Opinion of the European Economic and Social Committee on The new Member States and the broad economic policy guidelines
Date: 2005-03-10
Institutions: European Economic and Social Committee
Subjects: EU Member State, accession to the European Union, competitiveness, economic growth, economic policy, standard of living, transitional period (EU)

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Opinion of the European Economic and Social Committee on The new Member States and the
broad economic policy guidelines

(2005/C 234/13)

On 29 January 2004 the European Economic and Social Committee decided to draw up an additional
opinion, under Rule 29(2) of its Rules of Procedure, on The new Member States and the broad economic
policy guidelines.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible
for preparing the Committee's work on the subject, adopted its opinion on 16 February 2005. The rappor-
teur was Mr Koulumies.

At its 415th plenary session of 9 and 10 March (meeting of 10 March), the European Economic and Social
Committee adopted the following opinion by 170 votes to 2 with 5 abstentions:

SUMMARY

market and remain there long term. Older workers must be
encouraged to stay in work. It is important to complete the
internal market and actively promote good economic govern-
ance.

The 2003-2005 Broad Economic Policy Guidelines laid down
the EU's medium-term economic policy strategy, the three key
elements of which are growth and stability oriented economic
policy, economic reforms to increase Europe's growth potential
and strengthening sustainable development. At the same time
the Commission emphasised the scale of the challenges faced
by the new Member States. For the EU as a whole, it is to be
noted that the effects of enlargement are unevenly distributed.

Most of the new Member States would probably like to join the
euro zone as quickly as possible. Meeting the conditions for
entry into the euro zone requires that they pursue disciplined
and sustainable economic policies. The Stability Pact will have
to be reformed if it is to operate effectively in the long term.
The reform must be implemented in such a way that it safe-
guards the long-term conditions for EU economic growth and
reinforces the commitment of all Member States to common
goals. The requirement to improve competitiveness applies to
all Member States. For the new Member States, achieving the
current level of productivity in the EU-15 will not be enough
in the longer term. Much more needs to be invested in ICT,
R&D and education and training throughout the EU. In addi-
tion to economic and social sustainability, it is important to
ensure sustainable environmental development. It is important
for the new Member States to improve, inter alia, efficiency in
energy use.

1. References to the new Member States in previous

broad economic policy guidelines and opinions

1.1
In this opinion the new Member States means the ten
countries which joined the European Union on 1 May 2004,
namely Cyprus, the Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia and Slovenia.

1.2
As its title suggests, the Commission's communication
(BEPGs) always
on the broad economic policy guidelines
provides a very comprehensive analysis of economic policy
goals and strategies. The analysis has tended to focus more on
the internal workings of the Union than on developments in
the surrounding world. This applies particularly to issues
relating to the new Member States, which were hardly
addressed at all before their accession to the EU.

1.3
In its opinions on the BEPGs, the European Economic
and Social Committee first mentioned the future new Member
States in the conclusions of an opinion it adopted as long ago
as March 2002. On that occasion the Committee noted that
the ‘impending enlargement of the EU also makes it urgently
necessary to reconsider
coordinating
economic policy’.

the procedures

for

It is self-evident that the gaps in living standards between the
EU-15 and the new Member States will not be closed quickly.
The gaps will probably take decades to disappear. Demographic
trends are one of the major challenges facing the EU as a
whole and various measures therefore need to be taken to
encourage higher birth-rates. Steps should be taken to mobilise
all potential workers in the Union as quickly as possible, in par-
ticular to enable women and young people to enter the labour

1.4
Several references were made to the impending enlarge-
ment in an opinion the Committee adopted in March 2003. In
the summary the Committee emphasised that one of the key
requirements in the coming years was ‘truly effective support
for the new Member States' accession’. The economic indicators
in the tables appended to the opinion covered both the then
Member States and the acceding countries.

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1.5
In an opinion it adopted in December 2003 the
Committee stated that ‘it seems surprising that though the
guidelines cover a period of three years, they mention in only
one single sentence the fact that ten new Member States are to
accede to the EU in a few months’. The guidelines merely
stated that these countries were being asked to conduct their
policies along the lines of the guidelines. The EESC felt that this
approach lacked foresight.

