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IP/06/557

Brussels, 3 May 2006

Enlargement, two years on: all win as new Member States get richer

Two years later, the biggest enlargement ever of the European Union is an economic success: the 10 new Member States’ economies are growing at a rapid pace enabling them to progressively bridge the gap with their richer neighbours. But the latter also win as the increase of the EU’s single market by 75 million to 450 million inhabitants brings a wealth of trade and investment opportunities. More importantly, enlargement has acted as a force of modernisation in the EU as a whole – a timely force given the sudden emergence on the world scene of China and India.

The re-unification of Europe is not only a huge political achievement it is also an economic success,” said Economic and Monetary Affairs Commissioner Joaquín Almunia. “We all win as the citizens in the new Member States see their standards of living increasing. We win because companies in the EU take advantage of new business opportunities, become more efficient and, therefore, more competitive on the world scene. The enlargement is helping the EU cope better with the new world economic order”.

Olli Rehn, Enlargement Commissioner added, “Many doomsday scenarios preceded the Eastern enlargement, none of which has materialised. The clear evidence of the economic benefits for all EU member states should remove any remaining misperceptions. We need to give to the reunification of Europe the credit it deserves. It has been a thorough economic and political transformation that has improved the security and welfare of EU citizens.”

The Commission today adopted a Communication on the occasion of the second anniversary of the enlargement of the European Union to 10 new countries[1]. The Communication “Enlargement, Two Years After – An Economic Success” covers the economic aspects. It is accompanied by a more detailed and general assessment by the Bureau of Policy Advisers and the Directorate-General for Economic and Financial Affairs.

European Union integration brought about stronger economic growth in the 10 new Member states (EU10) that was all the more needed that they had been experiencing sharp increases in unemployment due to a massive structural adjustment to a market economy.

With an economic growth on average of 3¾ % a year between 1997 and 2005 they have fared better than the old Member States (EU15) (2½ % on average in the same period), but at 13.4% their unemployment rate is still 5.5 percentage points higher than the EU15.

The adoption of the EU body of legislation and rules – the so-called acquis -- helped reform the previously centrally planned economies, brought about macroeconomic stability and stable financial markets and provided huge opportunities for businesses as the EU10 are very open economies. Their trade (exports plus imports) represents 93% of their GDP on average compared with a EU15 average of 55%.

The EU15 share of total EU10 trade increased from about 56 % in 1993 to 62 % in 2005.The EU10 has recorded significant trade deficits, which is typical for catching-up economies, but they diminished (about 3% of GDP in 2005).

The EU10 also attracted a lot of foreign direct investment (FDI), reaching an overall stock of €191 billion in 2004, or 40 % of their total GDP, while it was virtually non-existent some ten years earlier. Albeit impressive from the point of view of the EU-10, the amount is only 4% of the EU25 overall investment stock in the same year and cannot be associated with major delocalisation.

A driver of reforms

While themselves in a process of adaptation, the EU10 have fostered structural change throughout the EU at a time which coincided with the emergence of China and India as formidable competitors i.e. when it was most needed. Implementing the Lisbon agenda of reforms to raise the EU’s potential growth will sustain this process of increased competitiveness and job creation since 2004.

In the meantime, none of the doomsday scenarios have materialised. Enlargement did not create economic problems for the EU nor did it trigger massive migration flows from the acceding nations into the incumbents’ markets. But it did enable the rapid economic development of the EU10 at a cost for the EU budget of €28 billion in the last 15 years. The annual amounts transferred increased to a significant 2.1 % of GDP of the EU-10 in 2005, but this is only 0.1 % of the old Member States annual GDP.

Full Communication and study on enlargement available on:

http://ec.europa.eu/economy_finance/publications/occasionalpapers_en.htm

See also MEMO/06/176 on “Transitional measures for the free movement of workers”


[1] Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia.


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