ENLARGEMENT OF THE EUROPEAN UNION
A major issue facing the EU over the past few years has been that of enlargement. Enlargement of the EU into eastern Europe has been a possibility since the collapse of communism at the end of the 1980s, and by the end of the 1990s, 13 countries had applied to become EU members. To qualify for EU membership, the applicants had to privatize state assets, deregulate markets, restructure industries, and tame inflation. They also had to enshrine complex EU laws into their own systems, establish stable democratic governments, and respect human rights.18 In December 2002, the EU formally agreed to accept the applications of 10 countries, and they joined May 1, 2004. The new members include the Baltic countries, the Czech Republic, and the larger nations of Hungary and Poland. The only new members not in eastern Europe are the Mediterranean island nations of Malta and Cyprus. Their inclusion in the EU expanded the union to 25 states, stretching from the Atlantic to the borders of Russia; added 23 percent to the landmass of the EU; brought 75 million new citizens into the EU, building an EU with a population of 450 million people; and created a single continental economy with a GDP of close to €11 trillion. In 2007, Bulgaria and Romania joined, bringing total membership to 27 nations.
The new members were not able to adopt the euro until at least 2007 (and 2010 in the case of the latest entrants), and free movement of labor among the new and existing members was prohibited until then (none of them had adopted the euro as of early 2012). Consistent with theories of free trade, the enlargement should create added benefits for all members. However, given the small size of the eastern European economies (together they amount to only 5 percent of the GDP of current EU members), the initial impact will probably be small. The biggest notable change might be in the EU bureaucracy and decision-making processes, where budget negotiations among 27 nations are bound to prove more problematic than negotiations among 15 nations.
Left standing at the door is Turkey. Turkey, which has long lobbied to join the union, presents the EU with some difficult issues. The country has had a customs union with the EU since 1995, and about half of its international trade is already with the EU. However, full membership has been denied because of concerns over human rights issues (particularly Turkish policies toward its Kurdish minority). In addition, some on the Turk side suspect the EU is not eager to let a primarily Muslim nation of 74 million people, which has one foot in Asia, join the EU. The EU formally indicated in December 2002 that it would allow the Turkish application to proceed with no further delay in December 2004 if the country improved its human rights record to the satisfaction of the EU. In December 2004, the EU agreed to allow Turkey to start accession talks in October 2005, but those talks are not moving along rapidly, and at this point, it is unclear when the nation will join.
• QUICK STUDY
What political and economic forces led to the establishment of the European Community (the forerunner of the European Union)?
Why is the EU such an important player on the world stage?
What were the basic goals of the Single European Act?
Why did the EU introduce the euro? What were the benefits?
What are the potential drawbacks of the euro?
What were the causes of the EU’s sovereign debt crisis?
LEARNING OBJECTIVE 4
Explain the history, current scope, and future prospects of the world’s most important regional economic agreements.
ANOTHER PERSPECTIVE As NAFTA Nurtures Mexican Economy, Illegal Immigration Dwindles
The wave of immigration from Mexico that began four decades ago, most of it unauthorized, has ended, possibly for good. As a report from the Pew Hispanic Center confirms, net migration from Mexico to the U.S. sank to about zero in the past five years. Did the North American Free Trade Agreement play a role? Yes and no. Actually, the number of Mexicans living illegally in the U.S. shot up from 2.5 million in 1995, the year after NAFTA took effect, to 11 million in 2005. The main reason was the booming U.S. economy, which generated huge demand for labor just as the share of Mexico’s population aged 15 to 39, prime migration years, was peaking at about 75 percent. Migration plummeted after 2005 because of reduced U.S. demand for labor and the slowing of Mexican population growth, but also because NAFTA started to pay off in the form of dynamic new export industries in Mexico such as automobile manufacturing. The gap in wages, although wide, between U.S. and Mexico, has narrowed to the point where staying home is economically rational for a growing number of Mexican workers. NAFTA encouraged both the U.S. and Mexico to make optimal use of their scarce resources. Over time, NAFTA helped make Mexico more efficient and, hence, wealthier. It formed part of a broader restructuring that has transformed Mexico from the underdeveloped, authoritarian country it was 30 years ago to the increasingly middle-class democracy it is now.
Regional Economic Integration in the Americas
No other attempt at regional economic integration comes close to the EU in its boldness or its potential implications for the world economy, but regional economic integration is on the rise in the Americas. The most significant attempt is the North American Free Trade Agreement. In addition to NAFTA, several other trade blocs are in the offing in the Americas (see Map 9.2), the most significant of which appear to be the Andean Community and Mercosur. Also, negotiations are under way to establish a hemispherewide Free Trade Area of the Americas (FTAA), although currently they seem to be stalled.