Irish vote in favour of enlargement

Irish vote in favour of enlargement

A significant majority of the votes cast by the Irish in the referendum on Saturday favoured acceptance of the Treaty of Nice. This means that Ireland can now ratify the treaty – the last member of the European Union to do so. The arrangements set out in the treaty are intended to ensure the Union’s ability to function with 25 (or more) members. However, fairly broad consensus reigns that decisive elements – especially the new, complicated, opaque decision-making rules and the still limited use of the majority-voting principle – scarcely form a sustainable basis for the enlarged Union. Therefore, as part of treaty reform, the European Convention must draft a better set of rules for the future of the EU.

Regardless of the positive outcome of the Irish referendum the time left to finish enlargement negotiations at the EU summit in Copenhagen as planned is very tight. The resignation of the Dutch government and that country’s lack of unity on eastern enlargement weigh additionally on how to settle the controversial negotiation issues surrounding the financing of enlargement (including the Common Agricultural Policy). In contrast to the – unpredictable – risk harboured by the Irish referendum, it is in the hands of the governments of the EU member states to press ahead with decisions that are in keeping with the historic context of the enlargement project. All in all, we expect the EU can adhere to the road map which will allow accession to take place in mid-2004. The EU has managed often enough to meet its self-imposed official targets for prominent projects (such as the single market launch, 1992; EMU, 1999) – not least because its members have been all too aware of the potential political repercussions if they had been missed.

In early October, the European Commission released its annual progress reports for the candidate countries and recommended that the negotiations be closed with ten countries (eight from the CEE region plus Malta and Cyprus) in December. We think that this political decision is underpinned by economic rationale. The Central and Eastern European economies have weathered the difficult economic situation in practically all other parts of the world comparatively well so far. The growth outlook in the region has proved relatively robust, as expansion in most of the countries is driven mainly by domestic demand. We expect the group consisting of Poland, Hungary, the Czech Republic and Slovakia still to notch up growth of almost 2% this year. Without Poland, which is still in the throes of a home-made economic crisis, the growth rate would top 3%. The Baltic states are expected to turn in growth of 4.5% in 2002, with Estonia, Latvia and Lithuania being buoyed by dynamic domestic demand. Expansion rates in the CEE region next year could be ratcheted up by a half to a full percentage point, providing that economic activity gradually starts to bounce back in Western Europe.

The Deutsche Bank Research convergence indicator, which monitors the degree of economic maturity achieved by the candidates with reference to 16 individual variables, shows that the differences between the countries of the Luxembourg group and the Helsinki group which were relatively pronounced at first, have been levelled out to a large extent. Our convergence indicator once again puts Slovenia, the Czech Republic and Hungary out front. A comparison with the convergence level reached by Spain and Portugal at the time of their accession indicates that the aforementioned leaders will attain a level in 2003 approaching that of the two Southern European countries, and may in fact surpass it.

Estonia, Latvia and Slovakia follow with convergence values at around 70% of the EU average, with Lithuania not far behind. The persistent weakness of Poland’s economy and the attendant rise in unemployment has depressed the convergence indicator. Bulgaria and Roma nia have achieved remarkable growth rates with what has, all in all, been a successful reform policy. However, these countries still have a comparatively greater need for catch-up. Thus, it is justified that these countries will not join the EU before 2007.

For more DB Research analyses see the

Deutsche Bank Research website.