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Ole Gunnar Austvik
& Noralv Veggeland:
Norway and EU enlargement; Prospects for further integration. in Hedegaard & Lindström (Eds.): The
NEBI Yearbook 2001/2002 ( pp. 53-62) .
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Introduction
As member of the European Economic Area (EEA), co-operative in the Baltic
Sea Region, the North Sea region and the Barents Region, and a signature
country of the Schengen and the Veterinary Agreements, Norway is part of
the flexible integration processes in Europe. However, as a non-member
state, she is not a part of the official dual structure of the EU. The
referendum in 1994 made it clear that the majority of Norwegian people
opposed membership, and feared to give away sovereignty to remote supra-national
political authorities. In particular, there was a profound fear to loose
national control over agriculture and fishery policies, regional policies,
the oil resources in the North Sea, and to become an economic and political
periphery in a greater, unitary Europe – The United States of Western Europe.
The deficit of democracy was also looked upon as a threat to full membership.
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Left wing politicians argued especially that if we joined the Union, Norway would become a member of a super power which would leave the poor Eastern Europe outside and behind in economic and political developments. The result would be increased tension and insecurity in the region. They favoured pan-European integration and a “Europe of Nations”. Concerning national trade and industrial development challenges, through the EEA, Norway had already access to the Single market. Hence, the economic argument had only little impact on the No-decision.
Following the rejection of EU membership, the government declared that there would be no new initiative to join the EU for at least ten years. However, since the end of summer 1999 there has been a renewed attention in the Norwegian press on this question. This is accentuated by the fact that more and more policy areas are being drawn into the competence of the Union in addition to economics, especially in the area of security and defence policy. There are signs that Norwegians are becoming aware of the anomalous position in which they have placed themselves, being obliged to take over rules that affect their lives and businesses very deeply (perhaps more than they had ever guessed), in the formulation of which they have no vote.
The enlargement processes are reinforcing this feeling as being off the agenda in vital European affairs. An extension of the Union to the South and East may contribute to a pressure that will build up for a new membership bid. This could play a part in the general elections that are due to being held in September 2001.
Flexible integration
Unlike most other EU-concepts, as the EU expands, flexible integration is a new approach and might be a political option for Norway. The concept was developed in 1995 by a multinational team of academics of the London-based Centre for Economic Policy Research. Flexible integration was introduced as a contribution to the discussion on deepening and widening of EU before the 1996 Intergovernmental Conference. It made “predefined flexibility” feasible (Deubner 2000:8). The dual structure principle made it possible to open up for an expansion and to let the countries in economic and political transition become members. By now, 12 countries are negotiating membership and many of them are likely to become part of the European Community in the years coming. This perspective of the future seems to be a European Community of member states in different integration speed.
The main characteristic of flexible integration is its dual structure. The approach consists of a common base, a set of policies that has to be accepted and agreed upon by every member state, and open partnerships, policies outside the common base, integration of which is optimal. In fact, already in the implementation process of the Maastricht Treaty this dual structure was in use by giving exceptions from the basic principles in certain policy areas to Denmark and Great Britain, although at that time called “case by case flexibility” (Deubner 2000:8). The No in the Danish referendum on membership in the Economic and Monetary Union in September 2000 confirm the duality.
For Norwegian EU policy this perspective opens up many challenges. One question is simply what the enlargement and the existence of a multispeed Europe will mean to the public opinion. Will the principle of flexible integration and the dual structure of EU make membership and supra-nationality more acceptable? If so, national control over vital oil and fishery resources should be secured. Another question is how the new economic structures and an extended market and Euro-zone influences Norwegian economy and business interests. A third dimension is how the enlargement coupled with a Baltic Sea co-operation influences Norwegian structural policies and developments. A fourth question is what impacts the enlargement and the new Common Foreign and Security Policy (CFSP) have on Norway as a central member state of NATO.
The Single Market and the EMU
Norway forms the EEA together with Iceland and Liechtenstein. Generally, the three countries participate fully in the Single market with free trade for goods, services, labour and capital, with the exception of agriculture and fishery. Thus, most EU Single market laws and regulations have become Norwegian policy as well. More than 3000 directives and regulations have passed the Norwegian parliament since 1994. The EEA agreement and intensified competition between Norwegian and EU firms contributes in harmonising Norwegian policies with EU countries in a number of areas.
