European Union Enlargement

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European Union Enlargement
tutor2u
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The Official EU View on Enlargement

• Enlargement is one of the EU's most powerful
  policy tools. It serves the EU's strategic
  interests in stability, security, and conflict
  prevention. It has helped to increase prosperity
  and growth opportunities, to improve links with
  vital transport and energy routes, and to
  increase the EU's weight in the world.
• In May 2009, the EU will mark the fifth
  anniversary of the 2004 enlargement.

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Some issues to cover and revise

• Has the widening of the EU been a success?
• The benefits and costs of enlargement for
• New member states
• Existing (established) members of the EU
• The EU economy as a whole e.g. in the context of
  globalisation and other external events
• EU enlargement and immigration policy
• How many more countries will join?
• Will enlargement prevent final economic union?
• How many new states will join the Euro?
• Is enlargement fatigue setting in?
• What of states that remain outside of the EU e.g.
  Norway and Iceland

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EU Enlargement A Brief Historical Perspective

• Europe has added new members periodically
• Six Main Waves of EU Enlargement
• 1973 (UK, Ireland and Denmark)
• 1981 (Greece)
• 1986 (Portugal and Spain)
• 1995 (Austria, Finland and Sweden)
• 2004 (Ten new countries)
• 2007 (Bulgaria and Romania)

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Who will be next? Potential members
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Centre for European Reform

• The objective of joining the EU has helped the
  Central and East European countries to move from
  post-Communist upheaval to market economics and
  pluralist democracies in little more than a
  decade. Ten countries successfully joined the EU
  in May 2004, and Bulgaria and Romania followed in
  January 2007. However, the Union is showing signs
  of 'enlargement fatigue'. Many politicians worry
  that an ever larger Union will function badly,
  and that further widening will come at the
  expense of deepening. West European workers fear
  the economic consequences of adding 50 million
  low-cost workers to the EU single market. Future
  accession would be very difficult unless public
  and political support for enlargement revives.
• www.cer.org.uk/enlargement_new/index_enlargement_
  new.html

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EU Membership Distribution in Jan 2004
EU MEMBERSHIP (April 2004) EU MEMBERSHIP (April 2004) EU MEMBERSHIP (April 2004)
RICH POOR
LARGE UK SPAIN
LARGE FRANCE
LARGE ITALY
LARGE GERMANY
SMALL BELGIUM PORTUGAL
SMALL LUXEMBOURG GREECE
SMALL NETHERLANDS
SMALL IRELAND
SMALL DENMARK
SMALL SWEDEN
SMALL AUSTRIA
SMALL FINLAND
SMALL
SMALL
SMALL
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EU Membership in January 2009
EU MEMBERSHIP JANUARY 2009 EU MEMBERSHIP JANUARY 2009 EU MEMBERSHIP JANUARY 2009
RICH POOR
LARGE UK SPAIN
LARGE FRANCE POLAND
LARGE ITALY
LARGE GERMANY
SMALL BELGIUM PORTUGAL
SMALL LUXEMBOURG GREECE
SMALL NETHERLANDS ESTONIA ROMANIA
SMALL IRELAND HUNGARY BULGARIA
SMALL DENMARK CZECH REPUBLIC
SMALL SWEDEN SLOVAKIA
SMALL AUSTRIA SLOVENIA
SMALL FINLAND CYPRUS
SMALL MALTA
SMALL LITHUANIA
SMALL LATVIA
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The Map of an Enlarged Europe
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Overview of new member states (1)
Per Capita Incomes EU25100 PPP adjusted Per Capita Incomes EU25100 PPP adjusted Manufacturing as a of GDP GDP Growth
1997 2008 in 2006 Average annual growth () 1999-08
Bulgaria 26 39 26 5.3
Cyprus 86 92 11 3.8
Czech Republic 73 82 32 2.8
Estonia 42 67 21 6.4
Hungary 52 63 26 3.8
Latvia 37 56 15 7.3
Lithuania 38 62 23 6.5
Malta 81 76 17 1.9
Poland 47 55 25 4.2
Romania 26 44 27 5.2
Slovakia 51 71 28 4.5
Slovenia 78 91 28 5.2
Turkey 32 42 25 4.2
United Kingdom
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Overview of new member states (2)
Inflation Unemployment Labour productivity Population
change in consumer prices in 2008 Per cent of the labour force in November 2008 GDP per person employed EU27100 in 2008 Thousands 2008 mid year estimate
Bulgaria 12.0 5.1 36 7 640
Cyprus 4.4 3.9 85 789
Czech Republic 6.3 4.5 73 10 381
Estonia 10.6 8.3 63 1 340
Hungary 6.0 8.3 74 10 045
Latvia 15.3 9.0 51 2 270
Lithuania 11.1 7.0 63 3 366
Malta 4.7 5.8 89 410
Poland 4.2 6.5 62 38 115
Romania 7.9 5.8 45 21 528
Slovakia 3.9 9.1 78 5 401
Slovenia 5.5 4.3 86 2 025
Turkey 10.4 n/a 62 70 586
United Kingdom
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GDP Per Head for selected member states
Some progress in raising relative living
standards Catching up with Portugal and
Greece Newer nations are considerably poorer
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Unemployment rates for selected countries
Strong growth has helped to bring down
unemployment More jobs for domestic workers
reverse migration? But putting pressure on wages
to rise
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Joining the Club Criterion for EU Entry

