EU, hormone for economic growth

Article published on Jan. 2, 2006
community published
Article published on Jan. 2, 2006

This article has not been vetted by an editor at Paris HQ

Initially only tentatively welcomed by the other member states, the accession of Portugal and Spain to the European Union engendered their economic boom. But the modernisation of these countries still has much ground to cover.

Rather like the concerns expressed nowadays at the integration of Turkey, there were widespread predictions of a flood of Spanish and Portuguese emigrants following the expansion of the EEC in 1986, as well as of an inundation of European markets with Spanish and Portuguese agricultural products. However, the emigrants returned to their home countries and today these two nations constitute a market in which European businesses record some of their best turnovers.

Spain: confirmation of the success of the European model

While not receiving the most European funds per person, Spain has been the one that has reaped the greatest rewards. Indeed, soon after its accession it was wrought with struggles between coups d’etat and fragile governments; yet since then it has become one of the most stable states of the Union. The consensus between political parties as regards economic policy has, in the light of EU requirements, proved highly fruitful. So much so that today Spain allows itself to nag Germany and France when they do not comply with the Stability Pact that underpins the euro, just as Jose Maria Aznar, ex-Prime Minister of Spain, did a few years ago.

Twenty years ago, annual Spanish inflation was about 10%, whereas in the last few years it has fallen to 2%. Unemployment was 21.6%; now it is 8.4%. Spanish GDP per capita in 1985 was 70.7% of the EU average; today it is approaching 100%. In 1985 Spain had 2,219 kilometres of high-capacity roads; in 2004, 12,444 kilometres. Also, thanks to European solidarity, in 1992 Spain - a large country with a low population density - was able to become the third country in the world to go for a high-speed train, and today sports three lines in operation, four in construction and several others planned for the near future.

But a mound of new challenges now confronts this State, which has successfully privatised the large public monopolies and liberalised its competitive sectors. And a failure to tackle these would undermine everything achieved so far. It will soon become a net contributor to the EU and other member states are against extending its Cohesion Funds. Spain urgently needs to reform its productive structures. Furthermore, its research and development (R&D) investment is half the EU average, with a private R&D participation of 48% (far from the 66% aim set at Lisbon in 2000), it lags behind the rest of Europe in e-commerce and only records 1% of European patents.

Portugal falters under the strain

For Portugal, the last 20 years have seen its introduction at the banquet of modernity, but certain imbalances in its foreign trade balance and the indebtedness of its private sector have driven it to declare a crisis on all fronts. Along with Spain, in joining the EEC it left behind a period of decline that had lasted for centuries; today, in contrast, the President of the European Commission is Portuguese. In the last few years it has shown its ability to embark upon events of international importance, such as the World's Fair in Lisbon (which took place shortly after the World's Fair in Seville) and the European Football Championship, just as its neighbour did with the Barcelona Olympics.

Although unemployment (in a now fully liberalised economy) has increased in recent years, historically it has been very low (around 5%), and has always fluctuated below the EU average. In the late 80s its GDP per capita represented around 60% of the EU average, while it has now reached 71%. In 2005 inflation was 2.6%, compared to 18.7% in 1986. EU funds have financed numerous improvements to the nation’s infrastructure and Portugal’s high-capacity road network is one of the most extensive in Europe. Its rail network is still rather outdated but four high-speed lines connected to Spain are planned, although it was recently announced that the construction of the first one (Lisbon-Madrid) will be delayed. And it is precisely in the field of infrastructure and public services – such as the control of fires – that criticisms have been levelled at the sometimes inappropriate use of European funds. Many believe that a revolution in mentalities is essential in this country, which shares with Spain the dubious honour of leading Europe in school dropout rates; which will continue receiving EU funds for some time yet; where abortion is still harshly penalised; and which has remained unable to break from an economic model based on a badly-qualified, cheap work force.

The accession of these two southern countries 20 years ago represented the establishment of a system of wealth re-distribution, driven by the creation of the Cohesion Funds. Felipe Gonzalez, the then President of Spain, having convinced the President of the Commission (Jacques Delors), insisted on these sine qua non in return for his support for the future Monetary Union, as well as for qualified majority voting in the Treaty of the European Union. In doing so he was acting on behalf of the least well-off member states, and those that would enjoy the fewest advantages when it came to competing in a common market.

Since 1994, EU Cohesion Funds – awarded to those countries whose GDP per capita is below 90% of the EU average - have financed up to 85% of the costs of large projects in the fields of infrastructure (such as the modern auditorium in Porto), the environment (such as a desalination plant in the Almeria desert), and transportation (such as Madrid’s underground). The European Regional Development Fund (ERDF) has, since 1976, financed productive and infrastructural investments, as well as local development initiatives in regions that do not exceed 75% of the EU average GDP per capita, and in depopulated areas such as those of Sweden and Finland.