Positive Impact of Enlargement on the EU - Essay Example

?EU Should Enlargement Table of Contents Introduction 3 Economic Arguments for the Enlargement of EU 5 Positive Impact of Enlargement on the EU 7 Increased Trade Opportunities 7 Increase in FDI 8 Openness to International Trade 10 Negative Impact of Enlargement on the EU 10 Migration and Labour Market 11 European Budget 12 Institutional Issues 12 Good and Factor Markets 13 Recommendations 13 Conclusion 15 References 17 Appendices 19 Introduction The European Union (EU) is concerned with political and economic partnership which represents a unique form of cooperation amid the 27 member states. The EU is built with a series of treaties made with its different member states. Historically, the EU was formed to promote peace and economic prosperity especially in Europe after the occurrence of World War II. Since the beginning of the 1950s, the integration of Europe has significantly augmented to entail conducting various financial activities like developing a single market in which goods, capital and people moves freely, a common trade policy, an ordinary agriculture policy, environmental policy and common currency (Euro) which is being used by 17 member states (Archick, 2013). It is worth mentioning that EU has initiated significant steps towards developing Common Foreign and Security Policy (CFSP) in order to develop the economies at large. It has been noted that seventeen out of 27 EU members belong to Economic and Monetary Union (EMU). These seventeen member states of EU have firmly agreed to coordinate their respective economic along with monetary policies by using single currency i.e. Euro. EMU participants also share central bank which is regarded as the European Central Bank (ECB) as well as common monetary policy for preserving financial stability. It is worth mentioning that these member states do not share fiscal policy and possesses sole right over regulating their national taxation and spending (Gros &Thygesen, 1998). Thus this paper intends to discuss the economic implications of EU’s enlargement process and makes arguments for its enlargements. Policy Position The member states of EU functions collectively through focusing upon building common institutions in order to set effective policies and promote their combined interest. Since the formation of the EU, the different EU member states have progressively and radically committed towards harmonizing various laws and adopting joint policies emphasising on various relevant issues. Additionally, EU member states have agreed to cooperate almost in all the fields, however decisions related with economic and social policies requires unanimous agreement of all the 27 EU countries. In the recent past years, the EU member states have witnessed radical economic challenges. The Euro zone crisis that occurred during the year 2009-2010 has drastic economic impact on the EU member States (Archick, 2013). More specifically, the crisis has resulted in imposing significant impact on the actual and potential economic growth of the EU member states. The impact of the crisis was also visible on the labour market and employment (European Communities, 2007). Accordingly, the labour market in the EU member states has considerably weakened. This impact has created an urge for forming an effective structural reform concerning economic policies of the EU. The EU possesses a common external trade policy which implies that the trade policy is exclusively governed by EU and no member states are liable to negotiate its own international trade agreement. Undoubtedly, it can be stated that EU’s trade policy is one of the well-integrated policies throughout the globe. The trade policies of EU provide free movements of goods and capital within different EU member States. With the free movements of goods, the EU aimed at eliminating one member state from importing goods at cheaper prices owing to the lower tariff and again re-exporting the items to another member state at relatively higher tariff. The common trade policy was further extended to include trade in services as well as foreign direct investment (FDI). It has been ascertained that the European commission and Council of Minister jointly works to frame common custom tariff and guide export policies. EU provides right to Council towards making effectual trade decisions based upon qualified majority voting. However, the Council also make significant use of consensus prior making any sort of decision (European Commission, 2009). Economic Arguments for the Enlargement of EU The EU relates the enlargement as one of the significant opportunities for promoting stability, growth and economic prosperity particularly in Europe. Evidently, since the year 2004, it has been apparently observed that the EU membership has expanded from 15 to 27 member states. Historically, EU originated as the European Coal and Steel Community in the year 1952 with only six members including Belgium, Germany, Luxembourg, France, Italy and Netherland. Later on, in the year 1973, United Kingdom, Denmark and Ireland joined the group of the six countries and become to known as European community. Four more countries joined the community in the year 1981 that comprise Greece, Portugal and Spain. Contextually, in the year 1995, the modern European Union was emerged with the joining of Sweden, Austria and Finland. EU membership was further expanded in the year 2004 with eight more countries joining it namely Czech Republic, Latvia, Poland, Slovenia, Hungry, Slovakia Estonia and Lithuania. The most recent enlargement was made in the year 2007 wherein, two more