Earlier this month Britain’s Prime Minister, Tony Blair, hailed the accession of 10 new members to the European Union as ”an enormous achievement”. It would, he said, create a vast free-trade area of 450-million consumers with ”immense potential for the future”. In Poland, the biggest of the accession countries, the central bank set up a telephone hotline for shoppers fearful that prices would rise when the country joined the EU. The message was simple: prices should go down after May 1.
But if consumers in Warsaw are wary of the impact of the single market on their wallets, should Britain also be wary of the more grandiose visions of a vast trade empire of 450-million people?
The population of the EU will increase by about a fifth — but its economic might will increase by somewhere between 4% and 6%.
The combined gross domestic product (GDP) of the existing 15 EU members is about â,¬9 000-billion. The accession states muster just â,¬500-billion.
Willem Buiter, chief economist at the European Bank for Reconstruction and Development, said: ”If the [accession] countries converged in real terms [played catch-up] they would be 20%, top 25%, of the EU — but we are talking about a generation [away] here.”
Still, the arrival of an extra 75-million consumers within the EU, even if their incomes are below the EU average, is not to be sniffed at.
In overall terms, Germany is expected to be the big winner. Bank Austria Creditanstalt estimates Germany’s trade with the new entrants will be about â,¬100-billion — the equivalent of 5% of GDP.
But pound for pound, Austria will pack the biggest trade punch — with its increase in trade tipped to reach the equivalent of 10% of GDP over a decade. ”Austria has always been the gateway to the east, and now this can become more tangible. Investors have used Austria as a safe vehicle for exporting goods as a result of the links already in place, and this investment is expected to increase,” said Henning Eskuchen, co-head of central and eastern European equities at Erste Bank in Vienna.
There is concern, though, that while the accession countries will not add hugely to the EU’s economic muscle, they could complicate life for the bloc’s trade-policy makers. In The Perfect Union?, published by the independent think-tank, Policy Exchange, Brian Gardner, a consultant on agriculture and food policy, notes that the expansion of agricultural production within the EU as a result of accession will have a significant impact on policy making.
He said: ”Politically, the enlargement will result in a larger majority within the EU’s council of ministers opposed to radical change in the EU’s domestic and international agricultural trade policies. This has serious implications for EU taxpayers, agricultural exporters in third [party] countries and for the EU’s international trade relations.”
But others argue that the pressures of enlargement will force the EU to reform the common agricultural policy.
The focus of enlargement inevitably falls on the 10 accession countries and Romania and Bulgaria, which are expected to join in 2007.
But Buiter is also concerned about countries such as Ukraine, Belarus and Moldova, which have important trading partners within the accession states and could face isolation.
These countries will need access to the enlarged EU, notably in areas such agriculture, textiles and steel. Unless the EU is careful, Buiter warns, it could find itself with economically struggling states on its borders, which could cause problems through the smuggling of drugs, arms and people.
If it blocks their access to the single market, Europe could see the creation of a replacement (albeit a kinder one) for the Iron Curtain, which enlargement is meant to have finally brought down. — Â