December 10th, 2012 → 1:14 pm @ Aris Aristidou
The European integration, as was conceived by the great European leaders in the 1950’s, is going through a big crisis together with the present severe international economic crisis. The widespread feeling is that the six-decade effort for the creation of a united Europe might end up into a disaster and Europe return back to the old situation of nationalistic states, restrictive frontiers and competing races. However, for all those following developments since 1957, the present difficulties are not new and novel, though not so intense and severe. The difficulties encountered all these years were surpassed because of the common dream, the dream of European integration. I trust, the same will happen now, even with some delay.
Irrespective of some political peculiarities with certain Member Countries, which might add to the difficulties, the European leaders and the mechanisms created must first of all realize the inherent economic difficulties of the integration, which is the theme of this Note and adjust their strategy accordingly. Another important factor, which must be taken into consideration, has to do with developments in the world economic scene, especially as were shaped at the beginning of the 1990’s with the liberalization of international trade and other transactions (GATT).
The Treaty of Maastricht, which turned EEC into EU, coincided with the new GATT agreement in the early 1990’s. Before that, but especially because of this, there has been a shift of a large number of economic activities, the so called ‘labor intensive’ (but not only) from the ‘developed’ countries of Europe and elsewhere to other countries where there were abundant and cheap labor hands and virgin markets. This movement has benefited and continues to benefit the first, whereas the benefit of the ‘less developed’ countries of Europe was minimal mainly in the form of cheaper imports. On the contrary, in many cases it was a disaster for them both from the point of view of new investment and the disposal of their own products and services. The assistance provided to these countries through the structural and other funds by the EU for their ‘development’ was not enough to compensate the transfer of economic activity elsewhere. Not to mention the fact that these funds were not always additional funds for this purpose. Cyprus, for instance, continues to contribute annually more to the EU Budget than what it receives through these programs. If we add the extra burden on their balance of payments emanated from the import of capital goods and other technologically advanced products through the provision of abundant credits by the former countries, it is not surprising that the less developed countries of Europe found themselves highly indebted at a time of global economic crisis.
The austerity method followed to solve the problem of high indebtedness of the above countries alone, which has been preached by IMF for many decades now, does not help towards the European integration because it leads to the creation of two-geared countries in Europe, going back to the beginning of the creation of EEC. Such a situation will always bear the danger of dissolution of the union or changing the initial aspirations for integration. It is clear that the answer to the problem lies with the pari passou development of all Member States within the international conditions created after 1990. Indeed every bad structural or management situation and every waste of resources, reminiscences of the past, in every country must be combated. At the same time such mechanisms must be set up which will promote development and growth, something that was initiated by the UN development program for the developing countries many years ago.
It would have been a utopia of course to expect that all European countries will grow on the same or similar models. Every country must develop on the basis of its own comparative advantages. The common denominator must be the viability of the development course to be followed. And for development to be viable it must be based on science and technology. The activities to be promoted should have a technological depth, to be based on one or more of the positive sciences either in their nature or in their organization and operation. The systematic cultivation of science and technology in the economic activities of a country ensures more their stability and the production of new products and the provision of new services when needed. It ensures their comparative advantage vis-à-vis third countries.
In the meantime, however, the comparative advantages of every country in the least developed group in the EU must be preserved and enhanced in order to give them the necessary time to ‘adjust’. I will mention one special example. Cyprus, immediately after the Turkish invasion, promoted, among other things, its establishment into a regional economic and trade center to compensate for the loss of other productive resources. It was since 1975 that Cyprus introduced a low tax rate for imported profits for offshore business, both for local and foreign companies registered in Cyprus (4.25%) and the system of external accounts to facilitate international transactions. Gradually, these measures bore fruits. Today the Cyprus economy relies to a very large extent on international business though the taxation rate has been increased to 10% to be harmonized with that for companies operating locally. How could even somebody think of abolishing this comparative advantage of a Member-State? Even if it became absolutely necessary to do so for purposes of harmonization in view of the needs of the European integration, Cyprus should have been given the necessary time and means to promote other outlets. The integration attempted in the EU with the introduction of a common monetary unit among countries ‘at different stage of development’ without having created first the necessary unified European financial mechanisms has had the present known undesirable results.
Dr Iacovos Aristidou