Advantages of EU Further Enlargement - Case Study Example

Enlargement of the EU Introduction The paper will focus on the economic dimensions in which European will advantages and disadvantages of further enlargement. Also to be able to put out clear for the further enlargement of EU, I will refer to the economic benefits and cost that the old members of the community has gained from the integration, and those which EU is likely to gain from enlarging its membership and show how they can ideally be applied to the current expected enlargement. More precisely I will also show the cost in terms of labor issue and budgetary cost that the EU will face as a result of enlargement. Advantages of EU Further Enlargement Let me begin by showing the economic benefits that the member states of EU will receive from enlarged EU community. The European Union will benefit from large economic growth (Gross Domestic Product) and more employment opportunities. A study that was done on the view of EU enlargement in all members showed that each member state had a substantial economic growth. The economic growth will be felt by both the old members and the new members of the union. This is concluded from the previous observation of how the economic status of the member states has behaved since 1997 to 2008. All the economies have shown a good respond as a result of integration. This is indicted by the diagram below. GDP Growth 1997 2008 Bulgaria 26 39 Cyprus 86 92 Czech Republic 73 82 Estonia 42 67 Hungary 52 63 Latvia 37 56 Lithuania 38 62 Malta 81 76 Poland 47 55 Romania 26 44 Slovakia 51 71 Slovenia 78 91 Turkey 32 42 Source: The Official EU View on Enlargement It has been estimated that, the enlargement will increase the employment opportunities by at least 30,000 (Pelkmans, 2006, p. 60). From the several economic analysis that have been carried out indicates that, although the benefits will be larger for the new entrants whose economic base is lower, the other old members will also benefit from economic growth and job creation opportunities. The EU further enlargement has been considered to be as a reinvigorating force for the Europe economies. This will be the case because the new members to this integration will provide the old members with new market, new jobs, and new investment opportunities. The European enlargement of 2004 and 2007 benefited the EU community by increasing the number of consumers by 100 million. From this view the European Union will have the largest single market in the world. The new member workers and economies therefore will have to enhance the enlargement across the Europe (Pelkmans, 2006, p. 60). It has been argued that the larger the single market will be in the European Union, the more the opportunities for the business will be created more especially for the trade and service sector to sell more of their products and services to non members in the world. It has also been argued that, the large single market of EU will increase the business opportunities for becoming more competitive in the international market as a result of more diverse and large market, and cheaper inputs (Pelkmans, 2006, p. 61). Further enlargement of EU has possibility of bringing in the issue of technology transfer. Also the issue of economies of scale will also accrue due to the enlargement of EU membership. The trade and industry department in United Kingdom has reported that, EU further enlargement will result to more specialization, increased trade, and access and creation of a wider market. The EU enlargement will also improve the living standards by enhancing better resource allocation and production. Being more competitive than the other sellers in this case means offering the goods and services at low cost together with great varieties of consumer choices (Pelkmans, 2006, p. 61) As indicated from above, the appealing economic expectations in EU have already been satisfied. Investment and trade between the EU-10 and EU 15 has risen greatly, resulting to a situation of win-win for the involved members. The trade has increased from 56 percent in 1993 to 62 percent in 2005 for the EU-15 share in total of EU-10. The market share of EU-10 in EU-15 imports has gone up eight percent with the same period. The Poland and Czech Republic produce the largest share of exports to the old EU member states (Pelkmans, 2006, p. 61). This means that the EU-15 remain to have a big surplus in trade with the new entrants. After the enlargement in 2006, the EU community with the new meber states has been discovered to portray three certain trade patterns. The main exports from the EU-10 are commodities which are labor intensive, while those from the EU-15 deal with those products which are capital intensive and need high skills (Pelkmans, 2006, p. 62). In 1997 The centre for economic policy research which did a vital academic study, whereby it estimated that the new 10 entrant’s accession from the eastern and central Europe would even be in a scenario of conservative, therefore resulting to economic gain for the large EU by gaining almost 10 billion Euro. This gain that have been going to EU due to its enlargement option would have been going to United Kingdom, German, and France who would get altogether seventy percent of the total (El-Agraa, 2004, p. 120). Another study that has been done in EU concerning the issue of EU further enlargement indicates that with the EU enlargement, the gross domestic product would increase by 0.1 percent in the old state member on an increasing basis. It