The same opinion also referred to the effects of enlarge-
1.6
ment as follows: ‘Above all, economic policy coordination —
which is already inadequate — will be made much more diffi-
cult by enlargement. This is because as a result of enlargement
there will be a new need for coordination in two areas: firstly,
within individual policymaking areas (for example, the internal
coordination of wage policy) and secondly, between the three
main macro-economic policies, where the differences will
increase appreciably as a result of enlargement’.

The opinion also warned about

1.7
the possible conse-
quences if ‘the new Member States attempt to meet the criteria
for EMU membership as quickly as possible and in so doing
adhere closely to the criteria governing the Stability and
Growth Pact’.

1.8
In its most recent (2004) opinion on the BEPGs, Better
economic governance in the EU (1),
the Committee notes that
In
enlargement marks the start of new phase for the EU.
keeping with the title, it focuses on governance, which is essen-
tial to the credibility and effectiveness of the Union: ‘There is
an urgent need for a confidence-inspiring institutional frame-
work.’

The opinion also refers to the Commission's judgement
1.9
in Update 2004 that ‘the new Member States have problems
comparable to those of the 15 earlier Member States (EU-15) as
regards budget
situation, debt burdens and employment’.
However, this does not mean that the problems in the new
Member States are the same as those in the EU-15. Moreover,
there are considerable differences between countries in many
respects. Comparisons work only to some extent. The opinion
goes on to note that the adaptation of legislation and of social
and economic practice in the new Member States to the highly
developed level in the EU-15 could be accompanied by shocks.

Thus in its previous opinions on the broad guidelines
1.10
the EESC has dealt
to some extent with the fundamental
problems facing the new Member States, albeit in a cursory
fashion. Of course, the fact that there has been hardly any
assessment or analysis of the impact of enlargement in the

Commission's communications has had a bearing on the
content of EESC opinions.

2. The broad economic policy guidelines in the new

Member States

The 2003-2005 BEPGs laid down the key elements of

2.1
the EU's medium-term economic strategy, viz.:

— growth and stability-oriented macro-economic policies;

— economic reforms to boost Europe's growth potential; and

— strengthening sustainability.

Economic growth in the EU-15 stagnated in the first
2.2
half of 2003. Economic reforms have taken place, but not to
the extent necessary to achieve the Lisbon goals. Labour
productivity has not grown fast enough and implementation of
the internal market has advanced slowly. Some progress has
sustainable development, but not
been made as
enough. For example, greenhouse gas emissions have hardly
been reduced at all, despite the good progress made at the end
of the 1990s.

regards

2.3
In April 2004 the Commission updated the BEPGs and
noted that the existing strategy was also appropriate for the
new Member States. While the challenges faced by the new
Member States do not differ fundamentally from those of the
EU-15, the challenges are generally far greater, although in
some cases they are less severe.

2.4
There are large differences between the new Member
States. Therefore the Commission has seen fit to issue country-
specific recommendations that take into account differences in
these countries' background and performance.

2.5
The focus in the BEPG update is on the integration of
the new Member States into the existing economic policy coor-
dination framework. The structural challenges faced by the new
Member States are, on average, more demanding because:

— unemployment is nearly twice that of the EU-15;

— the general government deficit in the period 2000-2006

was, on average, just over 4 % of GDP;

— income levels (adjusted for purchasing power) are about

half that of the EU-15;

— some of the new Member States have a particularly large

agricultural population; and

(1) Better governance in the EU, EESC opinion – OJ C 74 of 23.3.2005,

adopted 15 September 2004.

— many of the new Member States have large current account

deficits.

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A prerequisite for the success of growth and stability-
2.6
oriented macro-economic policies is that
the new Member
States seek to achieve stability in public finances and reduce
the current account deficit, especially if the deficit is due to
consumption rather than investment.

2.7
Growth potential must be increased through reforms
which are the subject of consultation among the social partners
and which support the ongoing restructuring of the labour
market (through training for example) and improve produc-
tivity by, for instance, increasing competition, reducing regu-
lation, hence making it more effective, and developing capital
markets. Social sustainability can be enhanced and poverty
reduced by emphasising the vital importance of work. Invest-
ment in transport and energy infrastructure — in addition to
industry and agriculture — has an important role to play in
improving environmental sustainability.

2.8
The Commission highlights the scale of the challenges
facing the new Member States and the difficult policy choices
that lie ahead. The BEPGs take account of the special circum-
including longer
stances of these countries by, for example,
adjustment periods in the country-specific recommendations
than those allowed for the EU-15.

