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

BUDGETARY TRANSFERS IN AN ENLARGED EUROPEAN UNIONwill fall. Using the latest data available from Eurostat 9 and assuming a real growthof four per cent in the applicant countries, the average real GDP per capita in 2006for the EU will be seven per cent lower. Potentially, this may eliminate all regionswith a GDP per capita over 68 per cent of today’s EU average 10 from the range ofObjective 1. This could have important repercussions for the present MemberStates, since most regions in the CEECs will be eligible. It is in this respect that bothscenarios differ.Both scenario’s assume that Cohesion Funds are all phased out by 2010. The firstscenario shows the impact on the net contributions and the size of the budget of acontinuation of the present policies without a change in the rules of Objective 1eligibility. The losses in Objective 1 funds are replaced by Objectives 2 and 3 at athird of the value. The second scenario shows a situation in which the present 15Member States maintain their level of receipts. To see the medium term effect of acontinuation of the present policy, both scenarios are calculated for the year 2010.The results are depicted in Figure 7.4, Table A18 in Annex 7 shows the data.The consequences are clear. Continuation of the present policies is bound to pushthe EU into a crisis situation. Particularly important is the relatively small effect onnet contributors, if the eligibility criteria for Objective 1 of the Structural Fundsremain unchanged. The biggest shock is on the net beneficiaries, especially onSpain, which has the largest number of Objective 1 areas with GDP per capita levelsabove 68 per cent. Politically, this scenario is unsustainable since Spain will doeverything in its power to protect its receipts. A collapse in the net balances by onethird or even two thirds (for Spain) is therefore bound to provoke a strongresponse.145A coalition of Cohesion countries may well force a solution that will help maintainthe levels of receipts, e.g. by increasing the threshold of GDP per capita to 82 percent of the EU average, thus neutralising the effect of that change on the average.The net contributors would bear the brunt of this outcome. Politically this wouldlead to a stalemate, plunging the EU into a crisis. Here, Spain also poses a problem.The loss of Cohesion Funds and the rise in GNP contributions as it grows richer,causes it to pay more for enlargement. The Spanish borderline case is thus difficultunder any angle. The political atmosphere will be tense, precisely because there issuch a strong element of zero-sum gain politics in these scenarios. Moreover, thedeterioration in the net contributions of Italy and France will become seriousenough to raise yet another net contributors’ problem.