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European Enlargement - disadvantages for existing EU members There are three significant potential costs of enlargement: (1) The costs for public finances (2) The costs of labour market disruption (including higher unemployment) and (3) The costs of wage competition. In many ways the costs of enlargement (including the effects on the total EU budget) are driven by political rather than economic factors – i.e. how generous the existing members of the EU are prepared to be to accession countries. Several “controls” have been put in place during final negotiations on accession – most of them relating to regional aid, CAP funding the limitations on the free movement of labour within the EU. 1) Budgetary Costs for the EU a) Accession will increase the budgetary contributions of existing members b) Steps have been taken to limit the fiscal costs to EU(15) countries from enlargement Farm subsidies for new member-states will be gradually phased in over a period of nine years. he EU farm budget will increasing by only 1% per year until 2013 to offset inflation Limits to Structural Funds: Accession countries will receive 25bn euros in structural aid over the first three years Net Contributions: The EU will ensure that accession countries do not pay more into the EU budget than they get back, between 2004 and 2006 c) Long Term Need for Higher Regional Subsidies: If full enlargement occurs, the EU will become a club of mainly small countries – with the prospect of a widening “wealth-gap” between rich and poor regions GDP per head for the EU(15) in 2000 (adjusting for purchasing power parity estimates) was Euro 22603 GDP per head for EU(25) in 2000 was Euro 19661 The 10 accession countries in 2000 had a GDP per head (PPP adjusted) of just 48.2% of the average of the newly enlarged 25 nations of the EU Of the 105 million inhabitants of the applicant states, more than 98 million live in regions whose current GDP is less than 75% of the average of the enlarged Union (1) 48 regions within EU(15) have per capita incomes less than 75% of the EU average (the threshold figure for regional funding). These regions have an average GDP per head of 65% of the EU average (2) Expanding the EU to 25 nations increases the number of regions with per capita income < 75% of the EU average to 85 (135m people - 30% of total EU population). These regions have an average GDP per head of just 53% of the EU average 3) Poorest regions can claim the highest regional / social funds Accession countries will dominate regional funds (implying less for relative poor areas within EU(15) such as Spain, Greece and Portugal. Spain is trying to maintain the EU subsidies to its poorer regions, which are due to receive nearly two-thirds of all available structural and cohesion funds under the current EU budget agreement Total EU regional funding budget will have to increase massively to meet growing economic and social requirements if relative poverty / inequality within the EU gets worse 2) Labour Market Issues a) Fears of higher structural unemployment among accession countries – which might lead to large immigration of labour into higher-income countries as well as increasing political and social tensions i) Unemployment in accession countries is already well above the EU average – much of it is long term ii) No guarantee that unemployment will fall following integration with the EU iii) High unemployment creates large economic and social costs and will put accession countries under increasing fiscal pressure (rising budget deficits) b) Fears that enlargement will lead to a huge surge in economic migration from East to West i) Will there be an increase in labour migration from accession countries to the west in search of employment? (Social dumping?) ii) Concerns about organised crime and illegal immigration from Russia, Belarus and the Ukraine through weak Eastern European borders iii) In Germany, Austria and Italy (countries that border accession states) there are intensive political debates about controlling the flow of migrants from former Eastern Europe. |