What Borders Mean to Europe (Stratfor; 2015/06/23)

By George Friedman

Europe today is a continent of borders. The second-smallest continent in the world has more than 50 distinct, sovereign nation-states. Many of these are part of the European Union. At the core of the EU project is an effort to reduce the power and significance of these borders without actually abolishing them — in theory, an achievable goal. But history is not kind to theoretical solutions.

Today, Europe faces three converging crises that are ultimately about national borders, what they mean and who controls them. These crises appear distinct: Immigration from the Islamic world, the Greek economic predicament, and the conflict in Ukraine would seem to have little to do with each other. But in fact they all derive, in different ways, from the question of what borders mean.

Europe's borders have been the foundation of both its political morality and its historical catastrophes. The European Enlightenment argued against multinational monarchies and for sovereign nation-states, which were understood to be the territories in which nations existed. Nations came to be defined as groupings of humans who shared a common history, language, set of values and religion — in short, a common culture into which they were born. These groups had the right of national self-determination, the authority to determine their style of government and the people who governed. Above all, these nations lived in a place, and that place had clear boundaries.

The right of national self-determination has created many distinct nations in Europe. And, as nations do, they sometimes distrust and fear one other, which occasionally leads to wars. They also have memories of betrayals and victimizations that stretch back for centuries before the nations became states. Some viewed the borders as unjust, because they placed their compatriots under foreign rule, or as insufficient to national need. The right of self-determination led inevitably to borders, and the question of borders inevitably led to disputes among states. Between 1914 and 1945, Europeans waged a series of wars about national boundaries and about who has the right to live where. This led to one of the greatest slaughters of human history.

The memory of that carnage led to the creation of the European Union. Its founding principle was that this kind of massacre should never happen again. But the union lacked the power to abolish the nation-state — it was too fundamental to the Europeans' sense of identity. And if the nation-state survived, so did the idea of place and borders.

If the nation-state could not be abolished, however, then at least the borders could lose their significance. Thus two principles emerged after World War II: The first, predating the European Union, was that the existing borders of Europe could not be changed. The hope was that by freezing Europe's borders, Europe could abolish war. The second principle, which came with the mature European Union, was that the bloc's internal borders both existed and did not exist. Borders were to define the boundaries of nation-states and preserved the doctrine of national self-determination, but they were not to exist insofar as the movement of goods, of labor and of capital were concerned. This was not absolute — some states were limited in some of these areas — but it was a general principle and goal. This principle is now under attack in three different ways.

The Movement of Muslims in Europe

The chaos in the Middle East has generated a flow of refugees toward Europe. This is adding to the problem that European nations have had with prior Muslim migrations that were encouraged by Europeans. As Europe recovered from World War II, it needed additional labor at low cost. Like other advanced industrial countries have done, a number of European states sought migrants, many from the Islamic world, to fill that need. At first, the Europeans thought of the migrants as temporary residents. Over time, the Europeans conceded citizenship but created a doctrine of multiculturalism, which appeared to be a gesture of tolerance and was implicitly by mutual consent, given that some Muslims resisted assimilation. But this doctrine essentially served to exclude Muslims from full participation in the host culture even as they gained legal citizenship. But as I have said, the European idea of the nation was challenged by the notion of integrating different cultures into European societies.

Partly because of a failure to fully integrate migrants and partly because of terrorist attacks, a growing portion of European society began perceiving the Muslims already in Europe as threatening. Some countries had already discussed resurrecting internal European borders to prevent the movement not only of Muslims, but also of other Europeans seeking jobs in difficult economic times. The recent wave of refugees has raised the matter to a new level.

The refugee crisis has forced the Europeans to face a core issue. The humanitarian principles of the European Union demand that refugees be given sanctuary. And yet, another wave of refugees into Europe has threatened to exacerbate existing social and cultural imbalances in some countries; some anticipate the arrival of more Muslims with dread. Moreover, once migrants are allowed to enter Europe by any one country, the rest of the nations are incapable of preventing the refugees' movement.

Who controls Europe's external borders? Does Spain decide who enters Spain, or does the European Union decide? Whoever decides, does the idea of the free movement of labor include the principle of the free movement of refugees? If so, then EU countries have lost the ability to determine who may enter their societies and who may be excluded. For Europe, given its definition of the nation, this question is not an odd, legal one. It goes to the very heart of what a nation is, and whether the nation-state, under the principle of the right of national self-determination, is empowered to both make that decision and enforce it.

