eu enlargement - 2011
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Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 1
An Ever Larger Union
Enlargement of the EU Single Market
A2 Economics: Global and European Context Issues (Geoff Riley, February 2011)
The Map of EuropeThe EU is now the The EU is now the largest integrated economic area in
the world, accounting for
more than 30% of world GDP and
more than 17% of world trade
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Expanding the Single Market
• First Expansion– 1973: UK, Ireland and Denmark
• Mediterranean Spirit– 1981: Greece– 1986: Portugal and Spain
• Entry of the Neutrals– 1995: Austria, Finland and Sweden
• The Big Bang– 2004: Latvia, Lithuania, Cyprus, Malta, Slovenia, Slovakia, Estonia, Hungary, Czech Republic, Poland
– 2007: Bulgaria and Romania
Backward agrarian sectors?
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Or countries and cities of deep cultural and political interest
Many new EU countries offer surprises
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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And lead the way towards a low carbon economy
Benefits of EU MembershipTrade and Investment
• Free trade access to richer EU markets
• Attract inward capital investment
EU funding
• Structural funds for transport & environment
• Farm support (but at lower rate than ‘Old EU’)
Macroeconomic stability
• Commitment towards joining single currency
• Must be fully‐fledged market economies to join
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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How have “New Europe” nations performed since EU entry ?
• There are many indicators we can look at:
1. Volume /balance of trade within the EU
2. Economic growth rates and cyclical volatility
3. Relative productivity levels
4. Relative per capita incomes
5. Unemployment rates
6. Consumer price inflation
7. External trade and investment balances
Dining at the Rich Man’s TableExports of goods and services, annual value Euro billions
Slovakian Exports to the UK
Source: EuroStat
99 00 01 02 03 04 05 06 07 08 09
bill
ion
s
0.0
0.5
1.0
1.5
2.0
2.5
EU
R (
bill
ion
s)
0.0
0.5
1.0
1.5
2.0
2.5
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 6
Exports as a share of GDPPer cent
Exports of goods and services as a share of GDP
United KingdomSlovak Republic
SloveniaCzech Republic
Poland
Source: Reuters EcoWin
95 96 97 98 99 00 01 02 03 04 05 06 07 08 092030405060708090
100110120130140
%
2030405060708090
100110120130140
Trade Balance as share of GDPBalance of Trade as a share of GDP
Trade Balance in Goods and Services
Slovak Republic Czech Republic Estonia United KingdomSource: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09-30
-25
-20
-15
-10
-5
0
5
10
%
-30
-25
-20
-15
-10
-5
0
5
10
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Out‐Pacing the UK on GrowthConstant Prices, Gross domestic product at market prices, 2000=100, Index
Comparing Economic Growth Rates
Poland [c.o.p 1 year] Czech Republic [c.o.p 1 year] United Kingdom [c.o.p 1 year]Source: EuroStat
04 05 06 07 08 09 10 11 12-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Pe
rce
nt
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Baltic States have been volatileAnnual % change in Real Gross Domestic Product
Volatile Economic Cycles for the Baltic States
Estonia [ar 4 quarters]Lithuania [ar 4 quarters]
Latvia [ar 4 quarters]
04 05 06 07 08 09 10-20
-15
-10
-5
0
5
10
15
Pe
rce
nt
-20
-15
-10
-5
0
5
10
15
LithuaniaEstonia
Latvia
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Investment ratiosCapital Investment at Constant Prices, measured as a % of GDP
Increased investment has supported growth
Czech Republic Poland Bulgaria United KingdomSource: Reuters EcoWin
00 01 02 03 04 05 06 07 08 0915.0
20.0
25.0
30.0
35.0
40.0
45.0
%
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Fiat in Poland
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Strong FDI
Low business taxes
Low business taxes
Low Labour costs
Low Labour costs
Growing marketsGrowing markets
New Europe – a magnet for FDI
Highly literate
population
Low land prices
Central European Location
Success of early projects
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Motorways Transport Infrastructure - Total Length of Motorways
Poland Hungary Slovak Republic SloveniaSource: EuroStat
00 01 02 03 04 05 06 07 08 09200
300
400
500
600
700
800
900
1000
KM
200
300
400
500
600
700
800
900
1000
Improvements in ProductivityIndex of productivity as % of the EU27 average
Labour Productivity per Person Employed
Czech RepublicEstoniaSlovenia
PolandRomaniaBulgaria
Hungary
Source: Reuters EcoWin
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1120
30
40
50
60
70
80
90
EU
27
=1
00
20
30
40
50
60
70
80
90
Czech Republic
Hungary
Romania
Slovenia
PolandEstonia
Bulgaria
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Growth and Living Standards
Faster growth
Higher productivity
Increased wages
Rising per capita incomes
Estimated Trend GrowthPotential GDP, percentage change per year
Estimated Trend Economic Growth Rates
Euro ZoneCzech Republic
PolandUnited Kingdom
Source: OECD World Economic Outlook
04 05 06 07 08 09 10 11 120.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Pe
rce
nt
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Relative Per Capita IncomesIndex of GDP per head, purchasing power standard, EU=100
Income convergence for ten new EU members
Czech RepublicHungaryPolandSlovenia
EstoniaSlovak RepublicBulgariaLithuania
LatviaRomania
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 1020
30
40
50
60
70
80
90
100
EU
25
=1
00
20
30
40
50
60
70
80
90
100
Catching up and taking overGDP per Capita, purchasing power standard, EU25average = 100
Catching Up and Overtaking!
