EU faces East-West poverty gap
By David Piachaud
Professor of Social Policy at London School of Economics
As the euro becomes the established currency in most of the European Union, the biggest looming issue is now enlargement.
Twelve nations - 10 from East Europe plus Cyprus and Malta - are currently in negotiations for membership and there is every sign that enlargement will go ahead.
Likely 2004 entrants
But the consequences remain barely considered and major issues remain unresolved.
Enlargement will transform the social composition of the EU.
It will add 100 million - more than a quarter - to the population, and poverty and inequality will surge.
At present all the 15 member states have living standards within 25% of the EU average.
Millions of poor
But the largest candidate state, Poland, with a population larger than 10 of the current EU members, has a GDP per head of less than half the EU average.
Bulgaria, Latvia, Lithuania and Romania have about one-quarter the GDP per head of the current members.
Not only are the candidate nations apart from Slovenia and Cyprus much poorer than the current EU, but inequality within these states is also severe.
The EU's own high-level Reflection Group on the long-term implications of enlargement reported: "The extent of officially-defined poverty is quite alarming."
GDP per head
Bulgaria: 24% of EU average
In Poland, Hungary and Romania about one-third were poor by national standards and in Bulgaria 70% were below the poverty line.
Yet if poverty is defined as living at less than half the EU average per capita consumption level, the great majority of those likely to be brought into the EU by enlargement are below the poverty level.
This represents a major challenge to the EU objective of creating a single "social space" and its strategic goal for the next decade of promoting social cohesion.
Entry into the EU might start a process of convergence but there is a very long way to go.
East Germany with massive support from West Germany has in a decade moved up from 40% to 60% of the West German GDP per head. But such levels of support will not accompany EU enlargement.
Even if new entrants grew 2% per year faster than the rest of the EU every year up to 2015 - which would be a remarkable achievement - poverty in those countries would still be two or three times as prevalent as in the current member states.
Differences in living standards in an enlarged EU have in turn major implications for the migration of workers.
To mitigate possible migration, a transition period is being negotiated during which the free movement of workers, a core principle of the EU, would not apply to new entrants (except for relatively prosperous Cyprus and poorer, but very small, Malta).
How many would seek to migrate is a matter of speculation but the European Commission's estimate that only one-third of a million would move from Eastern Europe if there were free movement seems a serious underestimate.
Another impact of enlargement will be on the EU's own policies.
Cohesion and Structural Funds designed to reduce inequality within the EU currently help poorer nations such as Greece, Portugal and Spain.
These countries will lose heavily if the funds are re-allocated to those poorest in an enlarged EU.
The biggest policy impact will be on the Common Agricultural Programme (CAP).
In the current EU, 5% of employment is in agriculture, but in Poland and Romania the proportions were 19% and 43% in 2000.
If the CAP were extended to new entrants, the cost would be enormous.
If current spending were shared throughout an enlarged EU, farmers in France, Germany and Britain would loose heavily.
Yet if transitional arrangements limit agricultural support to existing members, the poverty in rural areas of the new entrant states will only increase.
There is a huge dilemma. No solution is on offer.