• Accession countries have to meet the Copenhagen
  criterion for joining the European Union
• Stability of political institutions guaranteeing
  democracy, the rule of law, human rights and
  respect for and protection of minorities
• A fully functioning market economy that meets the
  standards required for participation in the
  single market

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Transition Economies

• Price Liberalisation
• Moving away from state controlled prices to allow
  the price mechanism greater influence in
  allocating resources
• Privatisation
• Transfer of ownership
• Development of private sector capital markets

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Transition Economies (2)

• Liberalisation of Trade with other Countries
• Full convertibility of currencies
• Preparation for eventual membership of the Euro
• Reforms of the Financial Sector
• Fully-functioning Central Banks to take control
  of monetary policy
• Capital markets for corporate and government bond
  issues

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Potential Gains for Accession Countries

• (1) Membership of the EU Single Market
• Trade
• Exploiting comparative advantage to increase
  trade
• Investment
• Free movement of capital looking for the
  highest return
• Inward investment to aid transformation of
  national infrastructure impact on a countrys
  LRAS / trend growth
• Competition
• More competition a boost to labour productivity
• Dynamic efficiency gains e.g. arising from higher
  capital investment and faster pace of innovation

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Potential Gains for Accession Countries (2)

• Financial Support
• Countries will be net recipients of income from
• Common Agricultural Policy
• EU Structural funds
• Many regions have per capita incomes well below
  the 75 threshold for Objective 1 funding
• 92 of population of accession countries lives in
  regions with a GDP/head under 75 of the EU25
  average. 61 of the population lives in regions
  below 50
• Much of the EU funding will help to finance
  investment

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Potential Gains for Accession Countries (3)

• Potential macroeconomic advantages
• Reduced exchange rate volatility many countries
  are keen to join the Euro to reduce exchange rate
  risk and benefit from lower interest rates
• Slovenia, Slovakia, Cyprus and Malta have joined
  the single currency
• Slovenia January 2007
• Cyprus and Malta January 2008
• Slovakia January 2009
• Other countries do not meet the entry
  requirements or have chosen to remain outside
  to retain monetary policy flexibility

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Competitive advantage for new states?

• Central European location for many
• Significantly lower wage costs
• Lower productivity but unit labour costs still
  cheaper e.g. for car manufacturers
• Lower land prices
• Attractive corporate tax regime other
  incentives
• Success of previous inward investments
• Many new states have highly literate population

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Diagram corner

• Useful diagrams for this topic
• Trade diagrams welfare effects from single
  market, exploitation of comparative advantage
• AD-AS diagrams
• Inward investment effects
• Economic shocks within the enlarged EU economy
• Economies of scale
• Labour market diagrams e.g. impact of migration

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Competitiveness and Growth in the New Member
States

• Performance of Europes new countries

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Competitiveness
Institute for World Economics of the Hungarian Academy of Sciences Comparative Survey of the new Member States Institute for World Economics of the Hungarian Academy of Sciences Comparative Survey of the new Member States Institute for World Economics of the Hungarian Academy of Sciences Comparative Survey of the new Member States
Ranking Country Index value
1. Slovenia 90.6
2. Czech Republic 82.8
3. Lithuania 81.5
4. Hungary 80.5
5. Estonia 80.2
6. Slovakia 74.2
7. Poland 71.9
8. Latvia 71.5
Economic criteria include real GDP growth, GDP (PPP) per capita, gross investment, productivity, balance of trade, unemployment, and convergence indices of the economic and monetary union Economic criteria include real GDP growth, GDP (PPP) per capita, gross investment, productivity, balance of trade, unemployment, and convergence indices of the economic and monetary union Economic criteria include real GDP growth, GDP (PPP) per capita, gross investment, productivity, balance of trade, unemployment, and convergence indices of the economic and monetary union
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The Sources of Growth
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The Sources of Growth
Labour Supply Labour Utilisation Human Capital
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The Sources of Growth
Labour Supply Labour Utilisation Human Capital
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The Sources of Growth
Labour Supply Labour Utilisation Human Capital
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Recent growth for selected countries
Growth much faster than the UK But has this been
sustainable? Steep slowdown and now recession for
many new EU members Some of them over-heated
when they joined the EU
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Latvia Rampant wage inflation destabilised the
economy
Click here for an article
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Estonia from boom to deep recession
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Inflation - better control in some new EU
countries than others
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Poland has improved the trade off between jobs
and prices
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And a rising employment rate will help to provide
jobs at home for younger workers
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Potential Gains for Existing EU Countries

