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EU: Enlargement Threatens Most Candidates With Extra Costs

Last week, the European Commission submitted to the European Union member states a working document that for the first time sums up the full financial consequences of enlargement for potential new member states between 2004 and 2006. The calculations are based on the financing offer made by the commission in January. Although the offer has yet to be endorsed by the EU member states -- some of which object to extending EU farm subsidies to new members -- it has already been made clear by the commission that these terms are the best the candidates can get. RFE/RL looks at some of the assumptions and implications of the new document.

Brussels, 10 September 2002 (RFE/RL) -- The European Commission's so-called "working document" on the calculation of net budgetary balances for new members explains, for the first time, what the commission means when it says that enlargement should not leave the new members worse off in 2004, after accession, than they were in 2003.

This explanation will not please any of the candidates, all of which have said they are looking for significant improvements in their finances from the first year of enlargement onward.

In fact, the European Commission reckons the European Union will have a difficult time helping the new members make ends meet in 2004, with the situation improving a little over the next two years. What happens after 2006 is an open question at this point, as the EU budget for 2007 to 2013 has yet to be negotiated. By that time, the new members hope to be full partners at the negotiating table.

Until then, however, most of them will have a hard time avoiding paying more into the EU budget than they receive from it. Thus, the European Commission calculates that in 2004, only the three Baltic countries will see sizable improvements over 2003.

Lithuania stands to gain 138 million euros ($135.2 million); Latvia, 64 million euros; and Estonia, 42 million euros. Poland, by far the largest, and far from the richest, of the applicants, will net merely 24 million euros.

All the others -- Cyprus, Malta, Slovenia, Hungary, the Czech Republic, and even Slovakia -- could lose out, according to the projections.

Naturally, no one expects these countries to give in without a fight. Conveniently, the commission's January financing offer for enlargement includes an 800 million-euro "overhang" -- more or less equivalent to the aggregate negative balance foreseen for Cyprus, Malta, Hungary, and the others.

According to the commission's working paper, seen by RFE/RL, the root cause of the problem is not the lack of funds, but their slow movement. For example, the commission offers the new members 25 percent of the EU's farming subsidy levels in 2004. Due to what is called "budget lag," however, none of this money can be paid out in 2004. Similarly, only 35 percent of the EU's envisaged rural-development aid for 2004 can be paid out in the course of that year.

In the case of the so-called "structural funds," 16 percent of the 2004 allocations can be released that year in the form of advance payments, whereas none of the money for "cohesion funds" will be available for that year.

Lithuania, with its special nuclear-safety program for the dismantling of the Ignalina power plant, is in a slightly better position, with 36 percent of the 2004 "safety-program" funds being available already that year.

The commission document assumes the flow of funds will speed up in 2005 and 2006, but even then, a major part of the new members' income will come from late payments for allocations made for 2004.

The new member states' budgets will be boosted for a few years after accession by late receipts of preaccession aid, but the budget lag means again that sometimes allocations for 2001 and 2002 will only materialize in 2006.

Conversely, the new members are expected to assume full responsibility for their own financial membership obligations. From 2004 onward, they will be making full contributions to the EU budget, which demand the same percentage of their gross national products (GNP) as the contributions made by current EU members.

The new members will also hand over most of their value-added-tax receipts, although they will benefit from an existing capping mechanism that allows poorer members to pay less.

Finally, the candidates are expected to participate fully in financing the roughly 3 billion-euro annual "rebate" that Britain negotiated in 1984. The new member states are among those expected to pay nearly 500 million euros a year toward the costs of the rebate, which are shared among the member states, old and new, according to the size of their GNP. Poland, for example, would contribute 232 million euros; the Czech Republic, 80 million; Slovakia, 27 million; Lithuania, 16 million; Latvia, 10 million; and Estonia, 7 million euros.

Intriguingly, some of the current net contributors to the EU budget -- Germany, the Netherlands, Austria, and Sweden -- have negotiated a reduction in their share of the British rebate payments. According to commission calculations, the new members will in addition need to share the extra burden generated by these reductions.