EU enlargement: How to reap the benefits

This survey states that the overall economic impact of EU enlargement is likely to remain small. The new EU member states are very small compared with the u0091oldu0092 EU countries and most economic integration has already taken place. The paper examines the reasons why only 42 per cent of the people in the EU-15 supported enlargement in May 2004 while 39 per cent were against it. Many people in the u0091oldu0092 EU countries worry that the accession of fast-growing, low-cost economies could create enormous pressure in their countries. In particular, they fear that cheap Polish or Czech exports could price local products out of the market; that financial flows to the new member states could divert much-needed investment capital from West European businesses; and that an influx of low-wage workers from the East could push unemployment in the EU even higher. On the other hand, most West European companies are enthusiastic supporters of EU expansion. They expect enlargement to boost the sluggish European growth rate. They think that a larger EU will have a stronger say in global trade negotiations. They point out that enlargement has created the biggest single market in the western world, with GDP that can match the US and a population which, at 450 million, is 50 per cent larger than that of the US. Businesses also value the investment opportunities that come with integrating a bunch of fast-growing, fast-reforming countries into the more sclerotic EU economy. And they are looking forward to employing more highly skilled, motivated and lower-cost East European workers. The paper recognises that both sides have a point. Enlargement has increased competitive pressures in the u0091oldu0092 EU and it will continue to do so. As businesses point out, this is exactly what is needed to shake up the slow-growing eurozone economies. But since these economies are rather inflexible, the adjustment costs could be substantial. The survey concludes that enlargement is unlikely to have a big impact on the u0091oldu0092 EU. Econ