INTRODUCTION:

The main purpose of this study is to provide an economic evaluation of Turkish economy in the context of requirements of The European Union which accepts new members with decisive criteria.

Enlargement process of The European Union is complex issue and consists of several political and economic arguments. This study organized as follows.

The first chapter of this study explains the past enlargement waves of The European Union which must be studied to comprehend the enlargement process of the European Union. Therefore, the first concept to explain is the methodology of the past enlargement waves.

Each of these past enlargement waves had different characteristics. Economic factors and politic factors were the main arguments in these processes. Union accepted new countries sometimes in respect to their economic strength; however, sometimes political benefits were under consideration. Determinants of these factors were explained in the first chapter.

The second chapter provides highlight points of Turkish economy and Turkish political agenda. It explains the historical background of Turkey-European Union relations in economic and political perspectives. There are two steps in this chapter.

At the first step, political dimension of the relations between 1960 and 1999, and summits related to Turkey are examined. 1963 Ankara agreement, 1970 Additional protocol, 1987 membership application are explained in details. Changing political structure of Turkey after 1980 is also summarized.

Afterwards, summits which are effective on Turkey are explained. Several political summits convened and important decisions were taken as the results of these summits. In 1993, Copenhagen Summit, accession criteria were determined which should be fulfilled by the candidate countries for the full membership to European Union, In 1999, Helsinki Summit declared Turkey as a candidate for membership of EU. Moreover, in some summits Turkey and its candidacy were negotiated. Second chapter explains important results of these summits in the perspective of Turkey.

At the second part of second chapter economic situation of Turkey is evaluated between 1960-1999 in the context of relation with European Union. Turkish economy experienced several fluctuations in this period.

Changing economic and political issues of Turkey describe unstable relationship between Turkey and European Union. After 1960, Turkey did not have stable economic and political environment. Many fluctuations were recorded in these years These case are explained in the second chapter.

Finally, the third chapter examines important arguments after the acceptance of the candidacy of Turkey by European Union in 1999 Helsinki Summit.

European Union determined several criteria for the full membership in 1993 Copenhagen summit. One of these criteria is related to economic conditions. Existence of a functioning market economy and capacity to cope with competitive pressures and market forces within the Union are the required conditions for fulfilling the economic Copenhagen criterion.

In order to analyze these conditions several aspects of the Turkish economy is examined between 1999, acceptance of its candidacy, and 2004. Growth performance, public finance, government foreign debt, employment structure and unemployment, current account, inflation, exchange rate and monetary policy, trade relations with European Union constitute general framework about the required Copenhagen economic criteria. Moreover, comparisons of Turkey’s case with 10 new members are added to each section.

Additionally, Union determined four criteria for the convergence to European Monitory Union which are named as Maastricht criteria. In the relevant section, these criteria are explained by making comparisons with the new 10 members.

1) ENLARGEMENT PROCESS OF THE EUROPEAN UNION

After second world war, there had been seen a transformation in the state and relations between some European countries. Bitter hostility and division were replaced by closer economic and political cooperation and integration. The economic devastation of the war was tied to replaced by the calm wind of the peace and by economic prosperity. A treaty was signed by six countries and it was named as European coal and steel community. Economic integration was confined to two sectors. 1( Dennis swan, European integration, The common market, European union and beyond)

In six countries federalist views were dominant .these countries were: France, Germany, Italy, Holland,. Belgium and Luxemburg. There was a desire to establish agencies with some supranational powers. This caused to the setting up of the ECSC established by the Treaty of signed in 1654. The aim was to integrate the coal and steel industries of Germany, the heart of its war machine into an interdependent European industrial structure. By this processes it was tried to prevent wars between West European countries.2( Frank Mcdonald and Stephen Dearden, European economic integration)

Afterwards, the European economic community and the European atomic energy community were founded by the treaty of Rome in 1957. These there entities were merged in 1965 when a common institutional structure to govern the work of these three agencies was established. This was called European community. The term European Union came Into common use in 1993 after the council of ministers renamed itself the council of the European union. This name stems from the Maastricht treaty which formed the term to encompass the variety of cooperation and integration work than was carried out by the current member stated, The Maastricht treaty formed three pillars, The E, justice and home affairs, foreign and security policy, and named the umbrella structure for these three pillars of EU. 3( Frank McDonald and Stephen deaden, EE integration) Background of the Union may be summarized as above.

