Benefits and Dangers of EU Enlargement

A new macroeconomic evaluation of EU enlargement is undertaken with a world macroeconomic model taking into account all possible integration effects: trade effects, Single Market effects, factor movements (FDI, migration) and the costs of enlargement. Due to the differences in size of the regions involved, on average the CEEC – measured in terms of real GDP – will gain around 10 times more from enlargement than the EU. Hungary and Poland can increase their real GDP by around 8 to 9 percent over a 10-year period, the Czech Republic gains a little bit less (5 to 6 percent). The EU on average would gain around 0.5 percent of real GDP over a 6-year period. Although, on average enlargement is a win-win game, the impact is quite different in the separate EU member states, with Austria, Germany and Italy gaining the most and losses for Spain, Portugal and Denmark. Hence, EU enlargement may not only be beneficial but might be a risky undertaking. Due to the regional different impact, enlargement acts like an exogenous shock leading to asymmetric disturbances in the EU. This could pause the process of business cycle synchronisation and might impair monetary policy in Euroland at the beginning of the enlargement process. A two-step integration of the CEEC into the EU – first the participation in the Single Market and only later into the EMU – is therefore preferable under the aspect of macroeconomic stability in Euroland.     

Stuck outside the single market; Evidence from firms in central and eastern Europe

Border effects on firms’ performance are typically estimated following reduced barriers to trade, for instance due to new trade agreements. This paper estimates a border effect on increasing barriers for firms located outside of a new external EU border following the 2004 and 2007 EU enlargement. In a repeated cross-section of three flows of EBRD-World Bank survey data, the study encompasses 23 border regions in 10 countries, four of which bordered new EU/Schengen countries. Taking border transformations as exogenous changes to firms’ environments, and focusing on small and medium-sized enterprises near borders, the results indicate that five years after enlargement, firms in non-EU member states near a new external EU border experienced a fall in sales of 40% and exports of 70% relative to firms near borders that did not change. Firms on the EU side of the same border experienced no such negative effect. Ten years after enlargement, the negative effects effectively disappeared.     

Brussels is Speaking: The Adverse Speech Geo-Politics of the European Union Towards its Neighbours

The European Neighbourhood Policy (ENP) was presented as the EU's strategic response in order to deal with the new situation following the enlargement of the European Union in 2004. According to the EU, these changing circumstances have led to new rationales: 1) coping with its new external borders and neighbours and 2), finding a solution for a further enlargement problem. Both rationales are drawn out of strategic interest avoiding potentially damaging consequences on stability and development. Moreover, new inducements for multilevel cooperation were seen as necessary in order to ‘include’ the neighbouring states and create a prosperous and stable ‘Ring of friends’. The ENP has the objective to contribute to internal transformation and to further the process of ‘Europeanisation’. Europeanisation is explained by the EU as a normative process of sharing European values made concrete through policies of conditionality and socialisation of neighbouring states. This process of expanding ‘Europeanisation’ beyond the EU borders is inspired by an ambiguous and conflicting geopolitics that the EU applies as a strategic instrument. Most notably, this is emphasised by the fact that the ENP on the one hand creates an image of an inferior neighbour that urgently needs to move towards European standards and on the other hand produces a speech politics of mutuality and dialogue.

Through the study of EU speeches, communications and documents, we will argue that the rationales behind the ENP suggest a closure of the European Union and allow for neo-colonial interpretations by which pre-defined policies are to be accepted and pre-defined European values are seen as superior to neighbouring local values. This development is both undesirable and harmful. Europe is increasingly re-created as a bounded political entity institutionalised through hierarchical treaties and acts with friends, special friends, and reluctant, unwilling neighbours. In doing so, the EU faces a significant chance of alienating its neighbours and damaging cultures and societies by asymmetrical imperial power-policies based on self-created values. Paradoxically then, ENP that was set up to create good neighbours, risks producing what it wishes to protect from, angry neighbours.     

