J.

Gašková, Mat/Eco 5

Advantages and disadvantages of being a member of EU

The main advantages for the existing members of the European Union are generally
thought to be:
1. Export Potential – commercial opportunities from enlarging the Internal
Market
a) Classic trade creation effects of increasing the size of a customs union
b) Accession countries are small – but have grown more quickly than EU(15) in recent
years and have much faster growth potential
c) If living standards increase – export potential for consumer goods industries is huge
d) Much recent FDI into accession countries has concentrated on retailing, banks and
hotels!
2. Exploitation of economies of scale from supplying to a larger market
a) Gains in productive efficiency / increasing returns to scale
b) Exploitation of principle of large minimum efficient scale in many industries
3. Foreign Investment and Incomes and Profits
a) FDI into accession countries will provide a net flow of interest profits and dividends
b) FDI flows likely to supplement rather than reduce domestic capital spending
c) FDI will speed up the transformation of accession countries
4. Free trade
a) Potential cost savings when importing raw materials and components from
accession countries
5. A more diverse European labour market
a) Opportunities for British and other EU(15) businesses to import lower cost skilled
labour in areas where there are severe labour shortages
b) Migration of labour from accession countries may help to offset longer-term effects
of ageing populations / slow growth of population of working age
c) Increased opportunities for EU people to travel, live and work in Central, Eastern
and Southern Europe
d) Successful integration of appellant countries may reduce the surge of economic
migrants seeking employment in the existing EU from eastern European countries
6. More jobs
7. Higher EU economic growth
8. A cleaner environment
a) Accession countries have spent huge sums in securing improvements to air and
water quality to meet more stringent EU standards – reduction in cross-border
pollution will have positive externalities
9. Enlargement will be a catalyst for further economic reform in the EU
a) Reforms to the CAP
b) Spur to countries to reform their labour markets in the face of increasing low-unit
labour cost competition from accession economies

There are three significant potential costs of enlargement:

(1) The costs for public finances

(2) The costs of labour market disruption (including higher unemployment) and
(3) The costs of wage competition.
In many ways the costs of enlargement (including the effects on the total EU budget) are
driven by political rather than economic factors – i.e. how generous the existing members of
the EU are prepared to be to accession countries. Several “controls” have been put in place
during final negotiations on accession – most of them relating to regional aid, CAP funding
the limitations on the free movement of labour within the EU.
1) Budgetary Costs for the EU
a) Accession will increase the budgetary contributions of existing members
b) Steps have been taken to limit the fiscal costs to EU(15) countries from enlargement
c) Long Term Need for Higher Regional Subsidies

2) Labour Market Issues

a) Fears of higher structural unemployment among accession countries – which might lead
to large immigration of labour into higher-income countries as well as increasing political
and social tensions
b) Fears that enlargement will lead to a huge surge in economic migration from East to
West