Who's Afraid of the Big Enlargement?
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The initial enthusiasm for a 'return to Europe' has turned to
anxiety about the potential consequences of enlarging the European Union.
The prospect of mass migration, pressures on welfare systems, industrial relocation
to the new EU members in response to lower labour costs, and job losses for unskilled
natives all give existing EU members cause for great concern.
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Rather than legitimizing the fears,
CEPR Policy Paper No.7: Who's Afraid of the Big Enlargement?
recommends that politicians and policy-makers dispel the anxieties associated with them
by leading the EU and its members to adopt appropriate measures. The authors argue that
EU governments are wary of the budgetary consequences of enlargement since most candidate
countries have large agricultural sectors and low per capita incomes. The extension of
current agricultural and structural policies to new entrants would therefore imply large
positive budget balances with the EU. But the Report finds that treating new EU citizens
differently would backfire. Structural Funds are aimed at promoting faster growth and
without such policies, income convergence would take too long.
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More broadly, 'Who's Afraid of the Big Enlargement?' suggests that
enlargement offers the EU a window of opportunity to accelerate unavoidable
reforms of structural policies, agricultural policies and, indeed, the
wider budget. 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. Agricultural policies should move
further away from price supports towards explicit transfers to agricultural
workers.
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The Report considers arguments for a delay before lifting all restrictions
on migration from East to West. By drawing on the latest estimates of the
potential flows of people, as well as the US experience in tackling illegal
immigration, the authors argue that there is an option value to waiting.
However, current EU members could smooth the adjustment process by beginning
to open their labour markets to migration from the CEECs. Furthermore,
the study finds that the North American Free Trade Agreement, which has
been in place between the US, Canada and Mexico since the early 1990s,
can provide the EU with some guidance. Mostly importantly, integration
of economies at vastly different levels of development calls for significant
inter-industry and geographical labour mobility.
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CEPR Policy Paper No.7 recommends:
More mobility-friendly labour market institutions among current EU members - more unemployment insurance of short duration and less employment protection legislation
A higher level of social welfare standards for candidate members. Accession countries should have minimum guaranteed income schemes similar to those in place in most current EU members
Minimum guaranteed income schemes coordinated at the EU level, adjusted to take account of differences in the cost of living across countries and regions - with a long-term plan to build up a pan-European social safety net
A transitional period before migration restrictions on new members are lifted, provided the period is clearly defined from the outset, and restrictions are flexibly coordinated at the EU level
Migration policies adopted across the EU which encompass not only enforcement of border controls, but also on-site controls of illegal employment of migrants
The maintenance of Structural Funds at current levels and the allocation of regional funds by national governments. Funding schemes should be more transparent but without violating the resources ceiling for the EU budget set at 1.27% of GNP.
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The authors conclude that such measures are essential to integrate the
new members successfully into the EU. The prize is great - a Europe that
fits its historical and cultural boundaries and exploits the tremendous
economic benefits of a single market for 500 million people. The risks
are also great, and the EU must begin immediately to minimize them. The
consequences of failure are only too clear.
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This article summarizes CEPR Policy Paper No.7: ’Who's Afraid
of the Big Enlargement?’ Tito Boeri, Giuseppe Bertola, Herbert Brucker,
Fabrizio Coricelli, Juan Dolado, John Fitzgerald, Angel de la Fuente,
Pietro Garibaldi, Gordon Hanson, Juan Jimeno, Richard Portes, Gilles
Saint-Paul and Antonio Spilimbergo.
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