Abstract
The fifth EU enlargement in 2004 and 2007 not only extended the Single European Market, but it also led to the enlargement of the euro zone, which since 2009, encompasses 16 out of 27 EU Member States. Moreover, the Schengen area has also been expanded to include 25 European countries (22 EU Member States). A first evaluation shows that the new member countries have already been able to benefit noticeably from their participation in the single market (SM), despite being not yet fully integrated labour markets. However, the international financial crisis also shadows onto the economies of the new Member States. After an ex post evaluation, the possible future integration effects of EU’s 2007 enlargement by Bulgaria and Romania are simulated with a simple macro-economic integration model able to encompass as many of the theoretically predicted integration effects as possible. The direct integration effects of Bulgaria and Romania spill-over to the old Member States, including Austria and the ten new Member States of the 2004 EU enlargement. The pattern of the integration effects is qualitatively similar to those of EU’s 2004 enlargement by ten new Member States. Bulgaria and Romania gain much more from EU accession than the incumbents, in the proportion of 20:1. In the medium-run up to 2020, Bulgaria and Romania can expect a sizable overall integration gain, amounting to an additional 1/2% point real GDP growth per annum. Among the incumbent EU Member States, Austria will gain somewhat more (+0.05%) than the average of EU-15 (+0.02%) and the ten new EU Member States (+0.01%), which joined the EU in 2004.
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Notes
- 1.
Regional Integration Agreements which are also called Regional Trade Agreements (RTAs) or free trade areas (FTAs) are preferential agreements and in principle inconsistent with the GATT’s most favored nations (MFN) principle. Sluggish or no progress in the Doha Development Round has accelerated further the rush to forge Regional Trade Agreements. The total number of (at the WTO) notified preferential agreements in force is currently 170, while a further considerable number is under negotiations/proposal stage (see Crawford and Fiorentino 2005, p. 1). Pascal Lamy (see: http://www.wto.org/english/news_e/sppl_e/sppl53_e.htm), Director-General of the WTO forecasted recently that by 2010 around 400 of such agreements could be active, increasing the complicated web of incoherent rules, coined by Professor Bhagwati (1995) a “spaghetti bowl” of twisted rules of origin. Whereas the trade purists condemn bilateral “spaghetti bowls” as second or third best welfare solutions to liberalizing world trade, Baldwin (2006B) takes them as political facts and as “building blocs on the path to global free trade”. For a description of EU’s spaghetii bowl, see Breuss (2007b), p. 649.
- 2.
Theoretical physicists are searching for a unified theory that unifies three “fundamental” gauge symmetries: hypercharge, the weak force, and quantum chromo dynamics. So far, physicists have been able to merge electromagnetism and the weak nuclear force into the electroweak force, and work is being done to merge electroweak and quantum chromo dynamics into a QCD-electroweak interaction. Beyond grand unification, there is also speculation that it may be possible to merge gravity with the other three gauge symmetries into a “Theory of Everything” (THE); see: http://en.wikipedia.org/wiki/Grand_unification_theory).
- 3.
Kohler (2004) derives a similar welfare equation for a single incumbent EU country, in particular for Germany.
- 4.
Location effects are discussed by Baldwin and Venables (1995, pp. 1616 ff.) in the context of the insights of models of “economic geography”, pioneered by Krugman (1991). This model category also considers factor movements from one location to the other, from the “periphery” to the “centre” or vice versa.
- 5.
Baldwin and Venables (1995, pp 1604–1605) discuss in the context of a Regional Integration Agreement with “large” countries the case of three countries, in which countries one and two form the Regional Integration Agreement and country three remains outside. The members of the Regional Integration Agreement can influence the terms of trade, and hence, the third term of (12.1) becomes relevant. The theoretical analysis of three-country problems (with three goods) becomes easily intractable or delivers ambiguous results (Lloyd, 1982). The Kemp–Wan theorem (Kemp and Wan, 1976) gives a powerful and beautiful answer to the question what configuration of trade policy (towards non-members) would result in a necessarily welfare improving Custom Union. The Kemp–Wan theorem gained further attraction in alternative interpretations (Richardson, 1995) and extensions of free trade areas (Ohyama 2004; Bond et al. 2004).
