Introduction

Europe and its institutional epiphany, initially the European Economic Community and now the European Union (EU), have a long record of relationship with the Mediterranean area, to which some of its Member countries belong as well. Limiting the scope to the present local landscape, the EU has a vital interest in maintaining stable and peaceful relations with this region, where daunting challenges are at work, not only for trade and financial flows, but also in a number of strategic fields, ranging from those of overall stability and security in face of multifaceted tensions, to those of environment, migrations and energy security. That is why the EU since the early 1960s has been supporting regional comprehensive cooperation and integration schemes, the last of which has been the Barcelona Process launched in 1995 with the aim to establish a Euro-Mediterranean cooperation with three distinct chapters on political and security issues, on economic and financial partnership and on social, cultural and human rights. In addition, recently the EU has also started the European Neighbourhood Policy (ENP), which extends to a number of Southern and Eastern Mediterranean countries (henceforth simply Mediterranean countries).

The papers published in this Volume are the fruit of a research effort on such subjects by a network of Euro-Mediterranean universities kicked off in 2004, with a grant from the Jean Monnet Action. The network included the universities of Cyprus, Genoa, Panteion of Athens, on the one hand, and of Cairo, Istanbul, Rabat and Tunis, on the other. Coordination was provided by the Jean Monnet Centre of Excellence at the Genoa University.

For more information about the Project´s activity, Consortium partners, and research papers included in this volume see the Project´s official website: http://emo.pspa.uoa.gr/node.php?n=home.

This book aims at describing and analyzing in critical terms the state of affairs at the beginning of the 21st century, together with the possible evolution, of the Euro-Mediterranean relationships from two main standpoints: on the one hand that of the political and strategic challenges with which the EU and the countries of the area are confronted, and on the other that of the economic links shaping the network of trade and financial relations taking place along the North-South dimension. All that taking into account the recent EU enlargement towards both East and South, and the whole set of constraints and opportunities referring to sustainable development in the Mediterranean basin.

That is why Section One is specifically devoted to the latter topic, considered as a general premise and frame against which all other studies presented in the book have to be assessed. Two of the following parts focus on political and strategic subjects, stressing namely the political and security issues (Section Two), and cooperation and integration processes (Section Three). The remaining parts deal with a group of economic arguments, ranging from the presentation of a general macroeconomic and social framework (Section Four) and the scrutiny of a number of economic and commercial issues (Section Five), to an inquiry on Foreign Direct Investment (FDI) flowing from EU to Mediterranean countries (Section Six), alongside with some residual local and sectoral economic issues (Section Seven).

Going into details, in Section One Mohieddine Hadhri draws a thorough picture of ecological and environmental challenges facing the Mediterranean basin with a view to establishing an anatomy of the main policies and strategies on sustainable development followed by the different countries acting in the area. Against a background of long-term cooperation and Euro-Mediterranean integration, whose most recent experiences include the Barcelona Process and the ENP, a number of environmental threats emerge giving rise to crisis scenarios in form, among others, of energy security or water availability emergencies. Hence, the need to redirect the Barcelona Process by globalizing concepts such as those of peace, security, sustainable development and trans-Mediterranean cultural dialogue.

After this general introductory part, Section Two deals with the main political and security issues characterizing the area. Michael Tsinisizelis and Dimitris Xenakis present a comprehensive picture of Euro-Mediterranean security affairs with the help of a rich historical analysis extending till the present times. Joseph Joseph offers a critical assessment of the links between the Barcelona Process and the search for political stability in the region, whereas Constantine Stephanou and Dimitris Xenakis focus on responses and expectations of Southern Mediterranean partners to the EU´s enlargement. Finally Giorgia Yiangou investigates on EU´s energy security, taking into account the new strategic environment of European energy supply with specific reference to the Mediterranean Sea.

According to Michael Tsinisizelis and Dimitris Xenakis, even though the Barcelona Process alone cannot as such ensure the management of an ever more complex regional security agenda, the success of the Euro-Mediterranean Partnership will possibly decide whether the area will remain a crossroad of conflicts and economic backwardness or become a zone of progress and peaceful cooperation. Joseph Joseph, for his part, maintains that the Euro-Mediterranean Partnership did not yet succeed in achieving much as regards the first chapter on peace, security and political reform. Peace is still lacking in the Middle East whilst terrorism and fundamentalism go on representing actual threats. Nevertheless, the spirit of Barcelona is still very much alive so that the Euro-Mediterranean dialogue could produce in the future some expected positive results. Also Constantine Stephanou and Dimitris Xenakis express their concern for the serious obstacles facing the Barcelona Process, but are hopeful that in the aftermath of enlargement the change signalled by the accession of Cyprus and Malta in the European involvement in Mediterranean strategic affairs will be followed by a renewed interest by both old and new Member States to be engaged in Euro-Mediterranean cooperation. All this, provided the traditional asymmetry in favouring the Eastwards enlargement issues at the expenses of EU´s relationship with Mediterranean partners could be corrected through coalition-building and alliance-formation not only with the EU Mediterranean Member States but also with the rest of the littoral countries. Giorgia Yiangou´s paper concludes this part of the book with a description of the current EU energy dependency and its vulnerability to oil shocks. Despite all diversification efforts the EU remains highly vulnerable to oil disruption and its dependence on imported energy resources is likely to increase. Recent developments in the building of new pipelines can only partially reduce the EU reliance on Middle East oil.

