berlin.de. Paper prepared for the ECPR Joint Sessions, April 2014, Salamanca

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1 Anticipatory integration through orchestration: How the EU manages economic and regulatory integration since the Eastern Enlargement László Bruszt and Julia Langbein berlin.de Paper prepared for the ECPR Joint Sessions, April 2014, Salamanca WORK IN PROGRESS Comments welcome! Introduction The still ongoing process of the inclusion of the EU s Eastern peripheries of the EU to the transnational European markets is a unique attempt undertaken by countries belonging to the global core to manage the simultaneous economic integration and regulatory normalization of countries from the (semi) periphery. Unlike during previous enlargements that were primarily about taking over the existing norms of the EU, the transfer of EU rules to the Eastern peripheries was consciously combined with strategies to manage the potential developmental externalities of adopting these rules. By doing so, the EU tried to shape the potential economic roles these countries could play in the single European market. This paper asks who the key players of market integration were, what goals did they pursue and what kinds of means did they use to further their goals? In this paper we argue that by focusing on rule transfer and compliance, the study of the Eastern enlargement misses a key defining aspect of EU strategies, namely the conscious attempt by Brussels to foresee and alleviate the potential negative developmental externalities of the integration. Instead of relying solely on leverage and hierarchical rule imposition based on perfected conditionality, the Commission has embedded the process of rule taking in Europe- wide linkages. By mobilizing a host of private and public actors the Commission has constructed a non- hierarchical mode of governing the detection and joint alleviation of developmental problems linked to enlargement. Students of Enlargement usually argue that the process was, at least in its major elements, a unilateral process. From this perspective Enlargement is usually described as an instance of top- down hierarchical governance. The EU- 15 imposed a large number of non- negotiable policies and rules on the candidate countries by relying on the use of asymmetrical power relations between the EU core and the Central and East European (CEE) peripheries (Moravcsik and 1

2 Vachudova 2003; Schimmelfennig and Sedelmeier 2005; Dimitrova 2011). The EU, as the principal, is assumed to have ex- ante knowledge of what are the right goals of integration and what are the best strategies to pursue them are. Once the EU provides the right incentives, resources or arguments, the desired outcomes in the candidate countries, as the agents, will be achieved. The actual goals of the imposition are either left in the dark, or these were goals linked primarily to the economic interests of EU insiders, member states and firms, like creating new markets and investment opportunities for transnational companies from the EU- 15 as well as for export- competing firms from the CEE economies (Andonova 2003; 2008; Bohle 2008; Jacoby 2010). Some authors in this part of the literature simply ignore the developmental consequences of the imposition of EU policies and regulations (e.g. Moravcsik and Vachudova 2003; Schimmelfennig and Sedelmeier 2005). Others, mainly in the economics literature stress their nearly automatic positive developmental consequences (Brenton and Manzocchi 2002; Bchir, Fontagne and Zanghieri 2006; Martin and Winkler 2009; Keereman and Székely 2010). Finally, a third group of scholars puts more stress on the potential negative developmental consequences of the unilateral imposition, highlighting primarily the capacity of the EU15 insiders to advance their narrow interests mainly at the price of decreased developmental opportunities of the accession countries (Bieler 2002, 2006; Bohle 2006), or in alliance with neoliberal incumbents in the prospective member states (Drahokoupil 2009; Jacoby 2010). Notably, these approaches share the assumption that the EU did not have mechanisms to cope with the potential or actual developmental externalities of integration. Most economic studies argue that the EU did not have to develop such mechanisms given the expected overall positive effects of Enlargement. Political economists sustain that the EU member states simply did not care about inventing such mechanisms, since they were the key players (and winners) in the primarily hierarchical management of the economic integration of Europe s Eastern peripheries. We contrast this imposition approach with another one, emerging from more recent studies that tend to conceptualize Enlargement as a planned extension of transnational markets from the core to the periphery (via imposition of non- negotiable EU policies and rules), on the one hand, and the simultaneous creation or upgrading of transnational and domestic capacities to detect and decrease at least some of the key negative and increase the potential positive developmental externalities of integration. In this perspective, it was the explicit goal of the EU to create and improve capacities in both parts of Europe, in the EU- 15 and in the aspiring member states from the East, to foresee and manage the developmental externalities of economic integration and regulatory normalization (Bruszt and McDermott 2012; Bruszt and Langbein 2014; Bruszt and Vukov forthcoming). We argue that, unlike in the case of the integration of the Southern peripheries of Europe, and unlike in the case of regional integration attempts in other parts of the world, EU- 15 actors could not and did not completely disregard the potential negative developmental externalities of Enlargement and they could not hope for spontaneous processes taking care of 2