The costs and benefits of eastern enlargement: the impact on the EU and central Europe

Eastern enlargement of the EU is a central pillar in Europe's post-Cold War architecture. Keeping the eastern countries out seriously endangers their economic transition, and economic failure in the east could threaten peace and prosperity in western Europe. The perceived economic costs and benefits will dictate the enlargement's timing. There are four parts to the calculus – the costs and the benefits in the east and in the west. Here we break new ground in estimating the economic benefits of enlargement for east and west using simulations in a global applied general equilibrium model. Our analysis includes a scenario in which joining the EU significantly reduces the risk premium on investment in the east – with resulting huge benefits to the new entrants. We also review the existing literature on the EU budget costs and arrive at a surprisingly well-determined 'consensus' estimate, which we support with a new political economy analysis of the budget. The bottom line is unambiguous and strongly positive: enlargement is a very good deal for both the EU incumbents and the new members.     

Russian Business Interests and the Enlarged European Union

The European Union is Russia's most important partner in foreign economic activities. With its eastward enlargement in 2004 the European Union has—not only in geographical terms—moved even closer to Russia. It should be expected that strong economic ties cause Russian business interests to influence related matters of foreign policy. This study therefore starts by identifying Russian business interests vis-a-vis the EU. Apart from those businesses already heavily involved in transactions with the EU, businesses with ambitious plans for future engagement and businesses which face heavy competition from EU companies are also included. In a second step these business interests are then analysed in detail. The specific interests of Russian companies are depicted to establish the points of conflict with EU positions. The article then describes how Russian companies lobby their government in order to gain support and how the Russian government reacts. The result is a more detailed assessment of the role of Russian business in Russia's policy towards the EU.     

Trade Effects of European Union Enlargement: an ex post model of trade between Spain and Latin America

Past research on European Union (EU) Enlargement has tended to neglect the effects on trade with non-preferred trading partners. This paper examines the consequences of EU enlargement on trade between Spain and the Latin American countries with which it has traditional economic and cultural ties. An import demand functions model was estimated for the period 1964–93. The country-level results showed that Spanish accession to the EU only had large adverse effects on its imports from Argentina. The results for non-agricultural products indicated a general absence of negative effects on Spanish imports. The aggregate results from the ex post model provide support for some, but not all, of the ex ante predictions of previous studies.     

Political economy of eastern enlargement of the European Union: Budgetary costs and reforms in voting rules

Eastern European countries are likely to be major recipients of European Union (EU) funds after membership, which has created serious concern among incumbent members. The EU has devised reforms of budgetary rules to limit the funds that will flow to the East. Using a political economy model and drawing on the experience of previous enlargements, this paper argues that such pre-accession reforms will be ineffective because they can be reversed by a coalition of Eastern European countries after membership. The paper then estimates budgetary costs of eastern enlargement. A better way to resolve budgetary concerns is to reform voting rules rather than budgetary rules, before eastern enlargement.     

The macroeconomic consequences of migration diversion: Evidence for Germany and the UK

This paper examines the macroeconomic consequences of the diversion of migration flows away from Germany towards the UK in the course of the EU's Eastern Enlargement. The EU has agreed transitional periods for the free movement of workers with the new member states from Central and Eastern Europe. The selective application of migration restrictions during the transitional periods has resulted in a reversal of the pre-enlargement allocation of migration flows from the new member states across the EU. Based on a forecast of the migration potential under the conditions of free movement and of the transitional arrangements, we employ a CGE model with imperfect labour markets to analyse the macroeconomic effects of this diversion process. We find that EU Eastern enlargement has increased in the GDP per capita in the UK substantially, but that the diversion of migration flows towards the UK has reduced wage gains and the decline in unemployment there. The effects of the EU Eastern enlargement are less favourable for Germany, but the diversion of migration flows has protected workers there against a detrimental impact on wages and unemployment.     

EU Enlargement and the Future of the Welfare State

The eastern enlargement of the EU resembles German unification in its momentousness. Whereas the latter led to a 26% increase in the population of the Federal Republic, the former will increase the population of the EU by 28% if all ten entry aspirants are accepted. A special problem will be posed by migration. Given the existing wage differences between eastern and western European countries, a massive westward migration can be expected after enlargement. A temporary east–to–west migration until the eastern countries create an efficient capital stock makes economic sense if this is driven by wage differences and meets with a flexible labour market. Migration does not make economic sense, however, if, and to the extent that, it is induced by the current social assistance systems. Moreover, welfare–motivated migration would create competition among western European states to frighten off potential migrants, and this would lead to an erosion of the traditional social welfare state. If the EU plan incorporated limitation on the free movement of labour, beneficial migration would also cease. A better solution would be to limit access to the western social systems, at least for a transitional period, in order to filter out migration induced by differing social standards. An EU–wide application of the home–country principle in the granting of social benefits would achieve this goal.     

