20 years after EU’s Eastern Enlargement: was it an economic success?

20 years after EU’s Eastern Enlargement: was it an economic success?

it was the eu’s boldest foreign policy
move to date 20 years ago the European
Union grew more than ever before it led
in 10 new members many were former
countries of the Eastern block Poland
Hungary the Czech Republic Slovakia some
had even been part of the Soviet Union
that’s Lithuania lvia and Estonia after
the fall of the Berlin Wall in Germany
Eastern enlargement was seen as the
second reunification of Europe with me
here to talk about the economic impact
of this reunification is Susanna savara
an economist at the Vienna Institute for
international economic studies Suzanna
20 years ago politicians of Central and
Eastern Europe made a big promise to
their citizens joining the EU would lift
their wages and living standards to
Western levels did those promises come
true well if we look at the convergence
trajectory of the past 20 years we see
that these countries are really rapidly
approaching the level of Western Europe
I mean uh 20 years ago countries like
Romania lvia Lithuania they were
somewhere in the range of 30 to
45% of U the GDP levels of the Western
European nations now if we look at them
at 70 to 85% so just within one or less
than one generation these countries have
really left ahead in in the convergence
process
yeah like you just mentioned since
joining the EU many Eastern member
countries experienced exceptional
economic growth compared to the average
wealth of the 15 existing EU members
they began catching up rapidly Lithuania
CIA and Slovenia uh almost reached EU
average wealth in less than two decades
what fueled this economic success
story well there’s a number of factors
and many of them really relate to the EU
integration so firstly a lot of
institutional reforms were carried out
in the accession process um and then
also joining the the single market led
to uh significant inflows of foreign
direct investment particularly from from
Germany as well into these countries
which really uh integrated uh Eastern
European member states into into the
production
networks and 20 years ago Eastern
enlargement sparked a lot of concerns
among old EU members small business
owners here in German for example were
worried they would get priced out by
Cheap competition from the East and
there were fears of a migration influx
from new to Old EU countries now did
those fears
materialize well when it comes to any
type of global integration or
International integration there is a
tendency to create sort of winners and
losers so it’s not an even process and
there is uh certain parts of the
population which which we’re fearful and
we see this also today with um the new
waves of enlargement really sparkling
some worries in in the new member states
as well and so there are reasons why
certain parts of the popul might need to
be worried however that’s also up the
reason why uh the EU cohesion policy
continues to be such an important thing
so the concept of cohesion and
redistribution uh remains over a third
of the EU budget so um there is this
awareness also in the EU side that it
might not necessarily be an even process
but that should not be a deterrent
because it’s a positive sum gain if we
can then uh compensate sort of the the
people who have lost out in the
process you say it’s a positive sum gain
so can we say that for the for the 15
members that were already in the EU this
big bang enlargement overall had
positive economic effects
if we look at the competitiveness of the
EU I think it’s safe to say that the
single market and the integration is a
massive driver of the blocks
competitiveness overall
um within that uh also the old member
states gained it wasn’t just the new
member states of course I mean so uh
whether it’s German firms as well they
had access to now a market enlarged by
over 100 million people at the time now
it’s even more um and also a growing
Dynamic Market where they could also to
find New Market opportunities but at the
same time um take advantage of of
certain uh competitive advantages of of
the new member
states now we spoke about migration from
new member states to Old member states
but inversely new EU members in the East
were worried about their most qualified
workers leaving the country once they
joined the block what impact did brain
drain have on the economies
there of course this was already a major
concern at the time of accession this
massive outward migration I mean on the
one hand of course the old member states
were worried about the capacity to
absorb uh the migration but on the other
hand of course we were also um subject
to the worries of of brain drain which
might follow and unfortunately it is the
case that this is something which has
happened and uh the new member states
must be um more uh must be more uh
careful about uh creating policy is how
to attract people and how to retain
people back because that is definitely
something which um which uh is a part of
the the EU accession story right so we
spoke about the rapid economic
development that took place after
joining but what are the major ways uh
these economies are still struggling to
catch up with the rest of the EU
today well the question is um that many
of these countries have reached levels
of around 70 to to 85% of the western
levels but these remaining 32 to 15%
that’s that’s the most difficult one to
close because the let’s say the previous
uh growth period was very much dependent
on this sort of extended workbench type
of uh economic model where foreign
