CARLY4 Essays - Free Economics Essay

European Union Community

Have the 2004 and 2007 EU enlargements created insurmountable problems for the European Union as a whole

The European Union was initially created with the short term aim of ending wars and hostility in Europe, and to provide the foundation for future European economical and political integration (Dinan, 2004). Based on the Schuman plan, Germany, France, Italy, the Netherlands, Belgium and Luxembourg signed a treaty to run their coal and steel industries under a common management (The European Coal and Steel Community). According to Dinan (2004) the ECSC was an imaginative response to the challenge of Germany’s swift economic recovery at a time of tense East-West conflict. Dinan (2004, pg.6) goes on to claim that ‘the coalescence of European and national interests of European and national interests made sharing sovereignty irresistible’ and this is what the lengthy stages of political and economic integration has been based upon. According to Dinan (2004) the ECSC had minimal chance of automatically creating a deeper integration of Europe. Despite being politically significant Dinan brands the ECSC ‘economically insufficient’ and had its limits. The Treaty of Rome, 1958, created the European Economic Community (EEC); this created a series of initial economic objectives for the members of the EEC (later renamed the EC). These included attempts to phase out internal tariffs on goods, create free factor mobility such as labour and capital, and to create common economic policies (Nugent, 2004). Dinan (2004) is in agreement with this citing the desire for deepening integration during a period of escalating trade within Europe. Unfortunately these aims took time to come of fruition; the removal of internal tariffs did not come into existence until 1968. Free factor mobility aims were not met until 1992 due to national clashes and restrictions due to a lack of common currency. Whilst the first common policy (on agriculture) has also proved one of the most controversial and has led to common policies being a much debated subject and led many to the conclusion from the early years that free trade alone doesn’t necessarily mean or bring a single market.

The first of 5 enlargements took place on 1st January 1973, when the United Kingdom, Ireland and Denmark joined to create 9 member states. Britain’s desire to join the EC was essentially an economic motive, Unwin (1998) claims it was an inevitable transition as there was increasing international co-operation between the EC between the 9 countries. Dinan (2004) and Nugent (2004) both imply that they were attracted to the EC’s easy access to western markets. Ireland wanted to modernize society and transform their economy they saw membership as a way of doing this and give them a route to being more ‘worldly and wealthy’ (Dinan, 2004, pg.140). Dinan believes Denmark’s aspiration for EC membership was also economical, they did not believe they could afford to lose a large chunk of British trade and also wanted to take advantage of unrestricted access to the German markets (Smith 2000). Greece joined the EC in 1981 for what was seen as political reasons; it is felt Greece’s accession was politically motivated due to development of a fragile democracy (Yannopoulos, 1986). Karamanlis saw the EEC as a route to economic modernisation, political stability and long-term success. Sampedro and Payno (1983) push through the importance of Turkey in this decision. Karamanlis wanted increased security in fear of hostilities with Turkey. 1986 saw both Portugal and Spain join to create a membership of 12 states. All 3 were poor and weak economically, but they had brought the advantages of a new route to the Mediterranean and strengthened economic and political relationships with Latin America (Dinan 2004). It was the first time the EEC had been subjected to the economic challenges of rehabilitating economies so much worse than there own (Smith 2000).

