Enlargement of the European Union

Document Sample
Enlargement of the European Union Powered By Docstoc
					Enlargement of the European
         Ref: EUenlargement332cbs2010
• Any European country can join
  – Treaty of Rome art 232
• First 4 enlargements
• 5th enlargement issues
  – central and eastern European countries (CEECs),
    plus Malta & Cyprus
  – optimum size of EU?
• Enlargement and business
  Candidates for EU membership
• Accession countries assessed by EU
  – must be able to operate within the EU framework
• Pre-accession agreements
• 5th enlargement - a new challenge
  – CEECs
     • former centrally planned economies (CPEs) in
       transition to market economies
  – significantly changing the nature of EU
     • generally small, poor countries   p 87
• Copenhagen Summit 1993 set out criteria,
  – functioning market economy
  – democratic political system
  – acceptance of acquis communautaire
         Forces behind enlargement
• Benefits of economic integration incl.
  – comparative advantage
  – trade creation ( but possibly trade diversion)
  – investment & other dynamic economic benefits
    from integration
  – Papazoglou et al (2006):
     • Gravity models suggests New 10 increased imports
       from EU15 > rise exports to EU15
     • Reorientation of trade to EU15
     •   Papazoglou, Pentecost, Marques, „A gravity model forecast of the potential trade effects of EU enlargement:
         Lessons from 2004 and path-dependency in integration‟. The World Economy(2006)
        REVIEW: Competitive pressures & efficiency in
         the single market (note: you can use other theories)
                                   Home market only

            E’                                         E’                   E’        1
p‟                          p‟                                        m'
                 E”                   W                  E”                      E”
p”                         p”
                           pA                                 A       mA                  A
                      AC                                                                  COMP
                      MC                                                                      Number
                                                                            n‟   n”   2n‟     of firms

           x‟ x”       Sales
                                                      C‟ C”       Total
                       per firm                                   sales
Euro/L         Review: Growth effects of integration
               in the single market
     Medium term growth bonus             E   GDP/L 1
Y/Lc                          C

         Allocation effect
                                              Depreciation / worker
                                      D       d (K/L)

                                 K/L* K/L1
• Political benefits
   Widening v deepening debate
• Since 1st enlargement
• EU15 optimum size? EU27 beyond optimum
  size? THEORY OF CLUBS – see later
• Two approaches to enlargement
  – traditional „classical‟ method
  – adaptive method
• Can widening & deepening be mutually

• 5th enlargement - adaptive perspective
• Is EU currently progressing at 1 rate?
  – Schengen Agreement / EMU/ Tax ?
• Variable geometry
  – multi-speed EU
  – Multi-tier EU
     • EU of concentric circles
• Enlargement - even more variable geometry
• Widening v deepening debate outdated???
    Theory of Clubs: summary
• See handout & references
• Assume M* optimal size of EU
  – Was EU 15 optimal?
• Institutional changes (eg move to QMV)
  can shift MC & increase optimal size (to
• Consequences for enlargement & Depth of
                     Theory of Clubs
Benefits and costs



                             M*         No. of members
                     Theory of Clubs
Benefits and costs




                                          No. of members
                             M* Mx
              Subsidiarity principle
• Subsidiarity important
• Task allocation in EU guided by subsidiarity principle
  (Maastricht Treaty)
  – Decisions should be made as close to the people as possible,
  – EU should not take action unless doing so is more effective
    than action taken at national, regional or local level.
  – Background: “creeping compentencies”
     • Range of tasks where EU policy matters was expanding.
     • Some Member States wanted to limit this spread.
• Similar analysis for Depth of integration
  – see handout
     Enlargement issues for the EU
•   Agriculture
•   Structural funds
•   Budget
•   Migration
•   Voting – see later
•   Poor new members
    – 20% rise in EU population, BUT
    – New 10‟s GDP equivalent to Netherlands
      Sources: Eurostat and EU Commission 2003.
                    Voting rules
• Since 1993 Eastern enlargement was inevitable &
  EU institutional reform required.
   – 3 C‟s: CAP, Cohesion & Control.
   – Here the focus is on Control, i.e. decision making.

