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The Openness of the EU and the Euro

October 21, 2011

The European Union Center yesterday sponsored a public event on …Is the Euro Doomed? Why Europe’s Financial Crisis Might Worry Us All.  While many interested points were made, the one that I think deserves some follow-up is a statement about how resentment is now brewing as many post-communist countries were forced to make significant reforms to join the EU while many existing EU members have never been forced by the EU to reformed sheltered job sectors, etc.  This frustration partially manifested itself by Slovakia’s first vote on the second Greek bailout.

The World Bank produces an annual report on Doing Business that ranks countries on the ease of importing/exporting goods, starting business, etc.  I have already written about this idea ten months ago, but I think that the idea is worth revisiting.  The above map shows the countries broken down by their 2012 ranks, and it highlights how Italy and Greece have the least open economies in the EU.  Italy was one of the original members of the European Steel and Coal Community (as the EU was then known), and has never been subject to the accession requirement of having an economy that can be competitive in the common market.  Similarly, Greece managed to join the EU before the passage of the Single European Act in 1986, which removed barriers to internal trade among the members.  Since it is much easier to ignore the EU once a country is a member, these two countries have not been forced to introduce the reforms like those of the post-Communist countries.

As the above graph shows, it is not that the post-Communist have been uniformly successful in opening their economies.  Of the ten post-Communist members, four ranked in the top 40, three in the top 60 and the other three in the top 80.  Interestingly, the post-communist country with the worse ranking, Romania, was still 15 places ahead of Italy.  Even among countries that are trying to join the EU, they all scored better than Greece.  As a result, there is something to be said about the EU’s ability for convincing countries to reform, but only when a country is outside of the EU.

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