EU eastward enlargement: A qualified success

On May 1, 2004, ten countries joined the EU, including eight from the formerly communist Central, East and Southeast Europe (CESEE). 15 years on, three more EU-CEE countries have joined, and a further six from the Western Balkans are on the way (albeit to differing degrees and with some major obstacles to be overcome).

Often, the 2004 enlargement is seen as something of an exception. Starting from the 1970s, three countries had joined per decade, and they had generally been of similar development levels to existing members. However, this is not actually true. The 1980s enlargement—when Spain, Greece and Portugal joined—although smaller, was similar to 2004 in three important ways. First, all three 1980s joiners were significantly poorer than the existing member states. Second, like the 1980s, the 2004 joiners had only transitioned to democracy very recently. Third, there was a geopolitical aspect to accession from Brussels’ perspective, and an attempt to anchor the recent transition of political and economic systems within a Western framework.

What really made 2004 special was two things. First, the idea of returning EU-CEE countries to what many (inside and outside the countries) saw as their historical place in Western Europe. For at least countries such as the Czech Republic and Hungary,  1945-1989 was viewed by many as a Russia-driven aberration. Second, what was special about 2004 was the scale of the enlargement—ten countries in total, including eight from CESEE.

Positive impact

15 years on, there is a lot to look back on positively. All EU-CEE countries have grown significantly richer in per capita terms, and most have converged with Germany. At least some of them have quite low inequality, so the fruits of this convergence have been fairly widely shared. EU accession marked the most important of several steps of integration into Euro-Atlantic institutions, anchoring the EU-CEE countries in the Western sphere (this is particularly important for the Baltic countries, but not only for them).

Broadly, the last 15 years have seen the convergence of institutions, improvements in media freedom, and better environment standards. Some also have lower corruption, although here developments have been much more mixed, and in many cases rather disappointing.

People in the region do not necessarily link these positive developments to EU membership. Yet the number of people in EU-CEE countries reporting that they see the EU positively far outnumbers those who see it negatively everywhere except the Czech Republic (and here it is quite close). Strong outright negative sentiment does not exist to a great extent anywhere.

The highest share of negative responses is 32 per cent in the Czech Republic, and nowhere else does it even get above one in five respondents. It is perhaps particularly notable in light of the current antagonism between Poland and several key Western member states, that Poles are the second most positive about the EU among EU-CEE countries.

One of the clear positives of EU membership for EU-CEE has been access to substantial EU funds inflows. These have been responsible for, among other things, massive upgrading of public infrastructure in the region. Countries in EU-CEE generally receive in the range of 2-5 percentage points of gross national income (GNI) per year in net terms from the EU budget.

In 2013-17, on average Hungary received 4.2 percentage points of its GNI, and Bulgaria 4.1 percentage points. This forms quite a significant component of aggregate demand in these countries.

Do not ignore the negatives

While the story of EU accession for CESEE countries has been generally positive, there are important caveats to this which should be borne in mind. Below, we outline four.

First, in at least some parts of EU-CEE, the convergence of institutions, corruption standards and media freedom with Western Europe has gone into reverse. The outstanding example is Hungary, where all three of these things have notably regressed over the past decade. However, other countries—including but not limited to Poland—also show some worrying signs in this direction. Electoral democracy, as measured by the Varieties of Democracy, has regressed in eight of the eleven countries since 2004 (it has improved, albeit very marginally, in Romania, Slovenia and Estonia). Hungary and Poland show particularly notable declines. The EU has so far proven toothless in combatting these trends in some member states.

Second, the expansion of the EU to 25 and later 28 countries has reduced the bloc’s ability to find consensus and act decisively. Although this was hardly easy pre-2004, the large number of extra countries, and differing priorities and wealth levels, mean that interests now regularly diverge.

Third, the economic consequences of accession have been far from uniformly positive for EU-CEE. A pool of cheap labour close to Western Europe has led to lots of outsourcing, and has been a major factor holding down wages in Germany (which in itself has contributed to macroeconomic imbalances at the regional and global level). EU-CEE countries have been able to attract large amounts of inward investment, but wage convergence in countries such as the Czech Republic has not been as strong as that of headline per capita GDP. This reflects the fact that much of the money generated by industry leaves the countries via profit repatriation (this is a source of frustration and increasingly a political issue in much of EU-CEE). Our research has shown that countries in EU-CEE may risk becoming trapped in the production stage of value chains, thereby limiting their potential for further convergence.

Fourth, EU accession of EU-CEE countries has had a rather dramatic impact on migration movements within Europe. Millions of EU-CEE citizens have left their countries to work in Western Europe, reflecting the huge wage differential (wages in EU-CEE at PPS are 30-70 per cent of the German or Austrian level). These people have benefitted, as have their Western hosts, but the story for EU-CEE countries themselves is more mixed. On the one hand, those eventually returning bring back valuable skills and expertise. However, on the other hand the massive outward migration has put big pressure on EU-CEE labour markets. Health sectors in the poorest parts of EU-CEE such as Romania are facing desperate shortages of doctors and nurses, for example.

What next?

Since the global financial crisis and its aftermath, convergence patterns in EU-CEE have become more uneven. The crisis hit some parts of the region particularly hard. The most likely scenario is that economic convergence continues in EU-CEE. Even among the frontrunners, there are still untapped productivity improvements to be made. However, the pace of convergence will be far from uniform. Poorer countries such as Romania are likely to continue to experience fairly rapid per capita GDP convergence with Western Europe in the coming years, while those closer to the productivity frontier such as the Czech Republic will not grow as quickly. For the latter, much may depend on their ability to reorient themselves towards more profitable parts of the value chain.

Two big challenges that the region will face in the coming years are demographic decline and the transition to a more automated and digitised economy. Massive labour shortages are now visible in the region, which apply a clear constraint to growth. It is possible that firms will respond by increasing wages and investing in productivity-enhancing improvements, including automation and digitalisation, but it is far from certain that this will happen. Foreign firms in the region have a big decision to make, and faced with fewer and more expensive workers, could decide to move production to Turkey or North Africa. EU-CEE countries, however, have big advantages over these potential competitors, including proximity to Western Europe, and better infrastructure and labour quality. It is vital that policymakers work to ensure the latter two points remain the case.

On the political side, the challenges may be even bigger for EU-CEE countries. Civil society, opposition parties, what remains of the independent media, and the EU as a whole, have a difficult task ahead to counter the decline in the quality and independence of institutions, and media freedom, in parts of EU-CEE. In his monumental book Postwar, a survey of European history since 1945, the late historian Tony Judt wrote of ‘Europe’s emergence in the dawn of the 21st century as a paragon of the international virtues: a community of values … held up by Europeans and non-Europeans alike as an exemplar for all to emulate’. The coming years will be a test of whether this remains the case, not only externally but also internally.

At the EU level, two further issues are likely to define the coming years. First, whether the bloc can make a renewed leap forward in terms of integration. This currently looks unlikely. However, greater integration at the “core”, which by implication would leave out parts of EU-CEE, is not unthinkable (and may indeed now be the preferred option in Paris). The second is whether other countries in the Western Balkans will join the EU by 2025 (as the new Commission strategy aims for). We are sceptical about this, both because of unresolved political conflicts in the region, but also (and maybe more importantly) because of evidence of some opposition to this in countries such as France and the Netherlands.

This article was first published at wiiw and is reproduced here with permission.

About the author

Richard Grieveson

Richard Grieveson

Richard Grieveson is an economist at the Vienna Institute for International Economic Studies — wiiw.

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