However, it should not be forgotten that from the beginning of the history of the community to the current days of the union, there has recorded many changes.

European integration project was mostly economic at the begging; it gradually expanded to involve political and social aspects and specifications. 4( Muzaffer Dartan, The EU enlargement process and turkey.)

After several years from the ECSC treaty, some countries started to apply to become a member of this cooperation/community/union and these applications continued as a current issue Some of them were accepted and the union enlarged with its new members. In this section, these enlargement periods are going to be studied.

1.1) First Enlargement Wave

The first enlargement period consists of three members. These are United kingdom, Ireland and Denmark. It is intended to evaluate, first, United kingdom. UK kept itself away from the community according to its own desire which appeared after the second world war. However, after a while, UK politicians changed their mind.

The reasons of the desire of UK for adhesion to the community may be roughly classified into two groups: Economic and political. Politically, it was clear that UK was no longer a world power of the first rank. This country had lost its old effectiveness in the world.

At the economic side, on all the usual economic indicators, such as growth in trade, in GDP. In investment, in income the member countries of the European community were outperforming UK.

UK attempted in 1961 to become a member of the European community. On 31 July 1961, Prime minister Harold Macmillan declared the desire of UK for membership to the community. In November of the same year, government declared a white paper. This paper was stating the intention of the government and also declaring the reasons of staying away from the community and also was declaring the end of this period. With this paper UK was accepting the 2nd and 3rd articles of the treaty of Rome. Moreover, this paper was expressing that UK was approving the abolishment of internal tariffs in terms of a common custom union, a common commercial policy, and a common agricultural policy. 5 ( Christopher Preston, Enlargement and Integration in the EU.)

In fact this declaration might be counted as the acceptance of the general mentality of the community on the part of the UK. However, the process was not finishing with this statement and many other problems were occurring to UK`s desire of adhesion to the community by the Gaulle, president if France. By the defenses of De Gaulle, UK was rejected from the community twice in 1963 and also in 1967. However, this was not the end of UK`s attempts for joining the community.

After the election in France, De Gaulle had lost the presidency. New president, Georges Pompidou was thinking different form the previous president. He believed that enlargement could strengthen the community. Afterwards, the commission revised its opinion about rejection of UK and in October 1969 recommended that negotiations should start with all four applications immediately.

The new French government supported the application of UK to the community. After the developments the community started to the negotiations with the UK government in June 1970 in Brussels.

However, with the start of negotiations there was seen that UK had a hard manner in the acquis of the community. Afterwards, community decided not to discuss acquis if the community with a country which desires to access to the community. This decision became a rule for the following enlargement negotiations. 6 (Irfan kaya ulger, Avrupa Birliginin abc si)

In the fisrt enlargement period, economically wealthy countries became new members. However, this enlargement wave did not occur without any problem even though the premature structure of the community in comparison with the current structure. There may be stated several factors as the problematic areas; first, the economic crisis environment of the 1970s was effective during the first enlargement period of the community. Dollar shock, petroleum shock forced the countries of the community to follow protective policies and caused to remove the community from its aims. This issue became more problematic with the accession of the new countries. A second factor about problematic area was the comprehension of the slow processing of the community’s structure. This problem increased with the adhesion of the new members. Third factor was about the budget of the community. This was more important than the others. After the accession of UK, arguments had started about budget revenues and expenditures which were prepared according to the balance of the six country of the community. 7(IBID)

After the negotiations and their completion, on 22 January 1972 the treaty of Brussels was signed. With this process, UK became a new member of the European community on 1 January 1973.

