East-West Economic Relations

On 25 June 1988, the European Community and the Council for Mutual Economic Assistance (CMEA) achieved a milestone by signing a Joint Declaration in Luxembourg which formalised their mutual recognition and opened the possibility for cementing diplomatic relations and concluding bilateral agreements between the EC and individual states within the Soviet bloc.

The EC prefers not to deal with the CMEA as an integrated institution, as it believes that it is a politically and institutionally weak international (not supranational) organization without the necessary competence and authority to negotiate on behalf of its East European members. In addition, while there is a corresponding CMEA Council of Ministers, akin to the EC Council of Ministers, which finalises decisions, there is no executive institutional counterpart to the EC Commission with whom to conduct negotiations. The possibility of concluding differentiated commercial and economic agreements with individual East bloc countries paved the way for an increased and more concentrated Community presence and influence in the states of Eastern Europe.

Since the conclusion of the Joint Declaration, there have several been major developments. At the European Council in Rhodes (23 December 1988) the EC leaders declared that the European Council:

...welcomes the readiness of the European members of the CMEA to develop relations with the European Community and reaffirms its willingness to further economic relations and cooperation with them, taking into account each country's specific situation in order to use the opportunities available in a mutually beneficial way.116

The advantageous ability to deal with Eastern Europe on a country-by-country basis was again, and more recently, acknowledged at the European Council meeting in Madrid (June 2829 1989):

...The European Council noted that satisfactory progress had been made in establishing an appropriate policy towards the East European countries
...It noted the progress made towards the conclusion of trade and co-operation agreements with a number of those countries...It has reaffirmed the determination of the Community and its Member States to play an active role in supporting and encouraging positive changes and reform. 117

In 1988, negotiations for bilateral agreements with Hungary (September 1988) and Czechoslovakia (December 1988) were concluded; and in September 1989, Poland and the EC concluded a comprehensive bilateral commercial agreement. Preparatory negotiations are presently underway with Bulgaria and the Soviet Union, and exploratory talks with the German Democratic Republic have begun.

These ostensibly economic commercial agreements are in large part politically motivated. The EC encourages East European countries to improve their records in the domain of trade, human rights,freedom of movement, and democratic reform, and rewards them with improved access to the EC market, and other forms of economic assistance.

Technically and legally, the competence of the Commission encompasses only commercial relations with the countries of the Eastern bloc,while more delicate matters of politics and external political relations of the EC system are reserved for the intergovernmental EPC forum. Recently, however, the barrier dividing the decisions of these two entities with regard to Eastern Europe has become increasingly porous. The respective jurisdictions of the EC and the EPC are delineated in a clause Single European Act, which states: "The external policies of the European Community and the policies agreed in European Political Cooperation must be consistent...The Presidency and the Commission, each within its own sphere of competence, shall have special responsibility for ensuring that such consistency is sought and maintained"(Article 30(5)). In light of this, and in the interest of ensuring consistency of EC and EPC action, the Commission has recently been able to exploit the increasingly blurred distinction between politics and economics where the relations with East European nations are concerned.

The Twelve have not yet displayed a unified or common political front to Gorbachev's initiatives or his call for a " common European house " . The desire for the EC's major political powers to maintain some degree of diplomatic autonomy of response -- ranging from France's distrust, Great Britain's caution, and the eagerness displayed by the Federal Republic -- has impeded further steps toward diplomatic harmonization. However, notwithstanding the lack of diplomatic/political cohesiveness, the burgeoning importance of economic issues and linkages in the international system 'is likely to reduce the difference between the Community's well established foreign economic policy and its shakier political cooperation, as in the case of its relations with Eastern Europe'.118 In the more relaxed and fluid international situation in 1989, former Soviet satellites such as Poland, Hungary,Czechoslovakia, and East Germany have expressed their aspiration to convert their communist centrally-planned economies into more pluralist market-oriented systems. The economic power and growing prosperity of the European Community have exercised a strong attraction for East European countries. As Jacques Delors recently declared in a speech to the College of Europe on October 17 1989:

Comme de nombreux responsables europeen l'ont deja souligne, c'est la Communaute Europeen, communaute de droit, ensemble democratique, economie dynamique, qui a servi d'exemple et de catalyseur a ces evolutions. Ce n'est pas l'Ouest qui derive vers l'Est, mais bien l'Est qui est attire vers l'Ouest.119

