29 EU Enlargement
| (27478)
9051/06
COM(06) 200
| Commission Communication: Enlargement, Two Years After — An Economic Success
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| Legal base | — |
| Document originated | 3 May 2006
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| Deposited in Parliament | 11 May 2006
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| Department | Foreign and Commonwealth Office
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| Basis of consideration | EM of 22 May 2006
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| Previous Committee Report | None
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| To be discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
29.1 In the introduction to the Communication, the Commission
describes the fifth enlargement of the EU on 1 May 2004 as: "the
most ambitious in the history of the European Union: the largest
ever in terms of number of countries and population acceding to
the EU; the most complex, as it brought in the EU ten countries
which had experienced very diverse economic, social and political
developments". It notes that: studies ahead of accession
predicted a significant boost of economic growth for the new Member
States (1.3-2.1% additional GDP growth per year); the old Member
States were also expected to benefit "but due to the relatively
limited economic size of the newcomers — less than 5% of
total EU-25 GDP — the impact was estimated to be marginal";
and that "consequences such as migration flows, relocation
of activity, downward pressure on wages in the old Member States
and adjustment costs in the new Member States were expected to
be contained and transitory".
The Commission Communication
29.2 Two years after, the Commission says it is time to review
the experience: "The lessons from the fifth enlargement can
be useful to understand the benefits and challenges of European
integration. Further enlargement steps can take such lessons into
account. While the accession which took place in 2004 has first
and foremost a political and strategic dimension for its importance
in reunifying Europe, this Communication, and the study on which
it is based,[103] focuses
on the economic dimension of enlargement. It assesses whether
the expectations of a positive economic impact prevailing in the
run-up to the enlargement, in spite of some concerns in both the
existing and acceding countries, have been fulfilled."
29.3 In a nutshell, the Commission says that the
favourable economic expectations have been fulfilled:
"The new Member States have undertaken extensive
reforms to modernise and are now dynamic market economies. The
stability provided by accession has helped to multiply trade and
investment between EU-15 and EU-10 as well as within EU-10, creating
a win/win situation for all involved: contributing to growth and
employment in the EU-10; opening new opportunities for firms in
the EU-15, thereby helping them stay competitive in the face of
a ever more challenging global environment; and having a favourable
impact on consumers across the EU, who can benefit from a wider
choice. Overall, the fifth enlargement, by leading to a larger,
more integrated internal market, has created the conditions for
the whole European economy to become stronger and more dynamic,
hence to be better equipped to face increased global competition.
More broadly, and fundamentally, by enhancing peace, stability,
security, prosperity, democracy, human rights and the rule of
law across Europe, it is clear that the fifth enlargement, as
the previous ones, has been a success for all its Member States."
29.4 Looking ahead, the Commission says that careful
preparation of the enlargement over the previous decade was been
key to achieving this outcome and that, while the experience so
far suggests that optimism is in order, the remaining challenges
should not be underestimated:
"Both new and old Member States face ageing
populations and related budgetary strains, global competition
increasing pressure on their economies, and a need to adapt to
these realities, including by modernising their welfare systems
and becoming knowledge-based and innovative societies. Further
convergence of the economies, itself a long-term challenge, would
contribute significantly to this end.
"In a world marked by global competition,
not least from Asia, economic dynamism is essential. The fifth
enlargement has offered new opportunities for both the old and
the new Member States to undertake important steps in this direction.
Further European economic integration will help Europe to stay
competitive and gain from increasing internal and external trade,
and better growth and employment prospects. Both companies and
consumers will benefit from a larger internal market, technological
innovation, lower prices, and hence will be in a better position
to fully reap the opportunities of the new division of labour
that is emerging at global level. The Lisbon strategy for growth
and jobs and the path to the euro offer a framework in which to
pursue the necessary structural change. Taking with determination
this road leading to a dynamic European Union on the world scene
will yield further substantial benefits to all parties involved
in the EU and beyond."
29.5 The substance of this assessment is helpfully
summarised in his 22 May 2006 Explanatory Memorandum by the Minister
for Europe (Mr Geoffrey Hoon) as follows:
"The report observes that on average, growth
in the EU10 has been greater than that of the existing member
states (EU15), and that average incomes in the EU10 have moved
closer to those of the EU15. It also notes the increased income
disparity within the EU due to the accession of poorer Member
States when measured against the EU15 average. Trade between the
EU15 and the EU10 has increased substantially since the establishment
of a free trade zone in the early 1990s. While the new member
states have undoubtedly increased their market share since then,
the EU15 continue to run a substantial trade surplus with the
EU10.
"Foreign Direct Investment (FDI) in the
EU10 has increased substantially, with the EU15 as the top investor.
55% of this FDI is invested in services, while 37% is in manufacture.
This growth in FDI has fuelled concerns that jobs are being relocated
from the EU15 to the EU10. Responding to these concerns, the paper
notes that FDI outflows to the EU10 are relatively minor in comparison
to FDI outflows to other EU15 states, and that much of the FDI
in the EU10 is in the service sector, which does not involve the
substitution of activities previously carried out in the home
country. However, the paper does acknowledge that the relocation
of jobs and activities can be substantial in certain industries.
It notes that the Commission is currently looking at ways to mitigate
these difficulties through its Communication on restructuring.
The employment rate in the EU10 remains lower than that in the
EU15, with unemployment around 5.5% above the EU15 average.
"The migratory flows from the EU10 have
in general been small, even towards the countries which did not
apply restrictions to the free movement of workers, such as the
UK and Ireland. There has been no substantial disruption to national
labour markets as a result of free movement of workers, and the
report notes that it may even have complemented that existing
skill base of the EU15 labour markets.