3. Economic performance and the effects of enlargement

3.1 Economic performance and prospects in the new Member States

The enlargement process is having a positive impact
3.1.1
on economic development. Economic activity in the EU-15
countries began to recover
in the second half of 2003,
supported by the overall growth of the world economy and a
recovery in consumer confidence. The pick-up in consumption
is partly due to the historically low level of interest rates.
Despite the economic turnaround, it will take time before it is
translated into higher employment. Consumers' uncertainty
about
testing consumer confidence,
however, and the risks surrounding the global economic
outlook have increased. The pick-up in economic growth in
the EU-15 is also important for the new Member States, whose
exports go mainly to these markets.

future income is still

3.1.2
The economies of the new Member States grew by
3½ % on average in 2003. Growth was underpinned by private
consumption, especially in the Baltic States, Hungary and the
Czech Republic. Exports grew strongly, particularly in Slovakia
and in Poland, where exports of highly processed goods have
increased strongly.

3.1.3
Investment growth was modest in some of the new
Member States. This was in line with international develop-
ments but also reflected a slowdown in the reform process in
these countries. The convergence of interest rates with those in
the rest of the EU and the need to improve infrastructure are
factors that should boost investment growth in the future.
With a couple of exceptions, the level of investment in the new
Member States is at a higher level, in relation to GDP, than in
the EU-15 on average. This is a factor supporting economic
growth in the new Member States.

Economic growth in the new Member States

3.1.4
is
expected to average about 4 % in 2004 and 2005. The fastest
growth is likely to occur in the new Member States with the
lowest per capita GDP. Growth is expected to pick up most in
Poland as a consequence of the country's growth-oriented fiscal
policy. As regards the new Member States with high income
levels, Cyprus, in particular, is likely to record relatively strong
economic growth. Higher oil prices could curb economic
growth in all EU countries in the future.

3.1.5 With the exception of Hungary, Slovakia and Slovenia,
inflation in the new Member States has recently been running
at close to the euro zone average. Although inflation will accel-
erate slightly in 2004, partly because of the rise in oil prices, it
is expected to slow to about 3 % in 2005.

3.1.6
The new Member States had an average general
government deficit of 4.3 % in the period 2000-2003 and an
estimated deficit of 4.9 % in 2004. Budget positions ranged
from a surplus of 1 % in Estonia to a deficit of 7 % of GDP in
the Czech Republic. Besides the Czech Republic, the deficit also
exceeded the 3 % reference value in five more of the new
Member States — Cyprus, Hungary, Malta, Poland and Slovakia
(see the statistical appendix). The situation is expected to
improve in most of the new Member States as the consolida-
tion of public finances gains momentum.

3.1.7
Like the EU-15 countries, each of the new Member
States has its own specific characteristics. Therefore treating the
new Member States as a single whole is often misleading.
However, as a generalisation,
it can be said that economic
growth in the new Member States has been relatively good
compared to the EU-15. EU membership, fairly robust domestic
demand growth and lower costs compared to the EU-15 will
help to boost output growth in these countries over the next
few years, which may also increase demand for investment and
consumer goods manufactured in the EU-15.

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3.2 Macro-economic effects of enlargement in the EU

cost differences between the EU-15 and the new Member States
are substantial, they will gradually narrow over time.

3.2.1
The effects of enlargement are unevenly distributed
between the new Member States and the EU-15. This is mainly
because the EU-15 account for a very large part of the foreign
trade of the new Member States whereas the new Member
States are of minor importance for EU-15 countries. Tradition-
ally, many of the EU-15 countries have tended to trade mainly
with other western industrialised countries, such as the USA.

4. Specific issues

4.1 Joining the euro zone

The eastern Central European countries' move towards
3.2.2
membership was a step-by-step process involving institution
building and the dismantling of trade barriers with the EU-15.
The most important restrictions were those relating to foreign
trade in food and agricultural products. After accession, the
rules
remaining restrictions
relating to land ownership, the movement of labour and envir-
onmental protection.

largely consist of

transitional

3.2.3
It is estimated that enlargement will have a positive —
albeit small — impact on the EU-15. The benefits for the new
Member States are expected to be greater. The benefits will
come, in particular, from the removal of the remaining trade
barriers and freer movement of labour and capital.

