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European Union Enlargement

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Title: European Union Enlargement


1
European Union Enlargement
tutor2u
2
The Official EU View on Enlargement
  • Enlargement is one of the EU's most powerful
    policy tools. It serves the EU's strategic
    interests in stability, security, and conflict
    prevention. It has helped to increase prosperity
    and growth opportunities, to improve links with
    vital transport and energy routes, and to
    increase the EU's weight in the world.
  • In May 2009, the EU will mark the fifth
    anniversary of the 2004 enlargement.

3
Some issues to cover and revise
  • Has the widening of the EU been a success?
  • The benefits and costs of enlargement for
  • New member states
  • Existing (established) members of the EU
  • The EU economy as a whole e.g. in the context of
    globalisation and other external events
  • EU enlargement and immigration policy
  • How many more countries will join?
  • Will enlargement prevent final economic union?
  • How many new states will join the Euro?
  • Is enlargement fatigue setting in?
  • What of states that remain outside of the EU e.g.
    Norway and Iceland

4
EU Enlargement A Brief Historical Perspective
  • Europe has added new members periodically
  • Six Main Waves of EU Enlargement
  • 1973 (UK, Ireland and Denmark)
  • 1981 (Greece)
  • 1986 (Portugal and Spain)
  • 1995 (Austria, Finland and Sweden)
  • 2004 (Ten new countries)
  • 2007 (Bulgaria and Romania)

5
Who will be next? Potential members
6
Centre for European Reform
  • The objective of joining the EU has helped the
    Central and East European countries to move from
    post-Communist upheaval to market economics and
    pluralist democracies in little more than a
    decade. Ten countries successfully joined the EU
    in May 2004, and Bulgaria and Romania followed in
    January 2007. However, the Union is showing signs
    of 'enlargement fatigue'. Many politicians worry
    that an ever larger Union will function badly,
    and that further widening will come at the
    expense of deepening. West European workers fear
    the economic consequences of adding 50 million
    low-cost workers to the EU single market. Future
    accession would be very difficult unless public
    and political support for enlargement revives.
  • www.cer.org.uk/enlargement_new/index_enlargement_
    new.html

7
EU Membership Distribution in Jan 2004
EU MEMBERSHIP (April 2004) EU MEMBERSHIP (April 2004) EU MEMBERSHIP (April 2004)
RICH POOR
LARGE UK SPAIN
LARGE FRANCE
LARGE ITALY
LARGE GERMANY
SMALL BELGIUM PORTUGAL
SMALL LUXEMBOURG GREECE
SMALL NETHERLANDS
SMALL IRELAND
SMALL DENMARK
SMALL SWEDEN
SMALL AUSTRIA
SMALL FINLAND
SMALL
SMALL
SMALL
8
EU Membership in January 2009
EU MEMBERSHIP JANUARY 2009 EU MEMBERSHIP JANUARY 2009 EU MEMBERSHIP JANUARY 2009
RICH POOR
LARGE UK SPAIN
LARGE FRANCE POLAND
LARGE ITALY
LARGE GERMANY
SMALL BELGIUM PORTUGAL
SMALL LUXEMBOURG GREECE
SMALL NETHERLANDS ESTONIA ROMANIA
SMALL IRELAND HUNGARY BULGARIA
SMALL DENMARK CZECH REPUBLIC
SMALL SWEDEN SLOVAKIA
SMALL AUSTRIA SLOVENIA
SMALL FINLAND CYPRUS
SMALL MALTA
SMALL LITHUANIA
SMALL LATVIA
9
The Map of an Enlarged Europe
10
Overview of new member states (1)
Per Capita Incomes EU25100 PPP adjusted Per Capita Incomes EU25100 PPP adjusted Manufacturing as a of GDP GDP Growth
1997 2008 in 2006 Average annual growth () 1999-08
Bulgaria 26 39 26 5.3
Cyprus 86 92 11 3.8
Czech Republic 73 82 32 2.8
Estonia 42 67 21 6.4
Hungary 52 63 26 3.8
Latvia 37 56 15 7.3
Lithuania 38 62 23 6.5
Malta 81 76 17 1.9
Poland 47 55 25 4.2
Romania 26 44 27 5.2
Slovakia 51 71 28 4.5
Slovenia 78 91 28 5.2
Turkey 32 42 25 4.2
United Kingdom
11
Overview of new member states (2)
Inflation Unemployment Labour productivity Population
change in consumer prices in 2008 Per cent of the labour force in November 2008 GDP per person employed EU27100 in 2008 Thousands 2008 mid year estimate
Bulgaria 12.0 5.1 36 7 640
Cyprus 4.4 3.9 85 789
Czech Republic 6.3 4.5 73 10 381
Estonia 10.6 8.3 63 1 340
Hungary 6.0 8.3 74 10 045
Latvia 15.3 9.0 51 2 270
Lithuania 11.1 7.0 63 3 366
Malta 4.7 5.8 89 410
Poland 4.2 6.5 62 38 115
Romania 7.9 5.8 45 21 528
Slovakia 3.9 9.1 78 5 401
Slovenia 5.5 4.3 86 2 025
Turkey 10.4 n/a 62 70 586
United Kingdom
12
GDP Per Head for selected member states
Some progress in raising relative living
standards Catching up with Portugal and
Greece Newer nations are considerably poorer
13
Unemployment rates for selected countries
Strong growth has helped to bring down
unemployment More jobs for domestic workers
reverse migration? But putting pressure on wages
to rise
14
Joining the Club Criterion for EU Entry
  • Accession countries have to meet the Copenhagen
    criterion for joining the European Union
  • Stability of political institutions guaranteeing
    democracy, the rule of law, human rights and
    respect for and protection of minorities
  • A fully functioning market economy that meets the
    standards required for participation in the
    single market