This question does not merely concern Muslims. In the 19th and 20th centuries, the Ostjuden — the Jews coming into Western Europe as they fled czarist edicts — raised the same challenge, even though they sought more vigorously to assimilate. But at that point, the notion of borders was unambiguous even if the specific decision on how to integrate the Jews was unclear. In many countries, the status of minorities from neighboring nations was a nagging question, but there were tools for handling it. The Muslim issue is unique in Europe only to the extent that the European Union has made it unique. The bloc has tried to preserve borders while sapping them of significance, and now there is an upsurge of opposition not only to Muslim immigration, but also to the European Union's understanding of borders and free movement.

The Greek Crisis

The question of borders is also at the heart of the Greek crisis. We see two issues: one small, the other vast. The small one involves capital controls. The European Union is committed to a single European financial market within which capital flows freely. Greeks, fearing the outcome of the current crisis, have been moving large amounts of money out of Greece into foreign banks. They remember what happened during the Cyprus crisis, when the government, capitulating to German demands in particular, froze and seized money deposited in Cypriot banks. Under EU rules, the transfer of deposits in one country of the bloc, or even outside the bloc, is generally considered legitimate. However, in the case of Cyprus, the free movement of capital across borders was halted. The same could conceivably happen in Greece.

In any event, which is the prior principle: the free movement of capital or the European Union's overarching authority to control that flow? Are Greek citizens personally liable for their government's debt — not merely through austerity policies, but also through controls imposed by the Greek government under European pressure to inhibit the movement of their money? If the answer is the latter, then borders on capital can be created temporarily.

The larger issue is the movement of goods. A significant dimension of this crisis involves free trade. Germany exports more than 50 percent of its gross domestic product. Its prosperity depends on these exports. I have argued that the inability to control the flow of German goods into Southern Europe drove the region into economic decline. Germany's ability to control the flow of American goods into the country in the 1950s helped drive its economic recovery. The European Union permits limits on the movement of some products, particularly agricultural ones, through subsidies and quotas. In theory, free trade is beneficial to all. In practice, one country's short-term gain can vastly outweigh others' long-term gains. The ability to control the flow of goods is a tool that might slow growth but decrease pain.

The essential principle of the European Union is that of free trade, in the sense that the border cannot become a checkpoint to determine what goods may or may not enter a country and under what tariff rule. The theory is superb, save for its failure to address the synchronization of benefits. And it means that the right to self-determination no longer includes the right to control borders.

Ukraine and the 'Inviolability' of Borders

Finally, there is the Ukraine issue — which is not really about Ukraine, but about a prior principle of Europe: Borders cannot be allowed to change. The core of this rule is that altering borders leads to instability. This rule governed between 1945 and 1992. Then, the fall of the Soviet Union transformed the internal borders of Europe dramatically, moving the Russian border eastward and northward. The Soviet collapse also created eight newly free nations that were Soviet satellites in Central and Eastern Europe and 15 new independent states — including Russia — from the constituent parts of the Soviet Union. It could be argued that the fall of the Soviet Union did not change the rule on borders, but that claim would be far-fetched. Everything changed. Then came the "velvet divorce" of Slovakia and the Czech Republic, and now there are potential divorces in the United Kingdom, Spain and Belgium.

Perhaps most importantly, the rule broke down in Yugoslavia, where a single entity split into numerous independent nations, and, among other consequences, a war over borders ensued. The conflict concluded with the separation of Kosovo from Serbia and its elevation to the status of an independent nation. Russia has used this last border change to justify redrawing the borders of Georgia and as a precedent supporting its current demand for the autonomy and control of eastern Ukraine. Similarly, the border between Azerbaijan and Armenia shifted dramatically as the result of war. (On a related note, Cyprus, divided between a Turkish-run north and a Greek-run south, was allowed into the European Union in 2004 with its deep border dispute still unsettled.)

Since the end of the Cold War, the principle of the inviolability of borders has been violated repeatedly — through the creation of new borders, through the creation of newly freed nation-states, through peaceful divisions and through violent war. The principle of stable borders held for the most part until 1991 before undergoing a series of radical shifts that sometimes settled the issue and sometimes left it unresolved. The Europeans welcomed most of these border adjustments, and in one case — Kosovo — Europeans themselves engineered the change.

It is in this context that the Ukrainian war must be considered. Europe's contention, supported by America, is that Russia is attempting to change inviolable borders. There are many good arguments to be made against the Russians in Ukraine, which I have laid out in the past. However, the idea that the Russians are doing something unprecedented in trying to redraw Ukraine's borders is difficult to support. Europe's borders have been in flux for some time. That is indeed a matter of concern; historically, unsettled borders in Europe are precursors to war, as we have seen in Yugoslavia, the Caucasus and now Ukraine. But it is difficult to argue that this particular action by Russia is in itself a dramatically unprecedented event in Europe. The principle of national self-determination depends on a clear understanding of a nation and the unchallenged agreement on its boundaries. The Europeans themselves have in multiple ways established the precedent that borders are not unchallengeable.

