Download speech - Europa.eu

SPEECH/09/77
Joaquín Almunia
European Commissioner for Economic and Monetary Policy
Five years of an enlarged EU
Conference on 'EU enlargement – 5 years after'
Prague, 2 March 2009
Ladies and Gentlemen,
Let me begin by congratulating the Czech Presidency for organising this conference
and for initiating this project to celebrate and to assess the impact of the EU’s
biggest ever enlargement.
The 2004 EU enlargement, followed by the accession of Bulgaria and Romania in
2007, was one of the most significant milestones in our European project’s 50 year
history. As a move that would unite Europe after decades of division, we knew that
this groundbreaking step would bring immense opportunities as well as some
formidable challenges. Five years on, what has been the impact for old and new
member states, for businesses and citizens Europe wide?
The report we are presenting today, 'Five Years of an Enlarged EU,' focuses largely
on the economic consequences of this decision. However, we all know there are
multiple benefits from enlargement that cannot be expressed in graphs or growth
percentages.
We cannot measure how our union has grown culturally richer with the addition of
12 new states from Central and Eastern Europe. And we cannot illustrate with
figures, how EU membership has consolidated democracy and the rule of law, nor
the impact this has had for citizens that have lived in the grip of communism.
As someone who grew up under the shadow of dictatorship in Spain, and
participated in my own country’s accession negotiations, I understand very strongly
the hopes and aspirations of the Member States that participated in this historic
enlargement.
And I remember well the fears and misgivings that accompanied Spain and
Portugal’s accession in 1986, just as they did two decades later, when 12 new
countries joined. Some worried that the enlargement was too soon, others that there
were too many countries. There was talk of widespread economic and social
instability that 12 new members would bring.
So I am very pleased to be able to present this report to you today which shows that
the enlargement has been an important economic success, for new and old
Member States alike.
Let me share with you the key achievements identified by our analysis:
Enlargement has brought higher growth, especially in the accession countries, who
have seen a considerable boost to their catching up process. New Member States
have expanded at a pace of 5.5% of GDP over the last 5 years, compared to the
3.5% of the previous 5 years.
These higher growth rates have helped close the gap in living standards, with
income per capita rising to 52% of the old member states average in 2008, up from
40% in 1999. Let me add that these improvements have not come at the expense of
old member states. Their growth was around 2.2% annually from 2004-2008, a
similar figure to the previous five years.
A number of factors have driven the higher growth rates in new members.
The first is the opening of new trade opportunities brought by enlargement. New
member states have seen their imports and exports increase and they have doubled
their world trade share since 1999. Trade between old and new member states and
between the EU12 themselves have intensified considerably. In 2007, almost 80%
of exports of the new Member States went to the rest of the EU.
2
Old Member States have also gained. Their sales to the new members increased to
around 7.5% of their total exports in 2007, from 4 ¾ % a decade ago. Take
Denmark, where sales to the 10 new Member States have been growing by double
digit rates since 2004. Or Germany, whose exports to the region have more than
tripled over the last 10 years.
As well as trade, a surge in investments has driven the economic transformation in
the EU12. I must commend the rigorous reform efforts of member states and
sound macroeconomic policies which together with the EU’s institutional and legal
framework have created an attractive location for private capital. Investors from old
member states and worldwide have seized on these new opportunities and the
EU12 have enjoyed an unprecedented inflow of foreign investment.
This investment has fuelled the rapid modernisation of the new member states’
economies. Service based and knowledge intensive sectors of the economy have
come on leaps and bounds in recent years. High tech goods reached 14% of total
exports in 2006 – almost the same rate as the old member states.
Moreover, EU rules on product market regulation and state aids have increased
competitiveness in new member states. Our report finds a boost in business activity
and reduction in consumer prices thanks to these measures. Taken together, this
economic modernisation and restructuring, coupled with rising education levels,
bode well for competitive position of new member states in the globalised economy.
