I. Assessment on the Basis of the Accession Criteria

At the request of the Council, the Commission has prepared opinions on each application for membership. Its assessment draws on numerous sources of information, taking as a starting point the replies to questionnaires sent to each of the applicant countries in April 1996. Bilateral meetings were held with each of the applicant countries, which were given an opportunity to provide any further information concerning their preparations for accession by the end of May 1997.

The Commission also took into account assessments made by the Member States, particularly with respect to the political criteria for membership established by the Copenhagen European Council. The European Parliament’s reports and resolutions, and the work of various international organisations, non-governmental organisations and other bodies were also used by the Commission.

The Commission also considered the progress made under the bilateral agreements which are the main element in the Union’s relations with the applicant countries. Europe (Association) Agreements, which cover economic cooperation, trade and political dialogue have entered into force with six of the applicant countries. For Estonia, Latvia and Lithuania, the agreements need to be ratified by all Member States before they come into force. In the case of Slovenia, the Slovenian Parliament still has to ratify the agreement.

The Commission’s task was unprecedented because the Copenhagen criteria are broad in political and economic terms and go beyond the acquis communautaire (for example, assessing administrative and judicial capacity), and because the acquis itself has expanded considerably since previous enlargements. The acquis of the Union now includes the common foreign and security policy and justice and home affairs, as well as the objectives and the progressive realisation of political, economic and monetary union.

The Commission not only gives a picture of the situation in 1997 and of the applicants’ progress in recent years. It has also made an analysis of expected progress over the medium term, as far as the economic criteria and the countries’ ability to implement the acquis are concerned. In making this forward assessment, the Commission has taken into account trends in policies and programmes for progressively implementing the acquis under way in the applicant country. The Commission has also anticipated the future development of the Union’s policies, particularly in certain fields such as the environment, the Single Market and the information society where the acquis is evolving rapidly.

With regard to the political criteria for membership, the Commission considers that an assessment could be conducted only on the basis of elements of the present situation which it has been able to verify and confirm. The effective functioning of democracy is a primordial question in assessing the application of a country for membership of the Union. The Amsterdam Treaty has enshrined in Article F a constitutional principle that "The Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law". Accordingly the Intergovernmental Conference has decided to modify Article O to make the respect of Article F an explicit condition for membership.

The Commission considers therefore that the respect of the political conditions defined by the European Council in Copenhagen by an applicant country is a necessary, but not a sufficient, condition for opening accession negotiations.

1. Political criteria

The Copenhagen European Council indicated that "membership requires that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights, and respect for and protection of minorities".

In order to evaluate the extent to which applicants meet this condition for membership, the Commission, in each opinion, went beyond a formal description of political institutions, and the relations among them, to assess how democracy actually works in practice, in terms of a series of detailed criteria. It examined how various rights and freedoms, such as the freedom of expression, are exercised, through, for example, the role of political parties, non-governmental organisations and the media.

• Democracy and the rule of law

Countries wishing to become members of the Union are expected not just to subscribe to the principles of democracy and the rule of law but actually to put them into practice in daily life.

On the whole, the applicant countries’ constitutions guarantee democratic freedoms, including political pluralism, the freedom of expression and the freedom of religion. They have set up democratic institutions and independent judicial and constitutional authorities, which permit different state authorities to function normally, have held free and fair elections, permitting the alternation of different political parties in power and, in general, recognise the role of the opposition.

Some of the applicant countries - beyond the normal cycle of elections - do not have stability of institutions enabling the public authorities to function properly and democracy to be consolidated. All the applicant countries have flaws in the rule of law which they need to put right. There is a lack of suitably qualified judges and guarantees of their independence. Police forces are poorly paid and require better training and discipline. The autonomy of local government also requires a firmer legal basis in several cases.

Romania did not experience a genuine change of government until the June 1997 elections. The political system has long been characterized by the persistence of practices inherited from the communist system, with too much government interference in the media and the judicial system. The changes that have taken place in the wake of the election of a new president and a new government majority have altered the situation of the country considerably: it has thus improved the functioning and stability of its institutions. The reform of the secret police services and the judicial system has been completed very quickly.

The changes that have taken place this year in Bulgaria and the reforms announced by the government should also enable it to achieve decisive progress in terms of democracy and the rule of law and the stability of its institutions.

In Slovakia there is still a gap between the letter of constitutional texts and political practice. The Commission is concerned that the rule of law and democracy are not yet sufficiently deeply rooted. This would require a greater openness to opposing views, the proper functioning of state institutions and the respect for their individual roles in the constitutional order. A democracy cannot be considered stable if the respective rights and obligations of institutions such as the presidency, the constitutional court or the central referendum commission can be put into question by the government itself and if the legitimate role of the opposition in parliamentary committees is not accepted.