15
Transition Economies
  • Price Liberalisation
  • Moving away from state controlled prices to allow
    the price mechanism greater influence in
    allocating resources
  • Privatisation
  • Transfer of ownership
  • Development of private sector capital markets

16
Transition Economies (2)
  • Liberalisation of Trade with other Countries
  • Full convertibility of currencies
  • Preparation for eventual membership of the Euro
  • Reforms of the Financial Sector
  • Fully-functioning Central Banks to take control
    of monetary policy
  • Capital markets for corporate and government bond
    issues

17
Potential Gains for Accession Countries
  • (1) Membership of the EU Single Market
  • Trade
  • Exploiting comparative advantage to increase
    trade
  • Investment
  • Free movement of capital looking for the
    highest return
  • Inward investment to aid transformation of
    national infrastructure impact on a countrys
    LRAS / trend growth
  • Competition
  • More competition a boost to labour productivity
  • Dynamic efficiency gains e.g. arising from higher
    capital investment and faster pace of innovation

18
Potential Gains for Accession Countries (2)
  • Financial Support
  • Countries will be net recipients of income from
  • Common Agricultural Policy
  • EU Structural funds
  • Many regions have per capita incomes well below
    the 75 threshold for Objective 1 funding
  • 92 of population of accession countries lives in
    regions with a GDP/head under 75 of the EU25
    average. 61 of the population lives in regions
    below 50
  • Much of the EU funding will help to finance
    investment

19
Potential Gains for Accession Countries (3)
  • Potential macroeconomic advantages
  • Reduced exchange rate volatility many countries
    are keen to join the Euro to reduce exchange rate
    risk and benefit from lower interest rates
  • Slovenia, Slovakia, Cyprus and Malta have joined
    the single currency
  • Slovenia January 2007
  • Cyprus and Malta January 2008
  • Slovakia January 2009
  • Other countries do not meet the entry
    requirements or have chosen to remain outside
    to retain monetary policy flexibility

20
Competitive advantage for new states?
  • Central European location for many
  • Significantly lower wage costs
  • Lower productivity but unit labour costs still
    cheaper e.g. for car manufacturers
  • Lower land prices
  • Attractive corporate tax regime other
    incentives
  • Success of previous inward investments
  • Many new states have highly literate population

21
Diagram corner
  • Useful diagrams for this topic
  • Trade diagrams welfare effects from single
    market, exploitation of comparative advantage
  • AD-AS diagrams
  • Inward investment effects
  • Economic shocks within the enlarged EU economy
  • Economies of scale
  • Labour market diagrams e.g. impact of migration

22
Competitiveness and Growth in the New Member
States
  • Performance of Europes new countries

23
Competitiveness
Institute for World Economics of the Hungarian Academy of Sciences Comparative Survey of the new Member States Institute for World Economics of the Hungarian Academy of Sciences Comparative Survey of the new Member States Institute for World Economics of the Hungarian Academy of Sciences Comparative Survey of the new Member States
Ranking Country Index value
1. Slovenia 90.6
2. Czech Republic 82.8
3. Lithuania 81.5
4. Hungary 80.5
5. Estonia 80.2
6. Slovakia 74.2
7. Poland 71.9
8. Latvia 71.5
Economic criteria include real GDP growth, GDP (PPP) per capita, gross investment, productivity, balance of trade, unemployment, and convergence indices of the economic and monetary union Economic criteria include real GDP growth, GDP (PPP) per capita, gross investment, productivity, balance of trade, unemployment, and convergence indices of the economic and monetary union Economic criteria include real GDP growth, GDP (PPP) per capita, gross investment, productivity, balance of trade, unemployment, and convergence indices of the economic and monetary union
24
The Sources of Growth
25
The Sources of Growth
Labour Supply Labour Utilisation Human Capital
26
The Sources of Growth
Labour Supply Labour Utilisation Human Capital
27
The Sources of Growth
Labour Supply Labour Utilisation Human Capital
28
Recent growth for selected countries
Growth much faster than the UK But has this been
sustainable? Steep slowdown and now recession for
many new EU members Some of them over-heated
when they joined the EU
29
Latvia Rampant wage inflation destabilised the
economy
Click here for an article
30
Estonia from boom to deep recession
31
Inflation - better control in some new EU
countries than others
32
Poland has improved the trade off between jobs
and prices
33
And a rising employment rate will help to provide
jobs at home for younger workers
34
Potential Gains for Existing EU Countries
  • (1) Export potential and exploitation of
    economies of scale
  • (2) Foreign Investment and Incomes and Profits
  • (3) More diverse European labour market
  • (4) A cleaner environment
  • (5) Catalyst for further structural reforms in
    the EU
  • Reforms to the CAP
  • Spur to countries to reform their labour markets
    in the face of lower labour cost competition
  • Many countries are already engaging in tax
    competition

