Eu Enlargement 2004_2007

The Economic Impact of the 2004 and 2007 Enlargements on the European Union

Task:

Ð'„Critically Discuss the Economic and Political Impact of the 2004 and 2007 Enlargements on the European Union"

The following text deals with the most recent enlargements of the European Union which took place in 2004 and 2007, also referred to as the 10+2 Round. In contrast the term EU-15 is used to describe the states which made up the EU before the 2004 and 2007 enlargements. The issue that is being discussed relates to the economic impact of this enlargement round on the European Union. For practical reasons only some aspects of the economic impact on the European Union will be discussed. This seems to be an important issue since the 10+2 round brings countries into the European Union which GDP and thus the standard of living is far below average of the EU-15. The economic structure of most of these countries is considerably different as well. Of course the 10+2 enlargement has significant political impacts as well. However, to keep this essay within certain limits in terms of length these will not be discussed.

The essay is divided into three parts. In the first part an introduction into the topic of enlargement of the European Union will be given. The main part focuses on the economic impact of the most recent enlargement. The issues of economic structure of the acceding member states, their economic performance as well as the enlargement from an economical point of view will be discussed. The last part delivers a conclusion looking at some of the advantages an disadvantages of the enlargement.

The beginning of the European Union dates back to when the Treaty of Rome was signed in the 1950s. At the beginning there were just six countries forming the body of the European Union. France, Germany, Italy and the Benelux: Luxembourg, Belgium and the Netherlands. Since those days the process of enlargement has constantly been on the Unions agenda.(Nugent 2004, p. 1)

The latest enlargement which is also referred to as the Eastern enlargement included the following countries: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Llithuania, Malta, Poland, Slovakia, Slovenia(joined the EU in 2004), Bulgaria and Romania(joined the EU in 2007).

Altogether there have been five enlargements of the European Union.(Wallace, Wallace and Pollack 2005 p.) Today the European Union has a total of 27 member states and enlargement has not come to a halt yet. European enlargement has to be seen as a tool of foreign policy as well as an important part of the EU integration process.(Friis 2003, p. 177)

There are different reasons why the EU has been willing to enlarge. Amongst them can be found rationalist as well as sociological explanations. The former include for example the promotion of security and economic opportunities and the latter go back to arguments of accepting the new states in terms of democratic behaviour.(Nugent 2004, pp.4-8)

No matter what the rationales for the enlargment are it is clear that this enlargement being the largest up to date would have enormous impacts on the European Union.

The 10+2 enlargement round is likely to bring about economic benefits for the EU-15 as well as for the acceding states. The gains for the acceding states will be higher since they are on a lower economic base. There are various estimations about the welfare gain that enlargement will bring. One projection is an increase of the acceding states' GDP by more than 8% in the long run and much less for the EU-15.(Baltas 2004, p.146) On the other hand there are the economic costs ocurring from enlargement.

The notion that the accession of the Eastern European countries would lead to a considerable impact on the EU finances and budget led to the agreement of different constraints which influence the financing of enlargement. This was decided at the Berlin European Council in March 1999 and is known as the Agenda 2000 financial package.(Mayhem 2000, p.9)

There are two reasons for this. For one it is important for the Economic and Monetary Union(EMU) members to reduce their government deficits in the early years of the EMU to maintain stability and convergence. And secondly the members who are net-contributers to the Community budget wish the level of budgetary expenditures to stay the same since there has not yet been an agreement on a financing system which is more fair.(Mayhem 2000, p.7)

This keeps the costs of enlargement relatively cheap for the EU in terms of finances but the economic weaknesss of the acceding members may be wrongly assesed and insufficiently supported.(Baltas 2004, p.147)

If we look at the economic structures of the new member states we find that they contribute a large but rather inefficient agricutural sector: "In total, enlargement to the CEECs will more than double the size of the EU's agricultural labour force, increase its agricutural area by about a half, but raise its output by about only 12 percent"(Nugent 2004, p.14) The problem here is similar to that facing cohesion funding and so is the solution. Common Agricultural Policy(CAP) support was to be gradually phased-in up to 2013. The change in the agricultural sector induced by the new member states is one of the reasons why there have been debates on agricultural reform and it will be a key issue in the enlarged EU.

The are several reasons why the EU-15 made a modest financial support for enlargement. Scarcity of financial means imposed by the European Monetary Union(EMU) is one of them. The paymaster of the European Union, Germany, could not transfer more money to the EU carrying the burden of German reunification. The limited size of the EU's budget and the fact that the European Council was convinced that enlargement could be achieved within the budgetary limits of 1.27% of overall EU GDP.(Nugent 2004, p.15)

As far as labour markets are concerned the average level of unemployment for the EU will be raised to some extent through accession of some of the new member states. Whilst Cyprus and Malta do not suffer from unemployment that heavily five of the new members have unemployment rates similar to the average unemployment rate in the EU-15 of 7.6%. The other five acceding members however suffer from much higher rates of unemployment ranging from one and a half up to two and a half that of the average EU-15 unemployment rate. Among these states is also the largest new member Poland.(Baltas 2004, p.149)

Regarding the economic performance of the EU the