Eastern Enlargement: The sooner the better?

The accession candidates have made remarkable advances from the starting point in 1989. In contrast to the situation after World War II, when the appropriate institutions were not available and prices did not function, the CEECs need restructuring not reconstruction which means that no "Marshall Plan"-type of financing is needed. Moreover, the

opening up of the east takes now place in a global world – in contrast to the state of closed economies right after the war (Kohler, 2000).

Accession countries are now eligible to receive payment from the EU structural funds. As the Cologne Summit stressed in June 1999, the EU is aware of the importance of preparing the accession countries in time for future EU membership. This does of course not mean that all accession costs will be financed by the EU, candidate countries will certainly have to contribute themselves as well at varying degrees. The accession countries are still very uneven, measured by macroeconomic indicators like differences in GDP per head and inflation, but also with respect to the stages of institutional and economic reform.

Given the large number of candidates and their diverging income levels, it is clear that the EU system of transfer payments will have to be altered. The existing system would require to increase the EU budget by almost 100%, and incoming new members would then receive up to 30

% of their GDP as EU transfer payments. This would be unsustainable for both the EU and the accession countries.

The candidates have accepted by now to enter the EU not before 2003.

When the readiness for accession will be judged, not only economic factors will be taken into account. Readiness will be evaluated by the successful implementation of market structures, the establishment of appropriate institutions and infrastructure, and the establishment of market attitudes, but certainly also by factors like internal security.

When the time table for the accession process is discussed, a number of arguments can be quoted in favour of early accession:

• keeps pressure on adjustment in the transition economies and thus avoids the prolongation of adjustment costs;

• enhances expectations in the west of successful transformation towards market structures in the east;

• with more speedy adjustment, the wage gap will be narrowed early enough to contain migration pressures;

• eastern products will early on become competitive on western markets;

• structural funds of the EU will disperse more money at earlier times;

• according to estimations by Breuss, an early enlargement results in higher GDP effects than later enlargement, for both, EU-15 and CEEC-10.

But there are of course also arguments against early accession:

• adjustment pressure may be too harsh for some of the transition economies, they may face the danger of social unrest and economic disturbance;

• full freedom of migration will cause a brain drain to EU countries in the first phase of membership when the high-qualified workers are especially needed (Breuss).

On balance, the discussion during the second Academy of Excellence seemed to be in favour of early accession. The title of the Academy,

“Eastern Enlargement: The sooner, the better?”, could therefore be slightly transformed into “Eastern Enlargement: The sooner, the better!”. This does not mean though that accession could take place before 2003.

7. References

Deutsches Institut für Wirtschaftsforschung (DIW), "EU-Oster-weiterung: Keine massive Zuwanderung zu erwarten", Wochenbericht 67(21), 25. Mai 2000, pp. 315-326.

Franke, S.F., "EU-Osterweiterung: Wann und Wie? Plädoyer für einen Stufenplan", Wirtschaftspolitische Blätter, 1-2/1999, pp. 106-109.

Gacs, J., "EU-Osterweiterung: Fortsetzung oder Rücknahme des Reformwegs?", Bundesministerium für wirtschaftliche Angelegenheiten, Österreichs Außenwirtschaft 1998/99, BMWA, 1999a, pp. 121-134.

Gacs, J., "Macroeconomic Developments in the Candidate Countries with Respect to the Accession Process", Preparity, Teilprojekt II, Laxenburg, Austria, 1999b.

Ghosh, A.R., Gulde, A.-M.and Wolf H.C., "Currency boards: more than a quick fix?", Economic Policy, No. 31, October 2000, pp. 269-335.

Halpern, L. and Wyplosz, C., "Equilibrium exchange rates in transition economies", IMF Staff Papers 44(4), December 1997, pp. 430-461.

Hochreiter, E.and Kowalski, T., "Central Banks in European Emerging Market Economies in the 1990s" Banca Nazionale del Lavoro Quarterly Review, No. 212, March 2000, pp. 45 - 70..

Inotai, A., "Die beitrittswilligen Staaten auf dem Weg in die Europäische Union – Ungarn auf dem Vormarsch" Bundes-ministerium für wirtschaftliche Angelegenheiten, Österreichs Außenwirtschaft 1998/99, BMWA, pp. 205-216.

Kohler, W., "Fifty Years Later: A New Marshall Plan for Eastern Europe", in Bischof, G., Pelinka, A. and Stiefel, D. (eds.), "The Marshall Plan in Austria, Contemporary Austrian Studies", Vol.

VIII, Transaction Press, N.J., 2000.

Lacko, M., "Hidden Economy – An Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries in 1989-1995", Johannes Kepler Universtität Linz, Institut für Volkswirtschaftslehre, Working Paper 9905, 1999.

Pelkmans, J., Gros, D. and Ferrer, J.N., "Long-run economic aspects of the European Union’s eastern Enlargement”, Working Document No. 109, Scientific Council for Government Policy, The Hague, 2000.

Pfaffermayr, M. and Stankovsky, J., "Internationalisierung Österreichs durch Direktinvestitionen“, WIFO, Dezember 1999

Pöschl, J., "Wirtschaft Ost-Mittel-Europas auf Wachstumskurs", Austrian Institute of Economic Research (WIFO), Monatsberichte 73(5), May 2000, pp. 329-340.

Puhani, P.A. and Steiner, V., "The Effectiveness and Efficiency of Active Labour Market Policies in Poland", Empirica, Vol. 24, No.3, 1997, pp. 209-231.

Sujan, I., and Sujanová, M., "EU-Osterweiterung – Die Perspektiven der Tschechischen Republik", Bundesministerium für wirtschaftliche Angelegenheiten, Österreichs Außenwirtschaft 1998/99, BMWA, pp. 217-226.

Welfens, P.J.J., "EU-Osterweiterungen – Vorteile, Konflikte, Strategie-probleme", Wirtschaftspolitische Blätter, 1-2/1999, pp. 123-129.