3.2.4
It should be noted that the effects of enlargement will
be unevenly distributed as far as the EU as a whole is
concerned. For the EU-15 the impact will be greatest in regions
in Austria, Germany and Finland that border on the new
Member States. The changes will vary considerably across
sectors.

3.2.5
The effects are likely to be greatest in labour-intensive
sectors, such as agriculture, the food industry, construction and
many service industries, which are unable to benefit from the
geographical dispersion of activities because of distances and/or
regulation. However, there are sectors where it is easy to shift
production from one country to another.

The lower level of costs in the new Member States
3.2.6
also offers the entire EU an opportunity with regard to the
China phenomenon. The geographical proximity of low-cost
countries means that is more favourable to produce in Europe
than in more distant locations. This applies particularly in the
early stages of the life-cycle of R&D-intensive products. Only
when the share of R&D in production costs diminishes might
production then shift
to more distant countries with even
lower production costs. Although at present the production

4.1.1 Most of the new Member States would probably like
to join the euro zone as quickly as possible. Meeting the condi-
tions for entry into the euro zone will require that they pursue
disciplined and sustainable economic policies. The first few
years of membership will be particularly difficult. The Maas-
tricht criteria relate to sufficiently low inflation and interest
rates, the budget deficit and government borrowing, and a
stable exchange rate. Naturally, the same requirements apply to
all Member States.

they run the risk that

4.1.2
A key question here, of course, is: What impact will
efforts to meet the Maastricht criteria have on the economic
performance of the new Member States? If, when they join
ERM 2, they try to keep their currencies within fluctuation
their
margins that are too narrow,
currencies will be vulnerable to speculation. A possible raising
of interest rates to protect the stability of the exchange rate
would have harmful economic effects, on employment
for
example. Estonia, Lithuania and Slovenia were the first of the
new Member States to join ERM 2 and they maintain their
currencies within fairly wide margins, which helps them to
ward off the possibility of speculative attacks. The currency
board arrangements in Estonia and Lithuania also support the
stability of their exchange rates against the euro.

4.1.3
Countries could run into difficulties in trying to meet
the low inflation target as their economies rapidly expand.
Prior to accession, inflation in the new Member States exceeded
that in the EU-15. The adjustment of rapidly growing econo-
mies to particularly low inflation could hinder growth, as
higher inflation goes hand-in-hand with the phase of faster
growth in these countries. Moreover, periods of faster produc-
tivity growth tend to be accompanied by higher inflation. On
the other hand, excessive inflation inhibits economic growth.

4.1.3.1
Although inflation levels may currently be accep-
table, this may not be the case once certain of the transition
periods provided for in the Treaty come to an end, as inflation
may accelerate following the removal of temporary authorisa-
tions to retain zero-level VAT,
reduced excise duties, or
national measures.

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4.1.4
The small economies are linked more closely than the
large ones to the global economy. It is more difficult for them
than it is for large economies to provide a temporary stimulus
to the economy by increasing government borrowing or
widening the budget deficit, for example in the run-up to an
election. In a small country, the public finances are usually
more transparent and easier to manage. Therefore it is logical
to expect the smallest of the new Member States to be the first
to join the euro zone. In Estonia, there is a statutory require-
ment to keep the government budget in balance.

4.2.2
The Stability and Growth Pact has been under criti-
cism for a long time. The Committee has drawn up a number
of opinions on the Pact. (2) Despite its shortcomings, it would
seem that it has contributed to the maintenance of budgetary
discipline. More effective monitoring and the transparency of
the excessive budget procedure have also helped in this regard.
The new Member States must have a clear vision of the future
form of the Stability and Growth Pact in order to formulate
their medium-term economic policy.

4.1.5
Problems could also arise if countries attempt to meet
the Maastricht criteria very quickly. Before they enter the euro
zone, their currency will have to remain stable vis-à-vis the
euro within a fluctuation band of 2.25 % without readjustment
of parity for 2 years. Apart from the problems mentioned
under point 4.1.2, states that are too eager risk entering this
system with an over- or undervalued currency. The dynamism
of their economy and potential for growth could be under-
mined through an overvaluation of
their currency, which
would reduce their competitiveness in world markets, or
through an undervaluation of
their currency, which would
generate inflationary pressures. In both cases, the result would
be pressure on wages, aggravating the problem of relocations
and squeezing domestic demand, which in many cases is the
driver for growth. Care should therefore be taken in fixing pari-
ties for entry into ERM-2. However, Member States in the euro
zone will, in any event, have to focus attention on their compe-
titiveness, even if the exchange rate is at the right level at the
moment of entry.