• Nice Treaty (2000) and & LISBON (Reform)
  TREATY 2007 (in force 1 Dec 2009)
   – Nice Treaty; temporary until new Treaty was ratified
      • No final decision made re: voting after enlargement

• Focus on Council of Ministers voting
                      Voting rules
• Voting rules can be complex, especially as number of
  voters rises.
• Number of yes-no coalitions is 2n.
• EU9
   – 512 possible coalitions.
• EU 27
   – 134 million coalitions.
        Voting rules over time
• Council of Ministers voting rule changes
        Pre-Nice rules (from the SEA)

        Nice rules (1Nov 2004)

        Lisbon Reform Treaty Rules (1 Dec 2009)
      Pre-Nice Treaty Voting Rules
• No longer used since 1 November 2004, but
  important as a basis of comparison.
• “Qualified Majority Voting” (QMV):
  – „weighted voting‟ in place since 1958,
  – Each member has number of votes,
  – Populous members more votes, but far less than
     • e.g. Germany 10, Luxembourg 2
  – Majority threshold about 71% of votes to win.
      Nice Treaty Voting Rules
• 3 main changes for Council of Ministers:
• Majority threshold raised
• Votes re-weighted.
  – Big & „near-big‟ members gain a lot of weight.
• Added 2 new majority criteria:
  – Population (62%) and members (50%).
                 Winners & Losers from Nice

                                    “Aznar bonus”

•Source: Baldwin & Widgren (2005)
    Nice reforms: 1 step forward, 2 steps
•   Step Forward:
    – Re-weighting improves decision-making efficiency.
• 2 Steps Backwards: EU decision-making extremely difficult.

    – 2 new majority criteria worsens efficiency.
    – raising vote threshold worsens efficiency.
• Main point is Vote Threshold raised.
    – Pop & member criteria almost never matter.
       • About 20 times out of 2.7 million winning coalitions.
    – Even small increases in threshold around 70% lowers passage
       • The number of blocking coalitions expands rapidly compared to the number of
         winning coalitions.
              Lisbon Treaty rules
• Lisbon Reform : Double Majority.
• Approve requires „yes‟ votes of a coalition of members
  that represent at least:
  – 55% of members,
  – 65% of EU population.
          Lisbon Treaty rules very efficient

                                   Passage probability   20




                                                              EU6    EU9    EU10   EU12   EU15   EU25   EU27   EU29

               Historical                                     21.9   14.7   13.7    9.8    7.8
               Status quo: May 04 to Nov 04                                                       2.8
               Nice rules: Nov 04 to Nov 09                                                       3.6    2.8    2.3
               Lisbon rules Dec‟09 onwards                                                       10.1   12.9   12.2

•Source: Baldwin & Widgren (2005)
                                Do power measures matter?
Budget Share/Population Share   4.5
                                 4                                                             Ireland

                                 3                                     Greece

                                2.5                                                     y = 0.9966x + 0.0323
                                 2                 Spain                         Portugal    R2 = 0.7807
                                1.5                                                   Denmark
                                 1        Germany                                         Finland
                                                       Italy                    Austria
                                0.5                            NL     Sweden
                                      0                 1                 2                    3         4

                                                       Vote Share/Population Share
    5th enlargement and business

•   Increased trade
•   Larger internal (single) market
•   Opportunites and threats
•   Does this impact on certain EU15 States?
•   Pre-accession benefits may „reduce‟ initial
    impact of enlargement
       Other European countries
•   EEA - includes Norway
•   Switzerland
•   Will Turkey ever join?
•   Further eastern enlargement?
• Economic and political motivations for
• Has the EU exceeded its optimum size?
• Are reforms sufficient to accommodate the
  5th enlargement?
• Implications for business must be