The Labour Market Impact of the EU Enlargement - Case Study Example

ENLARGEMENT HAS UNDERMINED THE EUROPEAN UNION AND SHOULD BE STOPPED By Location Introduction The expansion of the European Union to accommodate more countries is perhaps the most important development in many years. Since 1957 to present, there have been six major waves of enlargement leading to the total number of 28 member nations. (Riley, 2014)Despite the growing number of member states, the opportunity to participate in the EU single market for the new member states has been centered on attracting high levels of inward investment. Also, the newcomers are often required to allow free trade access to the topmost consumers of the advanced EU nations, in order to promote their economic development. The inward investment of the EU is particularly attracted to the countries with low unit labor costs and where there is an expected high growth per capita income. Thepolicy paper is for the attention of the head of state in Croatia and is designed to explore how enlargement has undermined the European Union,and why it should be stopped. 1.0 New vs. Older member support for EU enlargement About two-thirds of the people living in the EU region agree with the ideas that inspire the enlargement of EU in general (Commons, 2004, p. 38). However, it can be observed as a general trend that acceding countries like Romani, Bulgaria, along with Croatia show more enthusiasm for enlargement. Ideally, these countries together with other ten new member states regard the enrollment into the EU as a proper way to reunite the European continent, express solidarity, consolidate common interests and values, and strengthen the influence of the EU to other nations (EU, 2006, p. 21). But, there are other member states such as Germany, Finland, the Netherlands, France, Luxembourg, and Greece that have expressed much doubt about the benefits of enrolling into the EU. Even though the majority of the member states agree with the general arguments in support for EU enlargement, it doesn’t pay much to brush aside their arguments in favor of the positives. Thus, Croatia should rethink its decisions in light of the perceived disadvantages discussed in this policy paper. 2.0 Anticipated institutional overload First, EU enlargement is anticipated to result in institutional overload with the current trend of accession (Gärtner, 2006, p. 15). Currently, it is full to its bursting point, and the 28 members of the Union are teetering on the edge of institutional gridlock. Any more accession will overload the system and make effective decision-making procedures impossible to achieve. Furthermore, additional member states will turn the European Union into an incompetent mini-UN to some greater extent. Despite its appealing economic returns, the EU cannot afford to expand effectively with such potential challenges. All the potential accession candidates can place a huge economic strain on the EU budget, except for Iceland (Caroleo & Pastore, 2010, p. 199). Furthermore, rich member countries like Germany and France cannot afford to pay for prospect candidates like Montenegro and Turkey. Poorer members of the EU cannot compete effectively for structural funds and thus will incur little profits or even losses. 3.0 Increase market pressure and demands The EU expansion also involves a lot of pressure and demand that is forced upon the new and prospect members. The EU often makes these new members blend along their lines in order for their membership to be considered effectively. Such moves are often dangerous to member countries and can eventually blur the line of cultural difference among the nations. Cultural differences are what distinguish one nation from the other, and blurring them implies the power of influence over all their activities. Furthermore, the EU expansion grabs the independence of the member states, whether new or existing in many areas. According to (Taube & Weber, 2005, p. 35), the policy to adopt a single currency in all the member states of the EU is beneficial but tough to maintain and extend for the unstable new member nations. To a greater extent of the pressure and demand imposed on member states, the EU has stringent measures on the criteria of membership. The membership terms are often termed as the ‘Copenhagen criteria’ and sound too incriminating to poor states with an unstable economy (Kochenov, 2008, p. 22). For instance, a country has to have a stable economy, respect human rights, protect the minorities and enforce the rule of law to qualify as a member. Countries are also required to have a functioning market economy, and should forcefully adopt the common rules, policies, and standards that constitute the EU law (EC, 2011). The treaties limit the scope of entry into the EU to European states, betraying its efforts to support the economic progress of the already established member states. Furthermore, the fact that EU provides focused pre-accession financial aid to specific countries like Croatia and Turkey betrays their move to introduce political, institutional, and economic reforms in line with the EU standards (EU, 2006). 4.0 Increased rate of migration Enlargement of the EU could also lead to high levels of migration. New member states such as Croatia and Poland have high levels of unemployment of 16.2 and 8.0 percent respectively, and workers find it useful migrating to older member states such as Germany with an unemployment rate of 4.7 percent only (OECD, 2004, p. 200). Initially, it was anticipated that workers would manage to move freely since the EU operates under the umbrella of a Single Market. However, the older and more established member states have created many restrictions on the entry of labor into their regions during the first two years of enlargement of a new member state (Pizzati & Funck, 2006, p. 225). Thus, the principle of a Single Market is not fully operational, and most traders and citizens from new member states will consider migrating to established states as a means of solving their economic and unemployment woes. Figure 1.0 – Line graphs indicating unemployment rate in Croatia as per Jan 2015(adapted from Eurostat statistics) Figure 1.2 – Line graph indicating the rate of unemployment in Germany as of Jan 2015 (adapted from Eurostat, U.S Bureau of Labor Statistics) 5.0 EU is growing deeper and not wide The larger the EU