The sudden change of ‘geopolitical panorama’ in the east, due to the collapse of the Soviet Union gave the EU a predicament, whether to concentrate on the on-going processes of integration, or prepare for the eastern enlargement of the EU (Rodriguez-Pose, 2002). The debate surrounding these two issues is commonly known as the widening versus deepening debate (Preston, 1997). The deepening of the EU represented the traditions of the EU agenda of moving ahead with greater economic integration before unblocking the path to enlargement. Widening the EU would prevent the progress of deepening integration, in order to allow CEEC’s (Central and Eastern European Countries) and other candidates to join in and then go back to the process of deepening (Grabbe 2004). Grabbe (2004) claimed either option came with certain implications. Deepening would create further obstacles for candidates to try and join the EU, as the rules and regulations that govern the EU are likely to have been expanded. Referring to the implications of widening Rodriguez-Pose states widening the EU from 15 to 27, without thorough reform of its institutions would make it difficult to achieve consensus to proceed with economic and political integration. Rodriguez moves on to discuss the split created by the widening versus deepening debate on the existing member states. He cites France’s concerns over their diminishing influence in the face of eastern enlargement, and worried over Germanys gain and influence in an enlarged EU; this is also backed up be Dinan (2004). Like France, the Benelux countries, Spain and Portugal supported deepening. Rodriguez-Pose points out that there were economic and political reasons for this; they felt that there were many benefits to be made through economic integration and feared upsetting Russia if enlargement was pushed too far and too early. Rodriguez-Pose moves onto the main backing behind the widening of the EU, Britain led this group amid concerns over losing sovereignty and power to Brussels and thus saw widening as a means of preventing deeper integration. Other countries such as Germany were undecided wanting deeper integration, but had there heads turned by geopolitical and commercial interests they could have with CEEC’s on there borders. Despite opposition the EU opted to proceed with deepening and this led to the issue of eastern enlargement playing second fiddle to economic and political integration throughout the 1990’s. As Rodriguez-Pose (2002) and Grabbe (2004) earlier stated this had consequences for the future enlargement of the EU, making it far more difficult for candidate countries to adjust and meet to the growing criteria (Copenhagen Criteria 1993) required to become members of the EU. The EU15 desire to deepen rather than widen is shown through a variety of policies. The Single European Act was created in an attempt to deepen market integration, and included attempts to create a single market by 1992, strengthen cohesion policy, and legitimise cooperation on foreign policy and to strengthen research and development (Dinan, 2004). The Maastricht treaty (1992) was created to push through the new EU in further attempts to integrate deeper and also encourage further cooperation surrounding common policy. When discussing accession in the short term Dinan claims that the EC were not entertaining the thought of widening the union, at least not until it had fully absorbed the accession of Greece, Spain and Portugal and implemented the single market programme.

Inevitably further enlargement was going to occur despite EU attempts to deter applicants. In 1995 Austria, Sweden and Finland joined the EU, but only when the integration agenda was almost completed (Rodriguez-Pose, 2002) and Nugent (2004). This was the easiest enlargement for the EU to absorb as they joined the EU economically strong and politically stable and were relatively small demographically; after all the reason they hadn’t joined the EU earlier was that all these countries were restrained due to their neutrality during the Cold War (Grabbe and Hughes 1998). With the deepening processes almost completed the EU decided to proceed with negotiations with EU12 countries over potential accession. Accession negotiations began with Hungary, Poland, Czech Republic, Estonia, Slovenia and Cyprus on the 31st March 1998. The European Commission then recommended that negotiations begin with Romania, Slovakia, Latvia, Lithuania, Bulgaria and Malta by the 13th October 1999. On the 9th October 2002 negotiations completed with Cyprus, Czech Rep., Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia (NMS10) and lead to the Treaties of Accession with NMS signed in 2003 and led to full membership in 2004. After fulfilling all of the Copenhagen criteria the accession of Bulgaria and Romania concluded in 2007. Nugent (2004) sees the fifth enlargement as being momentous, partly due to the number of applicants involved and the amount of opportunities and challenges the enlargement provides the EU with. Unlike Rodriguez-Pose (2002), Nugent was surprised the EU15 proceeded with eastern enlargement. After being firmly against enlargement in favour of deeper integration Nugent questions why the EU became so willing to enlarge. Economically the EU was succeeding; its Single Market Economy was largely achieved, growth and prosperity was rising at levels unlikely to have been achieved without the EU’s existence (Nugent 2004), Nugent also adds all member states had roughly at least 60% trade with the rest of the EU. Increasing the number of EU states to 27 so rapidly was seen as problematic. The EU12 are no ordinary applicants and are likely to cause major difficulties and challenges (Nugent 2004). According to Nugent there are 2 sets of concerns at the heart of EU enlargement; firstly there are doubts about the capabilities of many of the EU12 to function at least in the long term as effective and efficient union members. Secondly there are doubts over the ability of the union to absorb the new members without undermining its effectiveness and efficiency. Together these factors have created major qualms over the wisdom of allowing the accession of the EU12.

