The Week in Europe 25/06-01/07/03

EU-US Summit - Washington, 25 June 2003

On 25 June 2003 leaders from both sides of the Atlantic gathered at the EU-US Summit in Washington. The President of the European Commission, Romano Prodi, together with the President-in-office of the European Council, Greek Prime Minister Costas Simitis, met US President George W. Bush.

At their summit, EU and US leaders played down divisions that have soured bilateral ties since the Iraq conflict, with Commission President Romano Prodi saying that unity was essential for dealing with the world's problems. "When Europe and United States are united no problem and no enemy can stand against us," Mr Prodi said. Greek Prime Minister Costas Simitis said the relationship between Europe and the US is intact. The participants used terms such as "constructive", "fruitful" and "excellent" to describe their talks. However, marked disagreements remained over the issue of genetically modified crops, which the US is more keen than the EU to develop and exploit. The main conclusions of the summit are: an EU-US extradition deal, which was signed on 25 June; the "road map" for peace in the Mideast, with Mr Bush urging European leaders to take "swift and decisive action" against the Palestinian militant group Hamas by cutting off its funding; an agreement to jointly pressure North Korea and Iran not to develop nuclear weapons; a joint declaration on weapons of mass destruction; an agreement that allows law enforcement agencies in both the EU and the US to access bank accounts in some criminal and anti-terror inquiries, liagreement to hold talks on allowing US officials based in European ports to inspect shipping containers due to set sail for the US; and an agreement to open talks this autumn on an open-skies agreement that would liberalise air travel between the EU and the US, replacing existing bilateral agreements between the US and individual European countries.

[Background paper IP/03/875]

EU fundamentally reforms its farm policy to accomplish sustainable farming in Europe

Today, EU farm ministers adopted a fundamental reform of the Common Agricultural Policy (CAP). The reform will completely change the way the EU supports its farm sector. The new CAP will be geared towards consumers and taxpayers, while giving EU farmers the freedom to produce what the market wants. In future, the vast majority of subsidies will be paid independently from the volume of production. To avoid abandonment of production, Member States may choose to maintain a limited link between subsidy and production under well defined conditions and within clear limits. These new "single farm payments" will be linked to the respect of environmental, food safety and animal welfare standards. Severing the link between subsidies and production will make EU farmers more competitive and market orientated, while providing the necessary income stability. More money will be available to farmers for environmental, quality or animal welfare programmes by reducing direct payments for bigger farms. The Council further decided to revise the milk, rice, cereals, durum wheat, dried fodder and nut sectors. In order to respect the tight budgetary ceiling for the EU-25 until 2013, ministers agreed to introduce a financial discipline mechanism. This reform will also strengthen the EU's negotiating hand in the ongoing WTO trade talks. The different elements of the reform will enter into force in 2004 and 2005. The single farm payment will enter into force in 2005. If a Member State needs a transitional period due to its specific agricultural conditions, it may apply the single farm payment from 2007 at the latest.

Further information on the reform is available on the internet at:

http://europa.eu.int/comm/agriculture/mtr/index_en.htm

[Background paper IP/03/898]

Eurostat news releases

May 2003 Euro-zone unemployment stable at 8.8%; EU15 up to 8.1%

Euro-zone seasonally-adjusted unemployment stood at 8.8% in May 2003, unchanged compared to April, Eurostat reports. It was 8.3% in May 2002. The EU15 unemployment rate was 8.1% in May 2003, compared to 8.0% in April. It was 7.6% in May 2002. In May 2003, lowest rates were registered in Luxembourg (3.6%), the Netherlands (3.9% in April), Austria (4.3%), Ireland (4.6%), and Denmark (5.2%). Spain's 11.3% remained the EU's highest rate.

[Background paper STAT/03/75]

Enlargement News

After accession - Poland opens talks on future eu funding

Negotiations started with the new member states last week on the details of the funding they will receive from the EU after they join. The European Commission opened talks in Warsaw on June 27 with the Polish authorities on their regional development programmes for 2004-2006. Poland was the first accession country to submit a full set of proposals to the Commission in February this year based on a national development plan for 2004-2006. Under EU rules for accession, the new member states can start to use this funding as from the beginning of 2004 four months before they actually join.

And Poland will be by far the largest recipient of this type of funding amongst the new member states for the 2004-2006 period. The European Council in Copenhagen last December committed almost € 8.3 billion to Poland for these two years under the EU Structural Funds, and some € 4.2 billion under the Cohesion Fund. This represents approximately 1.8% of Polish gross domestic product for the period. The overall objective of these funds is to increase growth and to create employment through investment.

In Poland, the Structural Fund money will be concentrated on the transport system (including urban transport), rural development, education, training, labour market policy, environment, the overall business environment and information society. The Cohesion Fund will concentrate on infrastructure for transport and environment.

All of Poland's 16 regions qualify for aid under the principal Structural Fund instrument known as Objective 1, and designed for the regions that are well below the average level of prosperity in the EU: "regions whose development is lagging behind", as the EU terms it officially. Objective 1 funding is usually based on a Community Support Framework, a document that describes the socio-economic context of the country or of the regions concerned, presents development priorities and objectives to be achieved, and envisages systems of financial management, monitoring, evaluation and control. The priorities are then detailed in so-called operational programmes, focused on individual regions or sectors (such as transport, training, or support for businesses).

