Wirtschaftsintegration, Sozialstaat, Mobilität, Europäische Wirtschafts- und Währungsunion, Economic integration, Welfare state, Mobility, European Economic and Monetary Union

Guntar Krasts

English

Research Papers in Economics

GUNTAR KRASTS
Former Prime Minister, Republic of Latvia
Chariman, European Affairs Committee,
Latvian Parliament (Saeima)
Member of the European Parliament
Excellencies, ladies and gentlemen,
The largest EU expansion in history has caused
extensive debates about the need for EU reform.
The most significant reflection of these efforts has
been the preparation of the Constitutional Treaty
and the discussions surrounding it. Less attention
has been paid to making the socioeconomic effects a
success both for the EU-15 and the new Member
States.
Countries with a different level of economic and,
consequently,a different level of social development
have joined the EU, which means the enlargement
requires new ways of thinking of how to ensure the
development of the EU’s social policies. The
Common Market was founded with a view to facili-
tating the competitiveness of the Member States and
it is based on four fundamental freedoms.Almost all
EU-15 Member States have introduced transition
periods for the free movement of labour. The only
exceptions are the United Kingdom, Ireland and
Sweden. Moreover, the Swedish parliament has
voted against a government proposal to introduce
such restrictions.
There have been voices from some quarters, espe-
cially in Germany, raising the issue of “tax dump-
ing‘‘ and ‘‘unfair tax competition‘‘, which are sup-
posedly being implemented by the new Member
States. The idea of tax harmonisation is still in the
air, despite the fact that the European Convention
has repudiated it. These are concerns about the
movement of capital to the new Member States
causing possible losses of jobs in the old EU coun-
tries with less attractive corporate tax policies.
What is the most adequate tax level in each country
and in each socioeconomic situation? These are
questions which keep inciting debates among eco-
nomic analysts and will continue to do so.As far as
I know, only Austria has reacted in an adequate
manner to the possible movement of jobs to the
new Member States – it intends to reduce corporate
tax levels.
It seems to me that the decisions taken by the
Swedish, British, Irish and Austrian policy-makers
reflect a healthy attitude to the challenges posed by
enlargement. Only in that way will the expansion of
the European Union open up unique possibilities of
unification.
We should be looking at these things realistically. I
highly appreciate the financial support extended
from EU funds to the new Member States.Although
it is well intended and has multiplier effects,it cannot
be the only ‘‘tool‘‘ to overcome the existing social
and economic differences with the old Member
States.
Restrictions of the free movement of labour,tax har-
monisation,extension of qualified majority voting to
social policy are ideas raised by short-term policy
considerations. These “instruments“ serve only to
postpone the problems. Such decisions would sub-
stantially diminish the effective utilisation of
resources provided by the Common Market, as only
new jobs and the following increase in the level of
incomes would boost the imports of the new
Member States, creating jobs in the old Member
States.
EU policy-makers should more seriously consider
what trade theory suggests on the economic merits
of the movement of labour and capital across bord-
ers, instead of speculating about possible political
implications. Our common goal should be to move
labour and capital quickly into productive sectors,
not to defend labour allocations and industrial
structures that are no longer appropriate. In the
framework of EU social and economic construc-
tion possibilities we have to create highly flexible
labour markets, closely linked with the educational
system, and we must be able to listen to the signals
coming from the market. Social welfare systems
have to be endowed with sustainability. That is
CESifo Forum 3/2004 32
Panel 1CESifo Forum 3/2004 33
going to cause painful reforms in the welfare states.
EU enlargement is the right time for substantial
reforms not only in the new Member States, but
also in the EU-15.
This is the most appropriate time! The Common
Market is the ‘‘instrument” that will help the
Member States find the solutions for the implemen-
tation of reforms. Our ability to utilise EU enlarge-
ment and the synergy effects it will provide to gen-
erate dynamism in the EU will, to a large extent,
determine the future of the European Welfare State
in the countries where it has existed for decades,and
EU social policies will be postulated among the new
Member States.
Panel 1

Economic Integration and the Welfare State

http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-CESifo_Forum/zs-for-2004/zs-for-2004-3/forum3-04-panel1-krasts.pdf

Economic Integration and the Welfare State

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