From Regatta to Big Bang? The Impact of the EU Accession Strategy on Reforms in Central and Eastern Europe
by Erik Berglöf and Gérard Roland

Eastern enlargement of the EU became a realistic possibility only once the Central and Eastern European countries had embarked on their transition from socialism toward modern democracies with market economies. Since then the desire to "return to Europe" has played an important role in breaking political constraints and sustaining the momentum of reform in many countries. Perhaps never before in history has the attraction of joining an association of countries had such profound impact on the political and economic development of an entire region. In the countries in which membership has been a realistic option, the past decade has witnessed perhaps the most radical reorientation of trade and structural adjustment in modern history. The impressive record of the accession countries stands out even more clearly when contrasted with the disappointing record of the transition economies left out of the accession process.

Whether by design or through its slow decisionmaking, the EU anchor has had a strong impact on the pace of reforms in Central and Eastern Europe. This effect is increasing over time, as the nature of transition changes and the date for the accession decision approaches. Given the leverage of a threat to exclude, it makes sense for the EU to postpone membership and use it to apply pressure on would-be members to reform. The EU has converged on a strategy that makes sensible use of this leverage. However, the policy has changed significantly over time, creating uncertainty about the EU’s intentions. Recently, new elements were introduced, undermining the incentive effects of the EU anchor.

· The EU has played an important role as an "outside anchor" to the reform process. Causality runs both ways, but the likelihood of becoming an EU member has been one of the most important predictors of reform. The importance of the leverage exercised by the EU is particularly apparent when we compare the reform records of Central and Eastern Europe with those of the former Soviet republics. Prospective membership in the EU has helped focus expectations and create initial momentum.

· EU leverage grows as transition proceeds but may decline once accession grows near. It has been difficult to sustain the momentum of reform as the costs of transition have become more visible, as initial enthusiasm for reforms has faded, and as idealism has given way to cynicism and self-interest. As willingness to make personal sacrifices declines, pressure from the EU becomes a more important tool to maintain reform efforts. There is one important sense in which leverage may be decreasing over time, however. An important reason for the strength of the EU as an outside anchor is the broad popular support for accession in candidate countries. As the EU’s leverage grows the closer accession comes, it also becomes more intrusive. The attitude of the population is likely to grow more negative as bargaining gets tougher and shifts toward issues of EU self-interest.

· The EU’s enlargement policy has evolved over time, with increasing emphasis on the incentives of individual candidates to reform. The EU has gone from dividing candidates into two distinct groups to allowing mobility and eventually replacing the groups with a queue. By opening the door to substantial exceptions, the EU has allowed for considerable variation and created uncertainty over the meaning of membership. The prospects for early accession have increased for some countries, while the date has been postponed for the frontrunners. The net effect of these changes is uncertain, but they have probably strengthened the incentives of the countries originally at the top of the second echelon and weakened those of the countries in the top group.

· A shift to a "big bang" strategy, in which all or most of the candidate countries would be allowed to enter simultaneously, would seriously weaken the leverage of the outside anchor. Such a strategy would seriously undermine the incentives for countries to differentiate themselves by accelerating reforms. It would also postpone entry for the frontrunners. Moreover, a big bang strategy would be possible only if many individual exceptions to the entitlements of membership were made.

· Sequencing entry to the EU has important costs. New temporary barriers will have to be erected between early and late entrants. Some countries may lose existing preferential access, and the tariffs they are charged on particular goods will increase. Excluded countries will also be excluded from the broader access accorded to members. The effects of exclusion are enhanced through agglomeration effects and loss in competitiveness.

· The failure of the EU to implement internal reforms weakens the leverage of the outside anchor. By postponing its own reforms, the EU creates uncertainty about the value of membership. A more important, but indirect, effect stems from the widespread perception inside the EU and among the candidate countries that the pace of enlargement is linked to EU reforms. Since the speed of these reforms is beyond the control of the individual candidate countries, such a link increases uncertainty and thus weakens leverage.

Gérard Roland is professor of economics at ECARES, Free University of Brussels and a member of CEPR. An article based on the ideas presented here will appear in the World Economic Outlook.