With the enlargement of the Single market, competition will be further intensified for many industries. The most important sector for Norway in this respect, as it is for many EU countries, will be agriculture. Lower food prices outside Norway will put a pressure on food prices in Norway, as well as on farmers’ income. Together with the negotiations in the World Trade Organisation (WTO) to liberalise international markets for agricultural products, the enlargement of the EU and her agricultural reform (Agenda 2000), may force Norway to change her agricultural policy in the direction of EU agricultural policy. This is what she has to do in many other sectors, and is grossly, in this case, irrespective of the membership question.
Another important area is migration from the new countries towards the richer west. Free trade and labour markets tend to make wages converge over time. Migration and trade will lower relative wages in the west and rise them in the east. Even though everyone may benefit in the long run from integrating the east with the west, workers in the west may loose in the first phase, and some will loose permanently. The differences in income between business owners and employees in the west will be greater. As participant in the free labour market, Norway will meet this challenge in line with the EU countries.
Already, the establishment of a common European currency between the EU-12 has put tight limits to the freedom of the formulation of Norwegian macroeconomic policy. The expansion of the EMU area will further competition for Norwegian firms beyond the expansion and deepening of the Single market. Imported goods should be expected to be cheaper and more diversified, as Norwegian exports will experience lower prices and requirements to become more specialised. Norwegian firms will gain from reduced costs in currency trade and reduced uncertainty in exchange rate fluctuations. At the same time, Norwegian kroner may still fluctuate towards the Euro and the gains for Norwegian businesses will be less than the gain in EMU countries. Thus, the Euro zone and its expansion may lead to a detoriation of relative cost advantages for Norwegian firms.
An enlargement of the Euro-zone will underline that Norway is a small currency area, inter-inked in trade and finance with a very large one. This will lead to a pressure for even more harmonisation of Norway’s monetary policy in line with the European Central Bank (ECB). In it’s turn, this will reinforce the pressure for a greater degree of harmonisation of member countries, as well as Norway’s, fiscal policy.
Norway as a large energy exporter
The role of Norway as a major oil and gas exporter put a special requirement on Norwegian economic policy makers in these new and rapidly changing circumstances. Norway is one of the world largest oil exporters and the second largest gas exporter to the European market. Together with Russia, Norway is the dominant energy supplier in Europe. The size of Norwegian oil and gas exports makes Norway a strategic actor in markets vital for European energy supplies. At the same time as Norway has developed a petro-economy, the importing countries has become intensively dependent on safe energy supplies at “reasonable” prices.
The large and fluctuating petroleum revenues put Norway in a very special macroeconomic situation compared to the EU countries. The discoupling between petroleum revenues and the use of petroleum money through the establishment of the Norwegian petroleum fund is moving some of the wealth from the North Sea into international financial markets. This contributes in reducing the Norwegian economy’s vulnerability in relation to fluctuations in petroleum revenues, for example when oil prices changes as much as they have done over the last year. The fund tends to become very large, and is expected to pass the level of the entire Norwegian annual GDP within 3-4 years.
On the other hand, plans for how this money can be used in the long run to make the Norwegian economy more competitive is almost absent in Norwegian political debate. The traditional tension between fiscal discipline and the need for infrastructural developments and social expenses is reinforced by the intensified competition made by the establishment and expansion of the Single market and the EMU. In Norway, we have been more concerned over how we shall avoid the problems connected with the large revenues than how to derive the benefits.
The large petroleum revenues in a small economy give Norway special challenges in her relation to the development in the rest of Europe. To a large extent, Norwegian economy is counter-cyclical to the other European economies with respect to changes in petroleum prices. When oil prices goes up Norway gains while the others loose, and vice versa. Hence, it is argued that she needs a different monetary policy than the EU countries. As the freedom in the area of monetary policy is already reduced, the question arises whether or not Norway could be better off by introducing the Euro in order to keep interest rates down and abolish the problem of changing exchange rates due to fluctuations in the petroleum revenues. Introducing the Euro may also reduce the problem of using more of the oil and gas revenues for structural change of the industry without experienced overheating of the economy through high interested rates and exchange rate fluctuations. However, until now, the loss of the possibility of using de- and revaluation of the currency and changes in interest rates in order to control the economy has been viewed as much greater than these benefits.