The enlargement of the EU12 has posed and indeed still poses many challenges for the EU. Some of these challenges have arisen from the enlargement itself, whilst others have different roots resulting from more complex guises as a consequence of enlargement (Nugent 2004). Discussion on the challenges, problems and major issues faced by the European Union as a consequence of the 2004 and 2007 enlargements and whether these problems are justified are discussed in the following sections; the identity problem is debated in academic literature and surrounds whether the EU can be said to be based on a collective identity and how the absence or existence of identity can impact the stability and effectiveness of the Union as a whole. Smith cites in Nugent (2004) that it is not hard to find a case where no collective identity exists and this is one of the major reasons why the EU creaks so often. This Smith claims is due to the diversity and variance among the EU15 whether its language, religion, politics or history. Nugent puts these reasons as to why EU citizens cannot identify with each other and this absence of a European identity makes it difficult to maintain a strong and fully efficient system. One of the arguments against the eastern enlargement if the EU is that widening may will dilute this further and prevent the EU as a whole running efficiently. Nugent is sceptical claiming that the influence of widening would depend on how the strength of the current EU15 identity is perceived. If its attachment is minimal then further enlargement arguably can not weaken it any further. Nugent accepts though that widening may actually prevent any potential EU identity in the future whether through a flag an anthem or policy effectiveness. This can be put down to the major cultural differences between the CEEC’s and the EU15 and this is a major concern to those who are looking for a united Europe (Dinan, 2004). As stated earlier whether such a European identity existed in the first place is arguable, and in reality this can not be considered an insurmountable problem for the EU.

Institutions and decision making processes are a major issue concerned with eastern enlargement. The 4th condition of enlargement agreed at the Copenhagen summit was that the EU would only accept a new member if they had the capacity to absorb them. This means that the EU’s institutions and the way in which it makes its decisions must be adapted to allow new countries in, but without jeopardising the process of integration. (Nugent, 2004) and (Grabbe and Hughes, 1998). Nugent explains regarding the adaptation of institutions prior to the 2004 and 2007 enlargements acceding states were allocated an appropriate number of votes and places. So they have a voting weight in the council etc. This approach has not been as practical to use in the eastern enlargements, as the commission and the European parliament were already too large and faced huge numbers of applications. As for changing the systems in which decisions are made, it has been shown since the 2nd and 3rd enlargements that quick and efficient decisions are becoming increasingly uncommon, this adds to the perception that the widening of the EU might threaten deepened integration (http://news.bbc.co.uk/1/hi/world/europe/2266385.stm) and Rodriguez-Pose (2002). As a result the potentially a frustrating and insurmountable problem for the EU; treaty reforms were made to avoid decision making deadlocks for example; by increasing the number of decisions that can be made by a majority (Nugent 2004).

The number and variety of states acceding into the fifth enlargement has raised questions about how the EU’s internal political dynamics and balances will be affected by enlargement (Nugent 2004). Will the 2004 and 2007 enlargements created a more internally divided EU then ever before? There are more countries, more issues, and more opinions, hence there is more likely to be disagreements and conflict (Dinan 2004). The impact of these so called divides should not be exaggerated (Nugent 2004). Nugent believes this as there have always been divides between EU members, however this has not prevented the EU from moving forward albeit slow at times. Nugent indicates that internal EU dynamics have rarely rotated around a fixed internal majority; usually these coalitions will shift according to the current issue. Another reason Nugent feels divides should not be exaggerated is that the EU12 do not bring a homogenous bloc to the EU; they have there on ideas and agendas and don’t necessarily want all the same things. Nugent suggests that in the EU15, most alliances will be short term and again be responsive to the relevant issues at the time. Nugent does concede that there may be more large-small state confrontations and potentially with small populations some CEEC’s may form alliances on budgetary matters in particular. On the other hand it can be predicted that despite concerns over divides within the enlarged union, internal dynamics and balances will be disturbed by enlargement but not fundamentally undermined by it (Nugent 2004).