3 solving problems linked to them. To put it differently, the extension of the European regional market to the emerging market economies of the East can be seen as the first case - among various other cases of regional economic integration - for a still unique experience that for better or worse we would call anticipatory integration. This concept refers to conscious attempt on the side of integrators at creating transnational and domestic capacities to foresee and cope with the developmental consequences of integration between countries at different levels of development. The goals of integration underlying the anticipatory integration approach to Enlargement also call for particular modes of integration on the part of the EU: Drawing upon Abbott et al. (forthcoming) we argue that in addition to conditionality - the EU engaged in orchestration, a non- hierarchical mode of integration by which an international organization enlists and supports intermediary actors to address target actors in pursuit of IGO governance (Abbott et al. forthcoming). We will show that during Enlargement, the Commission engaged with various public and private actors from the EU member states and the candidate countries to increase the infrastructural capacities of the EU to detect problems in the candidates and to pursue joint problem solving, monitoring and enforcement of the EU accession criteria. To demonstrate our argument, we examine the EU goals and means of integration in the context of the Eastern Enlargements in 2004 and 2007 and compare it to the EU s attempts to extend these policies and rules on the Western Balkan countries where the EU faced dramatically different domestic conditions relating to strong ethnic cleavages as well as comparatively weaker states and societies (Fagan and Sicar 2010; Bieber 2011; Elbasani 2013). Contrasting views on Enlargement: Imposition vs. anticipatory integration Besides the large number of descriptive accounts, the previous discussion suggests that there are basically two competing theoretically oriented approaches to understand the goals and means of Enlargement. One of them stresses unilateral imposition while the other also adds the planned developmental aspect of the process. These approaches differ in the way they answer the key questions of this paper: who were the key players of market integration, what were their goals and what kinds of means they have used to further their goals? Integration as benevolent/malevolent imposition through hierarchy In this camp we find various approaches sharing the view that the key players in the process of integration were governments and large firms and their associations from the EU- 15 core countries. Researchers following what we call for now the imposition approach might differ in the way they stress internal differentiation among the key EU- 15 players. Some authors allow for specific 3

4 groups of countries and/or firms to have incentives to make integration at least partly and/or for some categories of CEE players a positive sum game. Jacoby (2010, p. 421f) details, for instance, that some EU- 15 governments were keen to increase the supply of cheap skilled labor from the CEE. Further, once these countries implemented the EU rules and policies large- scale investments from EU- 15 firms contributed to technology transfer to the East, thereby helping these countries to depart from their peripheral position in the European market (see also Bohle and Greskovits 2012; Epstein 2014). At the same time, EU- 15 investors managed to control potential competitive challenges by forbidding their CEE affiliates to use technology transferred to them in order to engage in intra- industry trade outside the agreed production processes (Jacoby 2010, p. 424). Although these methods contradicted EU law EU institutions did not intervene to stop the investors behavior. These two examples illustrate that narrow economic interests of the strongest EU- 15 players are key to understand the goals and means of integration even in areas where CEE economies might also benefit from the imposition of the EU rules and policies. As concerns the role of EU institutions, studies on EU Enlargement informed by liberal intergovernmentalism (Moravcsik and Vachudova 2003) and by Neo- Gramscian assumptions (Bieler 2002, 2006; Jacoby 2010) agree that the Commission was captured by the interests of various actors from the EU- 15 when pursuing the goal of minimizing negative externalities of Enlargement on the old member states. The Commission accepted the discrimination against CEE firms and their products on the EU single market before accession (Jacoby 2010). Bieler (2002, p. 590) states that the pre- accession strategy was devised by the Commission with the support of the European Round Table of Industrialists (ERT). Enlargement offered these transnational actors huge benefits by facilitating their guaranteed access to markets reformed on the basis of the (neo- ) liberal principles of the EU to which they can export (Ibid, p. 186). In a similar vein, neo- functionalist accounts of EU Enlargement ascribe an influential role to transnational business associations from the old member states in promoting harmonization with European standards to further trade between CEE and the EU. Since the main goal of transnationally organized EU industries is market integration, they do not care about who survives in the CEE economies as long as regulatory harmonization is enforced to facilitate trade (Andonova 2008). The previous discussion suggests that EU- 15 governments and transnational firms have used asymmetrical power relations to advance their own economic and/or non- economic interests, like stability, security or peace. If they had economic goals, these were focusing on advancing their preferences in maximizing gains from liberalized access to the Eastern markets and minimizing the costs of the (selective and phased) opening up of the EU- 15 markets (Bieler 2002; 2006; Bohle 2006; Jacoby 2010). At the same time, these accounts do not portray CEE economies as pure victims of the preferences of governments, firms or associations from the EU- 15. In fact, CEE governments also allied with transnational capital from the old EU member states in order to defend regulatory race to the bottom policies which they viewed as necessary to 4

