Before the EU expanded to 10 more countries in May of 2004, a big obstacle to negotiations for enlargement was foreign labor. Nobody in the West wanted the new Eastern kids on the block raiding their countries and taking away jobs from the locals. This hurdle was so great that the only way to not have the parties walk away from the table was to compromise and give the veterans 7 full years to transition to an open-door policy.

But, surprisingly, despite all the fuss over not letting foreign labor in until the last possible moment, it looks like the Westerners are starting to jump the gun. This week, three EU nations, Spain, Portugal and Finland, reduced restrictions on foreign labor – early by 5 years. Was this a gesture of fraternization for the new members of the European club? Or could it be that the Westerners are anticipating to one day need a cup of sugar from their new neighbors?

Considering one of the most pressing issues on the minds of countries like Spain and Portugal is low economic growth, the solution provided by the new low-cost labor immigrating from the East looks quite attractive. By inviting cheaper wages into the mix, local companies might be able to become more productive and beat out international competition, spurring a much-needed boost. GDP might rise, as would tax revenues.

Others still view the scenario as being the same as when EU enlargement negotiations began. Countries like Germany, where unemployment hit 12.6% this month (the highest level since the 1930s), look at low-cost labor as direct competition for their citizens. The few remaining available jobs might be filled by those who are sending their checks back home to their families in Eastern Europe, leaving natives idle to collect unemployment benefits. In fact, France has been so scared off by openness that conservatives have broadcast a threatening image of the Polish Plumber, an icon for jobs lost to foreigners.

Still, beyond the short-term fears of piling on competition to the already numerous difficulties for the unemployed French, openness might be a good long-term solution. Economics tells you that allowing resources to move freely leads to optimal allocation (i.e., people work where they add most value, companies are more productive, goods and services are produced for lower prices, people can buy more goods, companies can expand, more people are hired, etc. etc.)

And beyond the national economic benefits, the supra-national benefit of furthering integration among EU nations is achieved. As a block, the EU becomes more productive and more powerful in the global market. Progress on the labor front could provide a great success after the constitution and security policy failures of months past.

Spain, Portugal and Finland are doing the right thing for the long term. Let’s just hope that they can convince the rest of their buddies on the West to get over their fears and follow along.

Posted by Michelle Smith on March 14, 2006 09:45 PM