Eurozone think-big man says everyone wants to join

The European Union continues to be the coveted prize for countries on the peripheral, despite its current economic dramas.

Having new countries join the EU could be an important step in overcoming the eurozone crisis, former director-general of the European Commission’s enlargement programme Sir Michael Leigh says. 

Sir Michael, who is also a senior adviser at the Brussels-based German Marshall Fund, has been invited this week by the European Union Delegation in Wellington to visit New Zealand and give officials an insight into the European situation.

He hopes the trip will foster relations and will produce new ideas for closer economic co-operation.

When he returns to Brussels, he will begin preparation for the October release of an annual report looking into the applicant countries who wish to become members of the European Union.

Already, Croatia is expected to join on July 1, 2013, while Iceland, Montenegro, Macedonia, Serbia and Turkey have applied and are waiting to hear from the commission.

Sir Michael says the report looks at how much progress the applicants have made in fulfilling the obligations and rights of future membership. It also draws attention to areas needing further work.

Democratic form of government

He says the single most fundamental concern is for applicant countries to have a democratic form of government. Beyond government, they also need a functioning market economy and the capacity to compete in the EU’s single market.

Once the report is presented to the commission, it then goes to the member states for consideration, and then usually at the European Council meeting in December recommendations are made.

While the EU is not actively seeking new members, Sir Michael says there is still huge interest in joining and the eurozone crisis is changing the way consider applicants.

“The market economy is playing a much bigger role in consideration than it did a few years back.”

He believes the enlargement policy, while not the absolute top priority, will help in overcoming the current economic challenges.

“If you look at the relatively strong performance of some of the new member states they’re really doing rather well. Poland has enjoyed growth rates of 5 or 6%.

"You see a country like Latvia, which had very heavy debts and a very large deficit and you look at the programme it’s implemented over the last three years to get back on its feet and it’s now back to growth.

"So, if anything, I’d say the new member states are pulling up the average level of performance of the EU,” Sir Michael told NBR ONLINE.

Must tread carefully

He believes Europe needs to tread carefully when it comes to austerity measures or "fiscal consolidation" in order to emerge from the ongoing crisis.

“Higher taxes and lower public spending are needed in order to get public finances in order and eventually to reduce the state deficit and the overall debt level so the markets are convinced the countries will be able to service their debt.”

However, he says there is also a risk if consolidation is too severe, growth may be postponed for many years, making recession almost inevitable, leading to a decline in state revenues.

Sir Michael says eventually there will need to be a type of "grand bargaining" between countries in difficulty, such as Greece, Italy, Spain, Portugal and Ireland and stronger performing EU economies. He believes they will need to accept they must share some of the debt for the sake of the EU’s future.

A move this week by the European Commission to propose the first steps towards a banking union is likely to do this.