The enlargement of the Union and deepening policies has specific energy policy implications for Norway, as well. Larger economic growth in the EU, in general, and in the new member states, in particular, will be followed by demand for more energy. This will be to the benefit to Norway as a petroleum exporter, especially in the field of natural gas. On the other hand, when the EU is covering a larger geographical area and a larger economy, she has better potential of developing policies for the energy markets that not necessarily is favourable for Norway as a petroleum exporter. This may especially come true in terms of energy taxation and how the gas market is being liberalised, and represents a potential for controversy between Norway and the EU.
Norway and the EU countries are interdependent in the field of energy, but may, within certain limits, have asymmetric interests concerning levels of energy prices. The EU wants to optimise the benefits for its member countries, while Norway wants to optimise the benefits for Norway. The better EU institutions and political instruments are developed, and the more representative EU becomes for European economic development, the greater the potential to formulate polices that could be to the loss of a major petroleum exporter.
Short and long-term interests must be assessed here. In the short and medium term, which for fossil energy may be 2-8 years, the EU would like Norway to increase oil and gases supplies, and suppress prices in order to meet the increased demand. However, the exhaustion of the non-renewable resources and lack of long term investments such a policy would lead to, could lower supplies in the long run and endanger security of energy supplies.
Security of energy supplies was at the top of the political agenda after the oil crises in the 1970s and 1980s. In the 1990s it has been almost absent. Over the last year the issue has got a renewed attention both by the EU and the International Energy Agency (IEA), after the oil prices in real terms have climbed back to the level of the 1970s (Austvik, 2000a). Thus, the importance of energy in overall economic and political developments gives EU an interest in influencing energy markets and demand as well as Norwegian petroleum decisions, beyond the economic dimension. Norway and the EU should have joint interests in maximising long run welfare as opposed to short run welfare. Nevertheless, the pressure that may come, either it is to increase production and /or through unfavourable market regulations, it will be crucial for Norway to influence energy related decisions in the EU, whether she formally becomes an EU member or not (Austvik, 2000b).
Structural and spatial policy
In contrast to the strong bonds, which link the Nordic countries together, these states have widely differing economic and geopolitical interests in the globalisation process. The result has been that the countries in resent decades have chosen different paths for international co-operation. Actually, European regional integration projects have the potential of becoming a new start for common Nordic policies, now inside an expanded Northern dimension. In particular, the spatial development policies and urban and regional co-operation according to the European Spatial Development Perspective (ESDP) concept is important in this respect (ESDP, 1999).
Norway has been informally involved in the ESDP construction process during the 1990s, and has shown great interest in modifying its regional and structural policy to meet the perspectives and principles, which have been set up. There are several reasons for this; ESDP is an all-European spatial planning program; ESDP is an initiative for territorial balanced competitiveness, which interests Norway through its membership of the EEA; ESDP has a focus on transnational co-operation in macro-regions, which involves Norway geographically.
Hence, the ESDP concept represents a new and interesting challenge for Norwegian structural policies, not least with respect to planning and formation of the progressive Baltic Sea Region. Actually, the enlargement of the EU with new Baltic states and regions in the community could make the option of another tight integrated European core region around the Baltic Sea to arise very likely. This could make traditional territorial models for regional development in Norway inadequate. Expected economic growth in the area give a strong inducement and impetus to a long range of Norwegian policies and structural adjustments, despite being a country on the fringe of the region.
According to ESDP, development policy decisions should be reached on the basis of a multilevel system of governance and the establishment of partnerships. This recommendation is forwarded because territorial political power and development are closely connected with a competitive and sustainable urban and regional economy (Porter, 1990, Veggeland, 2000). In the Baltic-Sea Region this means that cross-border co-operation should be based on strong sub-national units, politically as well as economically.
The effect has been that the small and weak Norwegian regional counties («fylker») have been set on the political agenda. One option has been to eliminate this administrative level and make Norway as such a region in Europe. The other (more serious) option is to reduce the number of regional units, like the ongoing structural reforms in Sweden concerning the meso-level, in order to create greater and stronger regional entities (NOU XX:2000, SOU 169:96). Such a reform may strengthen democracy and revitalise regional economies. It would also make Norwegian regions equal partners in cross-border co-operations. Already the 9 counties of Eastern-Norway, including the municipality of Oslo, have come together and established a regional partnership unit called Eastern-Norway co-operation (“Østlandssamarbeidet”).