The accession of the EU12 and potentially Turkey at some point in time creates major market opportunities for the EU. This, however according to Nugent (2004) and Grabbe (cited in Nugent 2004) creates economical difficulties for several reasons. The accession of the EU12 increases the size of the EU population from 385m to 493m and catchment area by roughly a third, in comparison the EU GDP increases by approximately 5% (Baldwin and Wyplosz 2006) and (Nugent 2004). As a result this then leads to GDP per capita dropping by 18%. Rodriquez Pose (2002) highlights the obvious economic and political gap of the EU12 and the existing members prior to their accession. The EU12s are much poorer than any other existing members of the EU at the time they joined. In previous enlargements countries that joined had a similar GDP when compared to the EU average. The Mediterranean accessions were slightly different but still didn’t create as bigger problem economically as the accession of the EU12 would. To show this Rodriguez Pose reveals that Spain had 70.5% of the EU GDP average when they joined, Portugal had 55.1% of the EU GDP average and Greece had 61.8% of the EU GDP average. This is in sharp contrast to one of the biggest EU candidate countries Poland who had a GDP below 30% of the EU average. In fact only Slovenia of the EU12 was in a better position than Portugal at their time of accession, whilst Nugent adds only Slovenia and Cyprus had GDP’s above the EU15’s poorest state, Greece. Figures from Eurocast show that in 2003 just prior to enlargement the EU12 had a GDP per head average of only 40% of the EU15. Fig 3 shows the GDP/person percentage in a country as a comparison the EU average. This shows the shear amount of extra undeveloped regions that are eligible for cohesion and structural funds. Fig8 shows the countries eligible for funding. The regions with under 75% of average GDP per capita ( have a right to claim structural funding) in the EU25 rise from 84m to 123m this is likely to create a strain on budgetary issues and on existing benefactors from cohesion policy. The accession of these countries below the European average on such a mass scale, and have such reliance on large agricultural sectors would put pressure on the EU budget (Baldwin 1997 cited in Rodriguez 2002); particularly as this pressure is on as a budget in which 80% is used on the CAP, cohesion funds and regional development (Baldwin et al 1997).

Solutions to this new problem of regional disparities and accession of so many underdeveloped countries were required. The most obvious option to this would to simply increase the budget to try and absorb the needs of the EU12. The economic problems experienced by the candidate countries (Fig4) by trying to adapt to the acquis communautaire. Fig 4 shows the initial economic downturn the EU12 faced by adapting there political and economical institutions to those required for EU membership, however when they were set in place as it transpired it led to economic growth and signs of potential prosperity. It would require a major growth in the budget to be able to assist the EU12 through this and to allow them to reach there highest potential. This, Baldwin et al (1997) declares is something that the existing members were opposed too. Allowing underdeveloped states to join the EU creates the necessity for redistributive policies to aid these states Nugent (2004) and Smith (2000). This particularly affects the size and employment of the EU cohesion policies and the associated funds. Together these funds accounts for over 35% of the EU budget (Nugent, 2004). Nugent stresses the focus on redistributive policies as these funds are not only needed to assist the EU12, but also under unreformed rules the new member states would be the beneficiaries of the budget and this has been known to the EU15 from the beginning of the enlargement process. This is of concern to the existing beneficiaries of the funds (Spain, Portugal, Greece and Ireland) who would be concerned over significant reduction in the funds they gain themselves from the funds. Fig 8 show the Mediterranean are right to feel under threat as due to their developing economies and poor geographical position they find it difficult to make use of new trade links particularly when the centre of Europe has shifted eastwards. It is not just the low GDP countries which have areas requiring structural funding. Areas around the UK have required structural funding but due to the enlargement of poor countries no longer qualify for objective 1. After weighing up a potential solution the EU decided to give the new members less favourable treatment than the EU15 in the early years, but with payments capped and phased (Nugent 2004). The impact of the enlargement on Cohesion funds is shown in the European Commissions budget commitments 2000-2006 (Fig1). Cohesion budget will be 308.0 billion Euros 2007-2013 (this is 35.6% of total EU budget). 81.5% of this for Objective 1 (‘Convergence’), of which 77.5% for regions with under 75% EU25 GDP per capita (i.e. the NMS in particular, but some Western European ones too). 15.9% for ‘competitiveness and employment’ objective (mostly Western Europe) and 2.5% for ‘territorial cooperation’ (cross border – some NMS eligible). There was also an absorption ceiling of 4% GDP and changes to policy to assist more areas then originally anticipated in Western Europe.