Work and welfare take-up of enlargement migrants in the United Kingdom

The Brexit decision was affected by the false perception that European Union (EU) enlargement migration, in particular from Romania and Bulgaria (EU2), has been a burden to the UK. The article analyses the debated but largely underresearched EU2 migration to the UK after accession to the EU in 2007 using data of the British Labour Force Survey. The novel findings are that EU2 migrants are found to exhibit quite different characteristics and behaviour than the other European migrants while doing better concerning work, self-employment and welfare take-up.     

Agricultural enlargement of the EU under Agenda 2000: Surplus of farm labour versus surplus of farm products

In the Commission's proposals for reform of the Common Agricultural Policy (CAP) and enlargement of the EU (Agenda 2000), the agriculture of Central and Eastern Europe (CEE) is denied future access to compensatory payments for cuts in support prices in the EU15. To offset this, the acceding countries are promised a similar net amount of structural aid for their economy and society at large. This dual treatment aims at preventing agricultural surpluses and intersectoral distortion after accession. However, the actual situation and dynamics of agriculture in Central Europe (CE) compared to that in the EU does not support the surplus assumption globally, but only for certain products, chiefly grains. So far overlooked, but nevertheless, a key obstacle opposing competitive recovery, is the tendency of the dual, post-communist agrarian structures, faced with high rural unemployment, to protect long-term underproductive farm labour to the detriment of capital and land remuneration, mainly in livestock production. This configuration is supported by specific trade and land protections, and loose qualittative regulations that will be challenged by the EU enlargement. So, after accession under the Agenda 2000 schedule, it seems likely that CEE countries will achieve European competitiveness only at the cost of some recession, further deterioration of trade balances with the EU 15 and sharp decreases in farm employment levels. These factors would chiefly affect livestock production which, combined with crop intensification, is likely to result in a substantial increase in grain surpluses. Later on, the enlarged EU will have to bear the inevitable social consequences that transitional periods after accession might otherwise have postponed.     

Logistics performance and export competitiveness: European experience

Logistics performance has become a decisive factor in export competitiveness. At the same time, and as a result of the continuous enlargement processes it has undergone, the European Union (EU) is a very interesting case to study how the reforms that enhance logistics performance have affected exports. Therefore, this paper aims to analyse the importance of logistics performance in regard to EU exports over the period 2005–2010 in an attempt to identify possible advances on behalf of Member States. Several gravity equations are estimated using the Logistics Performance Index (LPI) and its components as characteristic proxy variables of trade facilitation. In order to avoid the possible heterogeneity caused by sample bias, the two-stage model proposed by Heckman is used. The estimations of the gravity models using the two-stage Heckman model for all 26 EU countries have led us to conclude that logistics was more important for exporting nations than importing nations in both 2005 and 2010, reinforcing the interest in the exporter side of the paper. In reference to the components of the LPI, Competence and Tracking has acquired greater importance in recent years, in keeping with the weak domestic demand in European countries and the search for new international markets.     

EU-Enlargement and Beyond: A Simulation Study on EU and Russia Integration

This paper examines the economic effects of the opening of the Russian Federation. The analysis carried out in the paper is twofold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and Russia contributes to this. The analysis is carried out with GTAP, a computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, be beneficial for all EU regions without causing substantial welfare losses outside the Union. EU–Russia integration, on the other hand, has different impact. To be beneficial for Russia free trade between the EU and Russia requires improved productivity in the latter, which may be due to better institutions or increased FDI. This might make the negotiations of the agreement cumbersome and if agreed its implementation difficult.This study stems from a project Opening of Russia in which the authors participated at RECEP in Moscow. This paper is substantially revised and updated version of Sulamaa, P. and Widgrén, M. (2003): EU Enlargement and Beyond: A Simulation Study on EU and CIS Integration, CEPR Discussion Papers 3768. The authors thank Peter Havlik and Risto Vaittinen and an anonymous referee for beneficial comments on earlier drafts, Comments and discussions with Paavo Suni, Ivan Samson, Xavier Richet and Xavier Greffe are also gratefully acknowledged. The usual disclaimer applies.     

