The Hindu Business Line : The Eastern shift in Europe — India, China have much to gain from trade with new EU members

THE 25-member European Union (EU) is embarking on a bold economic and financial initiative to ensure that the countries of the Eastern and Central European region receive "special aid" to uplift living standards, combat poverty and, above all, lay the ground for a "more intimate and meaningful" integration. The EU will allocate 20 billion euro annually starting 2007. A major portion of this fund will go to Poland, the Czech Republic and Slovakia (the bright economic stars of Eastern European economies) and the rest to the most populous of the new EU members.

With Purchasing Power Parity (PPP) of $11.65 trillion in 2004, the current debate is whether the EU has not already surpassed the US PPP of $11.75 trillion, to emerge as the world's largest economy. It is argued that with the proposed expansion and investment in Eastern Europe, this may not be a Utopian concept.

The EU offers vast investment and trading opportunities to countries such as India and China, which are in the process of attracting an impressive percentage of European services and manufacture. Many Chinese firms are now "physically entering" the European market and though the number is modest (about 60), it is much better than India's effort. Only the Indian software firms are boldly venturing into this market by opening regional offices to service their growing clientele.

The Eastern and Central European regions are still rated "virgin territory" but the latest initiative from the EU to pump over 20 billion euro will have a significant impact.

Though doubts about Russia cloud the overall outlook, the south-east European region is fast shifting into the EU orbit. The sheer vastness of Russia — in terms of its "highly impressive" human, natural and industrial resources — has prompted many analysts to conclude that Russia may not become a part of the EU. However, Russia's proximity and vastness will go a long way in building the EU's special investment and financial relationship with Moscow. With PPE of $1.408 trillion in 2004 and staidly growing at five per cent per annum, Russia is an investment and economic force to reckon with, according to a Western observer.

The East European economies — minus Russia — are also growing at a steady pace and offer vast investment opportunities to West European manufacturing firms looking for "greener pastures". The East European financial, legal and even accounting systems are trying to conform to EU standards. According to analysts, a major transformation in this sector could be in offing within a decade.

The East Europeans, including the Russians, are learning English and their new found proficiency — albeit with an American accent — has prompted thousands to seek employment in the EU countries. There is much Xenophobic propaganda against new immigrants. But this is a "passing phase" that is based on ignorance and prejudice against the "foreigners". However, the economic reality is that the new immigrants have boosted performance in major EU economies — Germany, France, the UK, Italy and Benelux. Observers in major European capitals believe that India should concentrate on consolidating India's bilateral trade and investment relations with individual EU members. The Brussels bureaucracy of some 17,000 civil servants is of little consequence, as key European economic powers lay special emphasis on their bilateral relations with non-EU countries.

Today, with 20 billion euro plus, two-way trade with the EU, India's trading and investment profile is rated as "modest" compared to China whose bilateral trade stands at 60 billion euro and rising at an impressive pace of below 10 per cent per annum.

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