Sándor Richter Fiscal and financial aspects of EU enlargement The Vienna Institute for International Economic Studies

Total budget: €99 billion = 1,1% of GDP EU Budget Revenue 2002 Source: European Commission

Total budget: €99 billion = 1,1% of GDP EU Budget Expenditures 2002 Source: European Commission

% of EU GDP EU Budget Developments Source: European Commission

 European Regional Development Fund (infrastructure, job-creating investments, local development projects, assistance to SMEs, etc.)  European Social Fund (return of the unemployed and disadvantaged groups to the work force, training measures and systems of recruitment aid, etc.)  Financial Instrument for Fisheries Guidance (modernisation of the fishing industry)  European Agricultural Guidance and Guarantee Fund (rural development measures and aid for farmers) The Structural Funds Source: European Commission

 Objective 1: (territorial) catching-up measures to provide less developed regions with basic infrastructures and to encourage investments in business economic activity (70% of total funding)  Objective 2: (territorial) support to economic and social conversion in industrial, rural, urban or fisheries-dependent areas facing structural difficulties (11,5% of total funding)  Objective 3: (thematic) modernisation of training systems and promotion of employment (12,3% of total funding) Structural Funds’ Priority Objectives Source: European Commission The Structural Funds concentrate on clearly defined priorities (94% of financing):

 Interreg III (cross-border, transnational and interregional cooperation)  Urban II (sustainable development of cities and declining urban areas)  Leader+ (rural development through local initiatives)  Equal (combating inequalities and discrimination in access to the labour market) Regional Policy Source: European Commission The Cohension Fund is a special fund to provide assistance to Spain, Greece, Ireland and Portugal in the fields of the environment and transport. The EU has also set up four special Programmes known as Community Initiatives:

Commitment appropriations € billion  Berlin Summit, 1999 € billion  Copenhagen Summit, December 2002

Transfers as planned € 13.2 billion  Net position (transfers as planned)  Net position (real transfers) ? € 14.7 billion  Own resources € 27.9 billion  Payment appropriations € 40.9 billion  Commitment appropriations

Transfers disbursed (1)  Success rate in drawing project-related funds determines net position (real transfers) 50% success ratepessimistic assumption 70% success rateoptimistic assumption € billion50-60% project-related  Payment appropriations € 27.9 billion € billion40-50% “secured” disbursement of which:

Transfers disbursed (2)  € 5 to 10 billion2004 – 2006, total Net position (real transfers)  € 1.7 to 3.3 billion2004 and 2006, per annum

Transfers disbursed (3)  0.02% to 0.04% of the annual GDP of the EU15 € 1.7 to 3.3 billion annually in corresponds to  0.4% to 0.8% of the annual GDP of the new members

Political implications  Net financial position What is acceptable?  Direct payments

Economic implications (1)  Compared to FDI and current account positions Relative importance of transfers  Net financial position vs. impact on the economy Impact of: 1.4% - 1.8% GDP proportional inflow 1% - 1.1% GDP proportional outflow  structural actions, agriculture

Economic implications (2)  Co-financing Impact on the budget  Transfers and other issues with budgetary implications

It began with 6 member states Enlargements: ??27 >????: 27 (?)25 >2007: 2515 >2004: 1512 >1995: 1210 >1986: 109 >1981: 96 >1973: Why is this enlargement different compared to earlier enlargements of the EU?

Differences in the level of development in the enlarged EU 41% 9 members 87% 6 members 120%12 members = 100%average EU

Distribution of GDP by groups of members in the enlarged EU 6 9 „poor“ 14 6 „medium“ 8012 „rich“ = 100 EU

Where should be the final borders of the European Union? Is this an economic or a political question? What is your personal answer to this question?