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No. 489

September 18, 2003

EU Enlargement

Costs, Benefits, and Strategies for Central and

Eastern European Countries

by Marian L. Tupy

Executive Summary

elites to rival the United States enjoys clear prece-

The accession of eight Central and Eastern

dence over the developmental needs of the CEECs.

European countries (CEECs) to the European

Compliance with centralized EU regulations in

Union in 2004 will bring some important bene-

three areas--labor, agriculture, and the environ-

fits. The new members will gain from reduced bar-

ment--will impose the most significant costs on

riers to trade and investment. By 2010, the move-

the CEECs. Western European labor regulations

ment of labor will also be freed. But accession to

will make many workers in the less-productive

the EU is neither a necessary nor a sufficient con-

CEECs less competitive; agricultural subsidies will

dition for economic growth. The combined effects

favor current EU members over future ones; and

of market access and economic liberalization, not

stringent environmental regulations will impose a

EU membership, optimize economic growth.

cost of up to 120 billion euros on CEECs.

Unfortunately, the incoming EU members had

Accession members should be wary of future EU

to choose between the common market on the

initiatives, such as harmonization of taxes, which will

one hand and economic liberty on the other.

further reduce their competitiveness. Once the

Instead of concluding free-trade agreements with

CEECs join the EU, they should pursue a strategy

the EU, the CEECs were cajoled into an increas-

that seeks to introduce economic dynamism to the

ingly centralized superstate, in which most of

region by forging an alliance with more economically

their comparative advantages will be legislated out

liberal governments to prevent further centralization

of existence. As a result, economic growth in

in Brussels, working to prevent the adoption of costly

Central and Eastern Europe (CEE) will continue

welfare entitlements in the new EU constitution,

to be suboptimal. The loss of potential future eco-

guarding the national veto system within the EU, and

nomic growth will be only partly offset by the

working to abolish or substantially reform the unfair

CEEC's access to the European single market.

Common Agricultural Policy. To the extent that the

Following the collapse of communism, the

accession countries can continue to unilaterally liber-

CEECs searched for a quick way to prosperity, and

alize, their economic performance could provide a

EU accession seemed like a rational step forward.

useful example for other EU countries.

Unfortunately, the geopolitical aim of the European

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Marian L. Tupy is assistant director of the Project on Global Economic Liberty at the Cato Institute.