"The report commends the EU10's efforts
to reform their legislation in line with the EU acquis, 99% of
which had been completed by May 2006, and notes that the safeguard
clause provided for in the Accession Treaties has never been triggered.
The report also covers the development of the agricultural sector
in the enlarged EU. The area of agricultural land has increased
by 25%. EU membership has benefited the agricultural sector in
the new member states, encouraging modernisation and increasing
incomes for farmers. This increased income for farmers in the
EU10 has not had an adverse effect on farmers in the EU15. The
report also claims that the continuing presence of CAP within
the EU budget also shows the importance of agriculture to the
enlargement process. The EU10 will receive less than 10% of the
CAP Pillar 1 budget over 2007-13.
"The budgetary impact of enlargement has
been manageable. About €28bn (£19.4bn) has been transferred
to the EU10 from the EU15 over the past 15 years. This reached
just over 2% of EU10 GDP in 2005. The disbursements to the new
member states represent 6.9% of the EU budget (according to figures
for the 2004 budget). For the EU10, net EU transfers accounted
for an average of 0.6% of Gross National Income (GNI) in 2004."
The Government's view
29.6 The Minister comments as follows:
"We agree with the Commission's analysis
that this fifth enlargement has been a success for old and new
member states. The paper highlights the transformative effect
that enlargement has had on the economies of the EU10, and also
the effects that accession has had on the economies of the EU15.
Thus far, it has brought increased prosperity to the whole of
the EU and has helped the EU to meet the challenges of globalisation.
The extension of the EU to encompass 450 million people has created
the largest single market in the world. Increasing mobility of
workers and enterprises within that market is central to meeting
the twin challenges of an increasingly globalised world economy
and changing European demographics.
"The report argues that careful preparation
for enlargement was key to the successful economic outcomes of
the enlargement to the EU10. The UK supports an enlargement process
based on strict conditionality — where each country's progress
depends on meeting EU standards.
"The report mentions the decision of the
UK, Ireland and Sweden to open their labour markets to workers
from the new member states in 2004. It points out that the economic
benefits of opening up the labour market — addressing skills
shortages, filling vacancies that would otherwise not be filled
thus fuelling economic growth — have been matched by the
political benefits: encouraging legal working and therefore better
integration and use of immigrant skills. The UK experience bears
this positive message out. Employment rates remain high, unemployment
is low and there has been no evidence of benefit tourism or added
burdens on our social security systems.
"The agreement to the 2007-13 Financial
Perspective, reached at the December 2005 European Council, and
confirmed by the May 2006 Inter-Institutional Agreement, ensures
that the EU will continue to provide substantial resources for
cohesion and growth expenditure in the EU10. Overall, EU regional
spending in these countries will increase sevenfold from €24
billion in the 2000-2006 Financial Perspective to €174 billion
in the next. These transfers will provide the basis for economic
development in these Member States, making them and the EU more
prosperous.
"The report suggests that the real incidence
of relocation due to enlargement is economically negligible. However,
the UK recognises the real fears of delocalisation and relocation
in the face of a increasingly globalised economy that exist in
some parts of Europe. We hope that the Commission's forthcoming
Communication on restructuring will recognise that merely producing
more legislation would limit our ability to respond effectively
to the global challenges or take advantage of the opportunities
that an increasingly open world economy offers. The Lisbon strategy
of jobs and growth remains the key to improving Europe's competitiveness,
ensuring that we invest in Research and Development, raise skills
and improve labour market responsiveness to the new economy.
"The paper notes the importance of agriculture
in the enlargement process. It notes that enlargement has not
had the feared adverse impact on farm income in either the new
or old Member States. It also notes that despite increased trade
integration, an inflow of foreign direct investment and direct
income payments, there is ample room for further rationalisation
and increase in productivity in the new Member States. The UK's
'Vision for the Common Agricultural Policy', published in December
2005, notes the considerable gap in many of the new Member States
between the share of the population working in agriculture and
the share of agriculture in GDP and advocates redirecting agricultural
expenditure towards rural development."
Conclusion
29.7 Despite the evidence adduced by the Commission,
it is plain that far from all Europe's citizens, both old and
new, are as upbeat as the Minister notes in his comments. Although
the UK continues to champion enlargement, some other Member States'
enthusiasm is more qualified. Allied to the fears to which the
Minister refers, there is much talk among the political elites
and media commentators of "enlargement fatigue" and
debate as to the need for and nature of the changes that may be
required to make an EU of 27+ operate in such a way as to fulfil
its potential. New ideas are in play: a "privileged partnership"
for some prospective members, and calls by the European Parliament
for a clearer definition of the EU's "absorption capacity",
with some MEPs favouring the inclusion in the EU enlargement strategy
of a "multi-lateral framework" — for some, a step
towards accession, for others an alternative. More immediately,
the final stages of Bulgarian and Romanian accession has prompted
considerable angst regarding the ability of the Union to
make a reality of the strict conditionality to which the Minister
refers.
29.8 There will no doubt be many future occasions
upon which these issues will be revisited, not least when the
Commission Communication on Restructuring appears, and upon which
the Minister comments appositely.
29.9 For now, we are clearing this Communication
with a Report to the House because of its intrinsic importance.
103 "Enlargement, Two Years After", a study
by the Bureau of European Policy Advisers and the Directorate
General for Economic and Financial Affairs, Occasional Paper,
No. 24, 2006, European Commission, Directorate General for Economic
and Financial Affairs, available at: http://europa.eu.int/comm/economy_finance/publications/occasionalpapers_en.htm. Back
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