EU integration has also played a crucial role in reducing the very high levels of
unemployment that were prevalent in the enlargement countries. 3 million new jobs
were created in the EU12 between 2003 and 2007, and unemployment has been
reduced to mirror levels seen in the rest of the EU. However, I should add that long
term unemployment remains a persistent problem.
I know that migration from new to old member states sparked anxiety at the time of
accession. However, apart from some concerns over brain drain for the EU12,
overall labour migration has brought economic benefits for member states both new
and old. For the countries of central and Eastern Europe, it has offered increased
employment opportunities. Workers returning to their home countries are also
bringing back new skills that are being put to good use for their economies.
An objective analysis shows how valuable labour migration has been for the old
Member States. The flow of workers from Eastern countries since enlargement has
been absolutely crucial in meeting shortfalls in their labour markets and boosting
growth. This is not said often enough and needs to be recognised more widely.
Indeed, it is important to stress that the EU as a whole has gained enormously from
enlargement, not only its newest members. The new markets for investment and
exports have opened up a wealth of opportunities for EU businesses.
This new found economic dynamism in an internal market of 500 million consumers
has given European companies the chance to sharpen their worldwide
competitiveness. It has driven necessary reforms and encouraged firms to enhance
their ability to conquer new markets globally through greater specialisation.
Enlargement has therefore been a win-win situation – for employment, for trade and
investment, and for the collective benefits of enhanced stability and sharpened
competitiveness. And let’s not forget the value of an enlarged EU in the world
economy.
3
The fact that we now represent the largest integrated economic area in the world is
a major asset. Together we account for more than 30% of world GDP and more
than 17% of world trade, without taking into account the intra-EU trade. Our GDP in
terms of purchasing power parity is 22% - one point ahead of the US. All this means
that we carry more weight when addressing issues of global importance, be it
climate change, or the governance of the world’s economy and financial system.
A few days ago I participated in the preparation summit in Berlin in which EU
leaders agreed to present common lines and a united front at the G20 summit in
London in a month’s time. The very rationale for this meeting was the knowledge
that, by standing together, the enlarged EU can wield more global influence than
any country acting alone could ever hope for.
This is a lesson that we cannot afford to forget, and certainly not now, in these
extremely difficult times for the global economy. We are living through an
unprecedented crisis that is hitting every country and region around the world.
Growth is contracting and unemployment is rising everywhere.
But a big, united EU is better able to tackle this crisis and the causes of this crisis
than member states acting alone. One of our highest priorities is to resist the rising
protectionism which is showing worrying signs of gaining ground. The EU's share of
world imports and exports are among the highest of any economy in the world. We
would therefore be the first to suffer from any resurgence of economic nationalism
and we are determined to fight this trend and defend open markets at every
opportunity.
At the level of the EU economy, we have taken coordinated action to stabilise the
banking system and to lay the ground for economic recovery. We are now working
hard to help restore the credit channel to the economy, which is a vital pre-condition
to stimulating demand and saving jobs.
At the same time, we are giving support to those EU members most severely
affected by the crisis. For some Eastern countries in particular, the severe
slowdown is posing major challenges.
Despite the many successes of enlargement, in several countries rapid credit
growth has lead to overheating, widening external imbalances and housing bubbles
also fuelled by large amounts of foreign borrowing. Unfortunately, this has left
households and businesses more vulnerable to currency depreciation and
governments are facing higher costs financing their debt.
Of course, this is not just a challenge in Central and Eastern Europe. Other Member
States that have seen a credit boom are experiencing similar vulnerabilities. But the
problem appears particularly acute for some of the Union's newest members.
The EU is using a range of funding instruments to help those economies under
pressure. Let me give you a few examples:
This year, the 12 member states that joined the EU in 2004 and 2007 will receive €7
billion euro through structural and cohesion funds. The European Investment Bank
will lend these countries 11.5 billion euros, that's 3.3 billion more than in 2008. And
the Balance of Payments facility to support non euro area countries with severe
financing problems has been increased from 12 billion euro at the end of 2008 to 25
billion euro. Out of this 25 billion, 9.3 billion euro has been used to help meet the
financing needs of Latvia and Hungary.
