The Economics of Enlarging the European Union: Policy Reform v Transfers

Abstract

This paper argues that the prospects for policy and Financial reform in the European union are not ve,y bright. The debate on policy and financial reform appears to have ignored the economic benefits from integrating the applicant countries of central and eastern Europe and Cyprus into the EU. The discussion on policy reform has also lost sight of the fact that reform is needed irrespective of whether the Union enlarges or not. The EU member states that stand to gain most significantly from enlargement are largely those that have complained about their budgetary imbalances. If in the process of the financial negotiations within the EU they obstruct enlargement, they risk losing the economic gains from enlargement. The Union's financial system needs more ambitious and extensive reform than what has been put on the table so far. As the membership of the Union expands it will be progressively more difficult to satisfy all the member states by devising policies that offer something to all. It would also be difficult to implement a financial system that is based on the complex arrangements of the present one.