The failure of the May 1997 referendum on NATO membership and on the direct election of the president, unsuccessful attempts by the government to reform the penal code, with a view to limiting the freedom of expression, the efforts to block an enquiry into the activities of the secret services and various forms of pressure exerted by the government on officials and cultural bodies, are symptomatic of the instability of the country’s institutions.

• Human rights

Respect for fundamental rights is in principle guaranteed in most of the applicant countries. All have acceded to the Council of Europe’s Convention for the Protection of Human Rights and Fundamental Freedoms and the Protocol allowing citizens to take cases to the European Court of Human Rights.

Romania inherited from the Communist regime a system which placed many children in state institutions in conditions which violate conventions on children’s rights. This concerns more than a hundred thousand orphans. However, the former legislative provisions dating from 1972 have been abrogated and the basis for reforms, founded on direct support to families, established.

Freedom of expression and of association is assured in all applicant countries but the independence of radio and television needs to be strengthened in some cases.

• Respect for minorities

Many of the applicant countries have minority populations, whose satisfactory integration into society is a condition for democratic stability. Minorities account for 44% of the population in Latvia (where 34% are Russian), 38% in Estonia (30% Russian), 20% in Lithuania (9% Russian, 7% Polish), 18% in Slovakia (11% Hungarian, 5% Roma), 14% in Bulgaria (9% Turks, 5% Roma) and 13% in Romania (8% Hungarian, 4% Roma).

A number of texts governing the protection of national minorities have been adopted by the Council of Europe, in particular the Framework Convention for the Protection of National Minorities and recommendation 1201 adopted by the Parliamentary Assembly of the Council of Europe in 1993. The latter, though not binding, recommends that collective rights be recognised, while the Framework Convention safeguards the individual rights of persons belonging to minority groups. Bulgaria has not yet signed the Framework Convention; the Czech Republic, Latvia, Lithuania, Poland and Slovenia are among the countries that have not yet ratified it.

In Romania, the Hungarian minority is represented in Parliament by 25 deputies and 11 senators and in the government by 2 ministers. It is also represented in local authorities and benefits from the right to education in Hungarian in primary and secondary schools and from the right to use Hungarian in contacts with the administration and the judiciary.

In Slovakia, however, where such rights are in principle recognised, the Hungarian minority faces a number of problems in exercising its rights. Following the adoption of the law on the national language and in the absence of a law on the use of minority languages, the exercise of several of the Hungarian minority’s rights have been put into question. Certain recent developments with regard to cuts in cultural subsidies and changes in administrative sub-divisions of the country give cause for concern.

Non-citizens constitute 28% of the population in Latvia and 25% in Estonia. There is no evidence that these minorities are subject to discrimination except for problems of access to certain professions in Latvia. But the rate of naturalisation of non-citizens has been slow in both countries and it should be accelerated to ensure the integration of non-citizen minorities into society.

Except for the situation of the Roma minority in a number of applicants, which gives cause for concern, the integration of minorities in their societies is, in general, satisfactory.

Minority problems, if unresolved, could affect democratic stability or lead to disputes with neighbouring countries. It is therefore in the interest of the Union and of the applicant countries that satisfactory progress in integrating minority populations be achieved before the accession process is completed, using all opportunities offered in this context.

• Conclusion

Even though progress has still to be made in a number of applicant countries as regards actually practising democracy and protecting minorities, only one applicant State - Slovakia - does not satisfy the political conditions laid down by the European Council in Copenhagen.

2. Economic criteria

The Copenhagen European Council indicated that, in the economic area, membership requires "the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union".

The applicant countries have made considerable progress in the transition to a market economy, including with privatisation and liberalisation, although their economic situations vary considerably. For all of them, the break-up of the CMEA, the former communist trading bloc, and the beginning of market reforms implied a major initial shock. However, for some this was aggravated by severe disequilibrium at the outset, while others inherited comparatively stable conditions and higher standards of living. Moreover, half the applicant countries needed to create the institutions of a new state while at the same time conducting a fundamental overhaul of their economies.

Reform has taken a different course from country to country. In some, reform has benefited from wider support and policy has proved relatively constant even when governments changed. Although almost all applicants have progressed substantially in recent years, often with high growth rates, several still find themselves in fragile economic conditions. There have also been some reversals with the introduction of administrative forms of control, e.g. on prices or imports.

