Select Committee on European Communities Tenth Report


  73.    This Part of the Report sets out the opinion of the Committee on the major issues that arose during the enquiry. Our opinions are based principally on the evidence received which is published with this Report. We have also taken into account the Commission's detailed material in Agenda 2000, which is not published here, and other generally available documents including in particular some prepared by the European Parliament.


  74.    Accession to the European Union is widely seen in the countries of the former eastern bloc as an integral part of re-joining the historic culture of Europe to which they belonged before the tide of communism engulfed them. It is seen as a coming home. It is seen as a confirmation that the freedoms of democratic societies will again be theirs and will be safeguarded by their membership of the institutions which since 1957, when the Treaty of Rome was signed, have fostered peaceful cooperation and prosperity among the growing number of countries within what is now called the European Union.

  75.    Coming home after a long absence may involve adjustments not always easily made or fully foreseen. The European Union is not just a political grouping of countries with a common commitment to democracy and liberal market economies. It is a uniquely complex political organism in which the tensions between the interests of the larger and the smaller states, the richer and the poorer regions, the demands of economic growth, social cohesion and respect for the environment are resolved or contained by constant political manoeuvring within and between the EU institutions, national governments, national parliaments and ultimately their electors. At the level of the Union institutions this process of adjustment takes place in a sophisticated culture in which acceptable compromises are sought with a determination which is both robust and subtle. But to the public, even within the existing Member States, the ways of the Union are often obscure and byzantine: it is, therefore, to be expected that there will be less than a good understanding among the peoples of the newly acceding countries of the ways decisions are taken in the Union when they join. The enlargement of the Union by the accession of ten or eleven countries will necessarily bring about a new balance of forces between the EU's Member States and a new configuration of the institutions of the Union.

  76.    We do not see enlargement as leading to business as usual for the Union but as providing an opportunity in which it will be necessary to forge new relationships between Member States and between the institutions of the Union. We have been impressed by the careful study and thought that the Commission have put in to their Communication, Agenda 2000. The two Commissioners who gave us evidence convinced us that, given political will, the route to enlargement up to 2006 sketched out in Agenda 2000 is, in broad terms, realistic. We remain to be convinced that national governments have yet thought equally hard about the way ahead or faced up to the sometimes uncomfortable decisions which will have to be taken. The temptations to postpone awkward choices are always strong. Unfortunately delay can make difficult choices harder.

  77.    The processes of enlargement are not unfamiliar to the Member States: their number has grown from the initial six to the present fifteen. In 1995 when the Union was enlarged by the accession of Austria, Finland and Sweden their entry was relatively easy, quick and, for the Union, cheap because the three countries were comparatively small, rich and not heavily dependent on agriculture. Also they had recent experience of operating a market economy. But the enlargement now in prospect is quite different in these respects and is of a different order of magnitude from any that has happened in the past. No previous enlargement is comparable in terms of the resulting growth of population, the size of the land mass involved, the economic diversity of the prospective new Member States, and the short recent experience of the acceding countries in operating an open civil society. The enlargement now foreseen is a challenge of momentous consequence. This view is justified even without taking into account that relations with other countries on the borders of the enlarged Union will continue to be of great importance for the stability and peace of the continent.


  78.    National governments may have adopted a tough stance for public consumption in advance of serious detailed negotiation but we think that there is a deep-seated reluctance among existing Member States to pay more to, or receive less from, the Community Budget than they do at present. Governments wish to minimise the tax burdens on their own voters, particularly at times when national elections are approaching; Ministers are unwilling to return home with less of what has been called "our own money" than was achieved by their political predecessors; and there is also a more high-minded desire to keep budget deficits low and ensure that sound public finances promote growth and safeguard the path towards and within Economic and Monetary Union (EMU).


  79.    We put little faith in the ability of governments or others to forecast economic performance, particularly over periods as long as five to seven years. We approached the Commission's estimates of annual rates of growth between 2000 and 2006 with some scepticism.

  80.    The 4 per cent growth a year estimated for the CEEC10 must be highly uncertain. It could be exceeded in some countries and not met in others. But we are unable to offer a more reasonable estimate. The impact of the growth rates in the CEECs will be small in terms of any contributions they might make to the Community Budget. A more important effect of CEEC growth will be on their ability to finance their own investment and restructuring. We conclude that, although the CEECs' rates of growth are likely to affect the time they will require to become ready for accession and the scope and duration of transitional periods needed after accession before the full rigour of the acquis is applied, these rates of growth are neither an important factor in determining what should be the EU's "own resources" ceiling before 2006 nor will they have much affect on the net contributions or net receipts of the EU15 in this period.