• (1) Export potential and exploitation of
  economies of scale
• (2) Foreign Investment and Incomes and Profits
• (3) More diverse European labour market
• (4) A cleaner environment
• (5) Catalyst for further structural reforms in
  the EU
• Reforms to the CAP
• Spur to countries to reform their labour markets
  in the face of lower labour cost competition
• Many countries are already engaging in tax
  competition

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EU Enlargement an export opportunity for the UK
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Main Concerns of Member Nations

• Extra budgetary costs for the EU
• Can accession countries continue to meet stricter
  EU environmental standards?
• Long-term need for higher regional subsidies
  loss of some regional funding for established EU
  countries
• Social concerns from increased labour migration
• Some Objective 1 regions will now lose some of
  their funding including regions in the UK,
  Spain, Greece and Portugal

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Economic Concerns of Member Nations

• Labour Market Issues
• Fears of higher structural unemployment among
  accession countries which might lead to large
  immigration of labour into higher-income
  countries political and social tensions
• Fears of a surge in economic migration from East
  to West
• Social dumping?
• Concerns about organised crime and illegal
  immigration from Russia, Belarus and the Ukraine
  through weak Eastern European borders
• In Germany, Austria and Italy (countries that
  border accession states) there are intensive
  debates about controlling the flow of migrants
  from former Eastern Europe

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What is convergence?

• Income convergence
• Where the divide in per capita incomes becomes
  smaller over time
• Requires countries to achieve relatively faster
  growth over a substantial time period
• Convergence may also happen if other richer
  countries suffer a slowdown
• NMS trade heavily with the established EU so an
  EU-wide slowdown is not in their long term
  interests

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The likely scenario for new member states

• Income convergence is not automatic
• Baltic states and Slovenia appear to have the
  best growth / convergence potential but Baltic
  States over-heated
• Convergence will happen but at different speeds
• Is there a new Ireland? A Baltic Tiger? Ireland
  collapse in 08
• Growth is stimulated by capital investment and
  productivity
• But in the long term, NMS will need to improve
  employment rates, and achieve great labour
  mobility
• Unemployment is a constraint on growth
• Demographics will also play a role
• Will the new members join the Euro? 4 have done
  so

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Recent articles on EU enlargement

• Financial crisis in Hungary
• http//www.guardian.co.uk/commentisfree/2008/oct/2
  9/creditcrunch-eu
• Reversing Poles how Poland brought its workers
  home
• http//www.guardian.co.uk/business/2009/jan/23/pol
  and-reverses-uk-migration
• Will Turkey ever be accepted by the EU?
• http//www.guardian.co.uk/commentisfree/2009/jan/1
  9/turkey-gaza
• Crises test stability of new EU states
• http//www.ft.com/cms/s/0/5f05bd08-e331-11dd-a5cf-
  0000779fd2ac.html
• Balkan states set to launch EU bids
• http//www.ft.com/cms/s/0/7f38328c-a776-11dd-865e-
  000077b07658.html
• Crunch time for eastern Europe
• http//www.ft.com/cms/s/0/95f2113e-cb14-11dd-87d7-
  000077b07658.html
• Turkey tries to revive EU drive
• http//news.bbc.co.uk/1/hi/world/europe/7837145.st
  m

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Key Unit 4 Tips

• Use the bullet points (reworded) as subheadings
• Ensure you answer all sections
• Answer the question!
• Refer to extracts and articles to support your
  answer (analysis)
• Use terminology/definitions from the AS/A2
  course, theory and diagrams (application)
• Evaluation is crucial (30 marks!) but does not
  have to take place only in the final section say
  which sources are more useful than others, say
  what other data would have helped you to make a
  better recommendation, say which sources may be
  biased. Evaluation is saying what your
  recommendation is based on!
• Plan your answer to ensure you cover as much
  relevant material as possible
• Aim to write at least 7 8 sides in the time
  provided (including diagrams easy application
  marks)
• Remember that 120/120 is not out of the question
  and this is not always the best candidates
  who achieve this
• Source Andy Threadgould, Dulwich College, Jan
  2009