countries including Bulgaria and Romania joining it (Archick, 2013). Under Article 49 of the Treaty on the EU, it welcomes for further enlargement in its membership to any European country who duly fulfils the economic and other basic criteria of the EU. In order to be the member states of the EU, it is required that the aspirant countries must meet the criteria articulated as “Copenhagen criteria” (Archick, 2013; Archick, 2006). Evidently, it has been affirmed that the enlargement of EU membership will impose significant benefits on both the existing member as well as the new member joining the EU. Accordingly, it can be argued that despite the crisis that was witnessed in the recent past, the new member states that had joined in the years 2004 and 2007 were able to attain rapid economic growth after their joining to the EU. It can be also stated that the further enlargement in the EU membership have favourable impact on the FDI of the member states by a greater level (Authority of the House of Lords, 2013). It is also estimated that the enlargement followed by integration of the aspirant countries into the EU common market will be accompanied with restructuring of trade and production pattern (Pelkmans, 2006). Additionally, can be stated that enlargement process within the EU will facilitate in the form of imposing positive effect on the exports of EU’s current member states as well as new members joining it. It is also observed that these positive effects will accompanied with increasing competiveness of the EU. It can also be stated that the enlargement process may lead towards lessening tariffs and transactional costs which would result in reduction of the foreign goods prices. Ultimately, the reduction in the foreign goods prices will contribute towards increasing demand for these goods. At the same time it is observed that enlargement will be accompanied by greater migration of labour from new member states to current EU member states causing reduction in the unemployment rate of the home countries by a greater level (Paul, 2012). Thus, it can be stated that the enlargement process of the EU will contribute towards the oversupply of workforce in the current member states which may adversely affect the domestic workforce of these states. It is also observed that the enlargement process will have negative impact on the FDI of the current member states of the EU. It has been observed that the enlargement process will contribute towards the decreasing inflow of investment in the existing member states of the EU (Baas & Brucker, 2011). From the above discussion, it has been ascertained that the enlargement process of the EU will impose both positive as well as negative impact on the EU. However, the intensity of negative impact is comparatively quite less than the benefits arising from the enlargement process. Positive Impact of Enlargement on the EU EU has undergone successive enlargement in the past and its membership is still open for other various European countries. The enlargement process has contributed towards significant changes in economic, political and social context making the EU as the largest integrated economy in the world. However, the enlargement process has most significant impact on economic issues concerning with labour market, FDI and the present as well as the potential growth of the EU member states. Few positive impact of the enlargement is being presented below. Increased Trade Opportunities Extensive enlargement of the EU has been witnessed in the past between the current and the new member states. It has been apparently observed that the enlargement process will have much positive impact on the trade patterns. It is perceived that the enlargement process will contribute towards greater economic integration among the Eastern and the Western European countries. It shall contribute towards the removal of existing trade barriers and will increase the trade between the existing and the new members belonging to EU. Such economic integration is expected to reduce the trade barriers between the existing member states and the potential member states. Evidently, the enlargement process will contribute towards increasing the size of the European internal market that will lead towards increasing trade. The removal of trade barriers will contribute towards increase in the export for EU members states (both existing and potential).It is expected that increasing trade opportunities will provide a path for increasing GDP of the EU member states substantially (Efstathiou, 2011; Baldwin & Wyplosz, 2004). Source: (European Communities, 2009). Increase in FDI It can be affirmed from a broader perspective that the enlargement process will increase inflow of FDI within the EU member states. Contextually, the increasing FDI will have more direct impact on the production and exports of commodities. At the same time, increasing FDI can be positively related with the growth in the GDP of the member states. The positive inflow of FDI will adequately provide the new member states with reasonable capital required for restructuring of industries as well as introducing new technologies. However, it can be affirmed that the benefits arising from increased FDI to new members will have indirect but positive impact on the existing member states of the EU through imitation of production methods as well as employee’s rotation. It can be stated that the existing members of the EU will be benefitted with greater investment opportunities with the induction of new members in the EU (Efstathiou, 2011). Source: (European Communities, 2009). Openness to International Trade It