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. [...]
[...] Others, such as economic and political stability, the quality of the labor force, wage and productivity levels, market size or proximity to major markets, usually rank higher. Finally, some economists, including Katinka Barysch, point out and even denounce the cost of the “East European social model” for these countries. Payroll taxes in the new members are usually above those found in most of the ‘old' member-states. In Poland, Hungary and Slovakia, for example, social security contributions add almost 40 per cent to labour costs, more than in Italy or Germany, and twice as much as the UK. [...]
[...] In May 2006, the European Commission released the first report about the economic results of the 2004 enlargement. This report is both the most recent and the most in depth of available research. This part is mainly based on this report, confronted to other available studies (see references), including Katinka Barysch's paper. A boost for new comer's economies As it was expected, the impact of the enlargement on old member states has been marginal due to the relatively small economic size of the new comers. [...]
[...] The main fears stemmed from the relocation of industries, immigration of Eastern European workers and increase of the EU expenditures as well as a reallocation of EU subsidiaries from Western to Eastern poorer regions. Most of these fears were actually not justified. Has Eastern and Central European social/tax dumping caused massive relocation of western activities? I previously presented the benefits for new comers' economies of growing stock of FDI from old in the new Member States. Nevertheless, that has also raised concern in the EU-15 about relocation of activities and consequent job losses. [...]
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