More warnings to new member states on matching up to EU

Another report suggested last week that the new member states will have a long way to go to reach the economic level of the EU15, even after accession. Even though economic transformation of the countries in central and eastern Europe has been significantly influenced by the goal of EU membership - and particularly the attempts for EU qualification as a functioning market economy able to cope with EU competitive pressure and market forces "the candidate countries still have a significant gap to bridge before they match up to most of the EU-15", says PricewaterhouseCoopers, in a study released last week entitled "Winning strategies for locally-owned businesses in central Europe".

The strategies of local firms in the future member states are not yet geared to generating a sustainable source of competitive advantage, says PwC. Companies in the region are too focused on cost-reduction; they need to become more flexible, efficient, innovative and work more closely with others if they are to thrive in an enlarged EU, it argues.

Foreign direct investment has had a generally positive impact on candidate countries' economic performance, and companies with foreign participation have outperformed locally-owned and -managed companies in terms of productivity, wage rates, investment, exports and profitability, says the study. But "locally-owned and -managed companies remain important to the economic prosperity of the candidate countries since they account for the majority of employment and value added", PwC points out.

Local firms will no longer be able to depend entirely on the domestic market, however. The economies of the candidate countries currently offer relatively small markets because of their limited populations and low per capita incomes, and increasing trade liberalisation and foreign direct investment have meant that domestic consumers in the candidate countries have been increasingly exposed to international brands, and now expect higher standards from local products. In addition, multinational companies investing in the region have become more demanding customers for local suppliers, which has also driven product quality standards upwards.

In the food-processing sector, local firms have found themselves squeezed in the domestic market by price-conscious consumers demanding higher quality products, and by new brands often with lower margins from new foreign competitors with better management, production and distribution. In the pharmaceuticals sector, budgetary pressures on public healthcare systems and low consumer incomes have held back the volume of drugs purchased and the prices paid, making trading conditions difficult for local firms. In the heavy chemicals and non-ferrous metals sectors, where there has been less foreign investment, companies have had difficulties adapting during the recent economic slowdown, often in the face of increased competition from imports, higher input prices and slow redirection of trade to the EU countries.

The expected growth in the candidate countries exceeding that of the EU-15 in the medium term, at least - will also have an impact: while it will make more consumers willing to purchase premium products, it will tend to impact locally-produced industrial goods more negatively, since rising incomes are likely to be accompanied by increasing labour costs. Meanwhile, EU membership will reduce the investment risk premium for projects in the region, so more foreign companies will seek business opportunities there increasing local investment, but also increasing the competition that local products will face. At the same time, membership of the EU is unlikely to provide significant additional export opportunities for local firms in the region: trade has already been extensively liberalised and few legal and regulatory barriers to trade with the EU remain in place, and the principal barriers to pursuing opportunities in EU markets are the high cost of market entry and their lack of access to investment finance.

Western publishers "hampering" national media growth in future member states

The entry of Western media conglomerates into central and eastern European countries has prevented, or at least hampered, the growth of independent nationally-based media groups, according to a new report on media ownership in the region. The report, "Eastern Empires: Foreign Ownership in Central and Eastern European Media", released last week by the European Federation of Journalists, shows the extent of foreign media ownership in the EU accession countries.

It discusses "the high levels of ownership of local, regional and national newspapers and magazine publishing in central and eastern European countries by European media groups" citing "the domination of the German print media group, Westdeutsche Allgemeine Zeitung, in Bulgaria and a number of other central and eastern European countries, and the Bavarian-based PNP in the regional press of the Czech Republic and Poland". It says Bertelsmann have also maintained a presence through their print division, Gruner + Jahr. Other examples given are the Norwegian media group, Orkla, which owns or has a majority share in one national and 13 local newspapers in Poland, other Scandinavian groups active in the Baltic countries, and the Finnish media group, Sanoma, which operates in five central and eastern European countries through its magazines division.

"In some countries European media groups have taken control of national newspaper titles but in the main the dominance rests in regional press ownership", says the report. And it goes on to remark: "The regional press plays a crucial role in the dissemination of news and information. Indeed the key democratic notion of local and regional newspapers is that they have their roots in the locality, and are identified and report on the range of life - social, political, economic and cultural - of the town or region they are based in. If local papers are part of larger foreign-owned groups, key decisions about investment and staffing are likely to be taken by owners in another country, and this crucial relationship is weakened or disappears as commercial considerations become dominant."

Overall, the report questions whether media systems in these countries can become representative of public interests and civil concerns, when decisions about investment and even editorial attitudes towards political issues may be decided in other countries. The EFJ urges the Central and Eastern European countries where foreign ownership is allowed to oblige transnational media enterprises to:

* disclose the full extent of their holdings;

* respect rights of employees and to engage in a social dialogue;

* establish European Works Councils in line with the EU Directive;

* respect media pluralism and to divest media properties where there are unacceptable levels of concentration;

* respect cultural and national particularities.

