Germany, Austria to gain from EU growth, studies say

The enlargement of the EU to eastern and central Europe should be self-financing for Germany and Austria, two new studies for the European Commission insist.

In the longer term, enlargement will significantly enrich both countries overall, according to Dr Christian Keuschnigg of the University of Saarland, and Dr Wilhelm Kohler of the Johannes Kepler University in Linz.

"At least for those member states in proximity to the incoming new members, these gains are important enough to make enlargement appear as a more attractive policy step than is normally assumed," one study concludes.

The studies suggest a significant expansionary effect in the Austrian economy, with capital stock expanding in the long run by 1.5 per cent for the first round of accessions (Czech Republic, Estonia, Hungary, Poland and Slovenia) and a further 1.8 per cent in the second wave (Bulgaria, Latvia, Lithuania, Romania and Slovakia).

The accessions are expected to boost GDP by 1 and 1.2 per cent respectively and the net welfare gain to the economy would be about half of that (taking investment and other costs into account).

While Austria would end up paying more to the EU budget, because of such an expansionary effect the government could also afford to return some 0.2 per cent of GDP to taxpayers without increasing the national debt.

The effect is not even throughout the economy, however, with transport equipment, electrical machinery and textiles likely to grow particularly well while agriculture is likely to contract. For Germany, the studies also predict difficulties in agriculture, but an export-led expansion of the economy because of the elimination of many tariffs from the acceding countries.

The investment effect on GDP would be a permanent 0.5 per cent growth, and despite the increase in net contributions to the EU, the expanded macroeconomic activity would swell tax revenues sufficiently to allow transfers back to taxpayers of the order of 0.5 per cent of GDP.