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ENLARGEMENT: THE NEW FACE OF THE EU
Trends in Economic Growth
General Remarks
On paper, it is widely agreed that enlargement is a win-win situation. Nevertheless the
economic opportunities and risks of enlargement will have to be managed, just like any other
political matter, and this is what will ultimately define the success or failure of the process.
Despite the importance of EU policies, the success or failure of the EU’s future economic
development will continue to be in the hands of the countries, companies and people in
general.
In simple economic terms, the coming enlargement is about the combining of a group of
countries forming a large wealthy economy of 375 million of people, with a group of
countries of 75 million people that are much less wealthy. It is important to stress that the
increase in population (20%) and area (23%) resulting from this enlargement is not larger than
previous enlargements. In 1973, with Britain, Denmark and Ireland, the Community increased
more in terms of population. The 1995 enlargement, adding Austria, Sweden and Finland was
proportionately larger in terms of land area gained.
Then, why is this enlargement different?
Firstly, the most relevant difference is that most of the new members come from formerly
centrally planned economies and are completing their transition to market-based systems.
They have been undergoing difficult economic reforms in addition to their efforts to join the
EU. Secondly this enlargement constitutes a challenging process in economic terms because
the new Members States have an average GDP per capita of approximately 40% of the
existing Member States.
Macroeconomic estimates
As mentioned previously, enlargement is considered to be a win-win situation for the
economies involved. Enlargement is expected to boost economic growth in both the candidate
countries and the EU, although to a different extent.
According to the European Commission1, over the period 1997-2001, most candidate
countries registered average rates of economic growth well above the EU average of 2.6%.
The global slowdown that started in late 2000 also affected the EU, and with it, the
candidates. As a result, growth slowed down in a number of candidate countries in 2001, but
over the first half of 2002, the aggregate economic development has been fairly stable.
Economic growth after Enlargement
According to recent studies, enlargement is likely to boost economic growth and income
substantially in the candidate countries over the period 2000-2009. For example, according to
the European Commission2, overall economic growth in eight of the new Member States
1
2
Progress Report towards accession, DG Enlargement, European Commission, 2002
European Commission: The economic impact of enlargement, Enlargement Papers Nº4, June 2001
(excluding Malta and Cyprus) may be between 1.3 and 2.1% higher per year than in a
situation without enlargement, depending on the intensity of structural reforms undertaken.
Other studies3 project additional growth rates of up to 1% per annum, over and above the
growth rate without enlargement, but only for the most open economies of the new Member
States such as Hungary and Poland. However, all candidate countries will benefit from
improved prospects in the long-term by joining the EU and the Internal Market.
In general, it is considered that the economic impact of enlargement on the current Member
States will be much more limited, with additional economic growth reaching 0.1% per year.
(Austria is a special case and GDP growth may increase by an extra 0.15%)
Income issues
The limited economic impact in the current Member States is not surprising taking into
account the, in general, small size of the new Member States’ economies and the current low
level of income: the GDP of the accession countries amounted to less than 5% of the EU´s
GDP in 2000 and the average per capita GDP of the accession countries stood in 2000 at
approximately 40% of the level in the current Member States.
As in the accession countries, there will be big differences between the Member States in
terms of the benefits of enlargement. Those countries that already have the biggest trade links
with the accession countries will benefit most, notably Austria and Germany.
GDP volume growth rates - % change on previous year
12
10
9.6
8
EU
ACC
6
4
2
3.8
2.9
3.2
3.5
2.8
2.3
2.4
1.6
1
2.7
1.2
2002
1Q 2003
0
1998
1999
2000
2001
Source: Eurostat, European Commission
Why is enlargement beneficial for the EU economy?
Increased levels of economic growth and social welfare should be the logical outcome of
enlargement for the following reasons:
1. Increased levels of trade: This will be the immediate consequence of two trends:
3
CPB Netherlands Bureau for Economic Policy Analysis: EU Enlargement-Economic implications for countries
and industries, September 2001


The removal of the remaining barriers to trade (non-trade barriers)
The enlargement of the Internal Market, with approximation of rules and standards,
etc.
2. Rising foreign direct investment: the current trend will continue with greater flows to the
new Member States, essentially due to an improved investment climate in those countries.
3. Movement of workers within the widened Union, that will be beneficial to current
Member States, notably those not applying any restrictions to the free movement of labour
from the new Member States. It will add to their labour force growth and increase their
long-term growth potential.
4. The enlarged internal market will provide positive medium to long-term effects linked
such as economies of scale, productivity gains, cost reductions resulting from increased
competition, restructuring, more efficient organisation of supply chains, etc
For more information:
-
European Commission: http://www.europa.eu.int/comm/enlargement/index.htm
European Parliament: http://www.europarl.eu.int/enlargement/default_en.htm
Economic and Social Committee:
http://www.ces.eu.int/sections/enlargement/index_en.htm
Towards the Enlarged Union Strategy Paper and Report of the European Commission on
the progress towards accession of the candidate countries 2002,
The Economic Impact of Enlargement, Directorate General for Economic and Financial
Affairs, European Commission, May 2001
Profiting from Enlargement, Heather Grabbe, Centre for European Reform, 2002
Enlargement 2004: Big Bang and Aftershocks. Burson Marsteller/BKSH, Brussels