"Enlargement must be socially inclusive too"

EU enlargement will bring numerous benefits "but also presents some of the greatest challenges to the European social model since its foundation", according to Caritas Europa, a non-governmental organisation focusing on poverty and social inequality, migration and asylum. Caritas Europa delivered its position paper "EU Enlargement: Towards An Equitable Europe" to European Enlargement Commissioner Günter Verheugen last week. The organisation warns that rising poverty threatens vulnerable groups in some new member states, and insists that these risks need to be addressed and anticipated.

"The process of enlargement seems destined to produce winners and losers. Growing prosperity represents a reward for countries that will be able to keep pace with the changes, and to respond positively to the new demands of a market in transition. However, improvement in the quality of life will not affect everybody in the same way", says Annalisa Mazzella, of Caritas Europa. "The enlargement process should be undertaken in the spirit of social inclusion in order to avoid the growth of a two-tier Europe".

Caritas Europa is recommending a series of priorities for the social policy of the new member states from central and Eastern Europe:

training and employment services for farmers;

vocational and retraining courses for people to acquire skills that meet the demands of a re-structured employment market;

training programs for the increasing number of workers over 50 years of age;

programs to help the integration of migrants;

programs to support experience abroad, and government schemes to encourage people coming from new member states to apply in their own country the experience acquired in other EU member states.

Economic impact of enlargement will be gradual, says Verheugen

There is no reason to exaggerate the immediate economic impact of enlargement, said European Enlargement Commissioner Günter Verheugen, speaking in Venice recently on the impact that new member states will have on the dynamics of the European capital market. The total gross domestic product of the twelve future member states is small in comparison to the present EU only some 4%, and a relatively high degree of economic integration between the EU15 and the future member states has already been achieved. Only in a medium and long-term perspective will there be significant changes as the growth potential of the new member states is realised, predicted the Commissioner. Foreign direct investment has made major contributions to replacing outdated capital stock and introducing new technology and management skills, and the Commission has focussed attention on the business climate in future member states, urging the countries to do their utmost to strengthen their attraction for investors from abroad. But the financial sectors in all future member states have still a long way to go before they can compare in terms of size, scope, efficiency and stability with the financial sector in present member states.

Verheugen said he was particularly concerned about the lack of access to cheaper loans for small and medium size enterprises and farmers, which, he said, may hinder regional and agricultural development. "Expanding capital markets under EU regulations and supervision rules are expected to attract more foreign inflows. This will lead to higher diversification of financial products and improved liquidity conditions, which will foster financing opportunities for business". But, he stressed, much is now in the hands of the European financial and business community, to fully exploit the opportunities enlargement that offers.

New member states "are shaping the New Europe"

The spirit of the new member states is key to shaping the New Europe, according to Alojz Peterle, the first prime minister of independent Slovenia. He told a European People's Party-European Democrats meeting in Copenhagen: "We defended civilised values under nearly 50 years of Communist regimes. We are proud to be Europeans, and believe the Union is the best defence of what we care about." He argued that the ten accession states have already helped the EU move on from an overly technocratic approach: "The area of the EU is a huge market-place, half a billion people. But the Union itself is more than that, a Union of Values." Peterle sat in the Praesidium of the Convention on the Future of Europe, and he claimed that the draft Constitution that emerged from the Convention reflects basic Christian Democratic ideas as well as the programme agreed by the EPP last year. The draft Constitution is something extraordinary, he says: "the fruit of a first common project by all the Union's members and future members. Nothing like this has ever happened in Europe before. For me the one great achievement of the Convention was to prove that the enlarged EU is a step forward for all Europeans. That is more significant than phrases or formulations." Peterle also paid tribute to the EPP for its openness to the candidate countries: "The EPP has included us, the countries of central and Eastern Europe, from the beginning. For Christian Democrats and our allies, the New Europe was always more than a slogan. Through the EPP we have been able to shape the future enlarged Europe for a decade and more", he said.

Poland to push for change in new Treaty

Poland will be pushing actively for further changes in the draft Constitutional treaty presented to leaders of the EU member states and new member states at the Thessaloniki summit. Back in Warsaw after the summit, the country's minister for European affairs, Danuta Hübner, said last week that during the upcoming Inter-Governmental Conference due to start in October - Poland will demand that the qualified majority voting system negotiated in Nice in December 2000 be kept in place and not changed starting November 2009, as proposed in the constitution draft. She also voiced opposition to creating new EU defence structures "with a potential to undermine NATO capabilities". The proposed formula of enhanced co-operation in the area of defence should be open to all Member States, stressed Hübner. And Poland intends to return during the IGC discussions to the question of inserting into the preamble of the Constitution a reference to Europe's Christian heritage. She described as inadequate the present text, with its references only to religious, cultural and humanistic values. While she termed the result of the EU Convention as "a success" and a "constructive compromise", the minister insisted that the draft constitutional treaty prepared by the Convention is only a compromise proposal. Since the acceding states will participate fully in the IGC on an equal footing with Member States - as laid down in the Thessaloniki Summit Presidency Conclusions "this will give Poland and other acceding states a voice in determining the shape of the future EU", she said.