Czech Republic Portugal Greece SloveniaSource: EuroStat
00 01 02 03 04 05 06 07 08 09 1050
55
60
65
70
75
80
85
90
95
100
EU
25
=1
00
50
55
60
65
70
75
80
85
90
95
100
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 13
The Picture on JobsPercentage of the labour force, annual average, source: Eurostat
Unemployment in selected New Member States
Poland Czech Republic Hungary SloveniaSource: Reuters EcoWin
03 04 05 06 07 08 09 100.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Pe
rce
nt
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 14
Unemployment in the EUUnemployment - % of labour force, seasonally adjusted
Unemployment Rates
UKGermany
SpainPoland
Ireland
Source: Reuters EcoWin
05 06 07 08 09 100.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Pe
rce
nt
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0A third of the Euro Zone's 15.8 million unemployed
are in Spain
InflationAnnual % change in consumer prices (all items)
Inflation Rates for Selected new EU States
Hungary Czech Republic Poland Latvia Euro ZoneSource: Reuters EcoWin
04 05 06 07 08 09 10-5.0
0.0
5.0
10.0
15.0
20.0
Pe
rce
nt
-5.0
0.0
5.0
10.0
15.0
20.0
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 15
EU Enlargement and the UK economy
Trade Flows
FDI FlowsLabour
Migration
TradeExports of goods and services, annual data, current prices, £ billion
UK Exports to some new EU States
PolandSlovakia
HungaryCzech Republic
00 01 02 03 04 05 06 07 08 09
bill
ion
s
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
GB
P (
bill
ion
s)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 16
UK Trade with PolandAnnual value of trade, £ billion
UK Trade in Goods and Services with Poland
Imports from Poland Exports to PolandSource: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09
bill
ions
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
GB
P (
bill
ion
s)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
UK Trade with PolandAnnual value of trade, £ billion
UK Trade in Goods and Services with Poland
Imports from Poland Exports to PolandSource: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09
bill
ions
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
GB
P (
bill
ion
s)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Poland now takes as many exports from the UK as China does
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 17
Migration – Push and Pull Factors
Wages
Welfare
TravelLanguage
Jobs
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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The Migration Stats
Long Term Migration
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Supporters of Inward Migration
• Fresh skills and boost to innovation– Twenty‐two of Britain's 114 Nobel laureates were born abroad– Tesco, Marks & Spencer, Easy Jet, Google, Yahoo!, eBay, YouTube
all founded or co‐founded by immigrants or their families
• Migration is a form of trade and there are gains from trade– If you go to France for an operation, it is classified as trade; if a
French surgeon comes here, it is migration– Reduces labour shortages
• Remittances add to GNP of new Europe• Net contribution to government tax revenues• Multiplier and accelerator effects• May contribute to higher trend growth• Justified on grounds of freedom, justice and human rights
Opponents of unrestricted migration
• Extra welfare burden
• Downward pressure on real wages and jobs for domestic workers
• Social pressures and tensions
• Pressure on property prices and housing rents
• Some reports question the size of the macroeconomic benefit of migration
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 20
• Entry into the EU involves a commitment to join the single currency at some point
• But the timing is flexible
• 5 new EU states have joined since 2004
• Slovenia, Malta, Cyprus, Slovakia and Estonia
• Some have a pegged currency against the Euro
• Others favour a floating exchange rate
Decisions on the Euro
Some have pegged to the EuroLocal exchange rates to the Euro, daily valuePegging to the Euro - Estonia and Latvia
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11
0.500
0.550
0.600
0.650
0.700
EU
R/L
VL
0.500
0.550
0.600
0.650
0.700Latvian currency
15.620
15.630
15.640
15.650
15.660
EU
R/E
EK
15.620
15.630
15.640
15.650
15.660
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 21
Poland – currency depreciationTop Pane: Real GDP Bottom Pane: Effective Exchange Rate Index
Poland - Growth of Real GDP and the Exchange Rate
Poland, Real GDP, precentage change from previous period, Constant PricesEffective Exchange Rate Index
Source: Reuters EcoWin
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct06 07 08 09 10
85
90
95
100
105
110
115
120
125
130
Ind
ex
85
90
95
100
105
110
115
120
125
130
0
1
2
3
4
5
6
7
Pe
rce
nt
0
1
2
3
4
5
6
7
An ever wider Europe? Or risks of enlargement fatigue?
• Iceland• Croatia• Macedonia and Montenegro
• Bosnia and Herzegovina
• Serbia• Kosovo• Turkey• Ukraine, Georgia or Tunisia?
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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Enlargement – A Work in Progress
• Enlargement ‐ one of EU’s greatest successes• New Europe was vulnerable to the global and European financial crisis
• But many countries have outperformed old Europe since 2007 on a variety of indicators
• They have provided fresh dynamism into the EU• Europe needs it! Since 2005, Britain's economy has grown by 2%, the Euro Zone's by 4%, Brazil's by 25%, India's by 47% and China's by 69%
• The political significance of enlargement cannot be underestimated
More resources on the EU from the Tutor2u blog
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