The CAP accounts for around 45% of the EU budget and this creates a major problem, as the majority of the EU12 are over reliant on a large inefficient agricultural economy. The reliance of agriculture to poor countries is shown by fig 2 which reveals the NMS, Spain and Italy all rely hugely on agriculture as a form of employment. Nugent (2004) claims that the accession of the EU12 will more than double the size of the EU’s agricultural labour force, increase its agricultural area by half but only raise output by 12%. This goes to show the inefficiency the EU would have to deal with prior to enlargement. The consequence of this was similar to those over cohesion spending and solutions were considered and once again it was similar to how cohesion policy was dealt with; new members were given less favourable treatment with CAP support to be phased in (Nugent 2004). ‘The settlements on structural operations and the CAP were thus hardly favourable from the viewpoint of the new member states’ (Nugent 2004, p. 14). The EU15 were just not willing to increase the overall size of the EU budget- to prepare the applicants for enlargement and to help them integrate, at their expense. Furthermore the existing beneficiaries of structural funds and the CAP were not willing to reduce their allocation for the benefit of the EU15 (Nugent 2004); France was the biggest beneficiary from the CAP never accepted enlargement and refused to accept CAP reform (Smith 2000). This was all shown by the results of the 1999 Berlin European Council meeting, where only 10% of the long term EU budget was allocated as enlargement aid. The changes to the CAP budget were shown in the European Commissions budget commitments 2000-2006 (Fig1). The table reveals that the EU decided to give modest pre-accession funds and gradually phase in extra funds post accession. The NMS10 receive direct aid payments from 2004 onwards, but not at full rates. A 10 year phasing in period will occur, staring at 25% rising to 100%. By 2013 direct payment rates will be aligned with those of EU15 member states. In meanwhile the individual member states can do a certain amount of topping up at their own expense. Note the phasing in of direct aid payment is likely to mean that the EU15 were not as fully committed to aiding the EU27 as they could be.

There remains a heavy reliance in the EU12 on outdated, inefficient industries that have only been able to survive based on low costs (such as labour) and state support. Nugent (2004) and Baldwin and Wyplosz (2006) assert that these circumstances are beginning to change. Baldwin and Wyplosz reveal the modernisation of EU12 economies through the stimulus of EU enlargement has begun to see increasing efficiency and production through various factors as FDI (Foreign Direct Investment) and relocation of industry. There are concerns within the EU15 that the low factors of production available in the EU12 will lead to cheap exports and thus EU15 produce being uncompetitive. The apparent perception is that FDI will flow away from the EU15 to the EU1 combined with the mass labour flows from east to west to follow the higher income. The worries from the public of the EU15 are potential redundancy occurring from re-location as well as job competition. Like previous problems discussed Nugent is convinced that these worries are not justified claiming that cheaper EU12 imports have improved EU15 competiveness and benefitted the European consumer. The NMS10 inward FDI rose from virtually zero in 1994 to 190billion Euros in 2004 (esp. from Germany and Baltic countries). Over half of this FDI is in services and a further 37% in manufacturing. Note that in 2004 only 4% of outgoing FDI from EU15 countries was to the NMS (53% to other EU15 countries and 12% to USA). The evidence shows there has not been the massive outflow from the EU15 to the NMS10 (European Commission Report 2006). As Nugent (2004) had predicted the initial worries are not justified and that the increased inflow of FDI into the NMS would has not had an adverse effect on the EU15. Meanwhile the European Commission believes it has actually had a positive effect claiming outsourcing a part of production to the EU10 has allowed EU15 firms to strengthen their competitive position with a favourable impact on employment.

Despite the various theory discussed above Baldwin et al (1997) actually economically predicted that EU enlargement and the results led to the belief it would be a tremendous success. They studied the budgetary implications likely to occur from accession. Baldwin et al reveal the financial implications of the accession of the ‘Visegrad 7’ countries only, as they predicted they were the most likely to join the EU. In hindsight Baldwin et al underestimate the widening of the EU. The ‘Visegrad 7’ alone would cost the EU budget 19 billion. This is due to the fact they require 26.6 billion in structural funding at 400 Euros/capita and an overall budget contribution of. As stated earlier the EU maintained the same stance on cohesion and structural fund policy post enlargement granting Portugal the most aid from the EU15 at a rate of 400 Euros/capita. Granting the Visegrad the same level would cost the budget 26.6 billion. The ‘Visegrad 7’ had agriculture based economies therefore investing heavily through the CAP towards the ‘Visegrad7’ could lead to major global changes. This is because farmers will get paid a far greater subsidy than what they were getting for their goods; thus leading to greater production through improving machinery, efficiency, a greater and affordable labour forces, and use of fertilisers. This result could lead to a fall in prices, rapid growth for the NMS and cheaper goods for the consumer. The major issue remained that despite the potential success the EU would still have a 19 billion euro hole in their budget and due to their reluctance to contribute more to the budget this loss was unsustainable. This would therefore require a restructuring of the potential 37 billion costs to 10 billion (Baldwin et al 1997).

