Baltic States in the European Union: expectations and postaccession experiences Presentation for the

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Baltic States in the European Union
expectations and post-accession
experiencesPresentation for the Conference
Baltic States in the EU experience of two years
and perspectivesMay 12, 2006

• Ramunas Vilpiauskas,
• Advisor to the President of Lithuania

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The outline

• Pre-accession expectations
• The main issues on the public policy agenda in
  the new EU member states
• The economic and political trends in the new
  member states
• The preliminary conclusions about the impact of
  EU accession.

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Pre-accession expectations

• Economic growth through increasing trade and
  financial integration
• Inflows of capital and outflows of labor
• Inflows of EU funds.

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The main post-accession policy issues

• The catching-up and convergence with the rest of
  EU
• The left-overs from the accession
• The gradual adoption to the work of EU
  institutions
• The return to the non-EU policy issues.

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Clear evidence of convergence
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But prices are also likely to converge
(Comparative price levels of final consumption by
private households, including indirect taxes EU
25100, 2003)
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Popular perception of policy issues
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Unemployment previously high but rapidly
declining
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The economic dynamism not yet reflected in public
sentiment, 2004
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Trade integration with EU, 1993 and 2005
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Intra-EU-10 trade, 1993, 2003 and 2005
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Trade growth following enlargement
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Evolution of inward FDI stocks in the EU-15 and
NMS
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Inward FDI stocks
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Source Bank Nord/LB Lietuva
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GDP per capita and net EU transfers to MS in 2004
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Net EU transfers to new MS in 2004
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EU allocated expenditure by heading and MS, 2004
(European Commission)
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Total state aid in new MS
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Lack of labor potential break on economic growth

• Outflow of labor from new member states to become
  a major policy issue
• Growing pressure to increase wages
• Growing competition from China and other
  countries competing on the basis of cheap labor
• The mismatch between the supply of education and
  labor market demands
• Difficulties in liberalizing the rules of
  immigration from non-member states
• Demographic problems in the longer-term (low
  birth rates and growing share of old population).

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The labor flows from new MSs into the UK
(official data)
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Share of foreign nationals in resident working
age population, 2005
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Eurostat 2006
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Demographic balance 2004-2051, in thousand
Source Eurostat, Europop 2004
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The economic and social characteristics of new
MSs

• Economic dynamism
• Relatively low level of taxation and
  redistribution, though recently on the rise
• Relative flexibility of the economy and social
  regulations (wage setting, labor relations)
• Lack of reform of public policy institutions, in
  particular education,
• Relatively healthy public finances.

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Eurostat 2006, Index of Economic Freedom 2005
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Hopkin, J., Wincott, D. New Labour, Economic
Reform and the European Social Model, 2006
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Hopkin, J., Wincott,D. New Labour, Economic
Reform and the European Social Model, 2006
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Top 30 economies on the ease of doing business
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Relatively favorable public opinion, but support
for euro in decline
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Integrating into the EU institutions and being
good Europeans

• The accession of new member states did not slow
  down the functioning of EU institutions
• However, the new members are still undergoing the
  process of learning and are policy takers rather
  than initiators
• The adoption of EU norms is not worse than in the
  EU-15 and depends on particular country
• The attitudes of population towards the EU depend
  on particular country.

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Support to further enlargement of the EU
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The public policy agenda after the accession

• Economic growth and competitiveness
• Left-overs from EU accession (in particular,
  eurozone membership)
• Labor market issues (lack of labor, structural
  imbalances)
• Absorption of EU funds
• The neighborhood and energy policies being the
  key issues uploaded on EU agenda
• Rhetorical return to education and health care
  reforms
• Incomplete restoration of property rights and
  barriers to the functioning land market.

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Preliminary conclusions about post-accession
experiences

• The main economic trends in line with
  expectations
• Labor outflows are somewhat higher, capital
  inflows are somewhat lower than expected
• Underestimation of negative side-effects of EU
  funding (distortions and corruption)
• Actual economic and social trends differ
  depending on particular new Member State (and its
  domestic policies).