has been apparently observed that the enlargement process will lead the different EU member states towards generating greater openness towards international trade. Contextually, this particular aspect is expected to promote technology advancement for the EU member states that shall facilitate in improving the production process and will further make it more efficient. It has been ascertained that the increasing productivity will lead towards increasing export. The enlargement process will also accompanied with greater trade expansion scope for the existing member states which will offer greater comparative advantages resulting in the most efficient use of the economic resources of the EU (Efstathiou, 2011). Source: (European Communities, 2009). Negative Impact of Enlargement on the EU It has been viewed that the enlargement process of the EU shall not impose only the positive impact on the member states, but it will also accompany with few vital negative implications on the existing member states. It has also been ascertained that the benefits arising from the enlargement of the EU shall considerably avail by the new members extensively in comparison with the existing member states of the EU (Bundesministerium fur Wirtschaft und Technologie, 2007). Accordingly, certain vital negative impacts of the enlargement process have been represented hereunder. Migration and Labour Market It can be stated that the enlargement process of EU will accompanied with free movement of capital as well as labour among the current member states and the aspirant countries in order to reduce the consequences of differences pertaining to return to capital, level of employment and the wage differences. It is further been ascertained that such free movement will contribute towards increasing migration of labour from new member states to current member states at large. It has been observed that the existing member states with their boundaries adjoining to the new member states will have the most significant impact concerning with migration (Bchir & et. al., 2003). Source: (European Communities, 2001). European Budget Relating to European budget, the consequences of enlargement process will lead towards significant reallocation of structural funds owing to massive disparities of per capita income as well as infrastructural differences between the current and the new member states. Thus it is estimated that the average GDP concerning with EU will fall substantially to 10-15%. It is also perceived that the enlargement process will also contribute towards change in the way of EU budget is financed. It has been observed that any sort of change especially in the policy will lead towards unbalanced distribution of burden on the current and new member states (Bchir & et. al., 2003). Institutional Issues It has also been ascertained that the increase in the number of EU member states will also lead towards creating problems for European Council and its way of decision making. Concerning with the current voting rules in the EU, it was claimed that increase in EU membership will contribute towards the coalition of member states forming into new groups comprising richer and less rich members. This particular aspect is expected towards blocking the adoption along with the execution of effective decisions that may have the potentiality for slowing down the decision-making procedure for European Council by a significant level (Bchir & et. al., 2003). Good and Factor Markets In relation to the huge gap in the per capita income of the current member states and the new member states, it can be affirmed that the EU enlargement will radically alter the specialisation pattern within the Europe. It is estimated that such alteration will lead the current EU member states towards suffering high re-allocation costs. More specifically, it has been envisaged that the labour intensive industry will relocate immensely to new member states. Such shift is visualised to have adverse impact on the ‘blue collar’ workers causing reduction in wages as well as mounting unemployment (Bchir & et. al., 2003). Recommendations EU has radically been involved in promoting peace and prosperity to Europe and is determine to accomplish these objectives in the current and the future circumstances. Unarguably, the transformative power of the EU enlargement has evidently been envisaged in the past through its successive enlargements. Moreover, the goal of security, stability and economic growth in different EU member states substantially lies in the present enlargement agendas. It can be argued that the current benchmarking system contributes towards offering significant steps in the course of implementing as well as demonstrating reforms. It can be stated that these benchmarking system will contribute towards certainty to current member states and further lead in creating clear route for new member states to duly follow for seeking progressive reforms. It can be rightly stated that the enlargement process has emerged as to be quite rigorous and structured in the current years. Contextually, it is essential that the efforts required from the potential member states should be duly considered and it should not be underestimated. It is further required that the aspirant nation should duly play their part while EU should ensure that these aspirant nations are not placed insurmountable burden of work (Authority of the House of Lords, 2013). EU should further place priorities to fundamental rights, justice and freedom in its enlargement process. It cannot be argued that the most of the aspirant countries are from middle-income. Thus, it is essential