Evidently, the continuity of the catching-up process is not auto matically granted There are some fears that this process may be bro-

ken or interrupted in the next few years. I am convinced that we have to deal with them. Not with all of them because some of the fears, once a country enters the EU, seem to be to a large extent either unjustified, or if they are justified, it is not because of entering the EU, it is because some of the basic reforms have not been made before entry. We have free trade. We have a liberalised commodity market. We have a large liberalised capital market. I do not think there will be tremendous price rises after joining the EU. I do not think there will be a higher level of unemployment either as a direct consequence of membership. If, how- ever, some of the structural problems in some accession countries have not yet been solved, and have been postponed for the first years of membership, higher unemployment may be the result. It would, how- ever, be fundamentally mistaken to blame for such an adverse develop- ment the EU. Also I do not share the view or the fear that small- and medium-sized companies will massively go bankrupt. As a general ex- perience, these companies cannot be thrown into the same basket. There are very different kinds of small- and medium-sized companies. Some

of them are export-oriented, some are part of the subcontracting network of large multinational companies, some of them are specialised just on the local services. They will not be affected adversely. Some of them may be affected but mainly those which did not develop a competitive performance and did not enter the international market, because they remained in or became captured by the large and over the 1990s rapidly growing domestic market. The most important problem small- and me- dium-sized companies are already facing, is the increasing need for capital concentration, as a major precondition of sustainable competi- tiveness. In fact, it is impossible that one million small ventures will remain in the country of ten million inhabitants if you want to sustain economic growth and remain competitive.

Here I would like to make one more remark, and that is about the sup- port of SMEs. Should small- and medium-sized companies be artifi- cially supported? The underlying positive argument is making reference to the success of small- and medium-sized companies in northern Italy, in Austria, in southern Germany, in Bavaria or in Baden-Württemberg, and maybe in some other parts of the world. The situation in Central and

Eastern Europe at the beginning of the 21st century is fundamentally

different in two aspects, and that is why the old patterns do not seem to work. One is generated by the development history of such companies. At some (remote) time in the past, they started with a one-man firm, then after ten years, if they were successful, a family firm was estab- lished, in 20 years it developed into a small-scale firm, in 40 years it may have reached the status of a medium-scale firm. New firms in CEE countries generally do not have 40 years for such a development. Either a firm is successful at the beginning or in a very short time, or it is likely to disappear. The other is linked to national protection. German, Aus- trian or Italian SMEs, had been developing for a long time in the na- tional economic framework. Markets were strictly national ones or only partially open. In addition, at critical stages of the firms’ development process tariffs and non-tariff barriers could be introduced (or main- tained) CEE firms do not have this kind of instrument, since they have

to work and survive in conditions of free trade - and there is no way back from free trade. As a result, I would not say that government eco- nomic policies should not devote attention to the development of small and medium-sized companies, but certainly not with the methods which

are not in compliance with the requirements of the 21st century.

Concerning accession to the EU, there are certainly two real fears. One is that, mainly in the first years after accession, regional differences within the individual acceding countries may be increasing. The expla- nation is quite simple. The adjustment and absorption capacity of the more developed parts of the country is higher. They will most probably be able to attract more of the resources, both domestic and foreign, and use them with higher level of efficiency and within a shorter period. Also, they are likely to be more successful in applying for EU funds. The temporarily growing development gap does not, however, mean that the less developed parts of the given country will not develop as compared with their previous level of development. It is a key task of the government to keep this development process under control, but not by constraining the more efficient regions but to provide support to in- crease the absorption capacity of the less developed ones and speed up the spillover process from more to less developed areas. Namely, it is obvious that the modernization process must not be undermined by un- controllable social strains or conflicts. After a short transition period, particularly a small country, cannot manage a largely polarised econ- omy, divided between highly developed and highly underdeveloped regions.

The most real threat, however, is the budgetary crunch in all of the CEE countries. All of them have already a budget deficit in terms of GDP which in most cases is much higher than the one fixed by the Maastricht criteria. After membership, the budget will have a number of additional burdens. Some of them will be burdens which are connected with the preparation of successful membership. There will be some areas where the preparation will not be finished by 1 May 2004, and therefore the

financial or budgetary implications will burden the budget also later. Then there will be some anticipated payments which have to be made by the central budget, that is e.g. the direct payments to farmers, which will be paid by Brussels ex post, but you will have to provide this money in 2004 already. In addition, up to 30 per cent of agricultural support may added from the central budget to the farmers. Moreover, there will be also some anticipated payments including co-financing for the structural funds. At the same time, everybody who enters the Union will be com- mitted to observe or to adjust to the Maastricht criteria. In consequence, it is hardly probable that the rapid (and today unforeseen) increase in budgetary income can create the financial capacity needed to cover all the additional costs mentioned. Therefore, some or even a fundamental restructuring of the budget is unavoidable. And just in this point will the governments face the most serious challenge. In which areas should the necessary cuts be made? If, as it used to happen in the past, the "sav- ings" will hit those areas which are considered to be the guarantee of the medium- and long-term competitiveness of these countries, namely hu- man resource development and health, then the CEE countries’ future and sustainable growth may be undermined.

9. Both the enlarging EU as well as the current and future member