Ireland and Denmark became new members of the community with the first enlargement period. Irish trade was expanding rapidly, especially with UK and economic growth increased at the end. It became essential for Ireland to join to EEC when UK’s third application was finally accepted in 1973. 8 ( Larry Neal, The economics of the European union and the economics of Europe)

The Irish application was submitted on 31 July 1961. Because of the effects of the UK`s problems whit the community, Irish application was influenced negatively. However, in line with the process of UK, negotiations with the community finished in January 1972. 9( Christopher Preston, enlargement and integration in the European union) At 2 October 1972, 63,5% of the public accepted the adhesion decision in the referendum. 10( Irfan kaya, avrupa birligi ansiklopedisi)

Another country of the fist enlargement period was Denmark. On the same day the UK`s application Danish government declared its intention to apply for the membership. This country’s negotiations were broken down the collapse of the negotiations of UK in 1963. However, afterwards Denmark became a new member of the community with the other two countries of the same enlargement wave. 11( IBID)

At 22 January 1972 Denmark, Ireland, Norway and UK signed the treaty which was making them members of EEC. Afterwards, in a referendum which was held at 26 September of the same year, the Norwegians decide not to join EU. 12 ( Philip Toddy, an historical introduction to the European union)

1.2. Second Enlargement Wave

During the years 1974-1975, in Greece, Spain and Portugal, the military governments were collapsed and the relations between the European community and these three countries had moved to another dimension. The region, Mediterranean zone, and these three countries were possessing diverse and different features in comparison with the member countries of that period. In contrast to the former enlargement period, European community was confronted with three different candidates. The new candidates which were wounded by weak economic structure with high tensions of military and political securities and three democratic countries which acquired their democracy recently were constructing general view of the second enlargement period of the community. 13( Christopher Preston, Enlargement and Integration in the European Union)

The implementation degree of acquis of the new applicant countries and the domestic interests sensitivity caused this enlargement period to occur with more strict and stronger conditions. Because the community was preparing itself to welcome new members whose economic conditions were not sufficient as the former ones, and also they had democracies which were suffered from the dictatorship recently.

The commission of the European communities on 20 April 1978 stated in general consideration on the problems of enlargement of the positions of the new applicants as:

“When Greece, Portugal and Spain, newly emerging as democratic states after a long period of dictatorship, asked to be admitted to the community, they were making a commitment which is primarily a political one. Their choice was significant, both reflecting the concern of these new democracies for their own consolidation and protection against the return of dictatorship and constituting an act of faith in a united Europe. In this respect, Greece completed this difficult period by passing through diverse stages. From the beginning of 1960s, application of Greece in June 1959 to the European community, un accordance with the article 238 of the Rome treaty, brought about two contrary questions which took up time on the agenda of the community. In case of Greek adhesion to the community, its political and economic effects started to be discussed. Also, European community had fears, and hopes about Greece’s negative and positive political and economic effects on the community” 14( IBID)

Briefly stating, by opening its gates to Greece the community was accepting a relatively different geography, which was far away from the countries accepted with the first enlargement wave in terms of economic and political dimensions.

First enlargement wave was containing of closer new members economically and geographically and, in economic areas there were not huge differences with the new three members but this time Greek economy was not so brilliant and this was carrying new economic burdens, and also then problems of harmonization.

In July 1961, the association agreement signed between the community and Greece. By this agreement, a customs union was established between two sides. Also, it was tried to determine the conditions of financial assistance and process of policy harmonization. And it is worthy to mention that, the signature of the association agreement had two meanings; Fist, to formalize the relations with a country which had not possibility for full membership. Second meaning was to fix a first step on the way to the full membership. It was understood from the article 72 of the Athens agreement that Greece was installed on the second group. Regarding on the conditions and decisions of the treaty, the restrictions on industrial products would be lifted during 22 years, nevertheless, tariffs and quotes would be abolished in a 12 year period except the goods manufactured in Greece. Familiar interpretations were valid in agriculture sectors. 15 ( IBID)

At April 1967, Greece experienced a military coup. Afterwards, the community froze the interpretation of the Athens Agreement. 16 (IBID)

After the collapse of military dictatorial, as soon as the previous governing model was coming back, the government desired to reactive the interrupted relations with the community. On the 1st of November 1974, the transition period started. By this process, it was estimated that full membership of Greece might be in year 1984. 17(Jean-Francois)

But Greece didn’t evaluate it sufficiently and after the reconstruction of the democratic regime, the negotiations with the community for the associate status had applied for the full membership without any delay.