Section Three pertains to cooperation and integration processes and contains two papers: a detailed description of the main axis of Euro-Mediterranean cooperation and its links with the South-South process of economic integration of Agadir by Eleni Bernidaki, along with a study by Nabiha Maamri on a similar group of subjects, but with an emphasis on South-South integration efforts, from the Great Arab Free Trade Area (GAFTA) to the Agadir Declaration.

Eleni Bernidaki highlights the logic of Euro-Mediterranean cooperation from the EU´s standpoint: to achieve political stability in the region through "low politics", i.e. by means of economic tools and their spill-over effects on political liberalization and transition to democracy. However this programme requires also a deeper integration not only between two sides of the Mediterranean but among the Mediterranean countries as well. Also Nabiha Maamri underlines the necessity to foster Southern regional integration, well beyond the present low levels of reciprocal trade. In addition she considers the Euro-Mediterranean Free Trade Area (FTA) as a binding mechanism for bilateral FTAs and the GAFTA, and advocates an extension of regional integration to new areas such as services, investments and agricultural products.

At this point the focus of research leaves the political field for going deeper into analyzing economic issues. Hence, Section Four delivers a general macroeconomic and social framework of the region. Francesco Figari provides a comprehensive snapshot of the main socio-economic indicators of the Mediterranean countries along three different dimensions: economic, financial and fiscal. This book´s editor contributes to such a framework by studying the links between Mediterranean countries´ business cycles and that of eurozone with the helps of econometric tools. Savvas Katsikides focuses on EU social dialogue and on the European social model in the light of enlargement and the Euro-Mediterranean Partnership. Luca Gandullia and Francesco Figari close this part by analyzing effects of trade liberalization in terms of loss of tax revenue and budget vulnerability in Mediterranean countries.

One of the main conclusions of Francesco Figari´s first paper is that among the Mediterranean partners Egypt, Lebanon, Morocco and Turkey should pay more attention to the conditions of children and women in relation to the Millennium Development Goals. Moreover, the success of the Barcelona Process requires the Mediterranean countries to take into account a possible trade-off between the need to protect vulnerable population groups from market liberalization impact and the objective to reduce public intervention in economy, as well a reduction of customs revenue due to the development of a future regional FTA. For his part the editor of the book shows that recently economic links between the two shores of Mediterranean, as measured by business cycles correlations, have deteriorated, above all for Algeria, Morocco, Turkey, Lebanon and Tunisia. Hence the need to improve regional economic cooperation, if the deadline of setting up an FTA by 2010 is to be met. Presenting the main achievements and objective of EU social dialogue in view of the Euro-Mediterranean Partnership, Savvas Katsikides maintains that globalization can put in jeopardy the future of the European social model, but makes the need for industrial relation more, not less, important. Among the key initiatives related to social issues, which are foreseen within the Euro-Mediterranean cooperation, he singles out a Conference on gender equality to be organized in 2006 and a further Conference on migratory flows and social integration in 2007. In the end Luca Gandullia and Francesco Figari find that trade liberalization process will require compensatory revenue measures, increasing the rates of general consumption taxes, mainly in the form of Value Added Taxes. However, Mediterranean countries can also implement a more vigorous reform of domestic tax systems affecting also individual income and corporate taxes, for taking advantage of a more liberal trade regime, avoiding at the same time to increase their own budget vulnerability.

The subsequent part of the book, Section Five, deals with a number of economic and commercial issues that are central to the regional development prospects. Hanaa Kheir-El-Din and Ahmed F. Ghoneim employ a set of econometric techniques in order to assess the impact of EU enlargement, the Barcelona Process and the new ENP on present and potential exports of the Agadir countries (Egypt, Morocco, Tunisia and Jordan) to the EU-25. Also Andrea Marino and Claudia Bornico, in two separate papers, centre on trade relationships along the North-South dimension, trying to assess principally the impact of tariff reductions on southern countries economic performance: the former in general terms, the latter with particular reference to the Mediterranean partners. In the closing part of this Section Mafalda Marenco and Franco Praussello describe in detail the stakes of Mediterranean countries within the Doha development agenda, considering at the same time the impact of trade liberalization and integration at a regional level.

