Coercive policies undermine economic growth in European Union

European Union (EU) membership has so far been a disappointment to Eastern Europeans, with high upfront costs and slow-to-materialise benefits, says Wess Mitchell (National Centre for Policy Analysis). Nor can the citizens of Warsaw and Prague console themselves with the knowledge that they are joining, in the EU Commission's words, the world's "most dynamic trade bloc."

Since the early 1990s, European unemployment has averaged 11 percent, compared to 4 percent in the United States.

According to the Organisation for Economic Co-operation and Development, EU countries have not created a single, net private sector job since 1970, compared to 50 million jobs added in the United States.

The roots of Europe's malaise can be traced to protectionist trade practices and heavy taxes that fuel government growth and impair private-sector job creation, explains Mitchell. By comparison, the new members – who spent the past 15 years dismantling socialism – have pioneered innovative pro-growth policies:

In January 2004, Poland cut its corporate tax rate from 27 to 19 percent, followed by Hungary (down to 16 percent) and Slovakia (19 percent).

The average corporate tax rate in Eastern Europe is 21 percent, compared to 33 percent in Western Europe as a whole and 38 percent in Germany.

Three of the new members have adopted flat income tax rates – Estonia (26 percent), Latvia (25 percent) and Slovakia (19 percent) – and Poland and the Czech Republic plan to do so.

Faced with a choice between economic growth and EU subsidies, Eastern Europeans have – at least for the moment – chosen the former. If they are able to withstand Western pressure, their success may provide a model for the rest of the EU and help breathe new life into an ailing continent, says Mitchell.

Source: Wess Mitchell, The Promises and Perils of European Union Membership, Brief Analysis No. 491, National Centre for Policy Analysis, October 20, 2004.

For texthttp://www.ncpa.org/pub/ba/ba491/

For more on Economic Freedom and Growthhttp://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 26 October 2004