The newcomers could save the European Union

Because they have had to fend for themselves, they have a work ethic and a willingness to change
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The Independent Online

Tomorrow the heads of government of the European Union will be handed the final version of the proposed European constitution. This, depending on who you believe, is merely a tidying-up exercise or an irreversible step on the path to a United States of Europe. Both sides of the argument do agree on one thing: that the EU's expansion from 15 to 25 members requires constitutional change. A structure designed for six members is creaking at 15 and would become almost impossible to operate with 25.

So the new constitution is really about enlargement and the success of enlargement will not depend on the detail of the constitution; rather it will turn on whether the new members add to Europe's economic performance or become a drag on it.

If political objectives override economic reality, things can go terribly wrong. When the two Germanys merged in 1990 most people (including Margaret Thatcher) felt the country would become much stronger. We now know that having to take over East Germany has proved a far bigger burden than almost anyone expected. Far from strengthening Germany, it has in fact weakened it.

Now the EU is embracing several countries that were once similar to East Germany in their political system, their social outlook and their level of GDP. The EU has been enlarged several times but never before has there been such a large gap in wealth between the new members and the existing ones. The average GDP per head of the new is only a quarter of the EU average, with the poorest, Latvia, at only 15 per cent. When Greece, the poorest existing member, joined the EU in 1981 it had a GDP per head that was 64 per cent of the average.

How quickly the new members might catch up depends on the assumptions you make. But as a new study from the Economist Intelligence Unit (EIU), Europe enlarged: Understanding the impact, points out, it could be up to 90 years before these new members catch up. Even on favourable assumptions it will be 59 years before Poland, the largest new member, reaches the EU average.

Worse, they may not catch up at all. The Greek GDP per head is only 70 per cent of the average now, not a lot of progress for 22 years of membership.

This is potentially very dangerous to the EU's future: if new members remain poor they might reasonably wonder if they could do better outside. And taxpayers of the richer countries, hard hit by the burden of providing for their own ageing populations, will increasingly resent paying for people who live thousands of miles away and speak a different language.

But what in theory looks dangerous may in practice prove wonderful. With one reservation, of which more in a moment, I think enlargement could become a great success. The reason is that the key accession countries, the Eastern European former Communist states, bring a clutch of skills and attitudes that the EU desperately needs.

Because they, unlike East Germany, have had to fend for themselves for the last 10 years, they have a work ethic and a respect for entrepreneurship and a willingness to change. Having escaped the dead hand of Communist planning and gone through a painful adjustment to the market economy, they are instinctive reformers.

They also bring a less glamorous benefit: cheap labour. Only two of the accession countries, Cyprus and Slovenia, have hourly labour costs that are higher than the lowest-wage EU member, Portugal. The rest all have labour costs of between €3-5 (£2-£3.50) an hour, compared with €20-25 in most of western Europe. Investors can buy European skills at East Asian rates.

My reservation is that membership of the EU will heap so much cost and regulation on to these economies that they will lose their flexibility. Some members have done wonderfully out of the EU. When Ireland joined in 1973, it had a per capita GDP only a little higher than Greece. Now it is 20 per cent above the EU average. But Ireland has been very flexible and it has succeeded. Greece has gone for the hand-outs and it has failed.

The danger is that joining the EU might make the Eastern Europeans behave more like the Greeks than the Irish. They might, having gone through painful reconstruction to prepare for membership, think "phew, we've made it" and want to put their feet up. If Europe, under its new constitution, becomes even more centralised and bureaucratic, they would find it easy to slip towards that model.

The final word should come from the EIU study. It projected four scenarios for the future. The most favourable, "Brussels the beautiful", saw the EU gaining efficiencies from integration but also following a liberal economic agenda. The least favourable, "Euro-crisis", saw little support for integration or liberalisation. But the EIU gave only a 15 per cent chance for either of those.

It gave a 30 per cent probability to Europe integrating but failing to liberalise, the "Europe turns in on itself" option. In this case the EU falls further and further behind the US. Finally there is a 40 per cent probability for "Gridlocked but growing", with little integration but reasonable economic liberalisation. If the new members push towards this last outcome, instead of the third one, they will have done Europe a good turn.