temporarily,

4.1.6 With enlargement, the Member States outside the euro
zone are,
in a slight majority, although when
weighted by GDP the euro zone embraces by far the major
part of the EU. As new countries join the euro zone in the
years to come,
for a
strengthening in the international position of the euro.

improve the prerequisites

this will

4.2 Stability and Growth Pact

4.2.3
Inaccuracies and omissions in Member States' budget
figures and forecasts have compounded surveillance problems.
The Commission and various committees have been involved
in developing common criteria for application in multi-lateral
surveillance and policy coordination. However, methods and
procedures cannot be fine-tuned if the statistical data are not
totally reliable. In some of the new Member States, as indeed in
some of the EU-15, there is still much room for improvement
as regards compiling statistics, despite the progress made in
recent years.

4.2.4
It is widely held that the interpretation of the Stability
and Growth Pact, which is based on the Maastricht Treaty,
should be amended. Many of the rules and procedures currently
applied in the 25 Member States need to be relaxed and made
more flexible. The handling of the Commission's and Members
States' programmes and opinions has become increasingly
formal while informal coordination between Member States has
become more and more important. The credibility of the single
currency must not be compromised, however.

4.2.5 Managing economic policy and maintaining the stabi-
lity of public finances will not be easy in the new Member
States. Commitment weakens especially if countries do not
have adequate political stability. Although the new Member
States have carried out fundamental reforms necessary to create
a market economy, some of them are facing difficult choices,
as the need for structural reforms usually involves increased
public expenditure. The allocation of public expenditure is
likely to be an even thornier issue for them than it is for the
EU-15.

4.2.1
As regards the sustainability of public finances, the
situation is reasonably good in most of the new Member States.
Only in a few of them does the general government debt
exceed 60 % of GDP. Admittedly, there is a danger that the
debt ratio will rise in some of them because of budget deficits.
But equally, it should be remembered that the levels of foreign
debt in the new Member States are by no means alarming
compared with those in the EU-15. Moreover, all the Member
States have, on several occasions, declared their commitment to
the Lisbon objectives and sound budget policy.

Some degree of reform is essential for the long-term
4.2.6
effectiveness of the Stability Pact. Reform must seek to rein-
force the commitment of all Member States to common goals,
without compromising the credibility of their commitment to
the stability of public finances, budgetary discipline, sustain-
ability and economic policy coordination.

(2) See the last opinion on the subject: Budgetary policy and type of invest-
ment, EESC opinion – OJ C 110/19 of 30.4.2004, pp. 111-115.

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4.3 Differences in economic well-being and employment (3)

4.3.1 With enlargement, EU GDP increased by a mere 5 %
at market prices and by only 10 % when adjusted for
purchasing power parity, even though the EU's total population
grew by nearly 20 %. One thing which the new Member States
share in common is the fact they are poorer than the EU-15
countries on average. Per capita GDP (adjusted for purchasing
power) in the new Member States is only half that in the EU-
there are significant differences
15. But as in the EU-15,
between the new Member States: Cyprus, Slovenia and Malta
are the wealthiest countries whilst Poland and the Baltic States
(Estonia, Latvia and Lithuania) are the poorest. In terms of GDP
per capita (adjusted for purchasing power), Slovenia and
Cyprus are even at the level of Greece, and Malta and the
Czech Republic are at the level of Portugal.

4.3.2
According to Eurostat, 13 % of the population of the
new Member States live below the relative poverty line. This
compares with 15 % in the EU-15. The poverty line is defined
the ratio of personal or household disposable
in terms of
income to the national average income. The poverty threshold
is 60 % of national median income. The fact that these percen-
tages are so close must not delude us as to the scale of the
social problem since, as stated above, per capita GDP adjusted
for purchasing power in the new Member States is only half
that in the EU-15.