The Eastern-Norway co-operation are among other projects, involved in city-to-city co-operation in order to realise the ESDP guideline on development of a balanced and polycentric urban system and a new urban-rural relationship, as part of the Baltic Sea Region development projects. This project involves the capital of Oslo but not the smaller city of the region. It indicates that the integration in the Baltic Sea Region is not without complications. One challenge is that the Norwegian regions on the periphery of this transnational region has an indisputably sparse population. An another aspect is that, where cities exist, scattered over huge territories, they are extremely small (less than 50.000 inhabitants). The ESDP does not take such factors into consideration. Rather, the ESDP chooses to equate these peripheral regions with those densely populated urban and rural areas to be found on the continent.
It might be assumed that the ESDP is dominated by Dutch, French and German planners and their perception of their own needs. At any rate, the Norwegian planning solution might be the development of a few greater regional urban centres as “gateway cities” (regional capitals). As political and economic motors these should be able to integrate smaller cities and rural towns into co-operative networks with access to effective infrastructures. By using new information and communication technology they should provide services and counterbalance the urban gravity that will follow the EU enlargement, seen in a Baltic Sea Region perspective.
Concerning transportation infrastructure, sea traffic and coastal cities are very important to Norway. On land, the Nordic Link represents one motorway connection from the continent to Norway, from Germany through Denmark, with a ferry connection over Skagerak to the coastal cities of southern Norway. This is connected to the West Link corridor, which gives access to the West Coast Norwegian cities. The Scandic Link represents the second motorway and railway connection from the capital city of Oslo along the West Coast of Sweden to Gothenbourg and Malmø, and then over the new Øresund bridge to Copenhagen and the Continent. The next large plan yet to be realised is the bridge over Fehmarn Belt to Germany. The Nordic triangle is a planning initiative to improve road and railway communication between the capitals Oslo, Stockholm and Copenhagen. In a Baltic Sea Region context, the triangle will be expanded to Helsinki, St. Petersbourg, the capital cities of the Baltic states (Via Baltica), back to Copenhagen via Poland and Germany. The planning and development of effective ferries over the Baltic Sea and Skagerak are both important according to the ESDP´s fourth guideline (Norvision 1999). It is also important to develop air and land-based lines of communication between the smaller cities in the Nordic area, in accordance with the principle “pearls and strings”.
The development of these connections will involve a different type of Norwegian spatial planning than today. Traditionally, the national capital Oslo has been the dominant gateway in Norway, upon which all the large traffic ways and lines of communication converge. The Baltic Sea Region concept has changed this structural perspective. The regionalisation of the nation-state means an increased density and convergence of communication in a new spatial pattern. The regional capital cities should become networking gateway cities and constitute the basic element in the development of a new urban-rural relationship.
This will represent an attempt to improve the spatial balance, the competitiveness of the regions and a way of relieving the pressure for growth on the national capitals. Thus, it is natural and fundamental that a change in the distribution of high functions in the networking urban system takes place. A broad bond based information and communication technology should be spatially developed which integrate all the cities, the regional enterprises and the knowledge centres in a networking Baltic Sea Region.
Foreign and Security Policy
The EU Common Foreign and Security Policy (CFSP) was established by the Maastricht Treaty and came into force on 1 November 1993. The provisions of the CFSP were revised by the 1997 Amsterdam Treaty. The revision of the Treaty should make it possible to improve the effectiveness and the profile of this policy. An important decision in this respect was the appointment, as provided for in the new Treaty, of a High Representative for the CFSP in June 1999. Furthermore, the Western European Union (WEU), with Norway among others as an associated member, should be integrated into the Union.
The architects of the Amsterdam Treaty assigned an important position to the Petersberg tasks, so named after the place where the WEU Ministerial Council that formulated them was held in 1992. These are humanitarian and rescue tasks, peacekeeping tasks and combat-force tasks in crisis management, including peacemaking. As a result of the Kosovo conflict, the Petersberg tasks were placed at the core of the process of strengthening the European common security and defence policy. And the declaration from the fifteen Heads of State or Government meeting on 3 and 4 June 1999 underlined the following: "The Union must have the capacity for autonomous action, backed up by credible military forces, the means to decide to use them, and a readiness to do so, in order to respond to international crises without prejudice to actions by NATO".
The aim of exercising political control and strategic guidance in the Petersberg operations conducted by the European Union is to do that with or without the resources and capacities of NATO. On the other hand the operations should claim participation of both members of the European Union and the European members of NATO like Norway. Consequently, Norway as a non-member of the EU would be responsible to the High Representative/the Council of Ministers according to the common European Security and Defence Policy but not part of the formation of this policy and the actual decision-making process in case of international crises.
