EU Enlargement: Costs, Benefits, and Strategies for Central and Eastern European Countries

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The accession of eight Central and EasternEuropean countries (CEECs) to the EuropeanUnion in 2004 will bring some important benefits.The new members will gain from reduced barriersto trade and investment. By 2010, the movementof labor will also be freed. But accession tothe EU is neither a necessary nor a sufficient conditionfor economic growth. The combined effectsof market access and economic liberalization, notEU membership, optimize economic growth.

Unfortunately, the incoming EU members hadto choose between the common market on theone hand and economic liberty on the other.Instead of concluding free-trade agreements withthe EU, the CEECs were cajoled into an increasinglycentralized superstate, in which most oftheir comparative advantages will be legislated outof existence. As a result, economic growth inCentral and Eastern Europe (CEE) will continueto be suboptimal. The loss of potential future economicgrowth will be only partly offset by theCEEC's access to the European single market.

Following the collapse of communism, theCEECs searched for a quick way to prosperity, andEU accession seemed like a rational step forward.Unfortunately, the geopolitical aim of the Europeanelites to rival the United States enjoys clear precedenceover the developmental needs of the CEECs.

Compliance with centralized EU regulations inthree areas--labor, agriculture, and the environment--will impose the most significant costs onthe CEECs. Western European labor regulationswill make many workers in the less-productiveCEECs less competitive; agricultural subsidies willfavor current EU members over future ones; andstringent environmental regulations will impose acost of up to 120 billion euros on CEECs.

Accession members should be wary of future EUinitiatives, such as harmonization of taxes, which willfurther reduce their competitiveness. Once theCEECs join the EU, they should pursue a strategythat seeks to introduce economic dynamism to theregion by forging an alliance with more economicallyliberal governments to prevent further centralizationin Brussels, working to prevent the adoption of costlywelfare entitlements in the new EU constitution,guarding the national veto system within the EU, andworking to abolish or substantially reform the unfairCommon Agricultural Policy. To the extent that theaccession countries can continue to unilaterally liberalize,their economic performance could provide auseful example for other EU countries.

Marian L. Tupy

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