Karamanlis government applied in accordance with the article 75 in June 1975. However, before all, Greece would face some problems on the way of the full membership status. But in general sense the problem was political. Even though the Greek economy was not able to integrate smoothly with the community, Karamanlis was looking for a swift adhesion to the community. He was considering that adhesion to the community would reinforce the Greek democracy which was recently constructed.18(IBID)

However, Greek candidacy was not welcomed with the excite in Brussels nor with the enthusiasm. Its economy was still weak an inadequate and underdeveloped for adapt itself to the common market. But the ‘nines’ were not incentive to the political aspects. 19( IBID)

The response of the community to the Greece’s possible membership was including some different and diverse manners. Germany and United Kingdom had stated more anxious replies in comparison with France. They were worried about the security problems which might occur in case of Greece’s membership. The warmest response had received from France. President Valery dasting had formed close relations with karamanlis and actively supported the membership of Greece. 20 (Christopher Preston, Enlargement and integration in The European union)

Commission declared its opinion on 28 January 1976, and accepted the start of the negotiations with ‘half-hearted’, however, described a pre-accession period before a specific transitional period. Commission stated its decision because of the effects of three factors:

‘The European community did not desire to injure its relations with Turkey, and even in different time periods, for a second reason, it may be stated economic factors. In total, even though Greece economy had small effects on the community, structural weakness of the economy of Greece and especially the size of the agriculture population and non-sufficient industrial base would marking that important part of the resource transfers from European Community’s budget would go to Greece in case of its full membership. Finally, Commission declared its decision in that manner because of the possible full membership of Greece would made effects on decision making and policy development of the European community with an undesired form of community. In fact, this reason may be added for all members and community or union experience. It was a factor during the welcome period of any new member. As it might be predicted, Greek government answered with a great reaction to the commission’s decision. Greek government was claiming that association agreement had to be substituted as a pre-accession period. Greek government had also respected that decision as a cause of the delay of the full membership.” 21(IBID)

Council of ministers rejected the commission’s opinion. Moreover, Karamanlis threatened the community with the withdrawal of the Greece’s application and commenced to lobbying. In addition to these events, French government rejected the pre-accession period. Dutch and German foreign ministers declared commentaries in favor of the start of negotiations as soon as possible. Finally, on 9 February 1976, at the meeting of council, member states rejected the opinion of the commission and had been decided to ask for from coreper to prepare a negotiating mandate. Afterwards, it might start the negotiations.22(IBID)

Even though its burdens, the full membership of Greece was worth its small size23(Jean-François) according to the community.

Accession negotiations took 34 months which was longer than the negotiations of the first enlargement period. Moreover, any of the member states were not so enthusiastic about the membership of Greece. Germany considered geopolitical stabilization issues in the eastern Mediterranean region more important than the economic problems of Greece. French, during this period, was more complex and changeable however, the desire to become a bridge between north Europe and south Europe cause it to approach to the membership of Greece more optimistic. UK was uncertain in this decision. 24(Christopher Preston, Enlargement and integration in the European union)

The adhesion agreement was signed on 28 May 1979 and came into effect on 1 January 1981. Greece was a new member of the community.

1.3. Third Enlargement Wave

Spain and Portugal were the adherents of the third enlargement wave of the European Community.