5 outperform the old EU member states in their attractiveness for transnational capital (Bohle 2008; Jacoby 2010). Export competing CEE firms, in particular, are conceived of as the motors of economic and regulatory integration in the context of Eastern Enlargement (Andonova 2008; Jacoby 2010). Independently of the stress on the types of preferences - benevolent, neutral or malevolent -, the imposition approach assumes that the key means of integration are linked to ever- perfected conditionality. Asymmetrical power relations between the East and the West were used, not only to the implementation of specific policies to further the opening up of these economies but also to the imposition of the rules of the single European market (Moravscik and Vachudova 2003). Indeed, unlike during the integration of the Southern peripheries, and unlike in the case of other regional integration regimes in the global South, the EU did not only further trade liberalization but also ex ante regulatory integration by promoting acquis compliance. This later entailed the transfer of thousands of market regulations. These regulations were worked out in long processes of conflicts and compromises among the key economic players of the strongest economies of Europe. The imposition of some of these regulations might have had direct positive effects in the evolution of markets in the East via reducing misuse of power asymmetries in the market or by reducing various forms of rent- seeking. Other regulations, while they might have been beneficial for the strongest European economies of the West, in the East they could have imposed prohibitive costs on producers. Even if the implementation of some of these regulations might have had positive developmental effects, domestic actors in the East might have lacked to capacity to implement them and extend their benefits to broader categories of economic actors. In brief, the potential developmental effects of the enforcement of the EU rules in these countries ranged from increasing developmental opportunities to broader categories of domestic actors, on the one hand, to large scale marginalization and social and economic exclusion, on the other (Bruszt and Langbein 2014). The discussion of such developmental effects of Enlargement is largely missing from this approach focusing on strategies and/or effectiveness of imposition. Anticipatory integration through orchestration From the perspective of the imposition approach it is primarily the perfected use of power asymmetries that will bring about the desired (positive or negative) outcomes. Either there is no need for foresight, as the (positive) outcomes will come about anyway from the implementation of the imposed rules and policies, or the domestic developmental externalities of the imposition do not matter for those with bigger power. According to the alternative approach called for now as anticipatory integration, the EU could not, and actually it did not completely disregard (or left to spontaneous processes) the social and economic developmental externalities of Enlargement. Unlike in the case of the integration of the Southern peripheries of Europe, the EU has developed a complex regime of governance in the process of Eastern Enlargement that, besides imposing policies and rules, employed several ex ante mechanisms to reduce the potential 5

6 negative and increase the potential positive externalities of compliance (Bruszt and Vukov forthcoming). This approach can be seen as the inverted version of neo- functionalism. Neo- functionalists start with the assumption that the actors shaping the process of integration have limited capacity to foresee all the potential consequences of their actions (Haas 1964; Schmitter 2006). Also, these actors might not want to overburden bargaining about the new transnational institutions and might decide to leave for later the identifying and the coping with the potential externalities of their present decisions. These decisions will, however, set in motion unintended, unexpected processes (i.e. spill- overs, Lindbergh 1963, p.11), lead to activation of new actors and/or create outcomes that might push towards starting a new round of making or unmaking transnational institutions. In the inverted neo- functionalism, actors do not have the luxury and freedom of leaving every outcome to future unintended or unexpected consequences. Willy- nilly, they have to create mechanisms to anticipate and handle ex ante at least some of the potential future externalities of their present actions. Key actors in the integration might be afraid that a/they will not be able to completely externalize the potential negative consequences of imposition and b/ the longer term potential costs of unilateral imposition might be much higher then their short term gains. Fear of the potential costs incurred on EU- 15 by economic collapse or political unrest on the Eastern borders, or still worse, in the new Eastern member states might make EU- 15 insiders to care ex ante more about potential negative consequences of imposition. The already existing supranational institutional frame furthermore, might constrain stronger actors from easily externalizing the costs of imposing their narrowly defined preferences. In this approach, despite of the high level of power asymmetry, EU insider countries could not act as if they were independent of the accession countries, as if they could advance their preferences without taking into account the interests of the weaker actors. They were acting in the framework of asymmetric interdependence (Keohane and Victor, 2004): from the perspective of the preferences of the EU insiders, the expected outcomes of Eastern enlargement would have been inferior if they would have neglected the broad developmental consequences of imposing EU rules on the less developed Eastern countries. Consequently, we assume that the EU s integration strategy did not only focus on the imposition of its short- term policy preferences and pre- existing rules but also on institutional solutions that could help to cope with the potential negative developmental consequences of Enlargement and create or increase the capacity of public and private actors to benefit from the imposed EU rules and policies. In this alternative approach ( anticipatory integration approach ), the Commission and large transnational NGOs also play an autonomous role, besides the strongest governments and firms of the EU- 15. As the process of integration unfolds, private and public actors from the rule taking countries play a growing role in specifying integration goals by way of associating them with domestic 6

