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Wednesday, October 26, 2005

The Mediterranean, Europe’s natural horizon

Helen Kavvadia Communications Officer
European Investment Bank

On 27 and 28 November, the EU’s leaders will gather in Barcelona along with those of 12 other neighbouring countries in the Mediterranean region. This symbolic event might suggest that the European Union is storming back into the political arena in a region whose future is closely interlinked with its own. For hitherto it is Washington that has taken the lead in the peace talks between the Israelis and the Palestinians and, even more humiliatingly for the Old Continent, in settling the conflicts of the former Yugoslavia. However, because of the EU’s failure to reach agreement on a common foreign policy to which its combined economic and military strength would lend particular authority, it can do no better than propose free-trade areas... Given that the administrations in most countries on the southern and eastern shores of the Mediterranean are precarious as democracy is as yet shallowly rooted and serious crises persist, it is doubtful whether reducing European policy to one based solely on unalloyed economics will contribute towards some sort of stability that does not rely on coercion.

Is there a common will to weld the Mediterranean into a region bound together by solidarity? This, basically, is the real question that needs asking in the light of the European Union’s initiative to organise a major Euro-Mediterranean conference in Barcelona on 27/28 November 1995. The preparatory document stresses the fact that political efforts to create an "area of peace, stability and security in the Mediterranean" cannot be dissociated from the promotion of economic growth and more balanced development in the region. But is Europe up to the challenge?

The Union gave promising signals following the European Councils of Lisbon (June 1992), Corfu (June 1994) and Essen (December 1994). All the Commission papers have mentioned the need to give fresh impetus to the "strengthened Mediterranean policy" of the first half of the 1990s, with the objective of "creating a Euro-Mediterranean area by 2010". Europe is proposing therefore that a lasting framework of relations be established with the Mediterranean countries in a spirit of "partnership". The Barcelona Conference is heralded as a sort of symbolic act designed to seal this new alliance.

For, the attempt to work out a common strategy between the EU and the 12 invited Mediterranean partners (1) in order to ensure coherent geopolitical action outside the European Union is a new departure. The announcement of this conference raised hopes in the non-EU countries because, for the first time since the end of the 1980s, it gave voice to the desire to build a strong economic region in the Mediterranean and rebalance Europe’s regional expansion, which until now had been focused on the continent’s eastern flank.

These hopes soon turned into questions, first when the specific content of the proposals was made known and again when the proposals relating to the financial component were scaled back. Europe is proposing sectoral cooperation programmes, which are certainly worthwhile, plus additional financial protocols and just one true innovation: the establishment of a vast free-trade area throughout the Mediterranean. These proposals betray a strategic void and, in truth, the lack of any European project for the poor masses camped at its gates. In the face of the immense needs, it is doubtful whether free trade represents the miracle solution to turn this crisis-ridden Mediterranean region into an area of growth and stability.

Favourable agreements in the 1970s

In the 1970s, the European Economic Community felt the need to forge a "global Mediterranean policy" towards the Mediterranean non-member countries (MNCs). Accordingly, cooperation agreements were signed with the Maghreb countries in 1976, then with the Mashreq countries as well as with Yugoslavia, Turkey, Malta and Cyprus. These resulted in a system of preferential discrimination in trade: virtually free access to the European market and acceptance of non-reciprocity through the introduction of often considerable tariff protection against European exports. Grant aid, accompanied by loans at subsidised rates from the European Investment Bank (EIB) was furnished and technical and cultural cooperation programmes were launched.

These agreements, which were especially favourable to the MNCs, can be explained by the political climate at the time, which was marked by a sense of guilt towards countries that had been European (especially French) colonies, the rise in oil prices and the illusion that a growth process could be spurred via commercial and financial benefits granted by developed countries. A second, no less significant reason is that MNC exports were not competing with the products of the then EU-9.

Three events profoundly altered this situation. First, the accession to the EEC of Greece (1981), Portugal and Spain (1986) – three countries with similar specialist areas (especially in agriculture) and direct competitors of the MNCs, in particular the Maghreb countries. An additional protocol was thus signed in 1988, reorganising restrictions on the import of agricultural produce in the light of these enlargements.

Then, the entire globe geopolitical context changed: a development crisis right across the southern shores of the Mediterranean with rapid social and political destabilisation; malaise and sluggish growth on the northern shores; the North’s increasing loss of interest in development and cooperation issues; the collapse of the Soviet empire, with a shift in Europe’s centre of gravity towards the north-east and the relative marginalisation of the “Latin arc”. Lastly, the outcome of the Uruguay Round of negotiations in 1993 led to the erosion of tariffs (and quotas) benefiting MNC exports to the European markets.

The European response to this new order has been devoid of overall vision, partly because of divergences between the short- and medium-term interests of the EU’s Member States.

Germany quickly seized the opportunity for regional expansion offered by the incorporation of the former GDR and the transition to the market economy of the former Communist countries, a region whose growth potential is vastly different from that of the Mediterranean countries. Although Germany is slowly waking up to the need for the whole of Europe to be involved and not just the neighbouring countries, it is still dragging its feet with regard to the risky, large-scale investment required to construct a true Euro-Mediterranean economic region. On the other hand, it has declared its willingness to open up to imports of agricultural produce as the north-east of Europe has nothing similar to offer.

The “Latin arc” countries are prepared to make financial efforts, for reasons of varying merit (including the quite naïve motivation of stabilising migratory flows through economic growth); however – and this is particularly the case for Spain – they continue to be stubbornly protective of their agricultural sector. This results in a lowest common denominator European policy: financial volumes remain meagre compared to what is needed, and agricultural produce is not included in the planned negotiations. Unlike what is happening with the Central and Eastern European countries, convergence vis-à-vis the Mediterranean region has yet to be achieved in Europe (2).