However, one can not reveal that during this period the relations between EEC and these countries were improved too much. Main developments, in Portugal, with 1974 revolution, in Spain, after the death of Franco in 1975, were started to be recorded and the context of European integration commenced to change. Moreover, this enlargement proves, the third one, was carrying a different and critical importance. Briefly speaking, the Community, confronted with a historic shift in its balance to power by opening toward Eastern Europe which set off the founders of the community and its associates from north to a journey with new democratic neighbors Spain and Portugal named as integration with south Europe. Because of all these factors, this enlargement wave would testify the community whether it would be able become a stabilization factor in the region and to bring up pluralist political and economic structures and to catch economic diversifications with different countries which had different economic stages around the region.25(IBID)

Regarding the Spain’s relations with European economic community, a preferential agreement between the two sides is observed.

Spain applied to the community, in 1962, for an association agreement. The objective was to construct an association which includes a full membership in future. European community replied two years later, in 1964, with a positive manner. The agreement was envisaging, as the first stage, 70% reduction of tariffs of EC on industrial goods of Spain and 40% on citrus fruit, also Spain decided to decline EC export tariffs up to 1977 throughout six stages. After the collapse of the dictatorial, in Spain, full membership became a current issue. On the other side, Portugal after The Hague Summit which tried to decide about the post-enlargement relations with EFTA countries, applied for association agreement in November 1970. The special relations agreement came into effect between the community and the remaining members of EFTA on 1 January 1973. Portugal was one of the states which would benefit from it. Elimination of all barriers on exports of the Portugal, even fir sensitive sectors, except textiles, to the community by 1977 was the commercial facilities the agreement put forward.

After the Free Trade Agreement signed in 1972, Portugal attempted for negotiations to reach an additional protocol in 1976. Consequently, in September 1976 Protocol signed about which the Portuguese government awarded afterwards that it was not the best choice for Portugal. They decided that the full membership was the “best long-term” and Prime Minister, Dr. Mario Soars applied to the community with a formal application when the date was 28 March 1977.26( IBID)

New applicant caused different voices among the member states. The member countries globally were in favor of the adhesion of Spain. Northern countries awarded that the possibility of entering to the markets which were still closed. For instance, Italy welcomed, positively, access of the new two partners which would yield close benefits. France was particularly pleased because of opening of its boundaries to the Southeast.27(Jean-Francois Drevet)

Also, the rich men club was not pleasant for the wealthy members of the community.28( European Documentation)

As a consequence, two countries had applied for full membership by the consequences of resembling procedures, formerly, signature of the association of the association agreements, subsequently, applications for full membership which indicates and reveals an improved point for relations.

Commission submitted its interpretation to the council for the start of the negotiations and its submission yielded for this wave of enlargement for Spain and Portugal in 1978. Commission’s decision for Spain was affirmative and stated as follows:

“It is useless to pretend, however, that Spain’s accession will pose no problem. Success implies that Spain’s economy should be integrated with the economy of the community without intolerable strains on either side. When the process of integration is complete, the community should emerge strengthened and not diluted.”(29 Christopher Preston)

Commission’s response which was submitted to the council in May 1978 had a positive approach for Portugal. Even though its economy was worse than Spain, it was easily understood that in case of its adhesion to the community its effects would be restricted. Portuguese’s GDP was 1% of total GDP of community. Therefore, Portugal was not carrying a huge burden on the community economically. However, its economy was not indicating a brilliant appearance. Because of this reason, commission’s “opinion” for Portugal was built around the bearing of “structural weakness” before the accession period to the community. 30( IBID)

Mentioned two economies made their biggest modifications with the EFC. Even though Spain was considered strong to overcome the adhesion shock it had still vulnerable industrial sectors and the regions which were on retard would have adaption problems. However, Portugal was evaluated more fragile than Spain. Many experts was worried about that Portugal could not overcome the adhesion shock. But, with all these, it was difficult to separate it from its neighbor, Spain. 31( Jean- François)

After the presentation of Portugal’s demand of accession, the negotiation commenced on 17 October 1978 and Spain applied for adhesion on 28 July 1977, afterwards the start if negotiations on 5 February 1979 were the processes of these two countries toward to the full membership. 32( Philippe Deloire)

Adhesion agreements were signed on 12 June 1985 between the applicant countries and community. Spain and Portugal were new members on 1 January 1986.

