Does enlargement matter for the EU economy? By Katinka Barysch ★ The economies of the new member-states are too small to have much impact on the current EU. ★ The EU as a whole has gained from enlargement and will continue to do so. But labourintensive industries and border regions will have to cope with increased competition. ★ Germany, Austria and other EU countries can only justify temporary restrictions on the free flow of workers if they use the breathing space provided to reform their labour markets. The forthcoming enlargement round is the EU’s biggest ever: ten new members – eight Central and Eastern European countries plus Malta and Cyprus – are set to join the Union in May 2004. In terms of economics, however, their accession will be of little consequence for most current EU members. First, economic integration between the EU and the East European countries has already progressed to a degree that makes further big gains – and losses – unlikely. Second, the economies of the new memberstates are very small compared with the EU. Nevertheless, many West Europeans are worried that the accession of fast-growing, low-cost economies could create enormous pressure in their countries. In particular, they fear that cheap Polish or Czech exports could price local products out of the market; that financial flows to the new memberstates could divert much-needed investment capital from West European businesses; and that a massive influx of low-wage workers from the East could push unemployment in the EU even higher. These fears are largely groundless.
Trade integration is yesterday’s news In terms of economics, eastward enlargement is largely yesterday’s news. All East European countries liberalised foreign trade during early economic reforms. As a result, trade with the EU took off even before the Europe Agreements opened the way for the gradual removal of trade barriers over the course
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of the 1990s. Since then, trade between the candidates and the EU has been growing at doubledigit rates every year. By the end of the decade, the candidate countries were trading with the EU just as much as the EU members were trading with each other. On average, the would-be members are now sending two-thirds of their exports to the EU. These shares are unlikely to rise much further. Although there is scope for further integration with some EU countries, including France and the UK, future trade growth will largely depend on overall economic prospects in the enlarged EU. This rapid trade expansion has helped to boost catch-up growth in most Central and Eastern European countries. But has it come at a cost for the EU? No. First, taken together, imports from the candidate countries amount to no more than 1 per cent of EU GDP. Second, to the extent that these imports have intensified competition for EU producers, they have pushed down prices and benefited European consumers. And third, while the EU has increasingly thrown open its market to East European goods, it has also exploited growing export opportunities in the accession countries. In fact, the EU sells much more to the accession countries than it buys in return. The result has been a large and rising trade surplus. According to estimates from the Osteuropainstitut, a German research institute, this trade surplus has created 114,000 jobs in the EU during the 1990s.
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