Topical issues in the field of economy, (responsible) investment, pension and income: every week, one of APG's experts provides a clear answer to this week's question. This edition: chief economist Thijs Knaap on the question of what the economic impact is of further expansion of the EU.
“Expansion is essential to the European Union.” That’s what Ursula van der Leyen, chairperson of the European Commission, said last week during the presentation of her plans to start the accession negotiations with Ukraine and Moldova. A membership is also beckoning for Georgia and Bosnia-Herzegovina. What is the economic impact of this further expansion?
The EU is a successful model of which many countries are looking to become a member, Knaap emphasizes. “And that is quite understandable as all new member states experience great economic progress during the first years. That applied not only to Portugal, Spain and Greece, but also at a later time to the Eastern European countries.” The Netherlands also benefits from an expansion of the EU, economically speaking. “Many people still believe the Netherlands is mainly exporting flowers and cheese, but the trade these days is increasingly more revolving around the so-called value chains. That means we manufacture the car windows and export them to Germany, where they are then installed into a Volkswagen that is eventually sold in Italy.”
The advantage is that companies are able to produce very efficiently, says Knaap. “After Slovakia joined the EU, Volkswagen relocated massive factories from Germany to that country. This because it is cheaper to assemble a car in Slovakia than it is in Germany, and such move is relatively easy within the EU. That is great for the company and for its customers.” However, this also represents a disadvantage because the Ruhr Area lost those car factories and, with that, much-needed employment opportunities. “If Ukraine becomes a member in a few years’ time, there is a chance of companies moving their offices or factories to that country. The bigger the economic block, the more efficient companies are able to operate.”
The four freedoms of the EU (the free movement of capital, persons, services and goods) are the basis of the economic narrative of the EU and the eurozone countries. Economically speaking, those freedoms should help compensate for shocks, Knaap continues. “Especially if this involves so-called asymmetric shocks, for example when things are going bad in Spain but well in the Netherlands. Those shocks can be partly mitigated by, among other things, the free movement of capital and persons. When unemployment here is low but high in Spain, Spaniards can come to the Netherlands to work here. That mechanism works to a certain extent within the EU: you could think about the (Eastern) European labor immigrants who came here in the past few years. In that other union of states, the US, it is, however, even more natural to move for work.”