There are two principles competing. The first is the European Union's desire that borders be utterly permeable without the nation-state losing its right to self-determination. It is difficult to see how a lack of control over borders is compatible with national self-determination. The other principle is that existing borders not be challenged. On the one hand, the union wants to diminish the importance of borders. On the other hand, it wants to make them incontestable.

Neither principle is succeeding. Within Europe, more forces are emerging that want to return control over borders to nation-states. In different ways, the Muslim immigrant crisis and the Greek crisis intersect at the question of who controls the borders. Meanwhile, the inviolability of borders has been a dead letter since the fall of the Soviet Union.

The idea of borders being archaic is meaningful only if the nation-state is archaic. There is no evidence that this is true in Europe. On the contrary, all of the pressures we see culturally and economically point to not only the persistence of the idea of nationality, but also to its dramatic increase in Europe. At the same time, there is no evidence that the challenge to borders is abating. In fact, during the past quarter of a century, the number of shifts and changes, freely or under pressure, has only increased. And each challenge of a national border, such as the one occurring in Ukraine, is a challenge to a nation's reality and sense of self.

The European Union has promised peace and prosperity. The prosperity is beyond tattered now. And peace has been intermittently disrupted — not in the European Union, but around it — since the Maastricht Treaty was signed in 1992 to create a common economic and monetary union. All of this is linked to the question of what a border represents and how seriously we take it. A border means that this is my country and not yours. This idea has been a source of anguish in Europe and elsewhere. Nevertheless, it is a reality embedded in the human condition. Borders matter, and they matter in many different ways. The European crisis, taken as a whole, is rooted in borders. Attempting to abolish them is attractive in theory. But theory faces reality across its own border.

Poland: From Tragedy to Triumph (Foreign Affairs; January/February 2014)

By Mitchell A. Orenstein

 

Anyone who knows Polish history cannot help but marvel at the country’s emergence from the ashes of its traumatic past. Over the last 25 years, Poland, after centuries of war and subjugation, has enjoyed peace, a stable and booming economy, and integration with the rest of Europe.

 

An independent kingdom for the previous 800 years, in 1795, Poland was wiped off the map of Europe and absorbed into three great neighboring powers -- the Prussian, Russian, and Austro-Hungarian empires -- a state of affairs that lasted until 1918. Reborn following World War I, Poland spent a few short years as a democracy before proving ungovernable, succumbing to dictatorship, and then once again being conquered and divided, this time by Nazi Germany and the Soviet Union, in 1939. Over the next six years, Poland found itself at the center of what the historian Timothy Snyder has called the “bloodlands” of Europe; an estimated five million Poles died between 1939 and 1945, more than half of them Polish Jews. The Nazis and the Soviets also wiped out the cream of the crop of Poland’s intelligentsia and clergy. Warsaw was reduced to rubble, and mass graves were sown across the landscape. Then came four gray and sooty decades of communist domination. Only the Catholic Church offered Poles any hope.

 

Since communism collapsed in 1989, however, Poland has experienced a remarkable reversal of fortune. After leading the protest movement that toppled the old regime, the trade union Solidarity won democratic elections and initiated aggressive, market-oriented economic reforms. The communist Polish United Workers’ Party turned into the capitalist Democratic Left Alliance, which won elections in 1993 and 1995 and led the country into NATO in 1999. And in 2004, Poland joined the European Union as a full member, cementing its close alliance with Germany, its erstwhile antagonist.

 

The Polish economy, meanwhile, has grown rapidly for two decades -- at more than four percent per year, the fastest speed in Europe -- and garnered massive investment in its companies and infrastructure. Poland’s is now the sixth-largest economy in the EU. Living standards more than doubled between 1989 and 2012, reaching 62 percent of the level of the prosperous countries at the core of Europe. All of this led the World Bank economist Marcin Piatkowski to conclude in a recent report that Poland “has just had probably the best 20 years in more than one thousand years of its history.”

 

How did Poland manage so decisively to move beyond the repeated tragedies of its past? The question is rarely asked by market analysts, whose sense of Poland seems to go no further back than the economic reforms of the 1990s. Those reforms are indeed part of the story -- but only part it, and focusing exclusively on them obscures the deeper causes of the country’s resurgence. Explaining Poland’s economic boom -- and why it is likely to last -- requires a deeper look into its troubled history.

