one-step-forward, one-step-back scenario . . .
But First, A Geography Reminder Here’s Europe – old members of the EU, new members (look closely to see Cyprus and Malta, and prospective countries for the next expansion
What’s Happened Since Last May (A Sampler) Unemployment is stuck at 8.9%, overall (but with major challenges in France (10%) and Germany (over 5 million) Euro-economy growth for ’05 of 1.7%, same as ’04 (and ½ to 1/3 that of US and Asian countries) Unsuccessful grappling in Germany and France with health care/pension systems and the 35-hour work week Job cuts – Nokia, Infineon; sluggish retail ( Germany) Ukraine (non-EU, and Europe’s fastest-growing economy) conflicts between nationalization and privatization Slovakia (economic role model) leading, taking tough actions, while PM’s in Poland, Hungary, Czech Republic quit or get fired; Tony Blair loses votes from his Euro-support, as well as from Iraq Turkey blocks Chinese textiles; Europe settles for voluntary tariffs EU becomes China’s largest trading partner; where does arms embargo fit? EU nations need skilled immigrants and plan to entice them; popular sentiment doesn’t want more immigration Industrial production up 4% in Spain, up slightly in France and down in Germany European airlines adopt global partnering to build capacity and business Retail sales up 6.1% in UK, only .4% in Euro-zone Germany stalls out on Agenda 2010 economic reforms; European commissioner fights (and loses) on state bail-outs (Alitalia, Alstrom) UK air cargo up over 6%; CDG airport expanding UPS buys Polish firm; John Deere sets up shop in Russia; Exel expands through acquisition; IBM, GM, Emerson, Sara Lee cutting back in Europe; Caterpillar, Wal-Mart, McDonald’s, P&G, Colgate all sagging Unified customs union not happening; financial services single market may not happen; central bank and Bank of Italy in conflict Iceland (outside of EU) turns into economic dynamo Switzerland declares itself a logistics hub and applies to join the passport-free zone (EU Lite) Tension with Russia (masters of divide and conquer) – relationships with France and Germany vs. with former SSR’s Dollar decline/Euro rise – recent dollar recovery small potatoes; makes European exports less competitive; job shifts to low-wage locations more pervasive than in US Questions, questions . . . Who speaks for the EU? Secretary General of the Council of Ministers? President of the European Council? President of the European Commission? Can any of these take actions to change the Union, or re-direct its economic performance? And, exactly what is the EU Parliament the parliament of? Is the EU reaching its political limits? While the questions swirl, Turkey steps into the on-deck circle, with the baggage of history and guest workers Germany, Netherlands, Belgium remain the top three distribution centers; Amsterdam/Paris/Frankfurt triangle is dominant and growing; Eastern development is likely, but will not come at the expense of the old – it is additive economic activity – it is not a zero-sum game National issues: Perrier, Nestle, Novartis, Aventis, Siemens, Alstom, Sanofi Economic ’04 growth in the East (Slovakia 5.3%, Poland 4.8%, Hungary 3.7%, Czech republic 3.6%) vs. slowdowns in the West (France 1.9%, Germany 1.3% and falling - .7% for ’05; Netherlands flat for ’05)
The Roof Falls In The list could and does go on and on. But, then, in the space of mere days, the EU constitutional process collapsed, with “no” votes on the referendum in France and the Netherlands. While Luxembourg, not exactly a power behind the scenes, later voted “yes,” the referendum was pulled off the table in Poland, the UK, and Denmark. Then, 2006 budget talks ended at an impasse, with vitriol from France and immovability from the UK. Mr. Chirac in France is a two-year lame-duck, and his new appointments have yet to make a dent in unemployment; Mr. Schroeder in Germany is in the political fight of his life, and his likely successor looks to mightily slow down EU expansion. Is it over for the EU? Are those bemoaning crisis right? Not at all. The politicians have lost sight of the real strength of the economic union involved. The collapse of the one-Europe political dream has nothing really to do with the creation of the EU as an enormous free market trading bloc. These are independent considerations, and the EU can be a major force in the global economy, even if it never ratifies a constitution.
What’s the Real Issue? The so-called split in the EU is not Old Europe vs. New Europe. It is not Eastern Europe vs. Western Europe. In fact, we need to send that Cold War terminology to the scrap heap. Prague, for example, is farther west than Vienna. Budapest and Bratislava are mere kilometers east of Vienna, and Hungary, Slovakia, and the Czech Republic were all once part of the western powerhouse, the Austro-Hungarian Empire. The real split lies between those European countries that have wholeheartedly embraced the attributes of free market capitalism and those that persist in trying to manage the marketplace for social outcomes. Reading Thomas L. Friedman’s The Lexus and the Olive Tree and The World Is Flat describe the differences perfectly. The situation has been made worse by misguided attempts to use the EU as a vehicle for the specific views and interests of nation-states whose intrinsic positions on the world stage do not match their self-images.
In Conclusion Sueddeutsche Zeitung, the respected newspaper, has stated, “As long as there are all these nationalistic reflexes, Europe doesn’t stand a chance of becoming a modern economy.” That is not our prediction for the EU. But, it is a possibility. For the EU, in total, to reach its full economic potential, all members need to adopt the attributes of the modern free-market capitalist state, including the democratizations of technology, currency, and governance. Individual nations must stop over-riding decisions for the long-term good with actions that serve short-term narrow nationalistic interests. And, nations need to let the EU fulfill its economic destiny, and not subvert it to positioning the views of specific nation-states on the world stage. Then, the future is really bright. In the meantime, it will be bright for individual members who play the new globalization game by the new rules. And, the points we made months ago about specific companies being ready and willing to make supply chain changes based on natural developments, irrespective of EU member status, still hold. And, answers are still needed soon. Art van Bodegraven is Chairman of The Supply Chain Group; Partner in The Progress Group, LLC; and President of van Bodegraven Associates. He may be reached at +1 614-336-0346, art.van-bodegraven@the-scg.com, or avan@theprogressgroup.com All opinions and conclusions are solely those of the author
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