encourages enlargement, the less likely it becomes for it to develop into a true political union as anticipated by the founding fathers (Baldwin, et al., 2006, p. 1). Successive enlargements have, and will keep diluting the aims and objectives of the EU. The ever wider Europe will replace the notion of the ever greater union. There is no coincidence that the British are the biggest apologists for the enlargement of the EU. It seems their initial intention of developing the Union wasto gain more personal objectives, rather than the normal connotation of a free-trade zone. It is time that the new member states realize such loopholes and draw a line to rebuild the EU around the initial core values and those of the nations that believe in it. 6.0 Common agricultural policy The Common Agricultural Policy (CAP) formulated by the European Union is not designed to meet the interests of the new members. Ideally, the share of the agricultural industry and the number of those employed in farming play a critical role in the overall economy of the new member states as compared to the existing member states (Dąbrowski, 2005). Surprisingly, the share of agricultural costs at present is almost 50% of the EU 15 budget and only 26% of the new members’ budget. Such allocation is partly due to the ten-year transition period for direct payments that persisted until 2013. Following accession, the new member states like Croatia are keen to see their share of EU agricultural funds increase quickly. However, with the current design of allocation, quick growth is a pipe dream that will take a longer time to achieve. The Central and Eastern European Countries have a very large farm population, but this does not qualify to be an important CAP criterion. Furthermore, the CEECs also have a huge amount of agricultural land but this criterion cannot be used as a decisive element to achieve support within the CAP. It is only direct payments to farmers that can make up the largest share of the CAP budget. Even though there are compensations for earlier price reductions in the market, these policies are never applied to the CEECs, thus affecting their economic income considerably. The controversial CAP policy is often extended to new member states, many of which have rural economies just as in the Croatia state. CAP measures such as income guarantee schemes for farmers and subsidies could prove to be expensive for new member states and a drain on the economy of older and established member states. The EU should consider revising these regulations and making them more user-friendly to the needs and requirements of new member states in order to encourage active participation and growth within the EU market share. 7.0 Regional Aid affects older member states There is a plain difference between the new member states and the old member states. The difference is reflected in the ranking of countries in the Human Development Index of the UN Development Program. The HDI combines indicators of life expectancy, literacy level, education, and GDP. The difference in the standard of living and wealth of the new members could impose another drain on the old member states in various ways. First, the old member states may be required to contribute more due to the increase in the demand for regional aid. Secondly, some old member states receiving regional aid such as Greece and Spain might experience a reduction in aid due to the need to channel more money to the new members. According to (Lindstrom, 2014, p. 55) such reductions in financial aid channeled to the older member states results in constraints of wages and limit the power of organized labor in the new member states. (Lindstrom, 2014, p. 55)further states that most EU enlargement observers think that the reduction in financial aid to the old members can result in less economically developed and many neo-liberal post-socialist members. Such changes will then bolster the neo-liberal model at the cost of the European Social Model. He also argues that given the lower wages and the higher rates of unemployment, the new member states often threaten to put downward pressure on the wages of the EU as a whole. Such pressure develops from the Western firms moving east as the Eastern workers move west. The reduction in financial aid to older members will result in second generation reforms, threatening the social dumping and competitive deregulation of the EU. That means, in order to prevent more capital from being supplied to the East; West European leaders are likely to be motivated to cut down on corporate taxes, constrain wages, and weaken the state regulations. Such state measures would impact greatly on the EU and thus negatively affect the new member states. 8.0 Some old member states are outliers All the new countries that join the European Union have a lower per capita national income compared to the average of that of the EU. Most of these member states have achieved some level of convergence in the average living standards despite the influence of the recession period of 2008-2010. There are some member states, such as Romania and Bulgaria that are currently considered outliers with a per capita income less than half that of the EU. Such countries play a huge role in derailing the prospects of EU enlargement and can eventually reduce the quantity of financial aid channeled to new member states. Figure 1.3 Per capita incomes comparison among the member states of the EU (Source: tutor2u, http://beta.tutor2u.net/economics/reference/european-union-enlargement ) 9.0 EU enlargement has lowered labor standards The recent rate of enlargements is already a step too far, and the EU will soon be facing trouble in terms of economic development. For instance, Bulgaria and Romania do not meet the initial standards of the EU in terms of corruption yet they are active members of the Union. Also, the activities of the Orban reveal the immaturity of the Hungarian democracy, yet the state is still part of the EU. Western states are continuously being flooded with cheap forms of labor, and the low labor standards of new states are expected to suck much investment eastward. If more enlargements occur within the next few years, then the economic condition of the EU will grow worse. Imagine what the effect of accession of Balkan, Turkey, and Ukraine would be to the progress of the EU. Possibly, Balkan would bring more plagued