Who were economically the winners and losers of enlargement? This was a theory Baldwin et al (1997) investigated. In theory geographically everybody should win according to research into conservative assumptions of change in real income (fig5) Baldwin et al shows the Eastern Europeans (CEEC7) will unsurprisingly gain the most with predicted growth of 1.5%, whilst as fig 5 shows the other 3 groups also grow although minimally. In a less conservative assumption (fig6) it reveals that although the other 3 groups may not grow much more the growth of CEEC7 can be up to 18.8%! The reasons why everyone gains is as follows; The CEEC7 gain so heavily due to their low starting point, they have just entered a single market and given the opportunity to trade within a huge affluent market and hence developed prosperous long-term trade links. The EU15 also gain through access to new markets (imports and exports), new resources, cheaper goods and potential increases in employment. The expansion more importantly strengthens the EU as a trade bloc with increasing global competition and helps protect the EU from cheaper agricultural produce available from the USA and Canada (Baldwin et al 1997). Also predicted is who wins and loses within the EU15 through the prospect of enlargement; fig 7 shows the list of EU15 countries and unsurprisingly the richer countries do well, whilst the poorer countries gain minimally. There are several reasons why this pattern occurs, Germany do far better than anybody else with a 33% of the gains made from EU enlargement, France and the UK also gain heavily; this is due to both there trading power and their locations (Germany is in the centre of Europe) proving geography matters. This is through globalisations impact on creating network cities and services creating trade links and transport networks. Alternatively Portugal actually loses out from enlargement this again is due to their undeveloped economy; they are in competition with the majority of NMS and their location on the outskirts of the EU and thus are find it harder to compete for trade. Baldwin et al reiterate there belief that European enlargement is on the whole a ‘win-win’ situation, however the evidence also shows there are bound to be individual losers.

The evidence provided in the European Commission report (2006) agrees with the Baldwin et al (1997) theory that the majority of the EU have gained from EU expansion. The NMS have grown faster 1997-2005 at 3.75% per annum than EU15 (2.5% per annum). Employment levels in NMS stabilised in 2004 and expanded by 1.5% in 2005.Convergence of inflation and interest rates has occurred. Trade links between the EU 15 and EU10 have commenced. The EU15 share of NMS10 trade rose from 56% in 1993 to 62% in 2005. NMS10 market share of EU15 imports increased 8 percentages to 13% between 1993 and 2005. EU15 runs substantial trade surplus with NMS10. NMS10 have increased their share of global trade (from 1% of world trade in 1992 to 2.8% in 2003). Meanwhile agriculture has been a success with the EU agricultural area up 25% and production is up 10%. The modernisation of agriculture created by trade integration, FDI and EU support has led to farmer’s incomes increasing 70% between 99-04. Although the report highlights there is still major challenges to bridge the gap in productivity between the EU15 and annual income per work unit is still only 16% of the EU15 level (up 6% from 99-03) therefore the report claims there is still room to increase efficiency and productivity in the agricultural sector of new member states.

Migration from the new member states to the west is a sensitive issue associated with the EU15 enlargement. Begg (1997) predicts in Rodriguez Pose (2002) that enlargement will revive the large flows of east-west migration and that this could be a pressing issue in the long term. The BBC highlights migration as one of major arguments against the fifth enlargements. It is claimed that the mass migration that might potentially occur and could lead to an increase in organised crime and illegal immigration from Russia, Belarus and the Ukraine through weak Eastern European borders (Pinder 2001) and increased competition for jobs from immigrants looking for higher paid western jobs (http://news.bbc.co.uk/1/hi/world/europe/2266385.stm). The free movement of workers is a cornerstone of EU integration and has been a chief aim since the creation of the ECSC and ECC. Migration can create a downward pressure on workers (particularly low skilled), whilst rigid labour markets lead to unemployment and aren’t suited to migration (Baldwin and Wyplosz 2006). Baldwin and Wyplosz pick up on the feeling that competition increases due to migration; this fear is that an increase in immigrant workers will lead to lower wages in the face of competition.

