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

LONG-RUN ECONOMIC ASPECTS OF THE EUROPEAN UNION’S EASTERN ENLARGEMENTNOTES1 Czech Republic, Estonia, Hungary, Poland and Slovenia.2 Bulgaria, Lithuania, Latvia, Romania and Slovakia3 The European Commission’s Agenda 2000 document included an assessmentof the readiness to accede to the EU of the ten applicant countries from Centraland Eastern Europe. It was followed by detailed reform proposals for theCommon Agricultural Policy (CAP) (Commission 1998a), the Structural(Commission 1998b) and Cohesion Funds (Commission 1998c, 1998d), theInstrument for Structural Policies for Pre-Accession (ISPA) (Commission1998e, 1998f) and a financial perspective for the Union with and withoutenlargement (Commission, 1998g).4 Technical details and assumptions used throughout the text can be found inAnnex 8. When comparing the budgetary balances, the special circumstancesof the year 1997 have to be taken into account. The expenditures were considerablyhigher than the contributions due to the rollover from funds of theprevious year. Furthermore, the UK’s net contribution is small, because of thecombination of a particularly high rebate combined with receipts of funds dueto other factors such as the BSE crisis. Refunds for the definitive calculations ofpast rebates and exchange rate fluctuations caused the high rebate. All thedetails are explained in Commission (1998h).5 1997 was the most recent year with comprehensive data on expenditures whenthe model was built. Given the margin of error in calculating the StructuralFund allocations and the expenditures for the CAP, the net balance estimateshave to be taken with care. The 1997 budget itself is affected by the differencesbetween appropriations and actual expenditures and the corrections to the UKrebate, which occurs with a two-year time lag.6 This was based on the Fontainebleau European Council of 1984, according towhich ‘any Member State sustaining a budgetary burden which is excessive inrelation to its relative prosperity may benefit from a correction at the appropriatetime’ (European Council 1984).7 The mechanism to cut the net contributions to the Budget would follow asystem similar to the one presented by Commission (1998h). Member States,which exceeded in their net contribution to the EU budget 0.3 per cent or 0.4per cent of GNP, would be eligible for a rebate of 66 per cent of the sum overthis level. This follows the rationale of the system for the UK rebate, with theexception that the UK’s threshold is 0 per cent, which makes it valid for thewhole net contribution.8 Brenton and Núñez Ferrer (1999) have estimated that liberalising the milkmarket in an enlarged EU with compensation payments would cost between 6billion (with 50 per cent compensation) and 12 billion Euro (based on fullcompensation).9 It is important to note that some regions will not be eligible. Eurostat recentlyreleased the latest statistical data on CEECs showing that some regions aregetting close to the EU average. Prague even has a GDP level above the EUaverage (Eurostat news release No 48/2000, 18 April 2000).