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European Affairs
Special Report: Implications of European Enlargement
New Members Will Bring Big Economic Benefits
By Bernd Fischer
Some people see the European Union's forthcoming enlargement as a glass half full or a glass half empty. In Germany, we see it as a full glass of the most beautiful vintage Tokay wine. The most important reasons for welcoming enlargement are political and historical - we are creating a united and democratic Europe for the first time in history. But there will also be important economic advantages.
When Germans look at an economic map of Europe, they see that the countries to the West of them all have moderate growth rates of one to 1.5 percent a year. To the East, growth rates are between three and five percent. That is a striking picture that shows where the opportunities are.
When all 12 probable new members have joined the European Union, we shall have 28 percent more people, a total population of roughly 500 million. We shall overtake the United States not only in population but also in economic output. We shall have the world's largest internal market. There will be huge advantages for both European and American corporations.
Some of the economic advantages are obvious. First of all, internal trade barriers will disappear, meaning that trade will flow much more freely. Already, improved trade relations with Central and Eastern Europe have created an estimated 100,000 or more new jobs in Germany.
Trade between Germany and Central and Eastern Europe is increasing by up to 20 percent a year. Airplanes flying to Central and Eastern Europe from Germany are packed with business executives, who are not only trading in goods, but increasingly in sophisticated services such as banking, consulting and insurance.
Exchanges in every field, especially between legal systems, will become much smoother. The European Commission has done a fabulous job in facilitating legal exchanges. Countries that had totally different legal systems are now on the verge of adopting Western systems. The larger market will also bring much more competition in Europe, which will mean more flexibility, more innovation and more growth.
But it would be a mistake to dwell only on the advantages. There will also be items on the other side of the balance. After all, it costs quite a bit to make a good glass of wine, and there are a lot of regulations that must be obeyed. The entire European Union will face a huge bill for enlargement, a burden that will be especially heavy for Germany - 30 percent of EU spending comes from the German taxpayer.
PHARE, the EU program for building up institutions and investment in Central and Eastern Europe is spending more than €1.6 billion this year. The so-called Instrument for Structural Policies for Pre-Accession (ISPPA) is spending €7.2 billion over six years. The Special Accession Program for Agriculture and Rural Development (SAPARD) is spending about €500 million a year.
Analysts are predicting that between €7 billion and €10 billion will have to be transferred from West to East once enlargement is completed. As a result of German reunification, Germany alone is already transferring €50 billion a year from the Western part of the country to the East. But it is the best way you can spend your money.
The big issue on the cost side is, of course, agriculture. This is an area where hard negotiations are still continuing and there are many possible solutions under discussion. One possibility would be to provide for a period of transition before farmers in Central and Eastern Europe receive the full benefits to which farmers in the existing EU member states are entitled.
Another tough issue, on the regulation side, is the labor market. Of course, we have to ensure that our well-regulated labor markets are not suddenly overwhelmed by a huge influx of workers from the new member countries. Germany and some other countries are asking for a transitional period of between two and seven years before full free movement of labor is introduced.
Agriculture and labor are perhaps the two most difficult outstanding issues. We hope they can be resolved in negotiations over the coming months because we want to stick to the timetable under which the new member states would take part in the European Parliamentary elections due in 2004.
There is another tricky issue involving the United States, which has bilateral investment promotion and protection treaties with the countries of Central and Eastern Europe. Something will have to be done about these treaties, which conflict with EU rules. We hope that the United States will understand that we have to apply all EU regulations to the new member states. I am sure that a way will be found to settle this issue, which is one of the real consequences of EU enlargement for the United States.
In conclusion, I would like to point out that a horrible natural disaster has also brought Western and Eastern Europe closer together. The late-summer floods that ravaged South East Germany, Austria, the Czech Republic and Slovakia at least made one thing clear to everyone: Europe does not end at the borders of the present-day European Union. The water did not differentiate between EU and non-EU countries. It made us all European.
It is not the economic side of enlargement that is the most important. It is the political and emotional aspects. If, on top of that, we obtain economic benefits, as we are sure we shall, then we can only be looking at a full glass of wine.