7 developmental considerations and shaping the selection of the means to achieve them. Instead of merely acting as a transmission belt aggregating and implementing the preferences of the strongest players, as assumed by liberal intergovernmentalist and Neo- Gramscian accounts of Eastern Enlargement, the Commission in this approach has its own preferences. It can further the inclusion of governments and selected categories of economic players from the East (Jacoby 2008; Bruszt and Vedres 2013), enlarge and mobilize transnational networks to assist, monitor, sanction institutional change in these countries (Andonova 2013; Bruszt and McDermott 2012) and shape the capacity of domestic actors to benefit from the imposed EU rules. From this perspective conditionality is not the sole and not necessarily the most important means of achieving the above signaled more encompassing goals (Bruszt and McDermott 2012). As all externally induced and governed developmental projects, economic integration of the Eastern periphery also has the problem of incomplete and limited intelligence of the principals, their limited capacity to foresee possible negative political, social, developmental externalities of interventions, learn what has not worked and why, monitor and enforce rules in a sustainable and cost- effective way in 10 countries and 34 different policy areas while trying to balance among the diverse interests of various EU- 15 insiders and diverse public and private actors in the Eastern peripheries. In the context of the current enlargement into 6 Western Balkan states, these challenges have certainly not become smaller. The governance of integration, from the perspective of this approach, is assumed to include necessarily experimental elements that did not fix precisely all the goals ex ante. Instead, the selection of the right means of achieving them was left to local experimentation There are no universal recipes for the right way how to alter local institutional conditions in the diverse pre- existing contexts of the nearly twenty accession countries in a way to simultaneously implement the uniform EU rules and cope with their developmental externalities at the same time. Information on what could work was dispersed and in many cases it could only be collected by way of empowering local actors. Potential problems of implementation were not known ex ante and the different units of the Commission involved in the management of the enlargement had no or weak capacities to coordinate, assist, and monitor institutional change on their own These were exactly the types of governance challenges that have forced the EU hierarchy to rely on non- hierarchical methods of governance like orchestration. Following Abbott et al. (forthcoming) orchestration defines a mode of governance by which IGOs do not try to govern target governments directly through hard instruments, such as the promulgation of mandatory rules. By contrast, an IGO engaging in orchestration enlists intermediary actors on a voluntary basis and provides them with ideational and material support to make the targets pursuing the IGO s policy goals. Applied to the case of Enlargement the EU certainly used hierarchical modes of governance such as conditionality to enforce EU rules on the ground. At the same time we suggest that the EU 7

8 mobilized transnational multiplex networks consisting of public and private actors from both parts of Europe as intermediaries who would not only help the EU with rule enforcement but who also assisted governments in the candidate countries to foresee the developmental consequences of Enlargement and design respective national strategies to diminish negative externalities. Specific actors from the EU15 in these networks, e.g. experts designated by the EU member states to participate in twinning projects or other technical assistance programs with the candidates, were likely to play multiple functions serving as monitors, decentered watchdogs of the Commission, suppliers of assistance and participants of localized problem solving. These intermediaries played a key role in the massive state building in the Eastern parts of Europe strengthening, in some countries creating, elementary state capacities to deliver public goods and make and implement developmental programs, in addition to implementing the EU rules on the ground (Bruszt and Langbein 2014). Based on the above sketched two approaches we create diverging expectations about the goals and means of integration. Expectations of the two approaches as to the actual goals and means of integration: The imposition approach to Enlargement would predict a focus on the interests of the EU insiders (=EU- 15 governments and firms) in the way liberalization of trade, capital markets, labor and services is imposed on the CEE economies (negative integration) and would not expect the EU to take developmental externalities into consideration. In this perspective, the EU relies on hierarchical modes of governance to impose its rules on the candidate countries. EU conditionality aimed at providing the right incentives to enforce rule imposition, and EU capacity building aims at empowering domestic actors to adopt and enforce EU rules. By contrast, the anticipatory integration approach to Enlargement perceives economic integration as a developmental project that tries to prevent future spillovers to core EU countries from the peripheries. By spillovers we mean the costs of potential economic and political crises due to weak capacity of the accession countries to compete in and benefit from the enlarged European market. The goal of economic integration includes also the objective to increase the capacity of the EU and the accession countries to foresee and manage the developmental externalities of implementing the above- described goals. Actors from the EU, the old member states and the accession countries are expected to pursue conscious attempt at leveling the playing field by focusing on providing CEE players with the capacities and the opportunities to benefit from integration (Table 1). We will test these hypotheses in the context of the 2004 and 2007 Eastern enlargements and the Western Balkans. Depending on the particular group of countries, different domestic factors will shape the modes of economic integration and mediate their effectiveness in producing certain developmental outcomes. Compared to the 2004 and 2007 Eastern enlargements, the EU is 8

