Europe has changed its face fundamentally in the past 1 ½ decades. The breakdown of the Communism in 1989, the fall of the Berlin wall and German unification in 1990 have opened the East for the West. Very soon the EU was eager to integrate the Central and Eastern European countries (CEECs) via Europe Agreements which liberalized bilateral trade. At the same time integration in the existing EU proceeded: 1993 with the creation of the Single Market, 1995 with the enlargement by Austria, Finland and Sweden and 1999 with the starting of the Economic and Monetary Union (EMU). With the accession of 10 new Member States in 2004 the enlargement process of the EU is, however, far from being completed.
Austria has profited economically from all these integration steps:
(1) Via the opening-up of Eastern Europe since 1989 real GDP could be increased by around 3 ½ percentage points (which translates in an additional annual average economic growth of ½%). Some 77.000 new jobs could be created through this integration step.
(2) Due to the EU accession in 1995 the level of real GDP could be increased by around 4 1/2 percentage points. This corresponds to an additional annual average economic growth of ½%. Approximately 1/5 of this increase is due to Austria’s participation in the EMU since 1999. 10 years EU membership has led to the creation of around 75.000 new jobs.
Because of the parallelism of opening-up of Eastern Europe and EU accession, the integration effects partly superimposed each other (in particular, this is true for the trade effects). Therefore, it is not feasible simply to add-up both effects of the integration regimes (1) and (2). As a rule of thumb one could say, however, that the opening-up of Eastern Europe and Austria’s EU membership contributed to an average annual economic growth of ½% to 1% and that around 100.000 to 150.000 new jobs could have been created taken both integration events together.
(3) From the EU enlargement of 2004, again, Austria can expect to gain more than all other old EU Member States. Estimates say that the annual growth of real GDP will be higher by 0.2 percentage points in the next 10 years.
Balancing the effects of the opening-up of Eastern Europe with those of EU enlargement one can conclude that Austria has profited (in terms of economic growth and new jobs) more from the former than it can expect to gain from EU enlargement over the same time horizon. However, the picture could change in the long-term. The new EU Member States belong to one of two growth kernels in Europe (the other is Northern Europe). In contrast the western Austrian neighbors will exhibit only a low growth dynamic, even in the medium-term. Estimations by WIIW show that Europe, inclusive the eastern and south-eastern neighbors (inclusive the Balkans, Turkey and Ukraine) offer a similar growth potential as the United States.
Concerning the FDI activities of Austrian firms, one comes to the contrary conclusion as far as the relationship between opening-up of Eastern Europe and EU enlargement is concerned: EU enlargement will further strengthen the possibilities for Austrian firms to engage in the new emerging markets in Eastern Europe. Given the continuation of EU’s enlargement policy for direct investors in Bulgaria, Romania, in the Balkan region and in Turkey big new opportunities will occur.
Long text by Fritz Breuss ->