The average GDP per inhabitant of the applicant countries is only about one-third of the Union’s. Some applicants, and by no means always those with the lowest income per head, have achieved annual GDP growth of 5-7% in recent years, while others have lagged behind, for a variety of reasons. Some have achieved a high degree of price stability and are close to budget balance, while others face large and/or rising trade deficits, resulting from imports of capital equipment as well as consumer goods. In general, structural reform still has a long way to go, particularly as regards the banking and financial systems, and as regards social security. Most applicants still need to restructure large state-owned industries, which dominate local economies and are very hard to reform for both social and economic reasons.

None of the applicants fully meets the two economic conditions of Copenhagen today, although some should be able to do so a few years from now.

• The existence of a functioning market economy

The first economic criterion identified by the Copenhagen European Council is the existence of a functioning market economy.

This requires a number of conditions to be met which are analysed in each opinion, namely that:

• equilibrium between demand and supply is established by the free interplay of market forces; prices, as well as trade, are liberalised;

• significant barriers to market entry (establishment of new firms) and exit (bankruptcies) are absent;

• the legal system, including the regulation of property rights, is in place; laws and contracts can be enforced;

• macroeconomic stability has been achieved including adequate price stability and sustainable public finances and external accounts;

• broad consensus about the essentials of economic policy;

• the financial sector is sufficiently well-developed to channel savings towards productive investment.

The opinions assess each applicant in the light of these conditions. The Commission finds that five of them (the Czech Republic, Estonia, Hungary, Poland and Slovenia) can be considered functioning market economies, even if in all these cases some important features, such as capital markets, still need to mature and develop further. A sixth applicant (Slovakia) comes very close in terms of legislation and systemic features, but lacks transparency in implementation.

The other applicants have made substantial progress, especially in recent times, and should be able to meet this first economic criterion early in the next century. For these countries, the main challenge now is to strengthen the implementation of their legal and institutional reforms, and in some cases to avert the risk of further macroeconomic instability.

• The capacity to withstand competitive pressure and market forces within the Union

The second economic criterion is the capacity to withstand competitive pressure and market forces within the Union. This will require a minimum level of competitiveness in the main parts of the economies of the applicant countries.

The necessary evaluation is more difficult than for the first criterion. On the one hand, a comprehensive view needs to be taken including a considerable number of factors and on the other hand, an assessment of future developments needs to be made. A key question is whether firms have the necessary capacity to adapt, and whether their environment supports further adaptation. The elements to be taken into account include:

• the existence of a functioning market economy, with a sufficient degree of macroeconomic stability for economic agents to make decisions in a climate of stability and predictability;

• a sufficient amount, at an appropriate cost, of human and physical capital, including infrastructure (energy supply, telecommunication, transport, etc.), education and research, and future developments in this field;

• the extent to which government policy and legislation influence competitiveness through trade policy, competition policy, state aids, support for SMEs, etc.;

• the degree and the pace of trade integration a country achieves with the Union before enlargement.. This applies both to the volume and the nature of goods already traded with member states;

• the proportion of small firms, partly because small firms tend to benefit more from improved market access, and partly because a dominance of large firms could indicate a greater reluctance to adjust.

The analysis carried out by the Commission services in the opinions led to the following overall picture :

• trade integration in most countries and Foreign Direct Investment (FDI) in some countries have progressed substantially. However, in some countries, there has been reversal from initial trade liberalisation, mainly for macroeconomic reasons;

• the functioning of capital markets and competition rules is improving everywhere, but generally still far from satisfactory;

• the state of infrastructure remains poor;

• wage levels are still well below Union levels;

• privatisation has progressed at different rates and the process remains to be completed.

A major difficulty in assessing the applicants according to the second criterion is its forward-looking nature. Although all the countries have opened up to foreign trade substantially, entering the Single Market (including harmonised VAT, public procurement, banking insurance, etc.) will take them considerably further along the road of integration. In particular, they will need to be able to produce products conforming to European technical requirements which will be helped by taking over the acquis, creating the necessary institutional structures and making them work, and appropriate standardisation activity. How they will perform with regard to this criterion therefore remains difficult to predict. In the meantime, further progress in implementing the measures indicated in the 1995 White Paper on the Single Market will remain both an essential method of preparation and an approximate yardstick for the applicants’ degree of preparedness.

In support of the applicants’ domestic policy efforts, continued external support will be required from Phare, and the International financial institutions (IFIs). After accession, the structural funds will take over the leading role in this regard.

While keeping in mind the difficulties inherent in such an assessment, the Commission finds that two countries (Hungary and Poland) should satisfy the second criterion in the medium term, provided they stay on their current course. Three others (the Czech Republic, Slovakia and Slovenia) should be in the same position on condition that they strengthen their efforts and avoid policy reversals. Because Estonia has modernized and radically liberalized its economy, it comes close to this last group, but its large external imbalance is a cause for concern. Latvia, Lithuania and Romania have made great strides recently, but will require further consolidation of their efforts. Bulgaria is shedding the difficult legacy of the past; it has made considerable progress very recently and is on course to join the others during the next decade.