Hanaa Kheir-El-Din and Ahmed F. Ghoneim conclude their study stressing four findings: i) the failure of the Barcelona Process to achieve its targets; ii) the possible threat of enlargement to displace in the long run Mediterranean countries´ exports to the EU; iii) a similarly potential negative impact of ENP in diverting financial flows from Mediterranean partners; iv) the huge potential, instead, to be reaped by the latter from liberalization of trade in services. Andrea Marino presents the results on an empirical research showing that the relationship between "ad valorem" tariff rates affected by trade liberalization, on the one hand, and growth rates of Southern countries, on the other, is possibly U-shaped. Hence, provided that tariff rate is sufficiently high, trade protection may even have a growth improving effect. Claudia Bornico, in her turn, argues that trade liberalization is likely to produce limited gains or even a loss in welfare for Mediterranean countries in the short run. However she is confident that trade liberalization will also strengthen the need for deeper structural reforms, enhancing the potential growth of the latter. In any case, maintain Mafalda Marenco and Franco Praussello, in relations with the global trading system there is a room for Mediterranean countries to coordinate their efforts and to strike a deal with the EU in order to increase their bargaining power in the final stage of the Doha Round. Yet, in order to avoid welfare losses for their populations, there is a need for them to set up safety nets at home for protecting the poor households from the shock induced by liberalization policies.

Section Six is devoted to a cornerstone of financial relationships in the Mediterranean region: the impact of FDI flows on growth, on the one hand, and on trade, on the other. The former aspect is treated mainly in a comprehensive quantitative investigation by M. Hisarciklilar, S.S. Kayam, M.O. Kayalica and N.L. Ozkale, with a paper examining the links between growth, FDI and trade for a cluster of countries including Algeria, Cyprus, Egypt, Israel, Jordan, Morocco, Syria, Tunisia and Turkey. The latter is scrutinized by Marta Favara on the basis of an assumption that trade and FDI are not two separate and distinct functions but are inter-related.

The results of the first study show that in the short run the direction of causality between FDI, GDP and trade in the aftermath of Barcelona gives rise to import substituting effects activated by FDI inflows into the Mediterranean area. This allows M. Hisarciklilar, S.S. Kayam, M.O. Kayalica and N.L. Ozkale to conclude that the integration of the latter to the EU has not produced the expected FDI growth promoting effects. On the same subjects, Marta Favara identifies in the lack of reforms an additional explanation for the small share of FDI attracted by the region in absolute terms and compared with the size of its economies. However, with the completion of the Euro-Mediterranean FTA trade is likely to be a key source of growth, with significant improvement of domestic private investment and FDI inflows.

In the last part of the book, Section Seven, a group of four papers is presented dealing with local and sectoral economic issues. Lory Barile checks the impact of a new regime for international trade of textiles and clothing in the Euro-Mediterranean area, whereas Anna Sabadash focuses on sustainable finance outcome for the small and medium enterprises (SMEs) within the latter. Also Amina Zouaoui and Lahcen Oulhaj focus on a financial subject, with reference to the recent Moroccan banking law, inspired by the French and EU regulations. Finally, Teresa Casanova investigates the Turkish case and its convergence to the EU in the light of the Mexican catching-up process to the US.

Lory Barile shows how the expire of the Agreement on Textiles and Clothing in 2005 has aroused a lot of international problems, not least for the stability of the Mediterranean sectoral field. Indeed, one of the drawbacks of previous quota regime was to lower the competitive strength of local industry. For her part Anna Sabadash concludes her research by recommending structural reforms in the Mediterranean financial sector aiming at introducing new financial products and uniting banks with non-banking financial institutions, in view of an improved support to SMEs. Interaction between financial sector and SMEs is indeed considered as a potential source of sustainable development in the Euro-Mediterranean region. Amina Zouaoui and Lahcen Oulhaj argue that reforms in the Moroccan financial sector have heightened the level of local regulations to those of European countries experiencing a high degree of liberalization. However, in some cases power and control capacity of financial regulators have been reinforced. In the end Teresa Casanova maintains that, in order to fruitfully imitate the success story of Mexico catching-up to US economic standards, Turkey has to overcome with local means its domestic weaknesses such as a high corruption degree, fragility of institutions, backwardness of agriculture and above all deep inequality throughout the country. Indeed, greater equity implies a more efficient economy, reduced conflicts, better institutions with dynamic benefits for investment and growth.