has been found that the Germany benefits more as a result of enlargement of the economy with new entrants, as the ,markets of eastern Europe combined are very crucial for Germany compared to the united states and the rest of markets. France, United Kingdom, Germany, and Italy are the major trade countries with Eastern Europe. They stand to benefit from economic growth opportunities and implementation of significant structural changes due to further enlargement of EU (El-Agraa, 2004, p. 120). Further European Union enlargement studies have indicted that there is a large economic potential on the new areas of growth such as Budapest, Warsaw, and Prague. El-Agraa, (2004) also stresses on importance of the common enlarged market. The old member stated will have to benefit from the exploitation of the economies of scale resulting from supplying a wide market. The accession countries have high possibility of receiving more foreign direct investors. This will actually ensure a constant flow of dividends, profits and interest which will boost the gross national product and ensure that the balance of payment is at equilibrium all the time, with an increasing number of foreign direct investors other than reducing supplements capital expenditure (El-Agraa, 2004, p. 122). In 2006, EU expansion has offered EU-15 intermediaries of finance with fresh market growth and improved the diversification of portfolio and investments. This is expected to keep phase with the further enlargement of EU. Several banks in the old EU members have taken the opportunity of the enlargement to expand and do innovation new products that they offer to the increasing number of clients. The larger the EU market the more stable will be the banking sectors. For example, the Austria is prominent bank in Europe, investing 25 percent of their resources to EU-8. The banks of Nordic are carrying out their business in states of Baltic (McDonald & Dearden, 2005, p. 111). However the EU-15 has been eager toward the increasing inflow of foreign direct investors to the EU-10. Activities relocation that has led job losses has been a major issue of concern to the old member states of the EU. The available evidence shows that flow of foreign direct investors to the new EU members will have the outflow share to new entrants increasing to more that 4%. EU-15 in this case experience a foreign direct investor’s outflow of 53 percent to the other state members. From the EU-15, the United States has only 12 percent of foreign direct investment inflow. From the above we can say that in EU region foreign direct investment is done by member states. The foreign direct investment that has occurred in the new member states from the EU-15 has resulted due to the programs of privatization which are implemented in these countries (McDonald & Dearden, 2005, p. 111). Several studies have indicated the impact of employment relocation. 1 to 15 percent of every year job turnover will result from the common relocation. Also only a small fraction of the job turnover regards to the relocation for the new entrants in EU integration. For example, the Austria and the Germany the big investors to the EU-10 have created a very small percentage of employment opportunities as compared to the number of the employment opportunities which resulted from the EU enlargement of 2004 and 2007. However, the outsourcing process of production part in to the new entrants in many cases offer to firms and companies a room in EU-15 to strengthen their position in competition with an optimistic effect on employment (Baldwin, & Wyplosz, 2004, p, 30). A diverse labor market in Europe will be another benefit that will result from the EU enlargement. This will also be expected to benefit further the EU community due to its large market. The business of EU-15 can feel the effect of EU enlargement by importing cheaper labor in those areas where there is a shortage of labor force. Labor migration from accession states may bar the long term effects of the population that is ageing. With the enlargement of EU it will offer an opportunity to the EU people to live, travel and work in eastern, southern and central Europe (Hitiris, 2003, p. 185). As for the business implications, the firms and companies in the EU community will have more assurance in those in fresh state members, as the states members will be working or operating at the same field level in terms of legislations governing EU (Baldwin, & Wyplosz, 2004, p, 30). Considering the old member members states business, businesses are expected to enjoy the benefit of more familiar and less risk environment of operation. For example, the cut down compliance cost in relation to exports and imports regulations (Barnes &Barnes, 1995, p. 62). In a nut shell as it concerns the EU further enlargement, big number of people has shown interest towards the enlargement. It is only 9 percent who are opposing this idea. Those who have been having positive opinions in regard to EU enlargement are optimistic that the EU will generate investment opportunities for the businesses, initiative advantages and establishment of more enterprises within the region (Barnes &Barnes, 1995, p. 62). The enlargement of EU actually has increased competitiveness of the new entrants in the integration. The competitiveness has been experienced in terms of real gross domestic growth, gross investment, per-capita income, balance of trade, decreasing unemployment, monetary union, productivity, and indices of economic convergence. The index for the