Which commercial partners are important for the most recently admitted EU countries?

This paper describes the degree of trade integration inside the European Union (EU) after the fifth enlargement in 2004. To achieve this goal, we build a database of information on trade flows between the new EU countries (EU‐10) and 180 commercial partners in six different sectors from 1999 to 2011. Using the standard gravity model and estimating a difference‐in‐differences specification, we analyze how joining the EU affected the intensity and direction of the EU‐10's trade flows. Our results show that though trade exchanges between the EU‐10 and EU‐15 intensified after 2004, the impact of integration was much more significant to the EU‐10 group.     

A European Geopolitical Subject in the Making? EU,Russia and the Kaliningrad Question

This article engages the recent studies that have treated the European Union (EU) in geopolitical terms, as an empire engaged with enlargement. The article introduces the meta-concept of geopolitical subjectivity. This meta-concept enables us to situate such imperial interpretations of the EU into a theoretically informed, comparative setting. The meta-concept is defined as goal-oriented ordering of territories and political spaces, extending from one's own sphere of sovereign rule to broader regional contexts. It is used to study the EU-Russian interaction in creating order to the Kaliningrad region that is set to become a Russian enclave/exclave within the enlarged EU. The article concludes by arguing that in this case, the EU's geopolitical subjectivity is constituted more strongly by Russia's recognition of this status than by the EU's own identity and interest projects.     

Eastern Enlargement of the EU: How Much Is It Worth for Austria?

For present member countries, eastern EU enlargement entails gains from integration as well as fiscal costs. The authors use a calibrated model to quantify the dynamic effects of discriminatory trade liberalization and immigration from eastern applicants. It is found that enlargement is expansionary and yields a remarkable fiscal dividend. Surprisingly, integration compresses the wage spread between skilled and unskilled labor. Overall, the (dynamic) gains from integration clearly outweigh the fiscal cost. While ambiguous a priori , enlargement is found to hold a remarkable net welfare gain for Austria.     

Overstrained citizens? The number of ballot propositions and the quality of the decision process in direct democracy

We study how the number of ballot propositions affects the quality of decision making in direct democracy, as reflected in citizens’ knowledge, voting behavior, and attitudes toward democracy. Using three comprehensive data sets from Switzerland with over 3,500 propositions, we exploit variation in the number of federal and cantonal propositions. Voters know the most about the content of federal propositions when they are exclusively presented and less with a high number of concurrent cantonal propositions on the ballot. Across other outcomes we find no consistent indications that – for the observed variation in the exposure to popular votes – a high number of propositions impedes the quality of decision making in Swiss federal direct democracy. In the medium to longer term, more federal propositions on the ballot rather relate to higher perceived political influence and satisfaction with democracy.     

Legitimate governance of risk at the EU level? The case of genetically modified organisms

In the past few years, the EU has been establishing a new regulatory framework for GMOs, a central issue in the governance of risk that came under fierce attack in the mid-1990s. The primary question addressed in this article is whether this new framework will be able to solve the legitimacy problem of GMO governance at the EU level. Focusing on theories concerning input–output legitimacy and democracy and the role of expertise, this article examines the level of involvement of stakeholders in the process leading to the new rules; the predominant mechanisms of representation that have been used in that process; and the forms of participation in the day-to-day governance of risk as envisaged in the new rules. Based on document analysis and a series of interviews with central stakeholders, the conclusions bring up two further theoretical matters regarding EU governance, namely the transformative nature of citizenship and the conceptual distinction between input- and output-legitimacy.     

Implicit trade Costs and European single market enlargement

This paper investigates the deeper integration of the new EU accession states into the Single Market. Building on the assumption that observed trade patterns can be taken to reveal trading costs between members and non-members of a bloc, I develop a model-consistent Dixit-Stiglitz general equilibrium-based calibration technique. Using this, I investigate numerically the effects of the recent EU enlargement, suggesting that deeper integration, which removed the border costs implied by 1990s trade patterns, could raise trade by 50–100% and incomes in the accession states by 10–20%.