The high cost of being European

Observations on EU enlargement

During the build-up to next year's enlargement of the European Union, Brussels officials have been keen to argue that the accession of ten new members, eight of them ex-communist countries in central and eastern Europe, will not weaken the EU. What people rarely ask is: will the EU will weaken the accession states?

Throughout central and eastern Europe, political elites see membership of the EU as their economic salvation. But you could argue that the steps taken to prepare for EU mem-bership are contribu- ting to those countries' economic problems.

Take Hungary, a country long regarded as a front runner in the line of worthy applicants to dine at western Europe's top table. With a GDP per capita of less than half the EU average, Hungary may lag behind other members on purely economic grounds, but the quality of its education system and public transport puts many EU members - in particular, Britain - to shame. But such advantages have been increasingly threatened by the deflationary economic programmes that successive Hungarian governments have followed, to varying degrees, in their pursuance of EU membership.

Spend any amount of time in Hungary and the country's most urgent social and economic problem - one common to all ex-communist states of the region - becomes apparent. The gap between rich and poor has been growing for almost 20 years. Hungary's transformation to a market economy - in which 85 per cent of the economy is in private hands and 78 per cent of all exports are from foreign-owned companies - has been universally lauded in the western financial pages. Yet, for an estimated 90 per cent of the population, the political changes of the past 14 years have brought a fall in real living standards. It was only last year that real wages got back to their 1989 level. It is difficult to see how membership of the EU will help.

True, the EU social chapter stipulates that minimum wages in member states should reach 60 per cent of the national average wage; Hungary's minimum is at present 53.2 per cent of the average £58 a week. But against this must be weighed the effects of the austerity programme in store as Hungary prepares to join the euro in 2008. The government deficit last year stood at 9.5 per cent of GDP - more than 6 per cent above the stability pact limit - and, to meet the EU criteria, tax will have to rise and public spending be cut to an extent that would have made Margaret Thatcher drool.

Already this year, civil servants' wages have been frozen, support for small and medium enterprises has been cut back, and privatisation of the national airport and the selling of government stakes in the post office and national oil company have been announced. Most controversial of all, in a move that has united the nationalist right and the communist Workers Party in opposition, a new Health Act provides for the privatisation of hospitals. Hungary may well have the euro as its currency in 2008, but the social and economic costs are likely to be enormous.