Is EU enlargement really that costly for current member states?

Brussels – One of the most frequent objections when discussing EU enlargement is the economic one. How much would it actually cost to bring Ukraine and the other candidate countries into the Union? Not much, according to research from several think tanks. More importantly, talking about costs without taking into account the factors that could benefit current EU member states presents an incomplete picture.

“Looking at previous enlargements, it took around ten years before new members received full EU funding. Even if new members were to join, a similar scenario would be likely,” says Zsolt Darvas, a Senior Fellow at Bruegel and co-author of an analysis on what enlargement could imply for the EU’s budget, speaking with The New Union Post.

At the same time, opening the Single Market to new EU members would generate spillover effects across almost all national economies, as EU companies expand production, create jobs and pay more taxes in their home countries. “This would partially compensate for the direct costs incurred through the EU budget,” Darvas adds.

Redistributing the EU budget

When assessing the economic impact of EU enlargement, it is necessary to distinguish between a scenario in which only the Western Balkans join the Union and one that also includes Ukraine, alongside Moldova and Georgia. Türkiye can be excluded from the analysis, as its EU accession talks have been effectively frozen since 2018, with no indication that negotiations will be resumed in the foreseeable future.

If we look only at the countries of the Western Balkans, they would be beneficiaries of the EU budget, “but only to a limited extent,” says Bruegel’s Senior Fellow, referring to the region as “relatively small” in terms of economic power, population and GDP. In the long run, the six countries combined would receive “relatively little” and would not divert significant resources from current member states. Another analysis by the European Policy Centre (CEP – Belgrade) confirms that, on average, the fiscal impact of the enlargement to the Western Balkans on a single EU citizen would be comparable to the price of a cup of coffee.

Ukraine presents a different case, given its size, a population roughly twice that of the Western Balkans countries combined, and its large agricultural sector. If the EU budget rules remain unchanged, the net cost to current member states of admitting all nine new members would total €170 billion over seven years, equivalent to 0.17% of EU GDP. “This is not insignificant, but nothing unmanageable,” Darvas notes, adding that it could take “up to ten years” for expenditure to reach that level.

According the Bruegel’s study, the resulting costs would have only a “modest impact” on current member states’ net positions. For several net beneficiaries – Bulgaria, Czechia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Romania and Slovenia – any reduction in EU budget transfers would be “relatively minor” compared with the cuts already experienced between the 2014-2020 Multiannual Financial Framework (MFF) and the current one. Meanwhile, most net contributors would need to increase their contributions to the EU budget by around 0.13% of GDP.

Against the backdrop of the current €1,211 billion EU multiannual budget, a second “big bang enlargement” would have expanded the overall envelope to €1,356 billion. Funding for cohesion policy would rise from €393 billion to €422 billion, although current member states would receive less – €361 billion – while the nine new members would receive €61 billion. Expenditure under the Common Agricultural Policy (CAP) would increase from €379 billion to €491 billion, remaining unchanged for existing members, with the additional €113 billion allocated to the new ones. Spending on the neighbourhood would fall by €15 billion – from €111 billion to €96 billion – as the nine new members would no longer be eligible for this funding.

(credits: What enlargement could imply for the European Union’s budget, Bruegel)

The issue of EU cohesion

The redistribution of EU cohesion funds is a major concern for current member states. One key risk is that the EU average used to calculate cohesion allocations would decline, directly affecting the core indicator underpinning the policy: regional GDP per capita relative to the EU average. This would trigger a reclassification of current EU regions, with some “less developed” regions (below 75% of the EU average) moving into the “transition” category (75-100%), while some “transition” regions would be reclassified as “more developed” (above 100%).

As all nine potential EU members have GDP per capita levels “significantly” below the EU average, such reclassification would result in reduced cohesion funding for a number of current EU regions. Competition for funds among “less developed” regions would therefore intensify, particularly if Ukraine were to join. According to Bruegel’s analysis, Italy and Spain would suffer the largest losses, each facing reductions of nearly €9 billion, followed by Portugal (€4 billion) and Hungary and Romania (around €2 billion each).

However, a major variable remains. “It is quite likely that the cohesion rules will change” in the 2028-2034 EU long-term budget, Darvas notes, referring to the European Commission’s proposal – currently under negotiation by EU co-legislators – to restrict earmarked funding to “less developed” regions, excluding “transition” and “more developed” ones. The draft regulation nonetheless requires all member states to identify the challenges faced by all types of regions in their National and Regional Partnership Plans and to allocate resources accordingly. Under this framework, member states would determine how funding is distributed across regions, a process that would “inevitably involve trade-offs,” he adds.

Economic strengths of EU enlargement

Despite these concerns, investment opportunities for EU companies represent a “major advantage” of a new wave of enlargement, Darvas argues. Experience from the recent past – in 2004, 2007, and 2013 – shows that while new member states received substantial EU funding, they also attracted significant volumes of private investment. The Western Balkans, Ukraine, Moldova and Georgia are likely to follow the same pattern, with industry, manufacturing, banking and other investment-related sectors in existing EU member states set to benefit most from the Union’s expansion.

Ukraine, in particular, would offer considerable investment opportunities for EU companies, especially in light of its reconstruction needs once the war with Russia comes to an end. “German, Polish, Italian and other companies involved in rebuilding the country would generate significant profits,” notes Bruegel’s Senior Fellow. These profits would be taxed, at least in part, in the companies’ home countries, thereby boosting national revenues. “Beyond the EU budget, the national budgets of EU member states would therefore also benefit from Ukraine’s accession,” he adds.

Ukraine also possesses a vast territory and a broad range of natural resources – including steel, aluminium and hydropower – from which the EU could benefit, notably through its “strong potential for energy cooperation.” Full integration of energy networks would enhance the stability and security of supply of the EU energy system, with Western European companies “likely to take on a significant role in the Ukrainian market.”

Agriculture, meanwhile, remains a particularly sensitive issue, as the EU is a major net exporter of agricultural products on global markets. “If Ukraine were to join, domestic competition would likely intensify, and it is easy to imagine farmers taking to the streets,” Darvas warns, recalling the temporary measures introduced by Hungary, Slovakia and Poland after the outbreak of the war to restrict the sale of Ukrainian grain and other agricultural products on their domestic markets.

However, given that EU agriculture is “generally profitable and highly competitive” in export markets, Ukraine is “unlikely to have a major negative impact in the long term.” A more probable outcome, he argues, is that any future Accession Treaty would include transitional provisions setting out “how and when” Ukrainian agricultural products could gain full access to the EU’s single agricultural market.