- 6.
A special case is the “Casella effect”. It implies that in case of trade bloc enlargement the gains from enlarging the bloc fall disproportionately on small countries, because – if economies of scale imply that firms located in large countries enjoy lower costs – the entrance of new members diminishes the importance of the domestic market and improves the small countries’ relative competitiveness (Casella 1996). Empirically, the “Casella effect” cannot be generally verified (Badinger and Breuss 2006).
- 7.
EU-10 includes the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. The integration effects of EU’s 2004 enlargement for the old and new Member States were estimated with model simulations in Breuss (2002).
- 8.
Only in this static welfare analysis using the GTAP 6 CGE model we distinguish between welfare and GDP effects. In the GTAP model, economic welfare is derived from the allocation of national income between consumption, government consumption and savings. Welfare is then decomposed leading to the following welfare contributions: (1) endowment contributions to welfare from changes in primary production factors; (2) technical efficiency in using the production factors, and (3) allocative efficiency.
- 9.
The exact transitional provisions fort he free movements for workers in the case of the 2004 enlargement can be found on the homepage of the European Commission: http://ec.europa.eu/social/main.jsp?catId=507&langId=en and in the case of the 2007 enlargement: http://ec.europa.eu/social/main.jsp?catId=508&langId=en.
- 10.
One of the lasting problems in connection with the 2007 enlargement is corruption. The unsuccessful fight against corruption forced the European Commission to cancel financial aid in the case of Bulgaria. On 26 November 2008, Bulgaria lost 220 million Euro of pre-accession funding after the European Commission confirmed its July decision to bar two agencies from handling Phare money. This came after the European Commission adopted a decision to suspend roughly 500 million Euros of EU funding when it released its monitoring report on Bulgaria on 23 July 2008. Similar problems still exist in Romania. However, so far the European Commission only warned Romania because of the shortcomings in judicial reforms and the fight against corruption (see EurActiv: http://www.euractiv.com/en/enlargement). Transparency International in its 2008 Corruption Perception Index ranks Romania in place 70 and Bulgaria in 72 (http://www.transparency.org/news_room/in_focus/2008/cpi2008). The economic impact of the lasting corruption practice in both new EU Member States cannot be quantified properly but will probably have a negative impact on FDI inflows and internal economic efficiency.
- 11.
In a study on the economic impact of migration flows following the 2004 enlargement process D’Auria et al. (2008) achieve similar results: those countries which opened their labour markets right from the beginning (like Ireland, the UK and Sweden) gained the most measured in cumulative real GDP over the period 2004–2007. The sender countries (primarily Poland), in contrast, lost real GDP. In the first 4 years of enlargement roughly 1 million citizens moved from the 10 new Member States to the 15 old Member States. The UK received 532,000 persons, Ireland 162,000, Germany 96,000, Spain 67,000, Italy 32,000 and Austria 26,000. In Ireland the cumulative real GDP increase (+4.2%) was highest, followed by UK (+1%) and Austria (+0.4%). In the other old Member States the “immigration surplus” amounted to around +0.1% or less. In the sender countries the largest GDP loss was exhibited in Latvia (−3.5%), Lithuania (−4.7%) and Poland and Slovakia (each −2.1%). In the remaining new Member States the “migration loss” was less pronounced (see D’Auria et al. 2008, p.18).
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Breuss, F. (2010). An Evaluation of the EU’s Fifth Enlargement with Special Focus on Bulgaria and Romania. In: Keereman, F., Szekely, I. (eds) Five Years of an Enlarged EU. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-12516-4_12
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