 

WESTWARD HO!

 

For centuries, Poland’s tragedy was one of geography. Situated on the flat, open plains of northern Europe, with no natural boundaries separating it from Germany to the west and Russia to the east, Poland was often torn between the two. From 1569 to 1795, Poland had an eastward-looking empire of its own: the Polish-Lithuanian Commonwealth, which included large parts of present-day Belarus, Estonia, Latvia, Lithuania, and Ukraine. Today, however, Poland has decidedly joined the West -- so much so that Poles hate when their country is considered a part of eastern Europe, insisting that they live in central Europe. Although some attribute this shift to the warm embrace of the EU, the real author of Poland’s Western transformation was none other than Joseph Stalin.

 

Stalin’s unwitting contribution stemmed from the way the Soviet leader forcibly reshaped the country’s borders after World War II. His top priority was to expand the Soviet Union, and so he kept all the parts of eastern Poland that he had annexed in 1939 and compensated the country with a large chunk of the eastern German territories of Silesia, Pomerania, and East Prussia. Apart from increasing the size of his own empire, Stalin was focused on punishing the Germans, and indeed, millions of them were expelled from their homes in the new Polish territories. Millions of Poles were then driven from the annexed east into the newly emptied west.

 

Today, Moscow’s decision to push Poland to the west must seem a massive strategic error. That’s because its long-term effect was to move Poland solidly into the orbit of Germany. Indeed, today’s Poland, to a large extent, is Germany, inhabited by Poles. Since Germany accepted this situation by signing a peace treaty with Poland in 1990, it has sought to draw Poland closer. And Warsaw has proved a willing partner.

 

Part of what makes Poland such a good place to invest today is the depth of the bond it has forged with Europe’s leading economy. The relationship benefits both countries. A large part of the German export machine is now based in Poland. Poland gets German investment and markets for its goods, and Germany profits from the opportunity to use Poland as a low-cost, high-quality production platform to compete with East Asia. Indeed, some German industries are able to produce goods in Poland for less than what they would cost to make in China. And Poland offers Germany a friendly business climate, plenty of skilled labor, and, above all, proximity.

 

Germany owes much of the success of its automobile industry to its eastern neighbor. At its factory in Poznan, Volks­wagen employs 6,900 workers who produce intake-pipe modules, cylinder heads, and steering-gear housings, as well as 155,000 commercial vehicles each year. The MAN Group employs 4,000 workers in Poland who build heavy trucks, city buses, and bus chassis at three different factories. Cars and automotive components are now Poland’s leading export, despite the fact that the country has no internationally known brand; a large share end up as German marques. The same holds true for industries as diverse as household appliances and clothing; the German fashion house Hugo Boss, for example, produces its shoes at a factory in the Polish city of Radom.

 

Because Poland is now a key part of the German supply chain, it has become a great exporting economy -- exports now make up 46 percent of its GDP. A recent Morgan Stanley report estimated that 30 to 40 percent of Poland’s exports to Germany now end up as German exports to the rest of the world. This interdependence explains why Germany is by far Poland’s largest trade partner, buying or selling 25 percent of Poland’s exports and imports, which total about 12 percent of the overall Polish economy.

 

None of this could have happened if the German-Polish relationship were not embedded in the broader EU. Since Poland joined in 2004, the EU has done wonders for it and the rest of eastern Europe, ensuring democratic freedoms and administrative reforms and helping the region liberalize its markets. In the last decade, the EU has invested nearly 40 billion euros in Polish infrastructure, building the autobahns that Poland never had; replacing its outmoded, overcrowded, and often deadly two-lane highways; renovating its decrepit train stations and train lines; cleaning up its rivers; and setting up broadband infrastructure. In the process, Poland has become Europe’s biggest construction site. Between 2000 and 2013, the aggregate length of Polish highway and express roads grew fivefold, dramatically reducing the cost and the time it takes to transport goods to the west. And the benefits should keep coming: between 2014 and 2020, the EU is expected to pump 106 billion more euros into the country. That infusion of cash will equal nearly two percent of Poland’s annual GDP, a level of funding similar to what Washington provided to Europe under the Marshall Plan.

 

MANAGING POLAND’S RISE

 

Because of the centrality of foreign investment to Poland’s economy (most of its major banks and enterprises are foreign-owned), its reliance on foreign trade, and the fact that so many Poles work outside the country, political economists often characterize Poland as a “dependent market economy.” This dependence creates a fundamental dilemma: to attract foreign business and maintain its competitiveness, Poland must keep down its wages, which today stand at about one-third of those in the more developed countries of the EU. But Polish workers live adjacent to the rest of Europe, traveling and working there in great numbers, and thus aspire to a higher standard of living. This fact will make it difficult for Poland to maintain the advantages that come with cheap labor.

