Blog Post

Arab spring: Echoes of 1989

In 1989 the wall separating the two halves of Europe suddenly collapsed. Within the space of a few months, a hitherto seemingly immutable order gave way to commotion and impatience. One moment the old countries of Europe were paralysed with fear of the unknown and anxiety about immigration, the next they had seized the opportunity […]

By: Date: March 22, 2011 Topic: Global Economics & Governance

In 1989 the wall separating the two halves of Europe suddenly collapsed. Within the space of a few months, a hitherto seemingly immutable order gave way to commotion and impatience. One moment the old countries of Europe were paralysed with fear of the unknown and anxiety about immigration, the next they had seized the opportunity which history was offering them. They implemented aid programmes, opened trade talks and promised enlargement. Two decades later, success has proved spectacular. The economic and political transition of former eastern Europe has been swift and deep, it has – with the dramatic exception of Yugoslavia – been peaceful, and it has yielded development.

Could a similar – obviously not identical – story unfold for the southern rim of the Mediterranean? This is the key economic question posed by the Arab Spring. The 500 million EU citizens have 170 million neighbours between Agadir and Port Said sitting on their doorstep and eyeing for prosperity and democracy. In three of the five countries of the region, they have demonstrated their resolve by overturning regimes which we had taken to be guarantors of stability. They ask nothing more than to invest their energies in the recovery of their countries. But if they do not very rapidly have reason to believe that their situation will get better, this transforming dynamism will become the dynamism of despair – with all the risks that this implies.
The first priority is jobs. The young people driving the Tunisian and Egyptian revolutions are massively underemployed. We do not know if the official data is correct (around 30 percent youth unemployment) but it is clear that these economies were incapable of confronting the demographic wave of the last decades. Recent growth rates – five to six percent annually in Egypt, Libya, Tunisia and Morocco – appear high, but they are less impressive in light of the growth in the working-age population of the order of two-and-a-half percent per year over the last ten years. Even more growth is needed.

The obstacles are not chiefly macroeconomic. It is true that Egypt is fragile, that public finances and current-account balances will slump, and that inflation will take off if governments try to respond to the problems by spending money they have not got. They will need to invest more and educate better, which will inevitably be costly. And international assistance will certainly need to be mobilised. But these are not the immediate issues.

The main brake on development lies in their economic institutions. According to the World Bank, a building permit in Egypt costs three times the average annual income, there are eleven different steps needed to register a property transaction in Algeria, and Morocco is ranked 154th out of 183 for protection of shareholders against abuse of power by management. These are just a handful of examples. They all point to economies where development is impeded by burocracy, monopoly rents – very often as a result of political or family nepotism – and credit market sclerosis.

It is unthinkable to copy and paste the eastern European solution of importing EU legislation with a view to enlargement. But the current political revolutions also present the chance for economic emancipation which the EU can support both by giving incentives to economic reform and by mobilising its development banks.
Europe can exert a more direct impact in trade and mobility policy given its dominant role here. Today migration is extremely circumscribed. Professional mobility must be allowed without delay. Free circulation of goods is also limited. As a proportion of GDP, Tunisia trades two times less with the EU than the Czech Republic, and Morocco four times less than Poland. Not only for goods but for services too, Europe needs to promote much more than it has so far the adoption of an outsourcing model in the most labour-intensive segments of the value chain, as Germany has done with great success – and which in part explains its bounce-back in global markets. While this model entails job losses in the North, it also preserves jobs by keeping production sites competitive and creates jobs by paving the way for development of the South.

As former French prime minister Pierre Mendès-France famously said, governing is choosing. Europe must choose either to mobilise help for its neighbours and open up to them, or start recruiting coastguards and manning the patrol boats.


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