Online Extra: The New Entrants in a Nutshell
The Republic of Cyprus is divided along a sometimes violent border between the Greek-dominated south, which is heavily influence by Athens, and Turkish-occupied north. Officially, Brussels considers Cyprus' application for membership as representing the whole island. However, negotiations were conducted only with the Greek administration in Nicosia, and only the Greek half will be admitted to the Union. Trade between the EU and the Turkish-occupied zone will still be required to move through Turkey, which is not part of the EU.
Cyprus' agriculture and traditional industries, employing about 30% of the workforce, will be vulnerable once in the European Union. In terms of gross domestic product, however, the economy is overwhelmingly dominated by a highly competitive and liberalized service sector, especially tourism and banking. Cyprus is an international offshore banking center.
Its economy rebounded from a slump this year and is back on the reform bandwagon. New structural reforms, a fresh round of privatization, and a clampdown on corruption have resulted in a wave of investment and economic growth that now makes the Czech Republic one of the better prepared accession countries.
A government bailout and sell-off has righted the banking sector, and the country's growing info-tech sector, high-tech manufacturing, and auto manufacturing should remain competitive. However, the appreciating currency and rising wages will threaten lower-skilled manufacturing jobs that can easily be moved to Asia.
As perhaps the most open economy of all accession countries, preparation for joining the EU ironically forced Estonia to introduce tariffs on imports not from the EU. Imposition of the full EU tariff regime may cause food prices to rise and feed inflation. The country was hurt badly by the Russia debt crisis of 1998, but subsequent reform and partial reorientation to Western markets has resulted in solid growth and foreign investment, especially from Finland.
Banking and electronics manufacturing are strong and competitive. Textiles and forestry are prosperous but may not be competitive in the long run. Estonia's small-business sector exploded when the Soviet structure was completely dismantled in 1991, and regulation was only gradually reconstructed afterward. Estonians worry that EU regulation will actually make it more difficult to do business. In December, Estonia will likely be invited to join NATO.
Its economy is more integrated with the EU than any other new entrant. Membership will bring few immediate changes. Growth has been strong since 1997 but slowed in 2002 due to the tough global environment and an appreciating currency, which hurt exports. Vibrant and competitive sectors include banking, high-tech manufacturing, auto making, pharmaceuticals, and software development. Its most vulnerable area is agriculture, which enjoys many of the last remaining protective barriers. Lower-skilled factory jobs are also in danger because of rising wages and a strengthening currency. Hungary has been a NATO member since 1999.
Like its other Baltic neighbors, Latvia's recent growth stems largely from radical reforms made after the 1998 Russian debt crisis decimated the local economy. Offshore banking, largely for Russian clients, has thrived, making Latvia the "Switzerland of the Baltics." Transport and transit industries are also strong, most notably because of Russian oil headed for Latvian terminals on the Baltic Sea.
The economy is largely open, so most industries don't expect surges in competition, although agriculture and forestry are expected to suffer in the long term. Latvians have also begun cleaning up corruption that had made Riga home to one of the murkiest political systems among accession countries. In December, Latvia will likely be invited to join NATO.
The most agricultural of the Baltic countries, Lithuania will suffer for that when it joins the EU. Although the proportion of agriculture in the overall economy has been shrinking markedly, the sector and related activities still employ nearly 20% of all working Lithuanians. Hence, it retains significant protective barriers against EU agricultural products. These will fall with EU entry.
Still, Lithuania's size has forced it to create an otherwise open economy, largely receptive to foreign investment and competition. Oil transit from Russia is a big earner, as is oil refining. Lithuania will likely get an invitation to join NATO in December.
This tiny country off the coast of Sicily has the smallest economy among new members. It relies heavily on tourism and electronic-equipment exports, making it particularly vulnerable to shifts in international economic conditions. The economy is largely open and competitive, but after four years of brisk growth, it shrank by nearly 1% in 2001.
EU membership isn't likely to bring any major shocks outside the agricultural sector, the last Maltese area protected from EU imports. Although the EU has raised concerns about corruption in the civil service, Malta's political scene is considered very stable.
As the largest accession country in both size and population (40 million), Poland, a NATO member since 1999, will have a large impact on the EU. It reformed aggressively and early, and now attracts more foreign investment than any other accession country. The environment for small and midsize businesses has been better than in most other new entrants despite poor financing. Growth was strong for several years through 2000 but faltered last year on the back of loose fiscal and tight monetary policies.
Privatization and legal reforms have laid the groundwork for healthy banking and telecom sectors. Greenfield investment has also created thousands of jobs in manufacturing, especially automobiles and machinery, where the outlook is bright because of the abundance of cheap, skilled labor. Traditional industries and mining, steel, and agriculture will suffer and shed jobs. Though they produce just 3% of GDP, Polish farms employ nearly 10% of all the workforce. Some estimate that one-third of the farms will not survive in the EU, and another third may be in danger.
Though badly trailing its neighbors in economic reform and foreign investment, Slovakia avoided disaster in September. That's when voters rejected the comeback of populist-nationalist forces and reelected a liberal-moderate coalition, saving the country's EU candidacy. The ruling coalition had already stabilized a shaky economy and made great strides with structural reforms and privatization.
Growth continues to rise, but unemployment remains high at nearly 20%. Services like banking, telecom, and transport, especially in the booming area around capital Bratislava, should fare extremely well inside the EU. The rest of the country, where employment still depends on outdated industry and agriculture, will continue to suffer and struggle to attract new investment. In December, Slovakia will likely be invited to join NATO.
Despite having the highest GDP per capita among new members, Slovenia has been remarkably slow in opening its economy. Significant restrictions on cross-border financial transactions were lifted only in the last two years. Privatization has moved slowly, especially in the crucial banking sector. At the end of 2001, 45% of the economy remained in state hands. Hence, the level of foreign investment is relatively low. Membership will be a rude awakening as businesses have not had a gradual introduction to EU-level competition.
Still, some industries seem quite strong. Slovenian pharmaceutical outfits are among the best in the region. Once privatization and investment pick up, banking, telecom, and manufacturing requiring skilled workers should also thrive. Politically, Slovenia is stable. Since its week-long scuffle for independence in 1991, it has suffered none of the wars or isolation its ex-Yugoslav cousins endured. Slovenia will likely be invited to join NATO in December.