The impact of the entry of ten new member states into the European
Union in May 2004 depends on how you look at it. From a statistical
perspective, the new members increase the number of EU countries by
a large proportion, 66 percent, whereas they increase the European
Union’s population by only about 20 percent. This means that
the population of the European Union is increasing, but not as fast
as the number of countries that are part of it.
In terms of GDP, the contribution is even smaller. From an economic
point of view, this was not a meaningful enlargement. When you look
at how much new member states contribute to EU external trade, their
influence is even smaller, and even less in terms of investments. Bulgaria
and
Romania, which are due to join in 2007, will only exacerbate these
proportions.
What this means is that Europe is changing most fundamentally in its
institutional composition, rather than in its economic structure. Economically,
however, it is very visible that there are now new regions within the European
Union that are much poorer than ever before. The wealthiest regions of the Union
are now ten times richer than the poorest. This implies significant changes in
EU policies, because there is a greater need than before to narrow the disparities
between member states.
Enlargement is also changing the focus of the Common Agricultural
Policy. Until now, among the 15 older member states, agricultural policy was
aimed mostly at maintaining the stability of farm incomes. In the 25-nation European
Union, agriculture in the new member states has to be modernized, meaning that
agricultural policy remains a valid and important policy of the Union.
There is also a much greater need for a strong competition policy, and for the
fulfillment of commitments made by EU leaders in their Lisbon Agenda to make
the Union the most dynamic and competitive region in the world. With the
inclusion of the new member states, it becomes even more important to liberalize
and deregulate the European economy if that objective is to be met.
For the EU institutions, the major consequence is that enlargement has
reallocated power among the member states. Under the voting system established
by the Nice Treaty, Poland has 27 votes, the same as Spain, which is just two
fewer than Germany, with 29, and about twice as many as the Netherlands. Under
the current decision-making
system, the increased number of small states diminishes the importance of larger
members.
Enlargement has thus multiplied the tasks of the EU institutions, but it has
also made the Union much more difficult to manage and added to the complexity
of the system. The situation will become even more complicated when Romania and
Bulgaria increase the
number of members to 27. All this, of course, is one of the main reasons why
a streamlined and re-balanced voting system was included in the proposed new
EU constitution.
Economically speaking, however, the first year of membership has proved very
successful for the new member states. In a nutshell, accession contributed to
a
return to high economic growth. Poland achieved a relatively high growth rate
of five percent; Polish trade expanded by more than 20 percent; flows of foreign
direct investments increased and the
Polish currency appreciated. Many of these achievements can be attributed to
EU entry.
Expectations that enlargement would create problems for Poland and the other
new member states were largely unfulfilled. It is true that there was a short,
temporary increase in inflation, which rose from one percent to more than four
percent, mostly owing to the adjustment of agricultural prices. But that is not
too serious, considering that EU entry has created quite good long-term prospects
for economic growth in the acceding countries. During the years from 2007 to
2013, the period to be covered by the new EU budgetary perspective, economic
growth in all ten new member states is projected at just over four percent.
“The deeper debate
is over the future direction of the EU”
This brings us to the important question of financial transfers within the European
Union, which is a source of great controversy. We in Poland believe that Europe
is not only about money; it is about the construction of a united
European continent. Of course, greater Europe cannot be achieved just by adding
a few more funds to the budget, but it is obvious that in reality the EU budget
will be bigger and will provide for a greater reallocation of resources.
There is a quarrel among member states and the European Commission over the size
of the budget with the proposed figures ranging from one
percent to 1.24 percent of the GNI (gross national income) of all member states.
That is not a large budget; it represents only a small fraction of EU income.
But the difference between one percent and 1.24 percent is definitely significant
in relative terms.
The arguments that we are seeing over the budget are not only about money. They
are about the need to reallocate funds previously used for different policies.
To a large extent, the differences are between countries that are becoming increasingly
big contributors to the budget and those that are largely its
beneficiaries. The discussion has been especially between major countries, which
are also big contributors.
The total budget for 2005 is over £100 billion, and the biggest contributions
are made by Germany, followed by France, Italy, and the UK. Spain, which has
been substantially benefiting for many years, and will continue to benefit, is
also becoming a significant contributor. The Netherlands is also a big
contributor, especially in per capita terms. Countries look not only at how much
they contribute, but also at their net contributions, taking into account how
much they receive. The root of many of the quarrels is that countries pay to
the central European budget, but the money from the budget is spent to
finance policies, which are shaped in a way that some countries benefit from
them more than others.
The failure of EU leaders to agree on a budget at the European Council in Brussels
in June reflects the fact that the discussion was not only about money. The deeper
debate is over the reforms that Europe needs and the different
visions of the future direction that the Union should take. If the final outcome
of this debate is not clear, one might conclude that it will be difficult to
agree on the financial framework within which the reforms should be undertaken.
One could equally, however, argue the opposite that if we do not have
a stable financial framework for the next few years, it will be much more difficult
to agree on the reforms. In agriculture, for example, reforms never take place
over night. They need to be prepared, scheduled and implemented, and it takes
time. It is much easier to decide such
reforms once a framework has been
established.
The current situation is that all countries, including the older members, are
potential beneficiaries of enlargement. As the European Union expands, it offers
a bigger market and thus
more opportunity for everyone even
if those opportunities may be quite small. We have, however, a problem of managing
the enlarged Union, which is symbolized by the rejection of the Constitution.
We must hope that the problem is temporary.
Jaroslaw Pietras is Secretary of State for European Affairs, Secretary of the
Committee for European Integration of Poland, Deputy Chairman of the European
Committee of the Council of Ministers and the Head of the Office of the Committee
for European Integration. He was previously Deputy Chairman of the inter-ministerial
team for the new round of multilateral WTO negotiations, Deputy Director of the
Department for Coordination and Monitoring of Foreign Assistance in the Office
of the Committee for European Integration, Director of the Economic Team and
Deputy Director of the European Integration Department in the Office of the Council
of Ministers.
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