Concerning the economic impact, the process of enlargement has already yielded economic benefits, and can offer more. The benefits for include an increased prosperity for old and new members as a result of the wider market providing higher demand resulting from growth in the new members.
Enlargement to EU-25 will add 75 million consumers to the EU’s single market. This should lead to intensified trade in goods and services, economies of scale, increased competitions and more flows of investment, thus resulting in more economic growth, in both current and new member states. In this respect, enlargement resembles the process of completion of the single market which the EU experienced in the 1990s. The analysis of the prospects for the future growth depends to a large extent on trade, investment and migration, and these three factors are considered in the following paragraphs.
One estimate is that the current EU members would gain a total of about 10 billion euros over the long run, increasing their GDP by a one-time gain of 0, 2 %, which could lead to the creation of an estimated 300,000 jobs (H. Grabbe, 2001). This economic gain would be distributed unequally across existing member states; with Germany accounting for around one-third.
However, some studies notice that general facts make it improbable that the Eastern enlargement will have a significant economic impact on the EU. In fact, Central Europe has a same “economic size” compared with the Netherlands (less than 5% of the GDP of the EU-15) and that’s why it’s difficult to conceive that trade or FDI could have a significant influence in the short or medium run (Pelkmans, 2001).
FDI may increase especially in parts of Central Europe, currently regarded by investors as relatively risky or costly but their EU membership is far off, decisive for more FDI. Also with respect to FDI, fears particularly about “delocalisation” exist in the EU. Abraham & Konings (1999), however, show that such investment relocation is rarely the motive of FDI in Central Europe, and even in such cases it may still generate additional exports of intermediate goods.
Concerning the effects of migration in the EU economy, existing members have now an access to a workforce “low-skilled” and cheaper. In fact, countries gain economic advantages from immigration, which fills labour shortages in skilled and unskilled occupations.
Concerning Europe in the world, the EU is already a leading actor in the field of international economic relations, and enlargement to 25 members will enhance its influence. In foreign affairs, security and defence, it has made some progress in developing common actions, but in a key issue of foreign policy today – Iraq – the EU has been totally absent. Europe is economically strong but politically weak. With the prospect of enlargement, the EU should reflect urgently on the need to rebuild a common foreign policy, with the intention of speaking with a single voice and as a result, the Convention of the Future of Europe should lead to improvement in the EU’s external representation (Kok, 2003).
For both present and future member states, the economic opportunities and risks of enlargement need to be managed, and the success of enlargement will depend on how well this is done.
The challenges and costs facing the Central and Eastern enlargement
With the increase from 15 to 25 members the EU must reform its system of decision-making, to avoid the risk that “more” will mean “less”. Already the EU institutions are subject to criticism. Enlargement gives the need, and the occasion, to “upgrade” the system of governance. Baldwin et al. (2000) show that with the current voting rules, an increase in the number of EU member will lead to a jump in the probability of having coalitions blocking important decision and to a much hugger risk of decision making process being slowed down by the polarisation between the block of Northern richer countries and that of less well off Southern and Eastern states.
Nowadays, it generally accepted that the EU must also adapt its institutions to admit new members. The case of the agricultural policy is a good example of what this means in practice.
In fact, one of the most fundamental problems for enlargement has been how or indeed whether the EU’s Common Agricultural Policy (CAP) might be extended to include ten or more new members. Many have observed that the basic principles of the CAP-market unity, Community preference, and financial solidarity-are impossible to sustain within an enlarged EU. If the rules for allocating subsidies were applied to the CEECs, the transfers required would certainly bankrupt the Union, while existing EU members (such as Spain, Portugal and Ireland) would lose their support.
The contentious bottom line is, of course, that existing members have to accept lower receipts from CAP (Ireland, Spain, Greece and Portugal), and this is also the key to the structural funds accommodating further enlargement. The increase in the structural funds required to enlarge to the east is around 40-45 billion Euro for all ten CEECs (Stuart Croft, John Redmond, G. Wyn Rees and Mark Weber, 1999). Indeed, the huge disparities between accession countries and current member states in terms of per capita income and infrastructures will entail a major reallocation of structural funds. As Weise (2002) points out, as a consequence of enlargement, average GDP per capita in the EU will drop by roughly 10-15%. Consequently all current EU regions will improve their relative position: if rules do not change, regions currently risk losing EU structural funds.