At the end of the long journey made by our research network a number of provisional conclusions on the present state of the follow up to Barcelona Declaration are possible. In general terms, up to now, as far as the main axis of the Barcelona Process are concerned, the Euro-Mediterranean cooperation has not delivered expected fruits, both for the chapter on political and security issues and for that of economic and financial partnership. Against a background of an exceptionally complex regional security agenda the Barcelona Process has failed to give a significant positive contribution to cope with the challenges of tensions, wars, and other threats to peace and stability in the area such as terrorism and fundamentalism. In the Middle East a difficult after-war transition and a permanent state of low and sometimes high intensity conflict between Israel and the Palestinian Authority are playing as destabilizing factors. Dialogue between Arab countries and Israel has made little progress if any, and even the issue of a more localized tension source as such of relationship between Turks and Cypriots, despite progress in the enlargement process, has not yet been settled and seems to have simply come to a standstill.

Also the balance of economic and financial cooperation is meagre, putting at risk the "low politics" strategy followed by the EU to achieve political goals such as stability and security by means of economic tools. Environmental threats emerging in the area, namely as regards pollution in the Mediterranean Sea and energy security or water availability, do not fit well into the sustainable development agenda. In addition liberalization, above all in the field of trade opening, has not yet produced its potential benefits: so far for many countries in the area structural economic links with the eurozone are weakening and short run commercial gains are limited, with possible costs in terms of increased fiscal vulnerability, due to reduced customs taxes, and of welfare loss for poor households. At the same time integration with the EU has not yet translated into more FDI flows directed to the region, with possible growth promoting effects. With the caveat that in the long run enlargement could displace Mediterranean countries´ exports to the EU, whereas the ENP could likewise divert EU financial flows from them.

However, the picture is not entirely dark and displays also some light spots. First of all, the spirit of Barcelona has not faded out and is well alive: partners on two Mediterranean shores intend to go on along the integration path. Second, enlargement could involve all of old and new Member States in a renewed EU stance towards Mediterranean strategic affairs. Third, potential benefits in extending trade liberalization to sectors such as those of agriculture and service are deemed to be very high. Fourth, the process of South-South economic integration following the Agadir Agreement offers an opportunity to complete the framework of regional cooperation along a new dimension. Fifth, trade liberalization can reinforce the need for deeper structural reforms in Mediterranean countries, strengthening their potential growth.

In any case the Mediterranean region remains a crucial strategic area for the EU, not so much for economic reasons, but for the political need of the Union to be surrounded by peaceful neighbours. One has to never forget that at the basis of the long standing process of European integration there was a classic political goal: to safeguard peace in the inner continental arena, after a century-long period of tensions and wars among European States. Hence the relevance of the political motivation also for the Mediterranean region integration. Enlargement has helped to stabilize an other area of crucial interest for the EU, mainly that of Central and Eastern Europe, and from this standpoint it has to be said that it has to be completed with the accession of all Balkan countries. For the EU as a whole the joining of the States formerly belonging to the Republic of Yugoslavia is not a matter of foreign policy but an internal affair. If the nationalism virus spread with the recent Balkan wars and still largely present in some of the remaining ex-Yugoslavia strongholds is not entirely terminated, it could infect the rest of the Union and put in jeopardy its very survival in the long run.

Under these circumstances a re-balancing of the two processes, enlargement and Euro-Mediterranean cooperation, seems to be necessary. Not only there is a need to redirect the Barcelona Process towards more global achievements in the fields of political and economic cooperation as well of sustainable development, but the existing asymmetry in favour of the Eastwards enlargement at the expenses of EU´s relationship with Mediterranean partners has to be mended. It will be then possible that a re-launched Euro-Mediterranean dialogue delivers in the future its expected positive outcomes.

In the future even a possible change in the ENP can be envisaged. At the heart of the ENP there is a not too concealed attempt to trade economic and financial aid against a renouncement by neighbouring countries to claim a full participation to the EU regime by a formal accession. In the present stalemate of the internal deepening process of integration due to negative referenda on the Constitutional Treaty in France and Netherlands in 2005, ENP can be considered as a second best solution. However, when constitutional hurdles will be overcome and adhesion bargaining with Turkey will be set on a sound track its basic rationale will evaporate. Per se the debate on Europe´s borders has not much sense, if not that of taking into account some fears of public opinions not enough informed by the EU policy-makers and not sufficiently involved in the process of democratic construction of a closer Union, as founding EU laws state. What really matters for joining the EU is the respect of Copenhagen criteria and a historic link with Europe, whatever the private beliefs of populations.

When by 2020 Turkey will possibly be part of the Union, showing that the EU is not a mere Christian club and establishing a bridge towards democratic States, whose populations belong in their majority to Islamic devotion, Mediterranean countries with their historic links to Europe will become credible candidates to the EU. All this, of course, provided at the same time the European constitutional process is so advanced as to allow an inner circle of States to establish a real European government and a fully fledged European federal State, acting as an anchor for the rest of the Union placed in the outer circle. But this, of course, is only food for thought for our common future.