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European Enlargement - advantages for existing EU members The main advantages for the existing members of the European Union (including the UK) are generally thought to be: Export Potential – commercial opportunities from enlarging the Internal Market a) Classic trade creation effects of increasing the size of a customs union b) Accession countries are small – but have grown more quickly than EU(15) in recent years and have much faster growth potential (higher trend growth rates – see research from Crafts (2002) later on in this case study) - The long run economic potential of the accession counties is much greater than their current size! c) If living standards increase – export potential for consumer goods industries is huge d) Much recent FDI into accession countries has concentrated on retailing, banks and hotels! Exploitation of economies of scale from supplying to a larger market a) Gains in productive efficiency / increasing returns to scale b) Exploitation of principle of large minimum efficient scale in many industries Foreign Investment and Incomes and Profits FDI into accession countries will provide a net flow of interest profits and dividends - boosting a country’s GNP and supporting the balance of payments FDI flows likely to supplement rather than reduce domestic capital spending FDI will speed up the transformation of accession countries Free trade Potential cost savings when importing raw materials and components from accession countries (improving the terms of trade for developed EU countries) A more diverse European labour market Opportunities for British and other EU(15) businesses to import lower cost skilled labour in areas where there are severe labour shortages Migration of labour from accession countries may help to offset longer-term effects of ageing populations / slow growth of population of working age Increased opportunities for EU people to travel, live and work in Central, Eastern and Southern Europe Successful integration of appellant countries may reduce the surge of economic migrants seeking employment in the existing EU from eastern European countries More jobs a) European Round Table of Industrialists estimates that enlargement could create 300,000 jobs across current EU Member States Higher EU economic growth Independent research suggests that accession of the 7 largest Central European candidates could increase UK GDP by £1.75 billion There is significant economic potential around new growth areas like Warsaw, Budapest and Prague A cleaner environment a) Accession countries have spent huge sums in securing improvements to air and water quality to meet more stringent EU standards – reduction in cross-border pollution will have positive externalities Enlargement will be a catalyst for further economic reform in the EU a) Reforms to the CAP b) Spur to countries to reform their labour markets in the face of increasing low-unit labour cost competition from accession economies |