A new iron curtain descends?

The front page headline in today’s Times looks at a new Iron Curtain splitting the EU’s rich and poor nations. Since the destruction of the Berlin Wall 20 years ago, and accession to the EU of most former members of the Soviet empire, there has been a ‘2-speed Europe’ with GDP growth in the new eastern states running much faster than in the old EU-15. However those ‘tiger’ economies are falling faster and further in the global recession than their western mentors.

In the summit of the 27 EU leaders held over the weekend, Hungary led a plea for rescue fund of 190 billion Euros and raised the threat that without it there was a risk of ‘social collapse in the Eastern nations spilling over into the rest of Europe’; they warned that 5 million jobs could be lost in the east, with hordes of unemployed workers heading west to look for jobs and support.

There is an excellent graphic showing the economic effects on nine states from Estonia in the north to Bulgaria in the south. As Geoff pointed out in his blog Large and Small in early February, the 12 newest member states of the EU together represent only 4.7% of the EU’s total GDP, while the five largest represent 72%, and those economically weaker states are depending on EU regional aid to support their moves towards stability and convergence with the other member states, needing help to comply with all the EU’s exacting standards and criteria. Their fear now is that their Western partners will engage in protectionism, focussing more on propping up industries and jobs in their own economies, than on support to enable the smaller partner states in their need for sustained growth.

In his Comment piece, David Charter makes the point that, once committed to membership of the Single Market, countries will “all hang separately if they do not hang together. Banks in Austria, Belgium, Germany and Italy face ruin if their enormous investments in Eastern European bonds and companies collapse, and the German economy is suffering from the contraction of its export markets.” However it is hard to reconcile this statement from José Manuel Barroso, the European Commission President: “We will not go back to the days of the 1980s, to sector specific subsidies”, with the decision of the Commission to “create a positive atmosphere” by approving a €6 billion plan to bail out the French car industry. Will any resulting restructuring protect jobs in factories in France, or in the Czech republic which is in a row with France over possible job cuts in French-owned car factories?

You can read more detail of the article here.