w 109 long-run economic aspects of the european union's eastern ...

SUMMARYready for enlargement. To meet its WTO and budgetary commitments as well as toavoid the absurdity of introducing milk quotas in Central Europe, it must engagein a new CAP reform by 2002–2003. Secondly, the EU budget system, already quiteirrational on the expenditure side, has been burdened even further by a ‘rebate onthe rebate’ system, without removing the underlying reasons for the arbitrarinessof the net paying positions.This study provides two scenarios for 2010 assuming the five Central Europeanfirst wave countries are ‘in’ and excluding the Cohesion Fund (since the post-2006developments of the budget, etc. are not known, the authors adopt plausibleassumptions, see Annexes). These exercises show that – all other things equal –the net transfers for the five new Member States (assuming four per cent growththroughout, on average two per cent faster than the EU-15) should be expected tobe some ten billion Euro higher than the net transfers in 2006 (with the ‘five’ also‘in’). This amounts to some 26–27 billion Euro, with an annual transfer of someeighteen billion from the Structural Funds. The central political issue here concernsthe ‘cohesion’ countries Portugal, Greece and Spain, assuming that Ireland isno longer eligible. Because the EU’s average income will fall, Spain may largely orentirely loose its net beneficiary position, which will come as a shock. Even with(calculated) adjustments, for example by adjusting the income criterion for eligibilityof the Structural Funds, Spain might see its net beneficiary position tumblewith one or two thirds. Thus, if the EU -15 fails to understand that a CAP reform isindispensable in the next two years or so, and if the major shifts in net-payingpositions after 2006 will not be considered politically acceptable, the enlargementprocess will prompt several severe political crises. The Union cannot afford these,as the 1980–1984 period has taught. For the EU to be ready for enlargement, politicalleaders should therefore address the CAP and transfers issues urgently, allowingaccession to be smooth and beneficial to all.13The study ends with a brief exposition on the rationale of the transfers to the newMember States. This rationale is problematic in the CAP context, although thedetailed justification (or the lack thereof) will depend on the emerging agriculturalacquis after enlargement. In the case of the Structural Funds, the needs for infrastructureand specific environmental investments are huge. However, the crucialissue will be, firstly, whether the new Member States can design and executeprojects and long-run programmes in good sequencing and with maximum positiveexternalities, and, secondly, whether they can increase their absorptioncapacity over time.