Transcript No Slide Title

Enlargement of the EU:
investigating the issues
© Economics Department, King’s School, Chester
December 2002: A ‘New’ Europe
 Ten new members of the EU from May 2004
 Eight of these are from Central and Eastern Europe
 Poland, Hungary, the Czech Republic, Slovenia, Slovakia,
Estonian, Latvia and Lithunia
 The route to membership has been long and frustrating




early hopes have been continually postponed
costs of meeting Copenhagen Criteria have been high
much hard work but only the promise of a return
Europe Agreements somewhat one-sided
© Economics Department, King’s School, Chester
Of particular interest ...
 How do these new members compare with the current
EU15?
 What benefits are CEE economies likely to gain from EU
membership?
 What are the costs for CEE economies of EU
membership?
 What does the current EU15 stand to gain?
 What threats might they pose for the current EU15?
© Economics Department, King’s School, Chester
Comparing ‘new’ and ‘old’
 Data sources:




www.economist.com
www.oecd.org
www.eurostat.eu.int
www.cia.us
 Health warning
 mass of statistics
 multiplicity of sources
 keep it simple!
© Economics Department, King’s School, Chester
Some basic data
Hungary
GDP per head ($ at
PPP)
GDP (% real change
pa)
Government
consumption (% of
GDP)
Budget balance (% of
GDP)
Consumer prices (%
change pa; av)
Public debt (% of
GDP)
Labour costs per hour
(US$)
Recorded
unemployment (%)
Current-account
balance/GDP
Czech Slovakia Poland Greece Ireland
republic
2001
2001
2001
2001
2001
2001
9,470
14,586
9,060
9,280
18,460
31,593
3.8
3.26
3.29
1.00
4.1
5.85
11
19.23
19.97
16.59
15.5
12.4
-2.52
-3.14
-4.4
-4.60
0
1.35
9.16
4.68
7.12
5.50
3.36
4.88
50.9
22.97
41.8
39.90
101.6
36.47
2.01
2.16
1.42
2.80
7.93
13.31
5.69
8.55
18.62
16.22
10.5
3.76
-2.11
-4.65
-8.58
-4.05
-5.1
-1.01
© Economics Department, King’s School, Chester
How do they compare?
 Low living standards
 GDP per head, US$, PPP
 Slovakia’s GDP per head
– 50% of that in Greece (EU15 poorest)
– <30% of that in Ireland






Solid economic growth
Inflation rates generally higher
Significantly higher unemployment in some countries
Budget deficits well above SGP limit (3% GDP)
High government expenditure as % GDO
Lower unit labour costs
© Economics Department, King’s School, Chester
Benefits for all ...
 Economic theory predicts benefits in terms of a larger
market and economic integration






100 million extra consumers, bringing total to 455 million
static and dynamic efficiency gains from trade
economies of scale
greater competition
more product and process innovation
increased levels of cross border investment
 Higher GDP, increased rate of growth, lower inflation,
lower unemployment …
 apply simple AD / AS analysis to these issues
© Economics Department, King’s School, Chester
The benefits explained ...
Price level
LRAS0
LRAS1
AD0
AD1
Real GDP
Employment
Labour
© Economics Department, King’s School, Chester
No such thing as a free lunch ...
 For CEE firms the benefits are not universal





competition brings with it a need to restructure
benefits only possible where comparative advantage exists
low labour costs are no guarantee of success
productive inefficiencies will be exposed
risk of structural and technological unemployment
 For EU15 firms there are risks too
 especially in low-tech, labour intensive industries
 loss of FDI
 need to increase knowledge and skills base to compete
© Economics Department, King’s School, Chester
Labour market concerns
 CEE economies need to




increase labour supply
increase employment rates
encourage greater labour market flexibility
increase skill levels
 Fears of mass migration probably emotional rather than
economic




EU15 is actually short of labour
immigration not necessarily undesirable
impact on the EU15 labour market
impact on EU15 AS
© Economics Department, King’s School, Chester
The issue of agriculture
 Three main features of EU15 CAP
 price support
 direct payments
 rural development
 Importance of agriculture in CEE economies
 27% of Polish population engaged in agriculture
 Cost of extending CAP
 CAP currently 45% of EU budget = €40.5 billion
 additional expenditure significant
– 2004 = extra €9.9 billion
– 2006 = extra €14.9 billion
© Economics Department, King’s School, Chester
Conclusions
 Enlargement raises important economic issues
 it could weaken economic coherence
 there will be big pressures on the EU budget
 there are unresolved questions regarding agriculture and regional
policies
 pace of economic integration could be threatened within current
EU
 The potential benefits could, however, be significant
 equivalent to a second harvest
 especially for the CEE economies
 As with all EU projects, enlargement is as much political
as it is economic
 ‘Old Europe’ and ‘New Europe’
© Economics Department, King’s School, Chester