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Eastern enlargement of the EU: ten years on

EU enlargement

We write the year 2004: At 1. In May, the European Union will expand to include ten new Central and Eastern European countries (CEECs), ten languages ​​and a total of 75 million people. While about half of the population of the old EU member states is in favor of the eastward enlargement of the EU in view of this historical hour, the other half fear a flood of immigration, a flood of cheap (agricultural) products and an increase in crime.
The European elites expect a massive economic impulse for Europe through the eastward enlargement. For their part, the CEEC themselves are increasing their incomes and living standards, direct cash flows from Cohesion and Structural Funds, and not least a life of freedom, security and democracy.
Wolfgang Schüssel, then Austrian Chancellor, emphasized, for example, the opportunities for Austria's eastward expansion and the jobs already created by the opening of the East, which are still to be expected as a result of EU accession. Romano Prodi, then President of the European Commission, drew attention to the economic potential of a common internal market. He referred to studies, according to which the eastern enlargement would bring the CEEC between five and eight percent and the old EU member states about one percent GDP growth. Seriously, he also warned against the increasing complexity of European decision-making and rising income inequality.

Eastern expansion & the Eastern Emperor Austria

The positive effects of the eastern enlargement on Austria are undisputed today. After all, 18 percent of Austrian exports go to the eastern EU member states. This corresponds to more than seven percent of Austria's GDP (2013). Austrian investors occupy a prominent position in this region. A recent report by the Vienna Institute for International Economic Studies (wiiw) outlines the Austrian position in the eastward enlargement as follows: Austria is the number one foreign investor in Slovenia and Croatia. It is number two in Bulgaria and Slovakia, number three in the Czech Republic and number four in Hungary.
Although Austria's entry into the EU is only 2015 years old, this was investigated Austrian Institute for Economic Research (wifo) already the economic effects: "Austria has become a modern and European country not only from a political point of view. It has benefited from every single step of economic integration, "says wifo economist Fritz Breuss. In his study on the effects of EU accession, he concludes that the eastward enlargement, the EU membership, the introduction of the euro and participation in the EU internal market Austria have annually brought between 0,5 and one percent GDP growth. Although Austria is thus one of the largest economic beneficiaries of the east opening and eastward expansion of the EU, the population is one of its biggest skeptics. 2004 advocated only 34 percent of the eastward expansion, 52 percent strictly rejected. Meanwhile, this assessment has changed. After all, 53 percent of Austrians consider the eastward expansion to be a good decision at a later date.

“The living standards have improved massively in most countries. In Bulgaria and Romania, GDP per capita has even doubled. "

The east block

In the new member states of eastward enlargement, the overall economic balance sheet is also consistently positive. With the exception of the first year of the crisis, 2009, the economic growth of all ten new member states was above that of the "old EU". This difference in growth means that they have approached the EU economically. In the Baltic States, for example, value added between 2004 and 2013 has increased by about a third, and in Poland even by 40 percent. Living standards have also improved massively in most countries. In Bulgaria and Romania, GDP per capita has even doubled.
The long-awaited funds from the EU Structural and Cohesion Funds have also flowed. Although not to the extent that countries had expected, this was primarily due to their own absorption capacity. Regions with weak institutional frameworks could not fully absorb the funds allocated to them. In addition, the necessary national co-financing proved to be a major obstacle. Nonetheless, the eastward enlargement and the associated sizeable sums have helped countries to improve their infrastructure, environmental standards, human capital and the quality of public administration. Foreign investment, which flowed from the old EU Member States, has improved their competitiveness and led to a technological upgrade of nearly all production processes.

Domestic market brings more growth?

The central expectation of the European economic architects was that an enlarged single market - now consisting of 500 millions of consumers and 21 million companies - would bring a massive growth impulse for Europe, provided its four fundamental freedoms (free movement of goods, services, capital and people) and common competition rules are guaranteed. This economist-predicted effect has failed. The EU economy grew in the years 2004 to 2013 on average by a mere 1,1 percent.
The reasons are controversial. While some see them in the not fully guaranteed fundamental freedoms (services can only be offered EU-wide since 2010), others place them in the strong economic heterogeneity of the EU states. For example, the EU's exchange rate policy is tailored to countries with strong competitiveness. Simeon Djankov, former Bulgarian Minister of Finance and Deputy Prime Minister, describes this asymmetry in the example of Portugal: for Portugal, the hard euro means "that it can not be competitive in a fixed exchange rate regime as long as it does not reform its labor market and its economic regulatives. Since its currency is overvalued, Portugal can not sell its goods and services on the world market at competitive prices. "
The European response to sluggish economic growth was initially called the Lisbon Agenda. An economic policy master plan that should make Europe "the world's most competitive and dynamic knowledge-based economy within ten years". However, after finding that these goals are too high, the answer is now "Europe 2020 Strategy".
Europe 2020 is a ten-year economic program adopted by 2010 by the European Council. Its goal is "smart, sustainable and inclusive growth" with better coordination of the national and European economy. The focus is on the promotion of research and development, higher education and lifelong learning. At the same time, attention is focused on better social integration and the promotion of environmentally friendly technologies.

The challenges

Despite these high ambitions, the ongoing economic crisis has brutally highlighted the shortcomings of European economic architecture. Economic growth has plummeted in all EU Member States and has led to the strongest post-war recession in Europe.
While unemployment was on the decline throughout Europe before the economic crisis, it rose rapidly from 2008 and again reached double-digit levels. Unfortunately, the new and southern EU member states are lagging behind. At the end of 2013, Eurostat estimated that 26,2 millions of men and women across the EU and 5,5 millions of young people under 25 did not have a job. Unemployment as a whole and youth unemployment in particular are currently one of the EU's biggest challenges, as a whole generation of young people without a job and real prospects for a self-determined life can be regarded as a political failure.
Another problem the EU faces is a huge increase in inequality. The mere fact that 2004 has increased the EU by 20 per cent in terms of population, but only by five per cent economically, has led to an increase in income differentials in the EU of about 20 per cent. Due to the largely egalitarian income situation during the communist regime (principle: all have little), inequality in the new member states increased particularly strongly.
However, this is a problem for the entire western world: disposable income has become increasingly unequal in the last three decades in all OECD countries. This development of income inequality is accompanied by a shift in income away from wages to capital gains. At the same time, the highest incomes are rising steadily, while the taxation of this upper one per cent of the highest earners in all OECD countries decreases.

Away from the economy

Apart from the economic successes and challenges, the eastward enlargement also has a historical dimension. Europe has reunited after the 50-year division into two blocs and the Cold War. The main objective of European integration, namely to create peace and security for Europe, has actually been achieved.
Today, old and new EU member states are struggling with economic, social and political problems. Joining the EU alone is not a panacea for the challenges of our time. However, it is questionable whether these ten countries would have succeeded in liberating themselves from their totalitarian, Russian-dominated regimes and turning them into functioning democracies without EU accession. Keywords: Ukraine.

Photo / Video: Shutterstock.

Written by Veronika Janyrova

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