On the poorer shores of the Mediterranean, an era is drawing to a close – that of established international trade advantages and of self-centred development policies, all of which have failed. The globalisation-driven need to open up and become more competitive has become apparent. This new situation is all the more worrying because, despite the aid and the system of preferential discrimination in international trade, the recent performance of countries in the South has been particularly disappointing: rates of growth remain low; trade balances are in the red, particularly with the leading trade partner, Europe; and market share is being eroded through gains made by the new “emerging” countries in Asia.

The handicaps of size and fragmentation

The symmetry between the two parties involved in this planned economic pseudo-dialogue exists in appearance only. Firstly, there is the issue of scale: the size of the non-European economy in the Mediterranean region can be gauged by the fact that output in 1993 amounted to USD 380 billion, a mere 5% or so of the European Union’s gross domestic product (GDP). On top of this, there is the fragmentation factor, since the MNCs cannot be treated as if they were a homogeneous political bloc. There is a huge contrast in the actual situations between small and large countries, between the moderately poor, the very poor and the moderately rich, between countries with natural resources (e.g. oil) and those without, between those that have the capacity to develop an agricultural sector and those that do not, between those where the training of workers is satisfactory and those where it is catastrophic, between those with good infrastructure and the others, etc. The only feature that they have more or less in common is that their manufacturing sectors specialise in similar export segments.

In reality, only two countries are likely in the short term to be generators of momentum: Turkey and Israel, which represent almost 50% of non-European production in the Mediterranean region. Socio-economic diversity, combined with the similarity of specialist production sectors, represents a serious stumbling stock to greater South-South integration, a crucial aspect of the "Mediterranean question". The region cannot hope to become a co-development area until integration makes strides – one more reason for opposing off-the-peg economic policy solutions and yet, unfortunately, this is all that the European Union has to offer...

In economic terms, the only original item on the agenda for the Barcelona conference is the establishment of a free-trade area in the Mediterranean region and reinforced FEMIP financing. This constitutes a radical revision of Europe’s cooperation policy insofar as its thrust is to make trade conform more closely to the requirements of a market logic entirely consistent with world economic trends. Since agricultural produce is excluded from the negotiations, no gains in market share can be looked for in that quarter, while the establishment of a free-trade area will put an end to the preferential system benefiting the MNCs so far as manufactures are concerned. Markets will thus open up to European exports without any quid pro quo. Since October 2002, the operations of the European Investment Bank (EIB) in the Mediterranean partner countries have been grouped together under the Facility for Euro-Mediterranean Investment and Partnership (FEMIP).

FEMIP represents a milestone in the financial partnership between the European Union and its Mediterranean neighbours, which goes back more than thirty years and was intensified in the 1990s to underpin the Barcelona Process. In line with the Wider Europe Neighbourhood Policy, FEMIP aims to help the Mediterranean partner countries meet the challenges of economic and social modernisation and regional integration, particularly in the run-up to the creation of a customs union with the European Union by 2010.

Against this backdrop, FEMIP gives priority to financing private sector ventures, whether local initiatives or foreign direct investment. In order to create an enabling environment for the development of private enterprise, FEMIP also supports infrastructure projects, investment in human capital and schemes specifically targeting environmental protection.

To this end, FEMIP operations primarily involve three types of product: loans, investment capital (equity and quasi-equity) and technical assistance grants.

FEMIP also endeavours to promote greater dialogue with all those involved in the Euro-Mediterranean financial partnership, both on the institutional front and with the representatives of the private sector and civil society.

Advocates of the free-trade approach argue that the abolition of customs duties will lower the prices of imports, for both domestic production inputs and consumer goods. Price competitiveness should thus improve, thereby stimulating production. Increased foreign competition should enhance domestic productivity by eliminating artificially supported economic activity and thereby remove this drag on the national economy, chiefly to the advantage of the export sector. The fact remains, however, that macro-econometric simulations yield greater negative than positive effects (3).

This risk would be aggravated if European and non-European capital inflows did not significantly increase and if the MNC public authorities were tempted to introduce recessive policies in order to adapt passively to the macro-economic impact of plunging into total free trade with Europe. If no support policies were implemented in parallel with the liberalisation of foreign trade, and if substantial Community aid was not then provided, there would be a strong likelihood of free trade putting a lasting dampener on the emergence of competitive local producers.

The establishment of a free-trade area between countries whose levels of development are unequal makes sense only if it is accompanied by support policies involving large-scale intervention by the public authorities and aid from the most developed countries. Europe would be well advised not belatedly to promote an outdated philosophy that puts blind faith in market forces.

(1) Morocco, Algeria, Tunisia, Egypt, Autonomous Palestinian Territories, Israel, Jordan, Lebanon, Syria, Turkey, Cyprus, Malta. Mauritania was invited to attend as an observer. Libya is not included, officially because there is no Association Agreement between that country and the European Union.
(2) This was the theme of the conference organised by the Arab World Institute last September. The main threads are drawn together in a book to be released in mid-November: Euro-méditerranée, une région à construire, edited by Robert Bistolfi, Éditions Publisud, Paris, 1995.
(3) Gérard Kébabdjian, "Le libre échange euro maghrébin: une évaluation macro économique", Revue Tiers-Monde, no. 144, October-December, 1995.


At 2:21 AM, Blogger The visioner said...



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