Tuesday, December 3, 2024. 14:30-15:50 Vienna time (CET)

Presenters
István P. Székely, Honorary Professor, Corvinus University of Budapest
Sebastian Weber, Deputy Division Chief, European Department, International Monetary Fund

Moderator
Herve Joly, Director, Joint Vienna Institute

The European Union (EU) enlargement process has regained momentum in recent years, with accession negotiations ongoing between the EU and several countries in Southeastern Europe. Average income levels in these countries are about one third of the EU average, and it is expected that EU integration could reduce this gap. From this perspective, what can be learned from the so-called Eastern enlargement of the EU in the 2000s, during which several countries from Central and Eastern Europe joined the EU. Which dimensions (e.g., economic, social, institutional) should be considered when analyzing the convergence process and assessing its success and sustainability? Which strategies and policies have maximized the gains? 

In his presentation, Sebastian Weber showed that the Eastern enlargement was associated with substantial income gains and convergence in CEE countries. The return from accession was felt in all regions at the sub-national level, although to a different extent. Two major factors behind this outcome were faster capital accumulation (e.g., thanks to higher FDI and EU support) and higher productivity gains, reflecting technology transfer and gains from reforms. The reform momentum tended to be higher before than after EU accession, with income convergence following a similar pattern. Higher financial depth and closer prior integration were typically associated with higher income gains from accession. Weber also showed that EU integration is far from complete, with significant intra-EU trade barriers remaining, particularly for services. Based on the Eastern enlargement experience, substantial income convergence could accompany the next enlargement, but Weber noted that it would require addressing a higher reform gap.

István Székely’s presentation elaborated on the mechanisms at play in the integration process, and how they could explain the outcomes of the Eastern enlargement. He noted that EU integration could lead, and had led, to income convergence, but also that EU membership did not preclude divergence, as developments in Southern member states illustrated it well. He also showed that income convergence does not automatically lead to better social outcomes or social convergence, noting for instance the broad diversity of income inequality situations in the EU. Székely proposed a conceptual framework to analyze the impact of EU integration and noted that trade, investment, and knowledge transmission channels had worked well, unlike the institutions’ channel, which was weak and worked mostly on the way to accession, not after. The quality of institutions still varies considerably across EU member states. Székely ended his presentation with recommendations to current EU accession countries.

The ensuing discussion with the audience focused on instruments available to the EU to facilitate institutional convergence and the impact of external shocks on economic convergence.

Hervé Joly, Director, Joint Vienna Institute