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Article Excerpt
Abstract This research investigates socio-economic gaps between countries of the European Union (EU). The countries, for comparison purposes, are grouped into five sets to find out if the different groupings differ in means and variances. The overall conclusion is that the 15 core combinations outperform the rest when comparisons are made on the basis of 45 socio-economic variables. However, the newly added countries in the enlargement appear to be fairly homogeneous when compared in accordance with the 45 variables. Of special interest is whether the inclusion of Turkey among the newly admitted would have changed the pattern of homogeneity among them. The answer to this question is a guarded yes.
Keywords European union * EU enlargement * Socio-economic indicators * Convergence
JEL F40
Introduction
Markusen (2002) perceives contradictory trends in regionalism, the first exemplified by the regional integration in Europe (the European Union (EU)). This phenomenon is motivated by the United States' economic success due to its size and internal diversity. The United States and the EU are frequently compared because they are roughly equal in GDP and population. In 2003, the GDP in both was approximately $11 trillion. The second trend, a counter-tendency being experienced worldwide, is devolution toward a lower level of government, enhancing sub-national region-building. Markusen believes this tendency toward devolution is driven by the relative economic success of federalist countries such as the United States, Canada, and Australia, and in part by pessimism about central governments' ability to address a globally integrated world.
As it stands, the core of the European Union as of 1995 included 15 countries: Austria, Belgium, Denmark, Finland, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Portugal, Sweden, and the United Kingdom. Some 13 countries either became members or desired to be; these countries are: Bulgaria, Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovenia, Slovakia, and Turkey.
In 1997, the EU agreed to allow Estonia, Poland, the Czech Republic, Hungary, Slovenia, and Cyprus to join. In 2002, Latvia, Lithuania, Malta, and Slovakia were offered the privilege of joining. By admitting these ten countries, the enlargement of the EU culminated into the EU-25 on May 1, 2004. Bulgaria and Romania are expected to join in 2007, enlarging the EU further to become the EU-27. Membership talks with Turkey and Croatia were launched in 2005. According to Champion and Karnitschnig (2005), opening the way for Turkey to join is the most strategically important decision of the EU's 50-year history. Of interest, therefore, is to have a look at these blocks of countries composed of the core EU (15 countries), the class of 1997 (six countries), and the class of 2002 and 2007 without Turkey (six countries) and with Turkey (seven countries).
In spite of the attempts toward integration in the European Union, a wide disparity still remains among them in employment, economic growth, research and development, and the like. Pekkala and Kangasharju (2002) point to large regional unemployment differences between the EU countries as well as within the countries themselves. Petrakos and Saratsis (2000) note that a number of countries at the national and regional levels have failed to keep up with economic development, claiming that the European integration will lead to regional inequalities. Mitchener et al. (2003) have noted that the expanded EU will not be an even one. Most economists predict that it will take some 50 years for the newcomers to catch up to core EU members in productivity and living standards.
Dascal et al. (2002) find that the EU integration, on the other hand, had enhanced trade among the members. Aside from trade, there is the critical unified monetary issue, the adoption of the Euro. Hochreiter and Sitz (2004), henceforth (HS), on organizing a symposium on the adoption of the Euro, explain that the final objective of the EU is that the 10 countries constituting the classes of 1999 and 2002, which were admitted on May 1, 2004, adopt the Euro. The requirements to join comprise inflation, the interest rate, exchange rate, public deficit, and public debt. The other four participants of the symposium were experts of the non-member states who shared their views on the strategies of their countries. Kozamernik (2004) provides strategy of the Bank of Slovenia, Polanski (2004) tackles issues concerning Poland, Lattemae and Randveer (2004) tackles issues of Estonia, and finally Smidkova (2004) explains why the Czech approach is cautious. Summarizing these four contributions gives insight into the differing monetary approaches followed by the different countries. HS conclude with the observation that the arguments provided point to a swift and cautious approach to the Euro adoption.
Aside from the monetary and political diversity issues of the new entrants to the EU, it is of interest to investigate the extent to which these countries converge in terms of living standards. Convergence is crucial for future economic development to achieve the aims of the EU. Success is possible if the member countries constitute, as much as possible, a homogeneous block. Taylor (2000) has noted that inequalities among the EU can be investigated from a variety of perspectives, such as prominent social and economic factors. In the end, according to Silvestriadou and Balasubramanyam (2000), the less well-off countries catch up (converge) with the better-off ones, even though they differ in their consumer preferences, technologies, and rates of population growth.
Drennan and Lobo (1999), surveying the topic of convergence, report that there...
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