Probably the European Security and Defence Policy foresee Norway as an associated member of the alliance. Even so most political observers describe the new situation as threatening, not so much because of loss of sovereignty due to the missing of a chair at the decision-making centre in Brussels, but of security reasons. The perspective of Norway is to become a “Randstaat” in a prospective European security network. “Randstaat” is a term well known from the 1920s and 1930s when the small countries in Europe with border to the greater power states and blocs of states of that time were characterised. The Baltic sovereign states of Estonia, Latvia and Lithuania were such border-states to Germany and USSR with bad security prospects. The European security and defence integration and the enlargement of EU make literally Norway a “Randstaat” in Europe in relation to the former superpower Russia (unstable but still powerful) and the coming superpower EU.
This perspective is strengthen further by the withdrawal of U military forces from Europe and especially from the Northern flank, as a result of the end of the cold war. Obviously Norway is on the edge to become a periphery of less interest in both the US and NATO’s global security and defence context. The CESDP dimension intends to construct new networks for balance, stability and security in Europe, but Norway do not know yet how to become a formal node in these networks because of her non-membership in the EU. At the same time, the huge energy exports, and the close links it creates between Norway and the EU, have wide security implications. Some of these can only be solved in co-operation with support from the purchasing countries, like Germany, France and Great Britain or the EU (Kibsgaard et.al. 2000).
In this context the EU Northern Dimension regional action programme, founded by the Finnish Presidency in 1999, might be promising to Norway. This scheme, like the Baltic Sea Co-operation, is sure to be an increasing part of the external relations of the European Union as enlargement brings in new members in the region. The basic aim is to promote security, political stability and sustainable development through enhanced cross-border co-operation between the countries in Northern Europe. At the same time, to avoid new dividing lines in Europe, EU is aware of the necessity to involve all external neighbours. Even if this is particularly important for relations with the Russian Federation, also Norway is inherent in the scheme as part of the strategic important Euro-Arctic Barents Region (area for huge natural oil and gas deposits, fisheries, hot spot for nuclear waste pollution etc). Therefore this message from the Commissioner Chris Patten on a Northern Dimension for the policies of the Union: “The Commission is convinced that the Northern Dimension can contribute to improved relations and mutual dependence between Russia, all countries of the Baltic Sea Region and the European Union” (Patten 1999).
Conclusions
At present, the EEA agreement gives the EU a lot of influence in Norway, while Norway has practically no influence in the EU. The enlargement connected with the deepening of EU policies will further the influence on Norway irrespective her formal relation to the EU. Due to the developments of the Baltic Sea Region and the Northern Dimension scheme, Norway is expected to become even more closely integrated in both a spatial and a functional perspective. The free movement of labour will lead to a pressure on wages, particularly when the EU includes the Baltic States. The lower prices on agricultural products (Agenda 2000) will pressure for lower food prices also in Norway as well as a large degree of harmonisation of Norwegian agricultural policies with those in the EU.
The energy sector makes Norway particularly different from the rest of Europe. The huge and fluctuating petroleum revenues force Norway to adopt different economic policies than her neighbours. At same time there may be conflicting interests between Norway and the EU as to the speed of exhaustion of the reserves, the organisation of European energy markets and energy taxation. Short and long term considerations may be contrasted as the concerns over security of energy supplies are on the way back on the political agenda, as well.
A common EU foreign and security policy, new commanding structures within NATO and the establishment of the CESDP dimension, may force Norway to rely on the EU to a greater degree than the US for her security. The large energy exports and the close links that is created between Norway and the EU, especially through the gas infrastructure, reinforce this challenge. The new security situation in Europe, as well for Norway and her energy, and the links between economics and politics in European developments, call for a more active Norwegian European policy and participation.
Politically, and in relation to a Norwegian membership, the inclusion
of most European countries in the Union may reduce the importance of the
argument and that it is the “rich men club” only. At the same time, being
in the periphery both in Europe as well as in an enlarged Nordic region,
and with a raw material based economy different from the EU economies,
Norway may need a flexible approach from the EU. A multi-speed Europe and
flexible integration of participating countries should make it easier for
Norway to find a more active relation to the EU than to rely only on the
EEA agreement. That should be more practical for the EU, as well.
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