4.3.3
Income distribution within the new Member States
hardly differs at all from the pattern within the EU-15. The
Czech Republic, Hungary and Slovenia boast
the smallest
income differences, which are on a par with those in the
Nordic countries. Poverty rates are highest in Estonia, Lithuania
and Latvia, where the pattern of income distribution corre-
sponds mainly to the larger income differences typical of
Ireland and the United Kingdom. The highest poverty rates in
the EU-15 are found in Ireland and the southern Mediterranean
countries. A shortcoming of cross-country comparisons is that
they do not take into account regional differences within coun-
tries, which can be substantial.

4.3.4
The new Member States have an average employment
rate of only 56 % compared to about 64 % in the EU-15. It
would appear that most of the new Member States prioritise
productivity growth, which boosts their competitiveness and
hence that of the EU as a whole. The crucial question here is
whether they will be able to raise productivity and employment
rates at the same time. The Lisbon Strategy offers an answer
that remains pertinent even if there is room for improvement.

(3) The Committee would nevertheless draw attention to the fact that
to deal with the issue of standard of living correctly, it would be
preferable to refer to the concept of ‘available household income’.
Unfortunately, there are gaps in the statistics. The Committee would
use this opportunity to call again for a strengthening of the EU's
statistical machinery and greater cooperation between the compe-
tent national institutions and EUROSTAT.

4.3.5
In the update of the Broad Economic Policy Guidelines
(7.4.2004) the Commission notes that special attention needs
to be paid to the low employment rates of young and older
workers in the new Member States. In addition, further steps
need to be taken to improve social protection and the skills of
the labour force. The Committee feels that these are important
issues. They are also important objectives in the EU-15 coun-
tries.

4.3.6
There are considerable differences between the new
Member States in terms of employment rates for women and
older workers. The employment rate for women is higher than
the EU-15 average in the Czech Republic, Estonia, Cyprus,
Latvia, Lithuania and Slovenia but substantially lower in Poland
and, especially, Malta. The employment rate for older workers
is higher than the EU-15 average in the Czech Republic,
Estonia, Cyprus, Latvia and Lithuania but noticeably lower in
the other new Member States. In 2003 the unemployment rate
for women was slightly higher than that for men in all the new
Member States except Estonia and Hungary. The difference is
particularly large in Malta and the Czech Republic.

Unemployment fell

4.3.7
in several of the new Member
States in the period 200-2003. The fall was particularly marked
in the Baltic States, where the unemployment rate dropped by
about three percentage points. In Slovenia and Hungary the
improvement in employment started as long as ago as the mid-
1990s. Figures on employment and unemployment can be
found in the statistical appendix.

The age structure of the population and the condition
4.3.8
of social protection systems have a major impact on national
income distribution. There is a strong correlation between old
age and low income in the new Member States. The over-65s
are overrepresented in the lowest income group in Cyprus, the
Czech Republic, Slovakia, Slovenia and Lithuania. The risk of
poverty is greatest among large and single-parent families, as
well as among 16-24 year-olds.

Overall levels of educational attainment are higher in
4.3.9
the new Member States than in the EU-15. About 89 % of all
25-64 year olds have completed upper secondary education, as
against 65 % in the EU-15, the highest percentages being in the
Czech Republic, Estonia and Slovakia. As regards the EU-15,
only in Germany, the United Kingdom and Sweden are the
corresponding percentages higher than 80 %. It is this high
level of education which, together with favourable labour costs,
makes the new Member States attractive to investors.

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4.3.10
Economic growth in the new Member States is
higher, on average, than in the EU-15. However, it does not
automatically follow that
the income gap between will be
the
closed quickly as a result of European integration. At
present rate it will take decades. According to one very crude
calculation, Cyprus and Malta could be the first to achieve the
average standard of living of the EU-15; it would take them a
good 20 years. There are many factors that may help to close
income gaps more quickly; the EU's Structural Funds are a case
in point. Economic data on all the EU Member States are
presented in the tables appended to this opinion.

4.4 Competitiveness and productivity

Total labour costs in the new Member States are, on
4.4.1
average, noticeably lower than those in the EU-15. Moreover,
labour markets in the new Member States are considered to be
very flexible. Reflecting this, many manufacturing operations,
and to some extent also service operations, have re-located to
new Member States. However,
is often overlooked that
productivity levels in these countries are, on average, notably
lower than those in the EU-15.
In 2003 productivity per
employed person (adjusted for purchasing power) in the new
Member States was only 54 % of that in the EU-15 countries.

it

4.4.2 While many of the new Member States inherited large
public sectors dating from the pre-1990 period and their legis-
lation has often been cumbersome,
they have made good
progress in reforming the public sector and at present their
public expenditure in relation to GDP is, on average, compar-
able with the EU-15 countries.

