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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