A common theme of mine during the last couple of years is the growing disconnect between economic policy, politics and the economy.
This juxtaposition is more prevalent where I currently am – Croatia.
I’ve been coming here for several years now, to teach and research, and have witnessed many changes.
On July 1, 2013, Croatia will join the European Union, which essentially means Croatia will be open to free trade with a large number of European countries.
It will not be fully integrated with Europe just yet. For starters it will not be part of the Schengen Agreement – essentially a borderless Europe. Under the agreement, once you are in, say, Oslo, Norway, you can cross to Helsinki, to Lisbon, Portugal, and depart Paris without a passport. But you can’t go to Zagreb, Croatia.
So, labor movements will continue to be restricted.
But goods and machines can effortlessly flow back and forth between Europe and Croatia. Good for firms, less so for people.
German reforms made during the last 10 years or so are reaping benefits. By reducing, relatively, wage pressures, the prices of German goods have remained relatively low, which has boosted exports and driven German economic growth.
Sure, Germany has been helped by a relatively cheap euro, but so, too, would have France, Spain, and others in the eurozone, and we’ve all seen how well they’ve done.
In the last 20 years, Greece, the poster child for policy-gone-wild, has seen prices rise at about the twice the rate in Germany. For an Estonian, why buy Greek potatoes when you can buy cheaper German ones?
Greece didn’t make the hard choices.
So why is that a concern for transition economies? They haven’t either. Well, they kind of have. In a word, they’re not ready for integration. I should stress: economic integration. But, a pan-European “economic” entity is, at its heart, political, not economic. The European Union looks a lot like NATO.
A unified Europe rose from the cinders of World War II with the primary goal of constructing economic unity that would trump political, cultural and social diversity.
And so it did, as long as the member countries were, more or less, the same.
But Greece, Spain, Portugal, Cyprus, Estonia and Ireland are culturally and, more importantly, economically dissimilar – for an economic union anyway.
It’s like making fish and chips with a little souvlaki. Sure, it can be done, like admitting Bulgaria and Romania, but why?
So, anyway, Croatia joins a free-trade area, the European Union, without free movement of labor. Nor will it adopt the euro, yet, though it has fixed its currency to the euro.
Now comes the hard work. All the Byzantine regulations, the fondness for stamps, anachronistic institutions, must be modified to a different set of Byzantine regulations and anachronistic regulations, but in 20 different languages.
Against this, the United States looks positively halcyon.
email@example.com Robert “Tino” Sonora is an associate professor of economics at Fort Lewis College and the director of the Office of Business and Economic Research at Fort Lewis College.