• Conclusion

For the two criteria taken together, therefore, Hungary and Poland come closest to meeting them, while the Czech Republic and Slovenia are not far behind. Estonia meets the first criterion, but has some progress to make to meet the second criterion of capacity to withstand competitive pressure. Slovakia meets the second criterion but cannot yet be fully regarded as a functioning market economy.

3. Other obligations of membership

The Copenhagen European Council concluded that membership requires "the ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union".

• The aims of political, economic and monetary union

In applying for membership, the countries of central and eastern Europe accepted the objectives of the Treaty on European Union, including political, economic and monetary union.

As regards the common foreign and security policy, the applicants have demonstrated, through political dialogue and concrete action, their will to contribute to effective action by the Union. In its opinions, the Commission’s assessment is that they could fulfil the obligations of membership in this field.

With respect to the aim of economic and monetary union, it is unlikely that the applicants will be able to join the euro area immediately upon accession. Indeed, further progress in structural reform will be necessary before they will be able to maintain sufficient macroeconomic stability in the long run. However, new member states will have to adopt the acquis of Stage 2 of EMU. This implies central bank independence, coordination of economic policies (national convergence programmes, multilateral surveillance, excessive deficit procedure, ...), and adherence to the relevant provisions of the stability and growth pact. New member states will forego any direct central bank financing of public sector deficits as well as privileged access of public authorities to financial institutions. They shall have completed the liberalisation of capital movements. Also, they are expected to participate in an exchange rate mechanism and avoid excessive exchange rate changes.

• Adoption of the acquis

The adoption and implementation of the acquis upon accession is a difficult challenge for the applicants to meet and considerable additional efforts need to be made. This is a far greater challenge than in earlier enlargements. In the last enlargement, the new members, as participants in the EEA with highly developed economies, had already taken on large parts of the acquis. This is not the case with present applicants. Moreover, Community legislation has expanded considerably. Certain policies which were limited at that time, today consist of an impressive set of principles and obligations. New obligations have arisen regarding the Single Market, CFSP, EMU, and justice and home affairs.

As in previous enlargements, the European Council has ruled out any idea of a partial adoption of the acquis. The Commission’s observations on this question in the context of the accession of Spain and Portugal are relevant to the forthcoming enlargement. "A partial adoption of the acquis without solving the underlying problem, whose solution would merely be postponed, could create new difficulties which would be even more considerable. If one or the other party obtained such an exception, it is clear that this would not be without compensation. Little by little, a process would begin, going beyond the principle that problems of integration can be gradually solved by transitional measures which would considerably dilute the acquis as a whole. In addition, the problem would arise of the institutions’ capacity to take decisions on policies which would no longer be common".

The capacity to take on the obligations of membership, which include the whole range of policies and measures that constitute the acquis of the Union, can be judged, to some extent, by the applicant countries’ record in implementing existing commitments.

Firstly, their performance in carrying out obligations under the Europe agreement, or other contractual agreements with the Union, for example, in trade policy and the approximation of legislation, provides some indication of their capacity to implement the acquis. In most cases, however, the agreements do not stipulate precise targets, but only that countries should endeavour to ensure that their legislation gradually becomes compatible with the Union’s. There are however specific previsions on rules for state aids and competition.

Secondly, the 1995 White Paper on the Single Market set out the key elements of the acquis to be adopted in each sector. However, none of the applicants has yet been able to transpose a large proportion of Community laws on the Single Market into national legislation and a major effort is needed before accession, according to a precise timetable and monitoring procedure.

Thirdly, there is the acquis in areas not covered or only partly covered by the White Paper, that includes many other important areas of the Union’s activity such as agriculture, environment, energy, transport and social policy.

The progressive adoption of the acquis in these different areas in this three stage framework is a task which the applicant countries need to complete as far as possible before accession. Their progress so far is uneven, taking into account the trends shown by the following indicators considered by the Commission in each opinion:

1. the obligations set out in the Europe Agreement, particularly those relating to the right of establishment, national treatment, free circulation of goods, intellectual property and public procurement;
2. the progress in transposition and effective implementation of the measures set out in the White Paper, particularly key Single Market directives in areas such as taxation, public procurement and banking;
3. the progressive transposition and implementation of the other parts of the acquis. In this area, the situation varies considerably among the applicant countries. For most of the countries, significant and far-reaching adaptations will be needed in the fields of environment, energy, agriculture, industry, telecommunications, transport, social affairs, customs administration and justice and home affairs. The assessment in this area is therefore more prospective than in the other areas.