 

Poland should be especially worried about this dilemma given the presence of other low-wage countries in its neighborhood that could serve as manufacturing bases. In 2009, when the computer manufacturer Dell moved its main European factory from Limerick, Ireland, to Lodz, Poland, the mayor of Limerick predicted, with deep schadenfreude, that “Dell will probably head for Ukraine in six to eight years’ time.” One could say the same about the many call centers that have become mainstays of Polish employment.

 

To overcome this challenge, Poland must rise up the value-added ladder and begin producing more high-tech and knowledge-intensive exports. At the moment, Poland does not invest much in research and development relative to its more developed neighbors -- only 0.7 percent of GDP, compared with about 2.0 percent in the EU as a whole. But there is reason to believe that Poland can change course. The country’s greatest asset is its mass education system. One of the very few benefits of communist rule was that it left Poland with one of the highest literacy rates in the world. And since 1989, Poles have continued to invest heavily in their education, learning English, building new private universities, and participating in the Erasmus student-exchange program among European universities. Poland now has the second-highest rate of college enrollment in the Organ­ization for Economic Cooperation and Development. Meanwhile, as small, innovative Polish technology companies boom, the path to a high-tech future is presenting itself.

 

Yet the greatest long-term risk to Poland is that its consumption and wages will rise too fast, crowding out domestic investment and deterring foreign business. In managing their country’s rise, Polish politicians must walk a fine line between satisfying voters’ concerns and maintaining the country’s cheap labor costs.

 

This dilemma of dependence also explains why Poland is unlikely to join the eurozone, at least not anytime soon. Although the Polish government and Polish elites initially clamored to adopt the common currency, the financial and sovereign debt crises changed their minds. Part of the reason Poland weathered the 2008 global financial crisis well was that it was able to devalue the zloty, which helped Warsaw maintain its exports and keep jobs in the country. And when the sovereign debt crisis hit in 2009, Poland relied on devaluation and government stimulus to avoid a recession, making it the only European country to do so. Warsaw knows that keeping its own currency means that investors will pay transaction costs, but it will also help the country keep wages down. So don’t expect to see euro notes on the streets of Krakow or Gdansk until Poland’s and the eurozone’s living standards get much closer to each other.

 

WHY POLAND?

 

A final challenge facing Poland, and one potential investors should take note of, is the extent to which it, like other countries in its neighborhood, has struggled to build an effective bureaucracy. Poland still ranks only 41st and 55th, respectively, on Transparency International’s Corruption Perception Index and the World Bank’s Ease of Doing Business Index -- below all western European countries with the exception of Italy. Although there is little political risk to doing business in Poland -- especially compared with doing business in Russia -- it takes months to establish a company there, with as many as 33 separate stamps needed from different agencies. Some businesses complain that Warsaw favors partially-state-owned enterprises, using regulation as a tool to pick winners, or that the government has not worked aggressively enough to remove administrative barriers to growth. Even though opportunities for investment abound, the government is unlikely to help.

 

Although some other central and eastern European countries offer similar opportunities, Poland is still an attractive choice relative to its neighbors. Its population of 38 million -- approximately four times the population of the Czech Republic or Hungary -- means that it has a large domestic market. Whereas the Czech Republic and Hungary have richer and more open economies, Poland has much lower labor costs and has grown more rapidly. At the same time, its governance structures are more rule-bound than those of its low-wage competitors, such as Bulgaria, Romania, or others outside the EU. All these countries need to continue to move into more technologically sophisticated industries over time, in order to enable their citizens to increase their living standards.

 

In some ways, Poland is the template for the Europe that German Chancellor Angela Merkel hopes to create. It has carved out a profitable niche in the German production machine, and it can thrive with an export-oriented economy based on a strong currency and dampened domestic demand. This German model has provoked the ire of southern Europe, but for Poland, it works.

 

Warsaw is sometimes called “the phoenix city” because of the way it rose, like the mythical bird, from the ashes of World War II. Today, many ordinary Poles and investors are wondering just how high the phoenix can fly. Economic projections suggest that Poland’s economy will grow by about 2.5 percent per year through 2030, becoming one of the top 20 economies in the world before eventually succumbing to demographic decline. If the country can create a more hospitable business environment, build a knowledge-based economy, and encourage immigration and higher birthrates, it may keep growing even faster. After all, the Poles have a knack for beating expectations.