LITMIR.BIZ

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      Part of the reason for the relatively subdued profile of the new Germany has, of course, been the costs of re-unification itself, for which the bill to date has come to more than a trillion dollars, saddling the country for years with stagnation, high unemployment, and mounting public debt. This was a period in which France, though no greyhound itself, consistently outpaced Germany, posting faster rates of growth for a full decade, from 1994 to 2004, with over double its increase in GDP in the first five years of the new century. In 2006, substantial German recovery finally arrived, and the tables have been turned. Currently the world’s leading exporter, the German economy now looks as if it might be about to exercise once again something like the European dominance it enjoyed in the days of Schmidt and the early Kohl. Then it was the tight money policies of the Bundesbank that held its neighbours by the throat. With the euro, that form of pressure has gone. What threatens to replace it is the remarkable wage repression on which German recovery has been based. Between 1998 and 2006, unit labour costs in Germany actually fell—in a staggering feat, real wages declined for seven straight years—while they rose some 15 per cent in France and Britain, and between 25 and 35 per cent in Spain, Italy, Portugal and Greece. With devaluation now barred, the Mediterranean countries are suffering a drastic loss of competitiveness, that augurs ill for the whole southern tier of the EU. Harsher forms of German power, pulsing through the market rather than issuing from the high command or central bank, may lie in store. It is too soon to write off a regional Grossmacht.

      Germany has now been re-united for sixteen years. A single currency has circulated for eight years. The enlargement of the EU is just over three years old. It would be strange if its outcomes were already clearer. In practice, of course, the expansion of the EU to the East was set in motion in 1993, and completed—for the moment—in 2007, with the accession of Romania and Bulgaria, and at one level it is plain why it should be perhaps the principal source of satisfaction in today’s chorus of European self-congratulation. All nine former ‘captive nations’ of the Soviet bloc have been integrated without a hitch into the Union. Only the lands of a once independent Communism, in the time of Tito and Hoxha, wait to join the fold, and even there a start has been made with Slovenia. Capitalism has been restored smoothly and speedily, without vexing delays or derogations. Indeed, as the director-general of the EU Commission for Enlargement has recently observed: ‘Nowadays the level of privatization and liberalization of the market is often higher in new Member States than old ones’.⁹ In this newly freed zone, rates of growth have also been considerably faster than in the larger economies to the west.

      No less impressive has been the virtually frictionless implantation of political systems matching liberal norms—representative democracies complete with civil rights, elected parliaments, separation of powers, alternation of governments. Under the benevolent but watchful eye of the Commission, seeing to it that criteria laid down at Copenhagen in 1993 were properly met, Eastern Europe has been shepherded into the comity of free nations. There was no backsliding. The elites of the region were in most cases only too anxious to oblige. For their populations, constitutional niceties were less important than higher standards of living, once the late-communist yoke was thrown off, although few if any citizens were indifferent to the humbler liberties of speech, occupation or travel. When the time for accession came, there was assent, but little enthusiasm. Only in two countries out of ten—Lithuania and Slovenia—did a majority of the electorate turn out to vote for it, in referenda which most of the population elsewhere ignored, no doubt in part because they regarded it as a fait accompli by their leaders anyway.

      Still, however technocratic or top-down the mechanics of enlargement may have been, the formal unification of the two halves of Europe is a historical accomplishment of the first order. This is not because it has restored the countries of the East to an age-long common home, from which only a malign fate—the totalitarian grip of Russia—wrested them after the Second World War, as the ideologues of Central Europe, Kundera and others, have argued. The division of the continent has deeper roots, and goes back much further, than the pact at Yalta. In a well-received book, the American historian Larry Wolff has taxed travellers and thinkers of the Enlightenment with ‘The Invention of Eastern Europe’ as a supercilious myth of the eighteenth century. The reality is that from the time of the Roman Empire onwards, the lands now covered by the new member-states of the Union were nearly always poorer, less literate and less urbanized than most of their counterparts to the west: prey to nomadic invasions from Asia; subjected to a second serfdom that spared neither the German lands beyond the Elbe nor even relatively advanced Bohemia; annexed by Habsburg, Romanov, Hohenzollern or Ottoman conquerors. Their fate in the Second World War and its aftermath was not an unhappy exception in their history, but—catastrophically speaking—par for the course.

      It is this millennial record, of repeated humiliation and oppression, that entry into the Union offers a chance, finally, to leave behind. Who, with any sense of the history of the continent, could fail to be moved by the prospect of a cancellation in the inequality of its nations’ destinies? The original design for EU expansion to the East was a joint product of German strategy under Kohl and interested local elites, seconded by assorted Anglo-American publicists. It aimed to fast-track Poland, Hungary and the Czech Republic into the Union, as the most congenial states of the region, with the staunchest records of resistance to communism and most westernized political classes, leaving less favoured societies to kick their heels in the rear. Happily, this invidious redivision of the East was avoided. Credit for preventing it must go in the first instance to France, which from the beginning advocated a ‘regatta’ approach, insisting on the inclusion of Romania, which made it difficult to exclude Bulgaria; to Sweden, which championed Estonia, with the same effect on Latvia and Lithuania; and to the Prodi Commission, which eventually rallied to comprehensive rather than selective enlargement. The result was a far more generous settlement than originally envisaged.

      What of the upshot of expansion from the other end, for the Union itself? Thanks to the modesty of the share of Structural Funds allocated to the East, its financial cost has been significantly less than once estimated, and the balance of trade has favoured the more powerful economies of the West. This, however, is the small change of enlargement. The real takings—or bill, depending on who is looking at it—lie elsewhere. Core European capital now has a major pool of cheap labour at its disposal, conveniently located on its doorstep, not only dramatically lowering its production costs in plants to the East, but capable of exercising pressure on wages and conditions in the West. The archetypal case is Slovakia, where wages in the auto industry are one-eighth of those in Germany, and more cars per capita are shortly going to be produced—Volkswagen and Peugeot in the lead—than in any other country in the world. It is the fear of such relocation, with closure of factories at home, that has cowed so many German workers into accepting longer hours and less pay. Race-to-the bottom pressures are not confined to wages. The ex-Communist states have pioneered flat taxes to woo investment, and now compete with one another for the lowest possible rate: Estonia started with 26 per cent, Slovakia offers 19 per cent, Romania advertises 16 per cent, and bids at 15 per cent are being mooted in Poland.

      The role configured by the new East in the EU, in other words, promises to be something like that played by the new South in the American economy since the seventies: a zone of business-friendly fiscal regimes, weak or non-existent labour movements, low wages and—therefore—high investments, registering faster growth than in the older core regions of continent-wide capital. Like the US South, too, the region seems likely to fall somewhat short of the standards of political respectability expected in the rest of the Union. Already, now that they are safely inside the EU and there is no longer the same need to be on their best behaviour, the elites of the region show signs of kicking over the traces. In Poland, the reigning twins defy every norm of ideological correctness as understood in Strasbourg or Brussels. In Hungary, riot police stand on guard around a ruler who has vaunted his mendacity. In the Czech Republic, months pass without parliament being able to form a government. In Romania, the president insults the prime minister in a phone-in call to a television talk-show. But as in Kentucky or Alabama, such provincial quirks add a touch of folkloric colour to the drab metropolitan scene more than they disturb it.

      All analogies have their limits. The distinctive role of the new South in the political economy of the US has depended in part on immigration attracted by the region’s

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