Wilson Center Experts

December 2004 - European Union (EU) enlargement raises important questions about both the impact of EU membership on the postcommunist countries of Central and Eastern Europe and the impact of these new member states on the EU. Although it has been a relatively short time since the May 1, 2004 enlargement, several trends can already be identified. The first trend reveals that the EU and its institutions have lost much of the influence they had in the new member states during the accession process. New member states now have somewhat more freedom in directing their economic, social and political development. A second trend indicates that some new member states (namely those that are poorer, more peripheral and "newer" nation states) have displayed a stronger preference for the Anglo-American model of social policy and opposed the traditional European social model, based on social cohesion and solidarity. The third trend is connected to the so-called "fiscal dumping" practiced by several of the new member states, where substantially lower levels of corporate and payroll taxes (compared to the average tax and payroll burden in the EU-15) were introduced. Several of the EU-15 states immediately expressed their disapproval. This unanticipated competition between the old and new member states goes hand in hand with "social dumping," which stems from the wage differentials between the old and new member states. As a result, governments in the EU-15 are afraid that prosperous companies in the West will move to Eastern Europe. These trends indicate an overall divergence between old and new EU member states. But, is it a serious gap or just a temporary digression? What are the underlying reasons for the divergent processes in the two parts of Europe and what are the possible consequences for the EU? more