9 Table 1: Theoretical expectations concerning goals and means of economic integration in the context of Eastern Enlargement Goals of economic integration Means of economic integration Imposition approach - Imposing EU policies and rules =>to open market and investment opportunities for EU- 15, minimize negative externalities of Enlargement from the perspective of EU15 insiders Hierarchy Positive and negative conditionality based on strong incentives/sanctions, Clear and precise definition of EU demands Checklist monitoring and compliance Capacity building aimed at empowering domestic actors to adopt and enforce EU rules - EU builds state capacities to implement and enforce rules - EU builds non state actors capacity to push for institutional change, monitor compliance Developmental approach - In addition to imposing EU policies and rules: => to manage developmental externalities of Enlargement both for the EU15 insiders and accession countries Hierarchy Positive and negative conditionality based on strong incentives/sanctions, Orchestration Associating EU goals with domestic developmental considerations Integration of compliance detection and joint problem- solving by enlisting public and private intermediaries Capacity building aimed at creating developmental alliances between public and private actors - EU builds state capacities to create and implement developmental programs, to provide public goods - EU builds non- state actors capacity to push for more inclusive institutional change, increased scope of beneficiaries from rule implementation 9

10 facing more profound problems of economic development and a shallower embedding of public and private actors in transnational networks in the context of the Western Balkans. Further, in the Western Balkans the EU has to put even more emphasis on creating and strengthening elementary economic state capacities and increasing domestic demand for state capacities to deliver public goods. In these countries the EU is challenged to perfect its assistance programs aiming the creation and upgrading both the domestic demand for and supply of a functioning economic state. Zooming in: Goals and means of economic and regulatory integration in the context of the 2004/07 enlargements and the Western Balkans Goals: Managing developmental externalities of enlargement both for EU insiders 1 and accession countries The enforcement of acquis compliance is without doubt one of the key goals of enlargement. While compliance with the acquis has always been an accession criterion in previous enlargements, the definition of the political and particularly the economic Copenhagen criteria in 1993 signaled the EU s new awareness for the developmental consequences of enlargement. As interviews with EU officials revealed, key EU- 15 member states and the European Commission (EC) learned from the collapse of the East German economy caused by the unexpected consequences of the fast liberalization and unplanned market integration after the German reunification. 2 The unfolding economic and political turmoil, and the need for massive fiscal transfers between the two parts of Germany played a major role in convincing these key players that future member states must not only be fledgling democracies (political criteria) but also functioning market economies that are capable of withstanding competitive pressures within the integrated EU market (economic criteria). Between 1994 and 1996, ten former communist countries applied officially for EU membership. Following the conclusion of the Madrid European Council in 1995, the Commission prepared Opinions on each applicant country and assessed their situation with regard to the distance between national and EU policies. From the reading of the Opinions one can easily understand that the fulfillment of two criteria became decisive in order to open accession negotiations: The applicant country must fulfill the political criterion, i.e. be a democracy, as well as parts of the economic criterion, i.e. be a functioning market economy, at the time of membership application, to receive a positive Opinion by the Commission (Dimitrova 2011). 3 It is not the goal of this paper to judge these assessments. But it is safe to say that the assessment of whether a country meets 1 This aspect is less developed in the following section. The next version of the paper will include 2 Interviews with Commission officials participating in the operationalization and early phase implementation of the economic aspects of the Copenhagen criteria made in DG ECFIN and DG ELARGE, Brussels, October 2012 and April As a consequence, the Commission recommended opening accession negotiations with the Czech Republic, Estonia, Hungary, Poland and Slovenia in A year later the EC recommended opening accession negotiations with Bulgaria, Latvia, Lithuania, Latvia, Romania and Slovakia. 10