territorial and ethnic disputes, Turkey would slide back the economic progress of the EU, and Ukraine would bring all the member states in the EU into conflict with Russia (Elsuwege, 2008, p. 527). Which state would love to be in such economic turmoil after investing all their development efforts to the EU? Along the lines of EU standards and systems, there are also concerns that some new member states will not meet intrinsic requirements required to join the EU. For instance, few acceding members will be able to meet the food hygiene and regulations on the level of agricultural production. Also, meeting the required environmental standards might be too high for other countries. Furthermore, bringing public services to the standard will lead to increased rates of taxation for the residents of the new member states. Such effects can affect the economic position of new member states and allow more opportunities for influence from older member states and the EU intervention policy. 10.0 EU enlargement could follow the legacy of the Soviet economy In some of the states that were part of the former Soviet bloc, some industry areas may not have developed fully compared to those from old members of the EU. Such industries may be forced out of business whenever their countries decide to trade in a single market and face the implications imposed on them by the old and established members of the EU. Vladimir Bukovsky, former Soviet dissident, confirms that there could be a conspiracy to turn the European Union into a socialist organization (Belien, 2006). For instance, in the Soviet Union, the Federal Government that represented people in the Union exercised complete authority over all the matters affecting the member countries. Such matters touched on the central administration of the Union, foreign relations, armed defense, political security, transport, and communications. Such measures did not allow member states much control of their affairs and the major decisions taken often relied on the influence of the Soviet Union. If the EU keeps acceding new member states, this is what older members should expect to experience. 11.0 No referendums held preceding EU enlargement The EU has not been holding referendums to consider the views of the member states in view of the enlargement process. Earlier propositions that future EU enlargements be submitted to a referendum in France were not successful. If the ratification of new EU member states would be done by popular vote or through the French Congress, then member states would have more control over the economy of the state. However, if the EU insists on adding more member states, then it should consider holding serious referendums before making such critical decisions. Also, it is through the referendum that the EU can manage to consolidate the political and economic reforms in the Western region and aid the integration of these values into the West. Changes in Eastern Europe if not mitigated have a high chance of eroding the security in Europe and could eventually damage the interests of the EU member states. The recent rise of the populist and nationalist forces in various countries in Eastern Europe have threatened and undermined the reform process of the EU. The enlargement fatigue and the growing calls for protectionism within the Western Europe could also hinder the continued efforts to create a single market and integrate the new member states into the system effectively. Poor control of member states has also led to the shifting of the balance of power on the outer periphery of Eastern Europe. For instance, the Collapse of the Orange coalition in Ukraine has resulted in a government that is less willing to adopt reform changes. Such repulsion from Ukraine not only affects its economic position but also affects the economic status of other EU member states in case Ukraine agrees to join the EU. Such anticipated problems can only be resolved if the existing member states agree on a referendum before adding new members. Otherwise, the economic downturn in non-member states could affect the progress of the EU when allowed to join at a later stage. 12.0 Little room for consensus in decision-making process When the European Union began in 1952, the decision-making process was much easier since member countries were few. It was easier for Belgium, Italy, France, Netherlands, Luxembourg, and West Germany to control their economic activities and the revenue share received by each member state was much appealing. Even though the six expansions experienced to present were aimed at bringing prosperity, freedom, and peace among the old and new members, there seems to be a threat in dealing with a huge number. It is much tough for all the 28 member countries to agree whenever they need to make a critical decision on the success of the EU. Older member states tend to overrule the new members in the decision-making process, and such acts could result in more divisions instead of unity. 13.0 Conclusion and Recommendation Most countries joining the EU are not ready for EU membership. Their economies cannot survive the competition from old member states, and they will certainly become dependent on more support from the west. Most of these countries have struggled much to break away from colonialism only to be overruled with policies from the west. Ukraine is better off and safe with its ally to the East and its inclusion among other expected members will result in an EU economy crash that will take the time to resuscitate. Also, Turkey does not want Western values to impose on their culture since its power lies in the regional power of the Middle East. Furthermore, the EU should stop approaching possible member states with economic support since such steps often lead to EU enlargements. Bibliography Baldwin, R. et al., 2006. Expanding membership of the European Union. 5th ed. New York: Cambridge University Press. Belien, P., 2006. The Brussels Journal. [Online] Available at: http://www.brusselsjournal.com/node/865 [Accessed 21st April 2015]. Caroleo, F. E. & Pastore, F., 2010. The labour market impact of the EU enlargement : a new regional geography of Europe?. 1st ed. Heidelberg: Physica-verlag. Commons, P. H. o., 2004. Agriculture and EU enlargement : report, together with formal minutes, oral and written evidence. 2nd ed. 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