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The economic results of the 2004 enlargement of the European Union

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  1. Introduction
  2. The challenging fifth enlargement
    1. The most ambitious enlargement in the history of the European Union
    2. The importance of the pre-accession phase
    3. Two years later: An economic success?
    4. A boost for new comer's economies
    5. The positive impact on trade: Foreign direct investment and the financial sector
  3. Has Western Europe paid the bill for Eastern and Central European economic growth?
    1. Western fears were actually not justified
    2. Has Eastern and Central European social/tax dumping caused massive relocation of Western companies?
    3. Has unemployment in the EU-15 been raised by an influx of Polish plumbers, Hungarian nurses or Latvian builders?
    4. A small impact on the EU's economy and budget
    5. A positive but small economic impact on the EU-15
  4. Conclusion
  5. References

Two years ago, the European Union was joined by 10 new members whose 8 were former communist countries (plus Malta and Cyprus). The fifth enlargement has been the most ambitious in the history of the European Union. It was the largest ever in terms of number of countries (10) and population (75 million) acceding to the European Union. It was the most challenging in terms of disparity of wealth. Achieving the politic and economic reunification of Europe 15 years after the fall of the Berlin wall, it was the most symbolic since the creation of the European Coal and Steel Community which had achieved the French-German reconciliation.
Nevertheless, Eurobarometers showed this strongly symbolic enlargement meet a true enthusiasm neither in old members nor in new comers. Instead, the debate between pros and cons has been mainly situated at the economic level. Western Europeans mainly feared that the enlargement would cause industry outsourcing and Eastern workers' immigration and thus raise unemployment in Western Europe. Many thought that the enlargement would come at a huge cost for the EU budget or would reduce the EU subsidiaries, including the CAP, they benefited from. Have these initial fears been fulfilled? On the other hand, the pros claimed that the enlargement would boost economy in both old and new members and that the European integration would accelerate the catching-up process and thus decrease the risk of outsourcing. What do the trends reveal two years later? In the context of high unemployment and lowest economic growth in Western Europe than outside, the political and symbolic dimension of the fifth enlargement was of little concern.
Although I considered this political and symbolic dimension at least as much important as the economic one, it would be impossible to analyze all the aspects of the 2004 enlargement exhaustively in just 15 pages. This paper is consequently focused only on the economic results of the enlargement (what is still too ambitious in 15 pages!). That can seem to be premature only two years after the enlargement. Of course, it is. Economic results should be studied in the long run. On the other hand, we need to analyze intermediate results and current trends not only to better the economic integration of the 2004 new members but also in the perspective of the next enlargement: the adhesion of Romania and Bulgaria in 2007 or 2008.
Has the 2004 enlargement boosted the EU-15's and/or new member states' economies? Were Western Europeans' initial fears justified actually? Has the EU-15 paid the bill for Eastern and Central European economic success?

[...] According to Katinka Barysch, the chief economist of the Centre for European Reform, most studies conclude that the cumulative economic gain for the old EU member states is below 1 per cent over a period of five to ten years. However, have some old members been more impacted than the others by the enlargement? Have there been winners and losers? Intuitively, countries that trade the most with the new members are likely to be the most impacted. They are Germany and Austria, alongside France and the Netherlands. [...]

[...] The process of enlargement has also boosted foreign and mostly Western European direct investment. While the stock of foreign direct investment (FDI) was virtually non-existent some ten years earlier, it reached over 190 billion in 2004, which is considerable since it represents 40% of local GDP. This increase of FDI went hand in hand with the rapidly growing presence of foreign firms. Three quarters of the total FDI to new Member States come from the old Member States, in particular from Germany which is the main investor in the region. [...]

[...] For the EU-15, the economic impact has also been positive but much smaller, simply because of the relatively small size of Central and Eastern European economies. The EU-15 has not ?paid the bill? for eastward enlargement as many had feared. We can nevertheless argue that the Western European will to limit the amount of EU aid to new member states has been contradictory with the EU's initial official priority of raising their living standards as fast as possible towards those of the old member countries. [...]

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