11 the accession criteria or does not is relative since it is impossible to define objective criteria for democracy, functioning market economy or a country s capacity to withstand competitive. 4 We will return to this discussion further below. It is worth noting that, following the positive Opinions of the Commission on five of the post- communist applicants, key players within the EU bureaucracy understood that they cannot leave to spontaneous processes the fulfillment of the second economic sub- criteria, i.e. the coming about of a functioning market economy that can withstand competitive pressure within the integrated EU market. A few examples illustrate our point: Up to 1999, the Commission only promoted the preparation of impact assessments with regard to the effects on EU member states so the latter could negotiate transition periods (e.g. as regards work migration). When Günther Verheugen, a German Social Democrat, became Commissioner for enlargement in 1999, the date also marked a change in the EU approach to support the economic transformation of the candidate countries. Following Verheugen s instructions, the Commission began to stress the need for the candidate countries to pursue impact assessments in order to assess the economic and social costs of enlargement for their economies and define adequate transition periods. 5 Interestingly, some candidate countries had reservations against the new EU approach. For example, the Commission had a terrible fight with the Poles and the Hungarians over the effects of Enlargement on the economic performance of Polish and Hungarian small and medium sized enterprises (SMEs). Back then, Polish and Hungarian policymakers were convinced that big is beautiful and wanted to attract greenfield investments, i.e. foreign investments that develop a new company in a host economy, which should - desirably - involve the construction of new facilities 6 (see also Bohle and Greskovits 2012). During the screening process, which takes place before the actual opening of the negotiations and involves an in- depth examination of all acquis chapters and the preparation of a plan by each candidate country on how to meet the accession criteria, the Commission urged the Polish and Hungarian governments to plan an impact assessment study that would show how enlargement will affect the situation of SMEs and include it in the related chapter. Further, the Commission s negotiators pushed all candidate countries to include an environmental impact assessment study in the related chapter. 7 Simply put, the Commission sometimes had to force the candidates to anticipate the positive and negative externalities of enlargement. 4 On the lack of objective criteria to assess democracy and the EU s attempt to interpret the democracy criterion see Dimitrova See, for example, Günter Verheugen s speech at the National School of Public Administration (KSAP) Warsaw, 24 October 2000, release_speech _de.htm?locale=de (last access 2 April 2014). 6 By contrast, mergers and acquisitions (M&A) are investments in which a foreign firm concludes the acquisition of an existing firm or company in a host economy. 7 Interviews with officials participating in the operationalization and early phase implementation of the economic aspects of the Copenhagen criteria made in DG ECFIN and DG ELARGE, Brussels, March

12 The introduction of the pre- accession economic programmes (PEPs) 8 is a further indicator for the fact that the EU did not stop at promoting acquis compliance but also sought to increase the candidates capacities to deal with the structural effects of Enlargement. In 2001, DG ECFIN initiated the PEPs to help candidate countries to strengthen their economic planning capacity (Lindner and Mihailovici 2013). More precisely, PEPs have two objectives: First, to identify the appropriate economic policies and structural reforms needed to prepare for EU accession, and, second, to develop the institutional and analytical capacity necessary to participate in the multilateral surveillance procedures of EMU upon accession (European Commission 2002:5). Since 2001 DG ECFIN s assessments of the PEPs have been following the same methodology. All assessments are divided in three parts: a) macro- economic trends, b) public finance and c) structural reforms. The parts on macro- economic trends and public finance always use the same indicators. 9 The part on structural reform is tailored towards the situation in the countries. To take some examples from DC ECFIN s assessments devoted to the current enlargement round: Some countries, like Serbia, are advised to rethink the role of the state and reduce state intervention (e.g. through price controls). DG ECFIN s assessments of other countries, like Montenegro, lay their focus on the restructuring of particular sectors like aluminium or transport (European Commission 2013). At the same time, DG ECFIN s assessments point towards the interdependencies of these three dimensions: For instance, high current account deficits are linked to necessary structural reforms and improvements in the business environment to attract FDI. 10 But how does DC ECFIN measure a country's capacity to withstand competitive pressure? Interviews with Commission officials, who are currently working on the enlargement into the Western Balkan, show that DG ECFIN does not base its assessment on specific thresholds that could signal a country s capacity to withstand competitive pressures in the internal market. 11 Thresholds to determine the ideal structure of the economy, the share of SMEs, the concentration of market power or the diversification of export commodities do simply not exist. Officials working currently on the (potential) candidate countries in DG ECFIN as well as in DG ELARGE wish to encourage countries to restructure the economy. They also provide some strategies on how to prevent a brain drain or how to spend the national budget in a way that many groups will benefit from it. In contrast to the fulfillment of the third Copenhagen criteria, acquis compliance, the Commission, and DG ECFIN in particular, has to interpret the meaning of competitiveness both in the assessments of the PEPs as well as in 8 Potential candidate countries are invited to submit Economic and Fiscal Programmes (EFP). 9 Macro- economic trends are assessed in terms of GDP growth, employment, current account deficit, inflation rate and financial sector indicators. Public finance is assessed in terms of fiscal discipline and planning, debt dynamics as well as the viability of measures taken to achieve a more balanced budget. 10 See, for example, DG ECFIN s assessment of FYROM s PEP (European Commission 2013, pp ). 11 Interviews with officials working at DG ECFIN, Brussels, March