35
EU Enlargement an export opportunity for the UK
36
Main Concerns of Member Nations
  • Extra budgetary costs for the EU
  • Can accession countries continue to meet stricter
    EU environmental standards?
  • Long-term need for higher regional subsidies
    loss of some regional funding for established EU
    countries
  • Social concerns from increased labour migration
  • Some Objective 1 regions will now lose some of
    their funding including regions in the UK,
    Spain, Greece and Portugal

37
Economic Concerns of Member Nations
  • Labour Market Issues
  • Fears of higher structural unemployment among
    accession countries which might lead to large
    immigration of labour into higher-income
    countries political and social tensions
  • Fears of a surge in economic migration from East
    to West
  • Social dumping?
  • Concerns about organised crime and illegal
    immigration from Russia, Belarus and the Ukraine
    through weak Eastern European borders
  • In Germany, Austria and Italy (countries that
    border accession states) there are intensive
    debates about controlling the flow of migrants
    from former Eastern Europe

38
What is convergence?
  • Income convergence
  • Where the divide in per capita incomes becomes
    smaller over time
  • Requires countries to achieve relatively faster
    growth over a substantial time period
  • Convergence may also happen if other richer
    countries suffer a slowdown
  • NMS trade heavily with the established EU so an
    EU-wide slowdown is not in their long term
    interests

39
The likely scenario for new member states
  • Income convergence is not automatic
  • Baltic states and Slovenia appear to have the
    best growth / convergence potential but Baltic
    States over-heated
  • Convergence will happen but at different speeds
  • Is there a new Ireland? A Baltic Tiger? Ireland
    collapse in 08
  • Growth is stimulated by capital investment and
    productivity
  • But in the long term, NMS will need to improve
    employment rates, and achieve great labour
    mobility
  • Unemployment is a constraint on growth
  • Demographics will also play a role
  • Will the new members join the Euro? 4 have done
    so

40
Recent articles on EU enlargement
  • Financial crisis in Hungary
  • http//www.guardian.co.uk/commentisfree/2008/oct/2
    9/creditcrunch-eu
  • Reversing Poles how Poland brought its workers
    home
  • http//www.guardian.co.uk/business/2009/jan/23/pol
    and-reverses-uk-migration
  • Will Turkey ever be accepted by the EU?
  • http//www.guardian.co.uk/commentisfree/2009/jan/1
    9/turkey-gaza
  • Crises test stability of new EU states
  • http//www.ft.com/cms/s/0/5f05bd08-e331-11dd-a5cf-
    0000779fd2ac.html
  • Balkan states set to launch EU bids
  • http//www.ft.com/cms/s/0/7f38328c-a776-11dd-865e-
    000077b07658.html
  • Crunch time for eastern Europe
  • http//www.ft.com/cms/s/0/95f2113e-cb14-11dd-87d7-
    000077b07658.html
  • Turkey tries to revive EU drive
  • http//news.bbc.co.uk/1/hi/world/europe/7837145.st
    m

41
Key Unit 4 Tips
  • Use the bullet points (reworded) as subheadings
  • Ensure you answer all sections
  • Answer the question!
  • Refer to extracts and articles to support your
    answer (analysis)
  • Use terminology/definitions from the AS/A2
    course, theory and diagrams (application)
  • Evaluation is crucial (30 marks!) but does not
    have to take place only in the final section say
    which sources are more useful than others, say
    what other data would have helped you to make a
    better recommendation, say which sources may be
    biased. Evaluation is saying what your
    recommendation is based on!
  • Plan your answer to ensure you cover as much
    relevant material as possible
  • Aim to write at least 7 8 sides in the time
    provided (including diagrams easy application
    marks)
  • Remember that 120/120 is not out of the question
    and this is not always the best candidates
    who achieve this
  • Source Andy Threadgould, Dulwich College, Jan
    2009
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