Improving productivity

and competitiveness will
4.4.3
require investment in education, training, research and organi-
sation of work. In addition, there is a need to promote entre-
preneurship and remove administrative burdens on, in particu-
lar, the setting up of small businesses and their operations.
Competitiveness and productivity also improve when inefficient
and unprofitable companies
since the
resources freed up in this way are channelled to more produc-
tive uses. Restructuring of this type will, however, require re-
training for those affected by the measures. (4)

the market

leave

and research capacity. Spending on R&D as a share of GDP
averages 2 % in the EU-15 as against only about 1 % in the
new Member States.

4.4.5
Achieving the current level of productivity in the EU-
15 will not be enough for the new Member States in the longer
term. In all the Member States there is a particular need to
invest in knowledge. The slowdown in EU productivity growth
can be explained by low levels of investment and technology
take-up. Much more needs to be invested in ICT, R&D and
education and training throughout
the new
Member States, in particular, this is a great challenge but also a
great opportunity.

the EU. For

4.4.6
Improving competitiveness often also requires struc-
tural change in the various sectors of the economy. In the new
improving
Member States,
economic competitiveness through structural reforms in agri-
culture and heavy industry.

in particular,

scope exists

for

4.5 Sustainable environmental development

A key element of the BEPG strategy is strengthening
4.5.1
sustainable development. In addition to economic and social
it is important for the new Member States to
sustainability,
ensure
Efficient
management of natural resources and maintaining a high level
of environmental quality are essential and economically viable
in the long term.

environmental

development.

sustainable

4.5.2
It is important for the new Member States to improve
efficiency in energy use. Whereas, according to Eurostat calcu-
lations, the energy intensity indicator (energy consumption in
relation to GDP adjusted for purchasing power) for the EU-15
was, on average, 173 in the period 2000-2002, it was as high
as 258 for the new Member States. There is then room for
improvement by the new Member States in the area of efficient
energy use, which is an important component of sustainable
development.

The new Member States are already enjoying the bene-
4.4.4
fits of flexible markets. It is fairly easy for capital, technology
and even labour to move from one country to another. Struc-
tural flexibility makes it equally easy for jobs to move else-
where. In the long term, nations and regions will also have to
including ICT
be able to compete in terms of infrastructure,

(4) European business

20.5.2005.

competitiveness, EESC opinion – OJ C 120 of

4.5.3
Although some progress has already been made by the
new Member States, major investment is still needed, above all
to improve efficiency in energy production and efficiency of
energy use in the transport sector. In particular, subsidies for
energy use should be scaled backed in order to reduce environ-
mental damage. The Committee endorses the Commission's
recommendation to reduce subsidies that have a negative envir-
onmental impact and are harmful for sustainable development.

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C 234/67

The year 2003 saw the implementation of the direc-
4.5.4
tive on electricity from renewable energy sources.
In its
communication on the BEPGs, the Commission notes that the
results in terms of generation of green electricity are far from
impressive, except
in Germany, Spain and Denmark where
good results have been obtained using wind energy.

It will

4.5.5
take years before the new Member States
achieve the same level of efficiency in energy use and produc-
tion as the EU-15. However, the scale of the challenge posed
by this objective should not be allowed to diminish efforts by
these countries to ensure sustainable development. Part of the
action taken to this end must be to raise public awareness of
the importance of sustainable development.

both hold back necessary structural
in the new
Member States and curb economic growth in the EU-15 and
the new Member States.

reforms

There is a large body of evidence from companies that
5.5
are considering investing or have already invested in the new
Member States that these countries suffer more than the EU-15
from transition economy problems that cannot be eradicated
by legislation alone. Often these problems are associated with
corruption. Corruption is not unknown in the EU-15 either.

5. Conclusions

5.1
In recent years, the EU-15 countries have lacked the
kind of growth dynamism typical of many of the new Member
States. Economic growth will probably continue to be higher in
the new Member States, at least in the medium term. Growth
may also be boosted by support from the Structural Funds.
However, enlargement also has a positive impact on growth in
the EU-15 countries.

