Who's Afraid of the Big Enlargement?

Richard Portes (London Business School and CEPR) and Tito Boeri (IGIER, Università Bocconi, Milan, Fondazione Rodolfo Debenedetti and CEPR)

The initial enthusiasm of many EU citizens at the 'return to Europe' of former members of the Soviet bloc has turned to anxiety at the realisation of the possible adverse consequences of enlargement. Rather than legitimising the fears surrounding this process, politicians and policy-makers must dispel them by leading the EU to adopt appropriately designed policies. New CEPR Policy Paper, 'Who's Afraid of the Big Enlargement?' sets out the key economic and social implications of the prospective accession of the Central and East European countries into the European Union and proposes policy recommendations for EU enlargement.

• Enlargement offers the EU a window of opportunity to accelerate unavoidable reforms of structural policies, agricultural policies and their financing.

• The financing of regional policies should change to a system in which each country pays or receives proportionally to its distance from the average EU per capita income level.

• Current proposals to cap the transfer of structural funds to new members at 4% of GDP would backfire by slowing income convergence rather than buying time until these countries get economically closer to the EU. It is possible to accommodate full access by new Members to structural funds without violating the 1.27 of GNP ceiling for the EU budget.

• As suggested by the US experience with the North American Free Trade Agreement, the establishment of mobility-friendly labour market institutions in combination with more unemployment insurance of short duration and wage flexibility would smooth the cost of adjustment.

• Before allowing the free movement of workers from new members, a transitional period should be used to adopt a common EU-wide migration policy, involving common quotas, co-financing of border controls and co-ordination of in-site inspections to limit illegal employment of foreign workers.

• New members should be encouraged to have minimum guaranteed income schemes similar to those in place in most current EU member states. EU coordination of the level of these minimum guaranteed income schemes should be pursued, with the long-term intention to build up a pan-European social safety net as one of the pillar institutions of the EU.

• Agricultural policies should move further away from price supports towards explicit transfers to agricultural workers.

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