Enlargement of the EU
31. Prior to this inquiry and Report very little
had been published on the impact enlargement of the EU might have
on EMU.[172]
We requested and received a wide range of evidence, from firms
and private sector organisations, academics and commentators,
and the Government on this important issue. The Treasury's memorandum
explained the formal position with respect to the enlargement
of the EU and EMU: "Full EU accession will commit the accession
countries to ultimately joining the single currency and adopting
the euro ... on entering the EU, accession countries will also
sign up to membership of EMU, but with an initial derogation,
meaning that they will not adopt the euro immediately upon accession
... suitability for entering the euro will be assessed on the
same basis as for current EU members".[173]
Commissioner Solbes explained that new Members of the EU would
need to wait at least two years from entry to join Stage Three
of EMU in order for them to meet the Maastricht Treaty's exchange
rate criterion, which implied the eastwards expansion of the euro-area
being delayed until 2006 at the earliest.[174]
32. Some witnesses were relatively unconcerned by
the distant prospect of the admission of accession countries to
Stage Three of EMU. Professor Begg and Mr Ardy, for example, wrote
that "if the five front runners [for accession] were to join
the EU, they would increase its population by about a sixth, but
boost real GDP by less than half that proportion if measured in
purchasing power parities and by about three per cent if measured
in euros ... it would be the equivalent of adding a country of
the economic weight of the Netherlands to the euro area".[175]
Corus wrote that the implications for EMU of EU enlargement "should
be negligible" but warned that "it cannot be excluded
that changes in sentiment affect the value of the euro more than
is justified",[176]
and the Chemical Industries Associations recommended "institutional
reform to improve flexibility, transparency and competitiveness"
as a necessary complement to enlargement.[177]
Some witnesses expressed concern at the prospect of central and
eastern European countries participating in Stage Three. Mr Forder
concluded that "if the EU is enlarged and the new members
join the euro, this will make the area larger and more diverse
and thereby exacerbate the problems that already exist".[178]
The Institute of Directors expressed the view that "the main
implication for the euro of enlargement is the potential burden
on the EU's finances ... an increased burden of taxation may be
the outcome with its negative implications for the euro".[179]
It is vital that the economic criteria used to assess whether
countries should participate in Stage Three are fully respected
for all applicants, including those which are deemed too small
to have significant effects on the euro-area economy.
170 
