1. Enlargement of the European Union Ref: EUenlargement332cbs2010 Feb10

2. Introduction 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

3. 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

4. Copenhagen Summit 1993 set out criteria, –functioning market economy –democratic political system –acceptance of acquis communautaire

5. 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)

6. REVIEW: Competitive pressures & efficiency in the single market (note: you can use other theories) Sales per firm AC price Total sales D Number of firms Mark-up euros x COMP BE FT BE 2n x nn E E CC E A 1 E A MC p p pApA ' A p p Home market only E E W

7. Depreciation / worker d (K/L) K/L* K/L Euro/L A B Y/L* GDP/L 1 Y/Lc C s(GDP/L)1 D E Y/L1 K/L1 Allocation effect Medium term growth bonus Review: Growth effects of integration in the single market

8. Political benefits

9. 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 complementary?

10. p7a 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

11. Enlargement - even more variable geometry Widening v deepening debate outdated???

12. 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 Mx) Consequences for enlargement & Depth of integration

13. Theory of Clubs No. of members Benefits and costs MC MB M*

14. Theory of Clubs No. of members Benefits and costs MC MB M* MC1 Mx

15. 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.

16. Similar analysis for Depth of integration –see handout

17. Enlargement issues for the EU Agriculture Structural funds Budget Migration Voting – see later Poor new members –20% rise in EU population, BUT –New 10s GDP equivalent to Netherlands Sources: Eurostat and EU Commission 2003.

18. Voting rules Since 1993 Eastern enlargement was inevitable & EU institutional reform required. –3 Cs: 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 rules.

19. Voting rules Voting rules can be complex, especially as number of voters rises. Number of yes-no coalitions is 2 n. EU9 –512 possible coalitions. EU 27 –134 million coalitions.

20. Voting rules over time Council of Ministers voting rule changes Lisbon Reform Treaty Rules (1 Dec 2009) Pre-Nice rules (from the SEA) Nice rules (1Nov 2004)

21. 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 population-proportional. e.g. Germany 10, Luxembourg 2 –Majority threshold about 71% of votes to win.

22. 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%).

23. Winners & Losers from Nice PolandSpainItalyFranceUKGermany Aznar bonus Source: Baldwin & Widgren (2005)

24. Nice reforms: 1 step forward, 2 steps backward 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 probability The number of blocking coalitions expands rapidly compared to the number of winning coalitions.

25. 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.

26. Lisbon Treaty rules very efficient Source: Baldwin & Widgren (2005) 0 5 10 15 20 25 Passage probability Historical 21.914.713.79.87.8 Status quo: May 04 to Nov 04 2.8 Nice rules: Nov 04 to Nov 09 3.62.82.3 Lisbon rules Dec09 onwards 10.112.912.2 EU6EU9EU10EU12EU15EU25EU27EU29

27. Do power measures matter?

28. 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

29. Other European countries EEA - includes Norway Switzerland Will Turkey ever join? Further eastern enlargement?

30. Conclusion Economic and political motivations for enlargement Has the EU exceeded its optimum size? Are reforms sufficient to accommodate the 5th enlargement? Implications for business must be considered