According to sceptics in the west, enlargement brings migration which will damage western Europe in two ways First, by encouraging manufacturing industries to base themselves where labour costs are lowest in the east, and secondly by encouraging jobhunters to come to the West, adding to the 14 million already out of work (BBC, 2002). The income disparities for some groups and candidate countries are likely to be bigger than with any previous enlargement. This fuels the expectation that migration flows will be large, and especially in low-skilled categories, thereby negatively affecting wages and job opportunities of the low-skilled.
However, and significantly damping these expectations, it is little realised that national labour markets in EU apply the host-country principle, meaning that there is no wage competition between immigrants and locals., So, in most instances, workers will migrate only if their skills overcompensate the non-wage disadvantages of being a foreign worker, or, if this does not apply, they will find illegal employment or fill up labour shortages in sectors or countries with tight labour markets. For EU countries with high unemployment, the truly sensitive issue is, therefore, illegal migration. Long transition periods to delay immigration do not prevent illegal migration. Only for Austria and (East) Germany do frontier workers present a potential problem, if the labour market is not tight (Fridrmuc & Nowotny 2000; Bauer & Zimmerman 1999; Boeri & Brueckner 2000).
Moreover, expert calculations of likely migration tend to be modest. The European Integration Consortium’s estimate of the numbers who would move to the current EU after the introduction of free movement of labour, without taking account of the transition period of seven years, is 335,000 (0,1 % of the current EU population) rising slowly over the following 30 years to reach a peak of 1.1 % of the population(T. Boeri and H. Brücker, 2002).
Regarding the costs of enlargement, It is likely to cost 25 billion euros over the first three years, assuming 10 new members join in 2004. Over this period, the EU will spend 40 billion euros, but the new members themselves will pay 15 billion euros into the EU budget (BBC, 2003). Counting the costs to the EU prior to accession - from 2000 to 2004 - and for the two years after accession, it comes up with a figure of 67 billion euros. The argument of an “expensive enlargement” could be relativized because, by comparison, the cost of reunification to the German Government was 600 billion euros between 1990 and 1999 (BBC, 2003).
In the long run the enlargement of the EU will increase stability, security and prosperity throughout the continent. The extension of the internal market will stimulate growth and provide new possibilities for the economy in Europe. The investment on the renewal of the acceding countries' infrastructures and the raising of standard of living to the EU level increases demand and competitiveness in the Union. Furthermore, an enlarged Union will have a greater influence in the globalise world and will be a stronger partner in international trade negotiations. The enlargement is also expected to have negative consequences. The GNP of the candidate countries is only about 30% of the EU average and there is also considerable disparity in the pace of development between these countries. In fact, we can note there is a divergence of point of view in some areas. For example in agriculture, countries like Spain, Portugal, Greece and Ireland are quite opposed because, with the entry of new countries where agriculture is important, they will loose a great part of their subsidies. The large agricultural sector of some candidate countries presents a challenge to the EU. There are also fears that the right to free movement will lead to an influx of job seekers from these countries and that it will pose a security threat by making it easier also for organised crime to spread. That’s why, it clearly appears the necessity for Germany, Austria and Italy to beneficiate of transition periods in order to adapt and acclimatise their labour market. Enlargement and its changes can bring long-term benefits, but the costs may precede the gains, and there will be losers as well as winners. The challenge is about managing change.
Bibliography
Wim Kok, “Enlarging the European Union, achievements and challenges”, Final report, 2003
H. Grabbe, “Profiting from EU enlargement”, CER Pamphlet, London, 2001
Abraham & Konings, “Does the opening Central and Eastern Europe threaten employment in the West?” 1999
Baldwin, R., Berglöf, E., Giavazzi, F. and Widgrén, M. 2000. “EU Reforms for Tomorrow’s
Europe”. CEPR Discussion Paper 2623
Jacques Pelkmans, “European Integration: Methods and Economics Analysis” second edition, 2001
T. Boeri and H. Brücker, “The Impact of Eastern Enlargement on Employment and Labour Markets in the EU Member States”, Final Report, European Integration Consortium, Berlin, 2002
Bauer & Zimmerman, “Assessment of possible migration pressure and its labour market impact following EU enlargement to central and Eastern Europe”, Study for the UK Dept for Education & Employment, London, 1999
John Pinder, «The European Community and Eastern Europe », 1991
Paul Heywood, Erik Jones and Martin Rhodes, « Developments in West European Politics 2”, 2002
Laura Cram, Desmond Dinan and Neill Nugent, “Developments in the European Union”, 1999
Stuart Croft, John Redmond, G. Wyn Rees and Mark Weber, “The enlargement of Europe”, 1999
Web sites:
, April, 2002
, February, 2003
