Old Europe and New Europe political divsions are on the mend it is the economic divisions that are getting wider- Laissez faire groups like the Heritage Foundation in Washington have been quick to draw the battle lines. Its index of economic freedom gauges "government interference" in wages, prices, trade policy, capital flows and the like, as well as giving credit to countries that protect property rights and have small black markets.
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By this measure, the vanguard of new economic Europe is made up of Luxembourg, Estonia and Ireland. All three rank higher in economic freedom than the United States. The staunchest of old economic Europe's firmament, among EU members, are France, Greece and Slovenia.
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Literal interpreters of economic theory might expect this measure of freedom to correlate highly with social welfare. After all, mainstream theory in the capitalist world teaches that freer trade, more competition and less government involvement in markets will all improve citizens' lots in life. Yet the reality is sometimes different. In rankings of happiness for 2003 compiled by the European Foundation for the Improvement of Living and Working Conditions, Greece is fourth from top in the expanded EU, and Estonia is fifth from bottom.
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The economic divide does not always follow national borders, however. In three of Europe's biggest economies - France, Germany and Italy - internal battles are under way over policies that would reshape labor markets, making it easier to hire and fire workers. And in Brussels, European commissioners have broken with public opinion in their own countries when seeking to liberalize trade and do away with farm subsidies.
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As the new and old economic Europeans stand fast by their preferences, tensions have arisen. The titans of old economic Europe looked on aghast as Ireland slashed its tax rates in an all-out pursuit of growth. Poland, once feared by agricultural lobbies in the EU as a giant farm capable of driving down crop prices, now joins those lobbies to push for trade barriers - barriers loudly condemned by, for example, Britain. As France, Germany, Italy and Britain sought to loosen EU rules on budget deficits, Austria and the Netherlands cried foul, as has the European Central Bank.
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Though disputes about labor markets and trade are often the most visible, the divergent economic philosophies also figure in debates on social security, competition policy, bureaucratic structures and European integration. And, of course, the very future of Europe hinges on whether these two schools of thought can converge enough to coexist in an increasingly federal system.
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The roots of these differences lie primarily in Europe's experiments with socialism, and people's impressions of the results. There are those who consider socialism a failure and wish to replace it with its opposite, and those who believe the state should protect workers from the supposedly uncaring actions of capitalists. Intriguingly, these factions seem to exist in Western Europe just as they do in former Communist countries. So, too, does an in-between group, which likes free markets but would trade a little income and growth for guarantees of medical care, education and some notion of economic equality.
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At times, the results of these factions' preferences can be oddly juxtaposed. "The British and other more traditionally reform-minded countries in old Europe have found new allies in the East, even though these countries in many ways have very large, even overblown welfare states themselves," said Buiter of the European Bank for Reconstruction and Development. "It's kind of strange. You see countries with a very big public sector, very big social burden, are nonetheless pursuing very liberal policies."
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Changes in Europe's economic structures are heading mostly in one direction - toward market-based economies and away from socialism. In some countries, like Britain, the various political parties have essentially reached a consensus on the foundations of a market-driven economic policy.
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But it would be wrong to attach an unambiguously positive slant to new economic Europe and a pejorative one to the old. The European Union is made up of democracies, and, in theory, the rules of each economy are chosen by a majority of its voting members. Old economic Europe may stick to the old ways because, quite simply, people like them. It is still a case of self-interest driving the economy, just not quite the way the Scottish economist Adam Smith envisioned it.
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Nevertheless, it is tempting to think that old economic Europeans do not really know what they are missing.
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"People often don't anticipate the systemic consequences of the behavior that they're legislating or adopting," Buiter said. "But I also think that the tendency to equate GDP per capita with well-being and happiness is a form of infantile materialism that should also be discouraged. The truth lies in getting people to make informed choices."
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As the EU's new and old members compare notes, those choices will become better informed. But will being better informed - and better integrated - lead to more similarities across Europe, or will the differences just become more exaggerated?
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"The range of possible outcomes is maybe becoming a bit narrower, but convergence to a single model? No," Buiter added. "You will see 25 different forms of capitalism in the 25 nations of the EU."
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