EU enlargement threatens economy - claim

Ireland’s economy faces a major competitive threat from Eastern Europe if European Union (EU) enlargement goes ahead, a leading economist said today.

Speaking at the National Forum on Europe, Prof Frank Barry said EU accession states such as Poland, Czech Republic and Slovenia will soon be in a position to attract major flows of foreign investment away from Ireland.

However Professor Rory O’Donnell disgreed with the prognosis saying it was based on a number of flawed assumptions and that it is the accession states which face the greater potential threat.

Prof Barry claims analysts have viewed the eastward enlargement of the EU as being in Ireland’s economic interest because it represents a substantial expansion of the market into which we freely export.

But he said: "By failing to consider how enlargement may affect Ireland’s foreign direct investment (FDI) inflows, this view ignores what is probably the most important dynamic in Ireland’s economic investment.

One of the principal reasons for Ireland’s success has been its low rate of corporation tax. Eastern European states have begun to follow Ireland’s example in setting low rates to attract foreign investment, he said.

He claimed in terms of labour skills, most Eastern countries are more competitive than Ireland. He said 64 per cent of Irish people between the ages 24 and 35 have at least a Leaving Cert qualification; the figure is over 90 per cent in countries such as Poland and the Czech Republic.

Eastern Europe will also enjoy a competitive advantage over Ireland in costs and wages, which are far cheaper than in Ireland. Lack of confidence in public administration, which may be inhibiting foreign investment in the region, will diminish once these countries are tied to Brussels through structural funding, Prof Barry said.

However, Professor O’Donnell in his address to the Forum, claimed Eastern European countries would not have equal access to the high income market of Western Europe.

Nor can it be assumed they are likely to enjoy an equally stable macro policy environment and equivalent regulatory and public administration systems.

He said: "I doubt that these systems can change as fast as the technology and management processes that transnational companies can introduce to a country."

It is the Eastern European states, not the existing members of the EU, that face a huge economic, social and political task of achieving development and prosperity, claims Prof O’Donnell.