  81.    The 2.5 per cent growth a year estimated for the EU15 is also uncertain. The estimate is not far in excess of achieved performance over the last decade during which the EU has suffered from high unemployment and low growth. There are some grounds for thinking that the next decade may be better: if EMU works well and and if the Single Market exerts the expected positive effects on the EU15 and the applicant countries, the resulting freer flows of trade may produce somewhat faster growth. On the other hand, there seems to be increasing volatility in world financial markets which makes economic forecasting even more hazardous than usual. We are, therefore, unable to offer a more reasonable estimate than the Commission's, but we would attach a warning: reliance on this figure could be misleading-alternative scenarios should be given thought by the Commission well in advance of 2000.

Faster or slower growth

  82.    If growth in the EU15 exceeds the annual 2.5 per cent estimated by the Commission, funding policies for agriculture, economic and social cohesion and enlargement obviously becomes easier. It would be possible to pay for these policies and leave a greater margin within the own resources ceiling. More problematic is the situation where growth falls below the 2.5 per cent annual rate. The Treasury written evidence, quoted in paragraph 46 above, shows that with an annual growth rate as low as 2.0 per cent there would still be a small margin of ecu 1 billion a year in the annual Budget. If growth fell below the 2.0 per cent rate it would be necessary either to reduce payments from the Budget by curbing spending on agreed policies or to raise the own resources ceiling. The latter option would probably be the more unattractive in what would, ex hypothesi, be a time of particular economic stringency. This brief consideration emphasises the importance of stimulating economic growth in the EU15 if the Community's policies are to remain affordable.

  83.    Looking further ahead than the period 2000-2006, the annual growth rates estimated (2.5 per cent for the EU15 and 4 per cent for the CEEC10) have significant implications for the funding of the Community. Despite these growth rates it would still take about 25 years for the CEEC10 to reach roughly half the average GNP of the existing EU15. Even to narrow the gap to this extent will require Community assistance to the new Member States for at least a generation after their accession. We do not see this long period as a reason for delaying enlargement.


  84.    In our recent report entitled Reducing Disparities within the European Union: the Effectiveness of the Structural and Cohesion Funds[19], we took the view that on grounds of political realism the best assumption for planning purposes was that the Budget ceiling of 1.27 per cent of EU GNP will not be increased after 1999. Nothing we heard in this enquiry caused us to change that view of the political realities. We think that the Commission's suggested margin between total payments and the "own resources" ceiling is so small that the ability to fund enlargement as proposed is at risk. It would be endangered by failure to reform the Community's policies adequately or by growth rates falling short of those estimated. We have to conclude that the financial perspective for 2000-2006 to be agreed should contain provision for review before 2002 of the "own resources" ceiling.


  85.    In our report mentioned in the previous paragraph we made a number of recommendations on the reform of these Funds. Although we urged reform to reduce bureaucracy and delay we were supportive of the aims of the Funds. We commented that "the EU's cohesion policies have had marked and beneficial effects for the poorest countries but regional disparities within and between Member States remain unacceptably large. At the national level, if conditions in the receiving country are favourable, the funds can achieve an important effect."[20] We are encouraged that the general thrust of the reforms of the Structural Funds outlined in Agenda 2000 is very much in line with the views we expressed. We note that the amounts to go to the EU15 fall quite sharply after 2002 as funds for structural assistance are to be diverted to the acceding countries. The political problems are obvious. We are concerned that governments, including the government of the United Kingdom, may balk at presenting their electors with some phased reduction in Structural Funds payments from the Community in the interests of longer-term benefits of a successful enlargement. It may be that the annual growth rates in the EU15 exceed the 2.5 per cent estimated in Agenda 2000 so providing a greater margin which could be used to sustain the volume of structural fund support.

  86.    In our report on the Structural Funds and the Cohesion Fund[21] we took the view that those Member States currently receiving assistance from the Cohesion Fund should continue to do so after 1999 only if their GNP per capita remained below 90 per cent of the EU15 average and if they were not eligible for entry to EMU. We reached this view partly, at least, because we understood at the time that the Cohesion Fund had been established with the express purpose of assisting the convergence of the eligible countries with the criteria for entry to EMU. We have been told by the Commission that legal advice now is that the Cohesion Fund is not legally confined to this purpose. The scope of the Cohesion Fund requires clarification. We think that the Cohesion Fund has proved its worth in helping Member States where the GNP per capita is below the 90 per cent of the EU15 average. We think that these countries should continue to receive funding after 1999 where they continue to meet this criterion. When a recipient no longer meets these tests assistance from the Fund should be phased out.

19   See footnote 5. Back

20   Paragraph 78. Back

21   See footnote 5. Back

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