From this, and taking the applicants in the order of their applications for membership, it emerges that :

• Hungary is making satisfactory progress with regard to all three main criteria, suggesting that it should be in a position to adopt the main parts of the acquis in the medium term; particular progress should be made in the area of environment, customs, control and energy.

• Poland, despite its comprehensive strategy has run into problems with regard to (a) (trade disputes) but its record on (b) is satisfactory; concerning (c), current efforts need to be stepped up in areas where progress is lagging (such as agriculture, environment and transport); if that is done, Poland should be in a position to adopt the main part of the acquis in the medium term.

• Romania, despite the efforts it is making on (a) has not yet implemented key parts of (b) and (c) and will not be in a position to take on the obligations of the acquis in the medium term.

• Slovakia is well advanced with respect to (b) and (c) but some problems remain for (a). Provided current efforts are significantly stepped up, Slovakia should be in a position to adopt the main part of the acquis in the medium term, even if further work is required in certain sectors, particularly for the environment.

• Latvia has anticipated important obligations of the Europe Agreements but very substantial efforts are needed on (b) and (c) to adopt the main part of the acquis in the medium term.

• Estonia has anticipated important obligations of the Europe Agreements but substantial efforts are needed for (b) and (c) to adopt the main part of the acquis in the medium term.

• Lithuania has anticipated important obligations of the Europe Agreements but very substantial efforts are required on (b) and (c) to adopt the main part of the acquis in the medium term.

• Bulgaria has made satisfactory progress on (a) but not with respect to (b) and (c) and will not be in a position to take on the obligations of the acquis in the medium term.

• The Czech Republic has run into problems with (a), but is making satisfactory progress with regard to (b); concerning (c), current efforts need to be continued; if that is done the Czech Republic should be in a position to adopt the main part of the acquis in the medium term. Particular efforts will be required in sectors such as agriculture, environment and energy.

• Slovenia, as a result of delays in the signature and ratification of the Europe Agreements, is considerably behind with regard to (a). In addition, (b) and (c) are unsatisfactory and no national programme has been drawn up on the implementation of the acquis. Considerable efforts will have to be made by Slovenia to adopt the acquis, including the Single Market (indirect taxation).

• Administrative and judicial capacity to apply the acquis

The applicant countries’ administrative and judicial capacity is of crucial importance for the adoption, implementation and enforcement of the acquis and for the efficient use of financial support in particular from the structural funds. It is vital that Union legislation be transposed into national law. But this is not sufficient to ensure its correct application. It is equally important for the applicants’ administrations to be modernised so that they can implement and enforce the acquis. This will often require new administrative structures as well as properly trained and remunerated administrators. The applicants’ judicial systems must be capable of ensuring that the law is enforced. This requires the retraining and in some cases, the replacement of judges, to ensure that courts are able to operate effectively in cases involving Community law. It is important that these countries’ courts should be able, from accession, to apply the principles of Community law, such as primacy over national law or the direct effect of some legislation. It is also essential for these courts to have a sufficient number of judges trained in Community law in order to make use of the preliminary ruling procedure in Article 177 and to ensure effective cooperation with the Court of Justice of the European Communities.

Yet in many cases the applicants still lack the structures needed to apply new regulations, for example on environmental and technical inspections, banking supervision, public accounts and statistics. There are also widespread problems of corruption which are now being tackled by most governments of the applicant countries.

Each opinion sets out the national administrations, and the supervisory bodies, with the number of employees who will be in charge of implementing the acquis. The general situation gives rise to considerable concern. The efforts undertaken are beginning to bring results in Hungary, Poland, Estonia, Lithuania and the Czech Republic.

Each of the applicant countries should be asked to introduce a timetable for reinforcing institutions, administrations and judicial systems responsible for applying the acquis as part of the pre-accession strategy with the aid of Phare. Training for this purpose is one of Phare’s two priorities. 30% of Phare’s resources could be used to finance exchanges and the long-term detachment of experts from the member states to the applicant countries in the framework of twinning programmes. This training of specialists in the application of the Community acquis should be accompanied by measures to ensure that the staff trained remain in the public service for a number of years.

• Conclusion

In the light of the main trends observed in the candidate countries, it emerges that if current efforts are reinforced, Hungary, Poland and the Czech Republic should be able in the medium term to take on the major part of the acquis and to establish the administrative structure to apply it, while Slovakia, Estonia, Latvia, Lithuania and Slovenia would be able to do so only if there is a considerable and sustained increase in their efforts.