In practice Baldwin and Wyplosz (2006) believe free movement of labour should enhance efficiency as it allows workers to find jobs best suited to their skills and experience, whilst also allowing companies to pick and choose who they feel is best for the role. Although principally migration within the EU is free since the EU12 expansion special provisions were temporarily imposed on the 10 new members to limit migration from the EU12 to the EU15. Baldwin and Wyplosz believe the argument that the accession of the EU12 would have an adverse effect on the EU is unjustified. The EU enlargements of 2004 and 2007 brought in almost 100 million citizens into the EU. As stated in this essay; workers in new member states are paid far less than those in the EU15 doing similar jobs mainly due to a higher labour productivity being in the EU15. Baldwin and Wyplosz predict this income gap between the east and west to be 50% when adjusted for higher western prices. This raised the possibility of major east to west migration, ‘but this possibility has not become reality’ (Baldwin and Wyplosz 2004, p.191). Although Baldwin and Wyplosz accept that there are cases where migration flows have been large (they cite Albanians to Germany) they believe that the removal of emigration barriers has led to small migration flows. Boeri and Brucker (1995) estimate in Baldwin and Wyplosz (2006), that net migration from the EU12 to the EU15 is about 1.1 million. Baldwin and Wyplosz blame the nature of the flows on the tight immigration restrictions enforced by the EU15, but also put forward the theory that Central and Eastern Europeans like western Europeans have a resistance to moving and this may also have an impact on the low numbers. Baldwin and Wyplosz evidently don’t believe migration is a current problem in the EU let alone an insurmountable one. Migration in principle raises economic efficiency and welfare but is not without controversy. They believe there is little reason to expect the major flows anticipated even if the restrictions are lifted and that there is very little evidence to support the view that migration has a negative impact on a countries economy and welfare. This is backed up be the European Commission Report (2006) who state migration flows have been small even towards countries who have not placed restrictions on immigration from NMS. The report also claims as with previous enlargements migration has not currently created any substantial disruptions of recipient labour markets.

This essay has looked into the perceived problems and challenges that EU faced through the 2004 and 2007 EU enlargements. As both have been fairly recent its hard to say for a fact that it has been a success or failure. The incorporation of a series of countries whose combined population if the European republics of the former soviet union are included, exceeds that of the current EU, but whose economies put together make up more than one tenth of that of the EU (Rodriguez-Pose, 2002), is inevitably going to transform the EU. On one hand the sheer scale of enlargement may cost the EU dear. Enlargement will increase the budget burden, especially in areas of structural funds and increasing regional disparities. Fig 8 puts into context the amount of regions that still require objective 1 funding. Furthermore it may well jeopardise further integration, lead to institutional paralysis (Rodriguez-Pose, 2002) and tilt the power within the EU in Germany’s favour. The geography of the EU is becoming increasingly important through the shift of the EU centre towards the east, as Mediterranean countries in particular Portugal are being caught on the periphery of the EU and have not gained from the recent enlargements, however with this enlargement being on such a large scale some individuals are bound to be hit. On the other hand enlargement is likely to increase political and economical stability on the European continent encouraging new trade links, a greater single market, as well as greater protection from an increasingly competitive world network. The greater long-term success of the EU as a whole will preclude any future problems caused by migration once the restrictions are phased out. Although as stated by both the European commission and Baldwin and Wypolsz (2006) there has been no major flows of migration to any country (even ones with no restrictions)The issues discussed have not turned out currently to be a major problem for the EU and none of them are insurmountable. The European Commission Report (2006) has rightly pinpointed migration issues and regional disparities as the main issues and is looking for more productive ways of solving them. Economically the results are positive with the majority of the EU gaining and the EU 12 growing at quickly and have a steady macro-economy. The majority of the problems expected through these enlargements have been unjustified or are not fundamentally insurmountable for the EU as a whole. The initial results of the 2004 and 2007 EU enlargements on the whole shows a win-win situation for the majority of the union and in the long-term further widening of the European Union is likely to be the next port of call.