5.2
It is not self-evident that the gaps in living standards
between the EU-15 and the new Member States will be quickly
closed. Political integration does not always mean a reduction
in differences in levels of income and living standards. German
re-unification is an example of where regional economic dispa-
rities are slow to disappear. Not even vast sums of money and
institutional integration have had a real influence for the better.

Enlargement will further facilitate trade and investment
5.3
labour
and, after transition periods, also the movement of
between the new Member States and the EU-15. This will make
the economic environment in the new Member States more
transparent and also make it easier for companies contem-
plating investment
Important
differences will also remain between countries in areas where
the EU has no jurisdiction. For example, the EU's competence
in tax matters is currently confined mainly to the minimum
VAT rate and certain principles governing business taxation.

to take economic decisions.

5.4
The transition period arrangements mainly concern the
free movement of labour between countries. They can limit the
movement of labour for as long as seven years in some cases.
In many EU-15 countries the population is ageing rapidly and
these countries need new labour, despite the presence of size-
able structural unemployment. The transition periods could

However,

eliminating practices

5.6
that have become
entrenched in society over past decades is a slow process. But
here too EU membership has brought increased pressure for
If the potential existing in the new Member
improvement.
States is to be exploited effectively, there will have to be strict
compliance with the EU's common rules. This applies particu-
larly to the Internal Market rules, but it is equally important
that other rules affecting competition, such as environmental
legislation, are implemented uniformly in all EU countries.

In the new Member States there is a favourable relation-
5.7
ship between labour costs and the educational
level of the
workforce. Taxation is also one of the factors that influences
business investment in new Member States. The nature of a
company's business determines precisely which factors are
crucial for investment.

5.8
A race to the bottom in taxation does, however, also
have its dangers. Thus, public authorities may not have the
in infrastructure and the
resources to fund the investment
social system needed for the catching-up process. As a result
there is also the danger that the tax burden is shifted to the
comparatively immobile factor labour, which would have a
negative impact on the employment situation.

Direct

investment or the re-location of a company's
5.9
entire operations to new Member States is easiest for compa-
nies which already have extensive business operations in these
countries or whose competitive edge relies heavily on labour
costs which are low in relation to the educational level of the
workforce. This advantage will continue to attract productive
activity to the new Member States from elsewhere, including
the EU-15. On the other hand, in many cases the business and
manufacturing operations of companies from the EU-15 coun-
to
tries in the new Member States also provide a boost
economic activity in the former. An example of this is the
increased level of intra-industry trade between the EU-15 and
the new Member States.

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22.9.2005

5.10
The economic convergence of the new Member States
and the EU-15 has made relatively good progress and the trend
is set to continue, although uncertainties surround the future.
Under the most likely scenario, the relative advantage of the
new Member States vis-à-vis the EU-15 in terms of wages and
prices will diminish, but this will take time because of a low
starting level.

Demographic trends are one of the EU's major chal-
5.11
lenges, since withdrawals from the labour market will increase
substantially in the future from present levels. Various measures
should therefore be taken to actively encourage older workers
to stay in work. For the sake of long-term competitiveness it is
also most important to increase the birth rate and to mobilise
all potential workers in the Union. This can only be done if
efforts are made to improve equality between men and women
and reconcile work and family life. In addition, action should
be taken to reduce exclusion and poverty, which would also
improve social cohesion in all Member States.

economic resources. The same applies to NGOs. These organi-
sations will have to develop their activities so that there can be
a successful dialogue between the various parties and all of
them can, at the same time, help to create conditions conducive
to economic growth. Social consultation is an indispensable
tool for ensuring strong and cohesive European integration.

In addition, the Commission should carefully examine
5.13
international uncertainties that threaten economic growth and
EU competitiveness, such as the effects of oil price develop-
ments and the structural budget and current account deficits in
the USA.

5.14
All the Member States must continue to work for the
completion of the internal market, more effective implementa-
tion of the Lisbon reforms and improved economic govern-
ance. Without these reforms, there is a risk of a decline in
economic growth and well-being throughout the EU.

5.12
In some of the new Member States, the organisation of
the social partners is fairly weak and fragmented. There are
great differences between organisations in terms of their repre-
sentativeness. Common to most of them is a lack of adequate

5.15
Although, for the most part, the present opinion treats
the new Member States and the EU-15 as separate wholes, this
can only be done at a very general level. Each country has its
own specific problems and needs.

Brussels, 10 March 2005.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND