Andreas Wrgtter

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Prospects of Economic Integration Are the
Candidate EU Member States from the Balkans Ready
to Catch-Up in the Wider EU?
THE COMING ENLARGEMENT OF THE EU WITH ROMANIA,
BULGARIA AND CROATIA ECONOMIC, POLITICAL, AND
SECURITY CONSEQUENCES International Seminar for
Experts in the series Great Debates organised by
the Cicero Foundation 12 October 2006

• Andreas Wörgötter
• Andreas.Woergoetter_at_oecd.org
• OECD Economics Department

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GDP per capita in per cent of Greecein constant
2000 PPP in USD
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How to get ready for EU Enlargement

• Past Present Future
• Benefits
• Pre-conditions
• Convergence Going for Growth
• Bulgaria, Romania
• Croatia
• Western Balkan

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Past Present - Future

• Earlier enlargements were differentEU was less
  integratedEntering countries were less
  differentTransition phases were longer and more
  substantive
• Current (EU10 ? EU25) enlargement is a
  successEntering countries are growing
  stronglyOld members reap benefits Win-win
  situation
• Future enlargement is a challengeBulgaria and
  Romania are much poorerOld member countries are
  worried about costs (migration)

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Benefits of enlargement

• Elemination of entry barriers
• Better allocation of resources according to
  comparative advantages
• Freeriding on institution building (euro)
• Anchoring of sound policy frameworks

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Pre-conditions

• Decision making in the EU
• Separation between Private and Public Economic
  Units
• Macroeconomic stability to generate stable
  framework conditions
• Clear property rights to maintain incentives to
  save and invest
• Low entry/exit barriers in labour and product
  markets to facilitate reallocation of resources

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A comparison of investment expenditure shares
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The Worldbank Doing Business Ranking
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Relative prices of expenditure for education
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OECD recommendations for growth friendly policies
I

• Macroeconomic policy framework, which does not
  add further noise to the business cycleMedium
  term budgeting framework with expenditure
  ceilings based on cautious assumptions and
  responsible public sector managers, which can
  decide about how to best use available inputs to
  reach maximum outputs Independent monetary
  policy, which establishes a credible anchor for
  expected inflation

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OECD recommendations for growth friendly policies
II

• Structural policies tostrengthen property
  rightsreduce administrative burden on doing
  businessreduce entry/exit barriers on product
  and labour marketsfoster competitionreduc e
  distortionary taxation on laboureliminate fiscal
  incentives to withdraw from activity

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Growth decomposition
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GDP per capita Growth and level differential
vis-à-vis U.S.
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The OECD PMR indicators system
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Analytical work on key aspects of performance

• The OECD Jobs Study (1994)
• Work on ageing
• OECD-wide study Maintaining Prosperity in an
  Ageing Society (1998)
• Work on the determinants of participation rates
• Retirement decision
• Female participation
• Work on product markets regulation
• The growth project (2002)
• The Sources of Economic Growth

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Indicators of policy stances in various areas

• Indicators of product market policies
• Product market regulation database, 1998 and 2003
• Producer support estimates in agriculture, annual
• Indicators of policies mainly affecting labour
  markets
• Tax wedges
• Implicit tax rates on continued work
• Minimum wages and labour costs
• Unemployment benefit replacement rates
• Employment protection legislation
• Disability/sickness beneficiaries
• Educational attainment and achievement

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The stocktaking exercise key features

• A regular cross-country structural surveillance
  based to an important extent on benchmarking
  performance and policies on best practice.
• The key objective Increase GDP per capita and
  speed up convergence in living standards.
• Five policy priorities
• Three priorities based on explicit benchmarking
• Two priorities determined on the basis of country
  expertise
• A thematic part an examination of the link of a
  particular policy area to growth.

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Conclusions

• Bulgaria and Romania should not waste any time to
  make use of the granted EU membership
• Main attraction of EU membership is not the
  access to EU structural funds
• EU membership should be used to amplify the
  impact of growth friendly policy
• Croatia should be even more ambitious to
  compensate for having to wait for membership
• Western Balkans should demonstrate to be ready
  for membership, by (re)integrating with
  neighbours, whith whom they will find themselves
  in an enlarged EU