North and South, East and West: Is It Possible to Bridge the Gap?

With almost every round of enlargement, the EU has taken on board new members that are economically less developed than the founders. On Europe’s Western periphery, Ireland and the Southern European countries joined in the 1970s and 1980s, and since the end of the Cold War, successive rounds of Eastern enlargement have resulted in the membership of 11 post-socialist countries and two Mediterranean islands. How has the EU managed economic diversity, which instruments has it developed to allow catch-up growth, and how successful have they been? The chapter argues that although the EU has developed a number of instruments and policies to bridge the economic gap between the North, East, and South; since the early 1990s, mostly private capital flows have facilitated economic growth in the periphery. The fast inflow of private capital has however lead to banking and sovereign debt crises in a number of Southern and East European countries. The institutional and policy solution that the EU has created to solve the crises have pushed the cost of adaptation largely to the indebted peripheries, making their developmental prospects look uncertain. The chapter will hone in on two cases, Ireland and Latvia, to analyse the pros and cons of the EU’s crisis management strategy in its peripheries. Both countries are considered success stories, having recovered from the crisis while complying with the conditions of the EU’s crisis management.