On top of this, some Member States through their public financial institutions or
through direct loans are also providing support and certain Western banks are
starting to recapitalise their subsidiaries in the new Member States.
4
So all in all, the EU is doing a huge amount to support those worst hit by this crisis..
This effort is particularly important regarding EU 12 needs and demands.
We are being realistic. We know that this may not be enough. The situation will
require strict monitoring and closer coordination among all the relevant actors: that
means private investors, financial supervisors and governments, as well as at the
level of international financial institutions.
The new member states will also need to implement sound domestic policies to
safeguard the benefits they've accrued since enlargement. The crisis has exposed
vulnerabilities in their economies and major efforts are called for to ensure that
these do not jeopardise their catching up process.
The European Commission and the ECOFIN Council are ready to lend guidance
here in the form of enhanced surveillance through the Stability and Growth Pact and
the Lisbon Strategy. Macroeconomic imbalances, including in asset markets, should
be detected early and policies to tackle these imbalances and to enhance
adjustment capacity recommended.
Sound fiscal policy, for example, will be essential to maintain macro-financial
stability and to contain the pressures of a booming private sector. The new Member
States have shown progress. When they entered the Union in 2004, half had an
excessive deficit above 3%. At the end of 2008, only Hungary did.
However, the financial crisis is taking its toll on public finances and this makes it
even more important that Member States follow best practice for fiscal governance,
including developing credible medium term budgetary frameworks and improving
the quality of public finances. The reformed stability and Growth Pact provides a
solid framework and clear guidance to help countries stimulate growth and jobs in
the short term while maintaining sound and sustainable public finances in the
medium to long term.
In addition, carrying out structural reforms under the Lisbon Strategy would
underpin a quick and sustainable recovery. Productivity boosting measures,
especially in R&D and innovation, would allow European economies to grasp the
growth opportunities that will emerge in the aftermath of the crisis. Pursuing
improvements in the efficiency of public administrations and cutting red tape are
also important if we want to reap the full benefits of the enlarged Single Market.
Indeed, completing the single market will be crucial to draw the full benefits from
enlargement in the longer term. A shared market of 500 million consumers,
underpinned by common principles and regulations has proved a valuable resource
for Europe's competitiveness. We now need to deepen the integration of goods,
services, labour and financial markets if we want to see the maximum results in
terms of growth and jobs.
So far, new member states have implemented single market regulations well. But
there is scope to strengthen the rule of law and increase the efficiency of public
administration in order to improve the business environment and accelerate
investment.
Finally, Member States that have not done so may strive to meet the criteria for
euro adoption. The euro provides a considerable shield from the worst effects of
economic turbulence, as we have seen during the current crisis. It also offers the
benefits of lower transaction costs, higher trade and investment, increased
competition and enhanced financial integration. An enlarging euro area would also
help reap the full benefits of the Single Market.
5
However, future expansion of the euro area will have to go hand in hand with wider
surveillance of members economies in order to anchor stability and prevent the
build up of macro-financial risks.
Conclusion
Ladies and Gentlemen, let me conclude.
Since the historic enlargements of 2004 and 2007, citizens Europe-wide have been
reaping the benefits of increased growth and employment, enhanced
competitiveness and greater resilience of the EU economy. Five years on,
enlargement has given Europe the global clout to take a leading role in steering the
EU and global economy out of crisis.
True, the crisis has exposed vulnerabilities in the economies of our newest
members. Those countries, with support from the wider EU, will have to make some
serious adjustments and employ sound domestic policies with vigour. But the crisis
is also clarifying a stark lesson: Europe's strengths lie in unity, not division.
This is the only way forward and we must apply this lesson to all the elements of our
agenda: to fighting the recession, to strengthening our single market, to reinforcing
our European financial sector and to promoting and defending our interests at the
global level. If we can combine the power of our 27 member states, acting together,
for our shared interests, we can transform the greatest of challenges into mutual
prosperity.
6