13 the regular progress reports that evaluate a candidate country s progress as regards the fulfillment of all three Copenhagen criteria. To give an example: If the government of a candidate country suggests various measures in its PEP to reduce the public deficit by 3% of its GDP, DG ECFIN will ask the government to prove the viability of this strategy. Tentative questions may include: How would the suggested reduction of agricultural subsidies affect the agricultural sector? How would the suggested streamlining of social spending affect the poverty rate? May it not be more viable to cut some support measures for veterans instead of cutting social spending all together to a minimum? As mentioned earlier, the assessment of a country s capacity to withstand competitive pressures in the internal market is a relative one. Obviously, a country that has successfully managed to diversify its export structure (e.g. by increasing the share of high- value added commodities) or has invested in human resources (e.g. by improving the education of skilled workers) receives a positive assessment by DC ECFIN, while a country that is still stuck with 25% of unemployment or is mainly exporting low- value added goods with the consequence of having a trade deficit will certainly not. 12 The previous discussion suggests that the Commission does not force candidate countries to pursue structural reforms before and during the accession negotiations but it formulates recommendations on how the country can become more competitive. 13 At the same time officials working at DG ECFIN consider themselves as macroeconomists. They do not come up with sector- specific recommendations aimed at increasing a sector s competitiveness. This has to be done by the candidate countries themselves. Our previous study on the integration of the Polish and Romanian dairy sector in the internal market has shown that EU candidates characterized by strong state capacity and well- organized sectoral interests can more easily build domestic developmental alliances. These alliances are then able to use the EU, i.e. its pre- accession assistance ranging from knowledge transfer to financial aid, in a proactive way (Bruszt and Langbein 2014). Both the imposition and the anticipatory integration approach would not expect the EU to have different goals of integration in the context of the 2004/07 enlargements if compared to the context of the Western Balkans as these countries have either already joined the EU (Croatia) or are expected to join in the medium- term (FYROM, Montenegro and Serbia) or long- term (Albania, Bosnia and Herzegovina and Kosovo). However, both approaches would expect that - given comparatively weak state capacity in the Western Balkans - the focus of capacity building will have to shift from specific sectors and policy areas to more general and elementary state capacities like the capacity to uphold freedoms, enforce laws, provide justice, resist corruption, or the building of a functioning public bureaucracy. 12 Interviews with officials working at DG ECFIN, Brussels, March See yearly PEPs and the assessments of DG ECFIN in the form of occasional papers for the current candidates at accession_prog/index_en.htm (last access 1 April 2014). 13

14 Indeed, the major goals of the EU in the context of the Western Balkans (with the exception of Croatia) have so far been the meeting of the political criteria as well as the building of administrative capacity to take on the acquis (Bieber 2011; Albasani 2013). More recently, driven by discontent with the economic performance of the current (potential) candidates, Commissioner for Enlargement Stefan Füle emphasized the need to take economic criteria more seriously again. Accordingly, the Commission, in its 2013/14 EU Enlargement strategy, launched a new approach to economic governance that stresses rule of law and the intensification of reforms aimed at sustainable growth and improved competitiveness (European Commission 2012). DG ELARGE, and precisely its unit for coordination and planning (A1), is in charge of implementing this new approach to economic governance. In addition to the PEPs, DG ELARGE will introduce so- called national economic reform strategies and action plans for public financial management that the candidate countries are invited to develop. In these strategy papers candidate countries shall a) define reforms that allow them to return to sustainable growth and b) address the challenges necessary to meet the economic criteria and improve competitiveness. On that basis the Commission will give country- specific recommendations. In the national economic reform programs the candidates shall identify sectors to be funded under IPA- II, the revised EU instrument for pre- assistance, to increase their competitiveness in the internal market. IPA- II is about budget support rather than project funding. The EC hopes to increase EU leverage since up until now governments in the Western Balkans did not really care when the EC threatened to withhold IPA funds for particular projects. PEPs, on the other hand, will continue to be important but they will in the future focus more on macroeconomic and fiscal stability, while the national economic reform strategies will focus on competitiveness and structural reforms. Means: Developmental capacity building through hierarchy and orchestration The imposition and the anticipatory integration approach share the assumption that the EU uses hierarchical means to further its goals of integration. But whereas the imposition approach sustains that conditionality was the main enlargement policy tool (Dimitrova 2011, p. 229; see also Sedelmeier 2011), our anticipatory integration approach suggests that the EU as the principal - could not simply rely on hierarchical means but due to a lack of operational capacity often had to turn into an orchestrator. In this function the EU employed non- hierarchical means to address public targets (state bureaucrats in the candidate countries) as well as private targets (producers, farmers, private regulators, etc.) of its enlargement policy. The EU, and in particular the European Commission as the main executor of the EU s enlargement policy, simply lack(ed) the operational capacity to manage the political and economic transformation of the post- communist or post- War candidate countries on its own. Take, for example, the number of EU officials dealing with the economic transformation (i.e. ensuring that candidates fulfill economic criteria and comply with about 18 related chapters upon accession) of one country at the European Commission and the respective EU Delegation: In the current enlargement round around 11 14

