Bridging the development gap between two parts of Europe

European Economic Congress

Opportunities of Change

Witold M.Orłowski

Clichés

(1): „East was always poor and underdeveloped...”

(2): „Nothing works in the East...”

(3): „Enlargement is an unprecedented sacrifice of the West...”

(4): „Costs will be huge, gains marginal (effects have already appeared)...”

(5): ..........

Information Deficit

In Poland there exists...

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Frenchmen Germans Spaniards

Democracy

and rule of law

I a

gree

Low bureaucracy

and corruption

Functioningmarket

economy

FastEconomic

growth

I di

sagr

ee

Źródło: OECD

UE-15

370 mn

Population of Europe

CEEC-10

110 mn

SLAV-3

210 mn

Źródło: OECD

UE-15 Polska

Rosja

GDP adjusted for purchasing power

Lower development levelGDP per capita, 2000 (Germany=100)

0 20 40 60 80 100 120

Germany

Italy

Spain

Portugal

Czech Republic

Hungary

Poland

Romania

GDP per capita, 1929 (Germany=100)

0 20 40 60 80 100 120

Germany

Italy

Spain

Portugal

Czech Republic

Hungary

Poland

Romania Poland in frontiers from 2000

Not always the case...

What CE Europe Wants: convergence, not eternal assistance

GDP p.c. in CEEC and EU

0

20

40

60

80

100

120

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

EU-15

EU poorest (Greece)

CEEC-10

CEEC Membership: the fears

0%

25%

50%

75%

Budgetarycosts

Migra-tions

Institutionalproblems

Agriculture Crime

Frenchmen Germans Spaniards

%

Some Clichés about Enlargement

Small benefits for the EU, huge costs

Uncontrollable budgetary costs

Adjustment burden on the EU-15 frontier countries

Big losses for the current EU poor regions

Migrations, labour market mismatch

Unprecedented problems of agriculture

Huge costs for CAP

Passive Approach

There are some rationale for fears, but:Scale exaggerated

No verification

Misunderstandings (e.g. Globalization-Enlargement)

Passive Approach to Enlargement (how to „divide” instead of how to „multiply”)

Example: Costs and Benefits

Costs under control

Misunderstanding about the scale

Benefits: not just static welfare gains due to the trade effects. Investment!

Time pattern: investment (costs first, benefits later)

Example: Costs and Benefits

Costs and benefits in 2014, billion

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

EU-15:privatesector

BenefitsCostsNet gains

EU-15:publicsector

EU budget

New members (budgetaryeffects only)

C

Example: migrations

Fears exaggerated, as:Based on experience from the past

Underestimate the progress

Underestimate EU experience

Migration smaller than expected

Good for the EU-15 labour markets

Some regional problems possible

Example: migrations Wage as % of the wage in Germany

0.0

5.0

10.0

15.0

20.0

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Poland

Czech R.

Romania

Bulgaria

Real convergence

Long-term process

50 years divergence – 50 years convergence?

Common interest: economic, social, political

Rio Grande problem: Oder? Bug?

Real convergence possible, but:

Concluding transition

Right policies

Investment in human capital

Knowledge-based economy

Exploring comparative advantages

Supporting entrepreneurship

Market-friendly environment

Flexibility

Investment in human capital

Market-friendly environment