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Eastern Europe: Poor EU States And The East

  • Breffni O'Rourke

Prague, 2 April 1998 (RFE/RL) -- Central and East European States are now moving in a formal process towards membership of the European Union. This process will take some years, and few citizens in the prospective member states spare much thought for how the lives of ordinary people within the EU are being changed by the process.

In fact, the challenge faced already by the poorer EU states such and Portugal, Spain and Greece is immense, and this will grow as the new members enter the EU's huge free market area. That's because the Eastern states have a highly competitive pricing structure in terms of wage and production costs, and some of them, like Poland, Hungary and the Czech Republic, also have long histories as successful and sophisticated manufacturing centers.

Let's look at Portugal for instance. That small nation on the Atlantic seaboard endured more than 40 years of authoritarian rule which ended only in 1974. When Portugal joined the EU in 1986, it was an agrarian country characterized by low literacy and backward economic development. Since then, with the help of EU infrastructure funding and market access, Portugal has made steady progress in developing and diversifying its economy.

But, according to economic analyst Jens Dallmeyer of the investment advisers Deutsche Morgan Grenfell, Portugal is one of the western countries most threatened by the Eastern enlargement process.

He says that Portugal is coming into direct competition with suppliers in Eastern Europe in textiles, clothing, agriculture and simple machinery. The initial surge of direct foreign investment which followed EU membership has disappeared, as money swings eastwards, and now Portugal suffers a net outward flow of foreign capital. And Portugal is acutely aware that the competitive heat will grow, and in addition EU structural funds will diminish.

Dallmeyer says the Lisbon government is moving as fast as it can to increase sophistication of its economic base. Education of the population is a key element in this, in that better educated and trained workers give a higher productivity return.

So Portugal is competing for a prosperous future as best it can.

Now let's turn to southern Italy, another traditionally poor region within the EU. Specifically, let's explore the port city of Manfredonia, on the Adriatic. A stroll down the streets of this fishing center reveals a telling picture: unemployed youths lounge with the pensioners basking in the Mediterranean sun.

Manfredonia, never a prosperous place, lost is main source of non-fishing jobs when a big chemical plant closed down in a pollution scandal. One man, Annibale Nicastro, decided that something must be done. Reasoning that some of the investment money now heading to East Europe and elsewhere could be diverted to his hometown, he used his position as head of the local businessmen's association to contact big companies in Italy's prosperous north.

Many northern companies are now finding that high taxes and manufacturing costs are making their home base expensive, and are looking to set up subsidiary manufacturing elsewhere. They rarely look at their own south, because of its long history of general malaise. But Nicastro, working within the Italian government's desire to provide jobs and entrepreneurial skills in the south, has helped to persuade some 30 companies to set up in Manfredonia. One of the big fish he netted is Benetton, the sporting goods and leisure wear manufacturer.

Speaking from company headquarters near Venice, Benetton spokesman Federico Sartor explained the initiative. He said a discussion "triangle" was established between government, entrepreneurial and labor union representatives. The government brought to the table a framework of financial incentives, and the labor unions brought willingness to be flexible -- with the result that the entrepreneurs decided in principle to set up plants in Manfredonia. The project is still in planning, but a decisive ingredient is labor flexibility. No figures have been decided, but with an eye to East European pay rates, the Manfredonia workers are indicating a willingness to work for less than their northern colleagues.

Sartor acknowledges Benetton is a company which tends even in a globalized age to keep its production in Italy. Some 80 per cent of production is still in the home country. He acknowledges the "invest-in-Italy-first" aspect in the move to Manfredonia, but he says business will only stay there if there is profit. Benetton already has a plant in Slovenia, and is watching East European developments. Sartor said that in the past, the problem with East Europe was in product quality control. That's improving now, he says, with the result that the east will be increasingly competitive, and Italian and other West European companies must therefore be "every day better".