that these aspirant countries are provided with necessary opportunities for growth and prosperity. It is equally important that the enlargement process should be flexible enough to meet the needs of individual member states. It is also important for the EU to make the best possible utilisation of funds in order to seek the best benefit for both existing member states as well as aspirant countries. The EU must move inconsistent with its obligation for allowing the current EU member states and the aspirant countries to progress in the highly dynamic and competitive in the macroeconomic condition. It can be argued that failure to coincide with its obligations may contribute towards diminishing influence which may result in damaging the creditability of its enlargement process. Additionally, it is required that the EU should work in collaboration with the government bodies of each country and proactively establish a greater communication with them for availing long-term benefits. It is also advocated that the EU should function in a good faith during its course for rendering its responsibility towards the existing as well as aspirant member states. Precisely stating, it can be argued that the EU should move ahead with its enlargement process on the basis of above recommendations for seeking the most appropriate benefits in the current and the future period (Authority of the House of Lords, 2013). Conclusion The enlargement process of the EU can be ascertained as a vital component of its development. The EU has envisaged the enlargement process as an opportunity to promote stability and economic prosperity in the continent (Neal & Barbezat, 1998). It has been ascertained that the enlargement process of the EU offers powerful policy tools that have significantly aided in transformation of many countries within the country to into affluent countries. More specifically, the aspirant countries must meet the criteria articulated as “Copenhagen criteria.” On the inclusion as the member of EU, the aspirant countries will be eligible to avail the benefits arising from the policy articulated by the EU. These benefits may result in the free movement of people, goods and services amid the member states followed by reduced tariff charges. Additionally, it has been observed that enlargement process might impose significant benefits to the existing member states as well as the aspirant countries. However, it has also been ascertained that the enlargement process will contribute towards generating few limitations for existing member states. It has been observed that the potential benefit of enlargement process may be related with enhanced FDI flow linked with different member states followed by reduction in trade barriers and promotion of single market. It is also estimated that the economic integration will contribute towards increasing GDP growth rate for the existing and aspirant member states. On the other hand, it can be affirmed that the enlargement process shall lead towards emergence of certain specific problems and issues dealing with increased migration of labour from aspirant countries to existing affluent member states. It is estimated that such issues will create unemployment problems in many of the existing EU member states. Moreover, it is ascertained that the benefits of enlargement shall be limited to aspirant countries, while nominal benefit is likely to be avail by the existing countries. Despite, the drawbacks of the enlargement process, it can be firmly argued that the enlargement process will have most of the positive impact on the EU rather than possessing maximum negative implications upon developing the EU economy. References Archick, K., 2013. The European Union: Questions and Answers. Congressional Research Service, pp. 1-14. Archick, K., 2013. European Union Enlargement. Congressional Research Service, pp. 1-15. Archick, K., 2006. European Union Enlargement. Congressional Research Service, pp. 1-6. Authority of the House of Lords, 2013. The Future of EU enlargement. European Union Committee, pp. 5-79. Baas, T. & Brucker, H., 2011. EU Eastern Enlargement: The Benefits from Integration and Free Labour Movement. Research Report, 44-51. Bundesministerium fur Wirtschaft und Technologie, 2007. Effect of EU Enlargement on Growth and Employment in Germany and Selected EU Member States. Summary and Conclusions, pp. 1-19. Bchir, H. & et. al., 2003. The Impact of EU Enlargement on Member States: a CGE Approach. CEPII, Working Paper No 2003-10, pp. 4-54. Baldwin, R. & Wyplosz, C., 2004. The Economics of European Integration. McGraw Hill. European Commission, 2009. Economic Crisis in Europe: Causes, Consequences and Responses. European Economy, Vol. 7, pp. 1-90. European Communities, 2009. Five Years of an Enlarged EU. European Economy, pp. 1-227. Efstathiou, N., 2011. The Impact of the European Union Enlargement on the Member Countries Economic Growth. Erasmus University, pp. 1-39. European Communities, 2001. The Economic Impact of Enlargement. Enlargement Papers, pp. 5-55. European Communities, 2007. Understanding Enlargement. European Commission, pp. 4-17. Gros, D. &Thygesen, N., 1998. European Monetary Integration, 2nd ed. Longman. Neal, L. & Barbezat, D., 1998. The Economics of the European Union and the Economies of Europe. Oxford. Pelkmans, J., 2006. European Integration: Methods and Economic Analysis, 3rd ed. Pearson. Paul, A. C., 2012. EU Enlargement at a Crossroads. CES Working Papers, IV, (2), pp. 196-203. Appendices Source: (Archick, 2013). Evolution of FDI Inflows (% GDP) at the CEEC Source: (Efstathiou, 2011). Source: (Baas & Brucker, 2011) Read More