15 full- time officials and at best 31 part- time officials work on monitoring and furthering the building up of a functioning market economy of an accession country, taking also care of governing the build up of the capacity of that national economy to withstand competitive pressure. 14 In general, the EU bureaucracy can only be compared in its size to the antebellum US Federal state. Controlling the regulation and development of a liberal market economy of a comparable size, the US Federal bureaucracy is monstrous in comparison to the European one. Whereas, for example the US Department of Agriculture employs 105 thousand full time employees, or the US Department of Trade works with 44 thousands full time employees, the whole Commission has less than 24 thousand employees. Hierarchy/conditionality Conditionality has been and still is an important means to further EU goals of integration. Students of the imposition approach have convincingly shown how conditionality based on clarity, credibility and meritocratic monitoring has increased the effectiveness of EU rule transfer as regards the political accession criteria (Vachudova 2005) as well as acquis compliance (Schimmelfennig and Sedelmeier 2005). In addition, we argue, conditionality has also been an important means to increase a candidate country s capacity to withstand competitive pressures in the internal market despite the lack of clear EU rules or benchmarks underlying the economic accession criteria. As our previous discussion related to the goals of integration has shown, DGs ELARGE and ECFIN remind candidate countries of potential negative consequences of acquis compliance before and during accession negotiations. Take for example the field of state aid: EU membership requires compliance with EU state aid rules which constrains governments in paying subsidies. This is a particular challenge in post- communist economies where companies were used to soft budget constrains under communism (Kornai 1992). The Commission, and precisely DGs ELARGE and ECFIN, do, however, not only use conditionality to impose EU state regulations on the candidates or provide assistance for legal approximation and the establishment of regulatory bodies. EU officials also use accession conditionality to increase the candidate s awareness of the consequences of EU rule enforcement on the ground: Once a country aligns with EU state aid regulations and exposes its market to the pressures of negative integration upon accession, non- competitive local companies or whole sectors, which largely depend on subsidies, are likely to be wiped out resulting in large- scale unemployment. Therefore, the candidates are advised to develop economic 14 Interview with an official at DG ELARGE, March 2014: The 11 full time officials working on the economic transformation of one country are composed of 1 person on the economic accession criteria, 2-3 persons on economic part of the EU acquis, 1 person in the horizontal unit (all DG ELARGE), 1 person in DG ECFIN, 5 persons in EU Delegation. The 31 part- time officials working on the economic transformation of one country are composed of 3 members in the enlargement cabinet, 2 members in ECFIN cabinet. Other Cabinets work on these issues only once to twice per year and are negligible. In addition, on average 26 persons work on these issues at other DGs relevant to economic transformation (ENTR, COMP, EMPL, AGRI, ENER, ENV, CLIMA, RTD, CNECT, MARKT, REGIO, TAXUD, EAC, SANCO, JUST, TRADE, EUROSTAT). 15

16 strategies and restructure affected industries well before accession in order to mitigate potential negative effects of acquis compliance. 15 To prepare candidates for anticipating and managing the socio- economic consequences of their membership early in the accession negotiations, the European Commission revised its usage of conditionality in the context of its enlargement in the Western Balkans. Being faced with more challenging domestic conditions in these post- War societies and economies, the EC introduced opening and closing benchmarks for accession negotiations in 2006 to improve the quality of the negotiations, by providing incentives for the candidate countries to undertake necessary reforms at an early stage. (European Commission 2006: 7). During the screening process, so before the Commission recommends the Council to approve the opening of accession negotiations, the Commission proposes certain opening benchmarks for each chapter of the acquis that candidate countries must meet before the actual start of negotiations. Let s stick to the example of state aid: An opening benchmark in the chapter on competition may be, for example, the application of state aid regulations as laid down in a bilateral contract (e.g. those agreed upon with the Western Balkans in the Stabilization and Association Agreements (SAA). From the viewpoint of the Commission it simply makes no sense to open accession negotiations on the competition chapter (with the aim to achieve full acquis compliance) if the candidate has not managed to enforce its SAA obligations in this field, including, for example, the establishment of an independent competition authority or the preparation of data that displays the share of state aid in the national budget or particular cases of public aid. Once these opening benchmarks are fulfilled, negotiations will be opened and closing benchmarks to achieve acquis compliance will be defined. The sequencing of negotiations based on opening and closing benchmarks allows the Commission to make public and private rule targets in the candidate countries aware of potential challenges related to the enforcement of EU rules well before the actual negotiations start. 16 In sum, accession conditionality is thus not only a means to enforce the acquis. It also increases the EU s leverage on candidate countries to associate the goal of acquis compliance with domestic developmental considerations. Non- hierarchical means/ Orchestration Still, conditionality has its limits in helping the EU, and in particular the Commission, to cope with its meta challenge during enlargement: The collection and processing of knowledge about the situation on the ground in the candidate countries in order to effectively impose EU rules and increase the country s capacities to anticipate positive and negative consequences of enlargement. We therefore argue that the EU owing to a lack of operational 15 Interviews with officials working at DG ELARE and ECFIN, Brussels, March Interviews with officials working at DG ELARGE and DG ECFIN, Brussels, March