improved competitiveness among the EU state members is indicted in the diagram below. Ranking Country Index value 1. Slovenia 90.6 2. Czech Republic 82.8 3. Lithuania 81.5 4. Hungary 80.5 5. Estonia 80.2 6. Slovakia 74.2 7. Poland 71.9 8. Latvia 71.5 Source: The Official EU View on Enlargement Disadvantages of EU Enlargement This can be expressed in terms of the budgetary cost, labor market, and common agricultural policy. Budgetary Cost Despite the fact that the EU enlargement is anticipated to generate more benefits, the community will be faced by a number of challenges. The budgetary cost towards this idea has been too constrained. Apart from the real cost that the region would encounter also other costs such as disruption of labor cost and wage competition cost would also hinder the enlargement of EU (Artis & Nixon, 2001, p. 115). The contribution budget is expected to increase for the old member states with the enlargement of EU, as the new entrants will receive aid of 25 billion Euros with a period of three years. Moreover, the new expected members are economically poor and thus will demand for more aids from old members thus dominating the aid funds for this region. Due to this the old members who are receiving aid within the region will not be satisfied by the scenario. Greece, Portugal, and Spain have endeavored to maintain the EU subsidies to the poor economies within the region (Neal, & Barbezat 1998, p. 11). However, the enlargement effects of 2004 on the budget of the old state members of EU were manageable. As indicted in the report of European commission, about 28 billion Euros has been supplied to the ten new entrants for last one and half decade. This represents a 6.9% of the payment in eo-10 from the budget of EU. The value is more by 2.2% of the gross domestic product of the states in the EU. This is a clear indication that the reach countries must be committed to help the poor economies and thus paying less attention to some of important economic activities (Neal, & Barbezat 1998, p. 11). However, the financial aid to the new 10 member states from the old member states remains very limited as it only accounts for 0.1% of their total gross domestic product. It has been found that, the new state members are the net beneficiaries from the EU enlargement. In 2004, for the whole groups 0.6% of GNI has been transferred to the new state members. Therefore, the old members have had limited chance of enjoying the full benefits of the integration enlargement. This problem is still expected to dominate with the registration of other new members (Hansen, 2001, p. 212). Common agricultural policy Another challenging issue concerning the enlargement of the EU is the application of common agricultural policy (CAP) with the new entrants which have rural economies (Södersten & Reed, 2008, p. 130). There are many questions which have been raised concern the CAP as any new entrant lowers the agricultural subsidy share for the other existing beneficiaries. Also the agricultural subsidies given to the new member states have a negative effect to the economies of the old member states as they increase competition in the market (Södersten & Reed, 2008, p. 130). Labor market The enlargement of EU is also expected to cause some disruption on the labor market, as there will be migration of labor force from the low income countries to high income countries; more especially from eastern and central Europe to west European countries. The new expected members of this integration are characterized by high level of unemployment and no guarantee that the unemployment will be reduced to the expectations of the joining countries (Södersten & Reed, 2008, p. 222) Recommendation As I conclude this policy paper, I would wish to recommend that, since the EU enlargement portrays more benefits in comparison to the costs, I encourage the European commissioner to implement the agreement with the willing nations as soon as possible. The reason is that the enlargement would catalyze the European Union economic modernization and dynamism which will keep both the new and the old member states in a position to face the challenges of globalization (Barnes &Barnes, 1995, p. 62). References: Artis, M. and F. Nixon (2001). The Economics of the European Union, 3rd ed. Oxford: Oxford university press, p. 115 Baldwin, R. and C. Wyplosz (2004). The Economics of European Integration. New York: McGraw Hill, p. 30 Barnes, I. and P. Barnes (1995). The Enlarged European Union. London: Longman, p. 62 El-Agraa, A. (2004). The European Union: Economics and Policies, 7th edition. Prentice Hall, p. 120, 122 Hansen, J. D. (ed.) (2001.) European Integration: An Economic Perspective. Oxford: Oxford University Press, p. 212 Hitiris, T. (2003). European Union Economics, 5th edition. Englewood Cliffs, NJ: FT Prentice Hall. P. 185 McDonald, F. and S. Dearden (2005). European Economic Integration, 4th edition. New York: Prentice Hall, P. 111 Neal, L. and D. Barbezat (1998). The Economics of the European Union and the Economies of Europe. Oxford: Oxford University Press, p. 11 Pelkmans, J. (2006). European Integration: Methods and Economic Analysis, 3rd ed. New York, N.Y: Pearson, p. 60-62 Södersten, B. and G. Reed (2008). International Economics, 3rd edition. London: Macmillan, p. 130, 222 European Union Enlargement: The Official EU View on Enlargement, retrieved on May 10, 2009 from file:///C:/Documents%20and%20Settings/user/Desktop/European_Union_Enlargement.ppt#328,2,The Official EU View on Enlargement Read More