The European Community is in the position to utilise its particular economic strengths and historical links to solidify ever closer ties with the countries of Eastern Europe. The Community's unique technical expertise and historical, cultural and geopolitical advantage in this domain was acknowledged at the Paris Economic Summit, when the Commission of the EC was given the mandate to coordinate efforts to assist economic reform in Eastern Europe and to provide emergency food aid to Poland. Up to this point, the Commission has had less than half a dozen people covering Poland and Hungary, but has now recruited a task force of twenty four to bolster its resources and expertise.120

Both President Bush and West German Chancellor Kohl supported the idea of charging the Commission with the task of coordinating the aid and reform effort to Hungary and Poland. Aside from a recognition of the Commission's technical expertise and experience in co-ordinating major multilateral and international initiatives, Robert Hormats argues that this action helped to 'de-politicise' the aid from the point of view of the Soviet Union and thus made it psychologically easier for the East European countries to accept the offer of aid and assistance without appearing to be slipping into the grasp of 'the other superpower', the United States.121

In addition, the fact that the Commission took the lead in the initiative enables the Federal Republic to play a key role in Eastern Europe within the multilateral context of the European Community. This would counter American and perhaps French concerns that the West Germans might be strongly tempted to take unilateral initiatives in the region, as well as reinforcing in the West German mentality that improving ties with the East could be done within the EC framework.

Indeed, particularly since the Paris Summit and the initiation of multilateral Western aid and reform projects to Eastern Europe, the government of the Federal Republic of Germany has been very emphatic about its chance regarding the 'German Question', Eastern Europe, and the future shape of the European polity: the official West German objective appears to be the creation of a new federal (and united) Germany within a new federal (and united) Europe.122 Still, Helmut Kohl appears eager to consolidate bilateral ties with the countries of Eastern Europe, and to intensify relations with East Germany in all possible domains regardless of the caution and anxiety expressed by its EC counterparts.

For the most part, however, the West Germans seem willing to utilise the EC as a vehicle and a conduit for West German aid and economic assistance to the states of Eastern Europe, and are willing to allow the Commission to take the lead in the coordination of the western aid and relief efforts.

In early August 1989, the Commission convened the first meeting of all western countries who were interested in contributing to the aid and economic reform programme. In total, twenty-four countries attended, including the EC's twelve member states and twelve outside donors. At this first meeting, concentration lay with emergency food aid for Poland. A total of 271 million ecus (US$295 million) from all sources was pledged.123

The second meeting of the twenty-four western nations concerned was convened on September 26 1989 in Brussels. The emphasis of this second session lay on economic restructuring: the European Commission presented an 'action plan', to be financed by a contribution of 200 million ecus from the Community's 1990 budget, an additional 100 million ecus from the member countries of the EC, and 300 million ecus from the other twelve non-EC western aid donors, fora total of 600 million ecus.

The Commission stressed that this package did not include any debt relief prescriptions, as the Community itself has no credits per se. The debt strategy towards Eastern European Middle Income Countries (MICs) had already been established and confirmed within the frameworks of the IMF and the G10 in addition to the granting of trade and investment credits by individual interested countries and would not be altered at the summit, and would not be under the Commission's mandate.

With regard to the European Commission's action plan, there are five priorities outlined: first, farm machinery and pesticides will go to improve the agricultural situation; secondly, access to western markets will be promoted through a reduction of tariffs, termination of export quotas, and more lenient conditions for agricultural products; thirdly, foreign investment will be encouraged,and Poland should become eligible for loans from the European investment bank, which is guaranteed by the EC budget; fourth, professional and management training schemes will be introduced; and fifthly, environmental protection measures will be implemented.124 In early October, the EC Council of Ministers in its composition as Foreign Ministers endorsed the Commission's proposal at a Council session in Luxembourg,so the Commission's action plan has been executed.

In light of the radical changes which swept across Eastern and Central Europe in late 1989, a large portion of the December 1989 European Council in Strasbourg was devoted to this salient topic. Importantly, Helmut Kohl received endorsement of his vision for the destiny of Germany by securing the wording " unity through self-determination " in the final Strasbourg Council communiqué. This was qualified by the provision that the process should respect relevant treaties and the principles of the Helsinki Final Act,and it should be " placed in the perspective of European integration " .

In addition, in order to supplement western relief efforts to the countries of Central and Eastern Europe, the Strasbourg European Council expressed its intention to establish a European Bank for Reconstruction and Development (EBRD), for which negotiations will commence in January 1990. As the leaders stated in the final communiqué: " its aim will be to promote...productive and competitive investment in the states of central and eastern Europe...and to assist the transition towards a more market oriented economy and to speed up the necessary structural adjustments " . Thus, bolstered in part by the leading role it was delegated at Paris, the EC has become the keystone in this era of rapid and far-reaching European transition, a role which has been acknowledged and endorsed by its summit colleagues.