1.4. Fourth Enlargement Wave

It is worthy to state that the prospect that the rich EFTA countries would be net contributes to the EC budget was counted as one of the main attractions of this enlargement wave.33(Helen wallece and William wallece)

Main point of the forth enlargement wave, which we may also name as EFTA enlargement, was that the a;; new members were from EFTA countries. Because of this, it is intended to make a brief summary of the relations between EFTA and EC, then, we want to examine three new members of the community respectively.

Another point which deserves importance is the arguments of the period when these new members adhere to the community. This period was representing the post-transition period of the Community to a union.

Union witnessed the single act in 1992, and also decided some new decisions in Maastricht at 1993 and united three different treaties coming from the past of the community. This process also made clear the faults of the union. These were some if the arguments which indicated easily the changing structure of the union.

Relations between EC and EFTA commenced to rise at the beginnings of 1960s. And with the completion of the customs union of EC it had started searches for free trade agreement. This agreement was signed in 1972 and by 1977, it abolished all duties for the industrial goods. With time, because of some trade successes these abolishment of trade duties were carried to other areas.34( Christopher Preston)

On 2 May 1992, old twelve members and six members of EFTA, Austria, Finland, Norway, Sweden, Island and Lichtenstein whose population had reached nearly 380 million, signed the agreement which established European Economic Area (EEA). It would go into effect on 1 January 1994 without Swede which rejected it by referendum on 6 December. EEA was an association which was structured institutional degree. EEA was aiming to determine the rules of access to the single market and the rules of concurrence of the community. 35 (jean- luc sauron)

The agreement constitutes EEA formed world’s biggest integrated area. This area comprised 18 countries in a single market with 380 million person, 30 percent of world GDP and 47 percent of world trade. 36( Theo Hiltiris)

Nevertheless, with the candidacy of EFTA countries to European Union. EEA lost its importance and it turned towards to be a step towards European Union.

Moreover, with the collapse of the Soviet Union neutrality of certain members, Sweden, Austria, Finland, Switzerland, changed.

During this new enlargement period, the candidates which desire to be the new members of the union started to declare their candidacy. EFTA’s loss of its old importance may be stated as the reasons of the going towards of the EFTA countries to candidacy.

Austria was the first country that declared its candidacy. Its application date was 27 July 1989. After this, in 1 July 1991 Sweden, in 1 March 1992 Finland followed the same process. Switzerland’s application date was recorded as 26 March 1992 and also Norway’s was 25 November 1992.

Lisbon summit in June 1992 had a critical importance in sense of statement of some basic pillars of the future enlargements which were considered. EEA agreement constructed an accelerated period for the start of negotiations with EFTA countries. For Edinburgh summit in December 1992, it was asked for from the commission to prepare general negotiation framework. Commission responded to Swedish application in August 1992, to Finland’s application in November 1992, to Norway’s application in March 1993. On 12 December 1992, Edinburgh summit confirmed the general framework of negotiations for enlargement. Council, in the beginning of 1993, accepted the start of the negotiations with Austria, Sweden, and Finland. Switzerland rejected the EEA agreement with a referendum on 6 December, and that was to say that this country was resigning from the candidacy. At the same time, this was a reasonable negotiation timetable because the new candidates had accepted approximately 60% of the acquis of the Union. Afterwards, negotiations commenced under the presidency of Denmark in February 1993. 37 (Christopher)

Union recorded its easiest negotiation period since it had experienced during that time. New three members’ position was really close to the acquis of the union. As a matter of fact, they were in a good and untroubled manner in terms of economic conditions compared with the second and third enlargement countries. Because of these they were able to adapt themselves to the acquis of the Union swifter.

If it is necessary to express some details. Negotiation period of EFTA enlargement lasted 13 months. This time period was quite short for the completion of this proce