Who will foot bill for bigger EU?

The glow of optimism at the European Union's Helsinki summit, when EU leaders decided to extend membership negotiations to all 10 candidate countries from central and eastern Europe, plus Malta and Cyprus, is fading fast. It has now become crystal clear that enlargement is going to be a very difficult process - who will pay the price of enlargement?

Enlargement will not be costfree: there will be losers, as well as winners. But the common dilemma facing all sides in this negotiation, the ins as well as the outs, is to make sure that there are not too many losers in any one country. Otherwise, enlargement will not get past the voters.

The most immediate manifestation of this predicament is the EU's Common Agricultural Policy. This policy has long been a burden, both on EU consumers, because it kept food prices high, and on EU taxpayers, because the subsidy to farmers' incomes costs the Union some €41 billion (£32.3 billion) every year or around half of the total EU budget. But it has been part of the core bargain which has kept the union together. At the start of the Common Market, it was the political price insisted on by France as the condition for opening the French market to German industrial goods. Today, that bargain has lost most of its justification. France is now an immensely rich industrial country and its farm population has shrivelled.

Most EU governments, including the French, now recognise that the CAP must be reformed, if only because of international pressure from other food-exporting countries. The trouble is that the candidate countries are keen to get their share of the CAP gravy. The six front-running countries (Czech Republic, Estonia, Hungary, Poland, Slovenia and Cyprus) recently submitted position papers to the EU demanding that their farm sectors should participate fully in the CAP from day one.

It is not clear that this opening position is wise in economic terms. One social justification for the CAP is to prevent too large a gap between rural and industrial incomes in the existing EU. But all incomes in the candidate countries are much lower than those in the EU, and if EU membership were to give a sudden upward shove to rural incomes in central Europe, it could be quite destabilising for social relations there. Moreover, it might also seriously distort economic development, by attracting excessive investment into agriculture. Nor is it clear that this opening position is prudent in negotiating terms. If all the benefits of the CAP were paid in full in all the six front runners, the cost to the EU budget could be an extra €6 billion a year, and virtually all of that would have to be paid by existing member-states. But they have made no provision for this kind of spending, and are unlikely to agree to it.

One solution mooted by the Commission as a way of finessing the problem is to have a long transition period between membership of the EU, and full participation in the CAP. But the position papers of the candidate countries explicitly rule this out.

The farm-policy puzzle will be followed by a similar predicament over EU regional and social policies. By definition these funds now go mainly to the poorer parts of the EU. Candidate countries, however, are poorer still, so the full application of these regional policies would call for large extra budgetary transfers to central and eastern Europe.

At issue here is not mainly justice and morality. Of course, justice and morality come into it, but these are not likely to be the decisive considerations. The first decisive consideration will be the operational feasibility of the negotiation process, which means striking a politically acceptable balance between winners and losers throughout the enlarged Union. It is difficult to overstate what a difficult task that may turn out to be. Remember, it only needs the voters of one member-state to say no, and the whole process fails.

The second consideration is the future architecture of the enlarged EU. Postponing access to the CAP may seem a partial solution to this problem; but it is also a partial step towards creating a two-tier Union. Given the immense disparities in economic and other development, between the EU and the candidate countries, it may be debatable whether it will be possible to create a unitary or one-tier Union with 27-plus countries. But if not, what will be the architecture of this enlarged EU? Unfortunately, this is a question which the member-states have not thought about, and apparently do not wish to think about.

Ian Davidson is a former columnist and editor with the Financial Times.