direct investment flowed into the
countries and that allowed for for
significant conversions with sort of a
low hang low hanging fruit type of
economic model basically where um
whereby the productivity enhancements
coming from from these foreign
production plans uh really provided the
Boost to the economy but now the
question becomes much more on on
becoming more Innovative creating
indigenous or domestic Enterprises which
are globally uh globally competitive and
so on and this is a much more difficult
task and how can that task be solve of
becoming more Innovative and and less
dependent on foreign direct investment
well if we look at the the way these
countries have developed particularly
over the past 20 years it has been a
process of rather um automatic or Market
driven type of industrialization where
uh the countries could really take
advantage of the labor cost
differentials which were present um so
it was basically sort of a rather
passive approach and what was missing in
that picture was was the role of
supporting policy particularly
industrial policy so I think especially
now with with the concept of industrial
policy really coming to the Forefront in
economies around the world central
eastern European countries need to start
thinking more assertively and more
strategically about the way they set up
their industrial
policies now since the 2004 Big Bang
enlargement the EU hasn’t let in large
groups of countries but recently
Russia’s war in Ukraine thrust EU
expansion back to the top of the agenda
in December the block opened exess talks
with Ukraine and mova and granted
candidate status to Georgia but once
again the countries in line to enter are
poorer than those already in the EU
Luxembourg is the E richest country by
GDP per capita and Bulgaria the poorest
every single country actively on the
list to joining the EU has a lower GDP
per capita than Bulgaria do you expect
that admitting these countries would
cause a similar economic boom as in 2004
well there are opportunities to be found
in an enlarged EU again very similarly
to um to what we have seen 20 years ago
however that being said of course many
of the worries and the fears are which
are being voiced presently are are
similar to those which were voiced 20
years ago as well again this would
represent uh over 60 million people 150
if we include U include turkey as well
uh and it is a growing and and dynamic
market so there are of course
opportunities whether it’s for the old
member states but also for central
eastern European countries to to build
up their value chains in in those
countries take advantage of of some of
the labor cost differentials which are
present as well and and conversely for
those countries to to economically
really Advance being part of the single
Market Yeah you mentioned some worries
this new push for enlarging has prompted
widespread protests and some of the
Eastern countries which joined back in
2004 farmers in Poland have been
blocking streets to prevent cheap
Ukrainian products from entering the
country if if Ukraine were to join it
would become the Block’s biggest
agricultural producer and many farmers
there now fear that letting Ukraine into
the EU will threaten their livelihoods
those concerns sound familiar uh from
the last enlargement big enlargement
round do you think they are realistic
well I mean firstly I do have to say
that I’m not an agriculture expert so I
cannot really comment on on sort of the
competitiveness of the the farmers uh
within the individual member states but
just reflecting on on the the protest
that we have seen on this question I
think there are two things which which
should be noted first one being that the
protests really underline uh sort of the
unequal um distribution or or this uh
tendency to create certain winners and
losers within an integration process and
it really underlines the fears uh which
are present among certain groups in in
certain countries um again uh that does
not deter from sort of the positive sum
nature of of the integration process but
it is something that the EU would really
need to take seriously and the second
part of that is that it also shows that
the new member states or the candidate
countries essentially are quite
competitive in certain areas so rather
than only seeing them as as these poor
Nations which um which would gain
substantially but not give anything in
return essentially uh we really see that
in certain areas whether it’s
agriculture whether it’s renewable
energy production or so on they really
have something to bring to the EU table
Suzanna to round this off what would be
the consequences for Central and Eastern
European countries economically if the
EU enlarges further east
well I think it’s very difficult to to
give a precise quantification I mean but
uh what we can say is that um aside from
only looking at as a loss of labor cost
Advantage what would uh what might
potentially imply uh it’s also a huge
opportunity for central eastern Europe
to really build up their value chains
and and uh become sort of um a
coordinator of the value chains which
are further oriented
Eastward Suzanna savara thanks so much
for speaking to us
thank you very much

In 2004, the EU made its boldest foreign policy move to date. The bloc took in 10 new member countries, many of them were former Soviet states. A critical step to unifying Europe, it was an economic gamble. We asked economist Zuzana Zavarska at the Vienna Institute for International Economic Studies (wiiw) if it paid off.

#EU #EastBloc #Enlargement

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