MoreBulgaria and Romania are candidates and are projected to gain membership in 2007, while Turkey is expected to become a candidate at the end of the year, though held back by human rights, democracy and Islamic culture issues. Croatia and Macedonia have applied for future membership.
EU membership not only means reduced trade barriers but also confers upon "the 10"automatic membership in Exchange Rate Mechanism-II which enables countries to continue using their own currency until they can step up to the euro. (Euro criteria include a minimum two year period of no devaluation, a defined band within which the currency trades, government debt below 60% of GDP, and current account deficit and fiscal deficit not more than 3% of GDP).
The near-term likelihood of many of the ten currencies to emerge from ERM-II into the higher level euro-zone is diminished by a range of fundamental economic problems, largely excessive inflation and current account deficits, coupled with high unemployment which creates pressures for dysfunctional expansionary policies such as excessive fiscal deficits. For example, in Central Europe the Czech Republic is weakened by a balance of payments deficit of nearly 8% of GDP, adjoining Slovakia is jeopardized by unemployment of nearly 17%, and Hungary is pressured by 7% inflation. In Eastern Europe, the Polish zloty is hampered by egregious 19% unemployment despite good growth.
The timing of the ten's accession was propitious as the Eurozone is currently in a reasonably strong condition. In contrast to the beleaguered U.S., its current account is in surplus to the extent of 0.5% of GDP this year and next. Reflecting the latter numbers, the Euro is expected to strengthen to nearly $1.30 over the 12 months ahead.
The accession of the ten derives from a legal evolution that has provided a working framework for a growing union engaged in increasingly complex transactions. Now, with much greater complexity from the accession of 10 less developed countries (e.g, Latvia's per capita income is only 35% of the EU average while the richest, Luxemburg, is 189%) the EU is struggling to agree on a European Constitution, which requires unanimous vote.
As the ten new nations begin the road to complete integration into the European Union, three laggards are testimony to the difficulty of surrendering even partial sovereignty to a supranational body. Most notable is the United Kingdom, which has steadfastly remained outside of the Eurozone. Their reasons include that the free British economy, unrestrained by Continental socialism and related unviable pension systems, is performing much better than the rest of the EU, and their economy is much more linked outside the EU, especially to the U.S. Concurrently, Sweden and Denmark have also chosen not to adopt the Euro despite the support of their political establishments and trade unions for such a move . In the case of the Scandinavians, the reason is largely cultural as those small states resent giving the large members nations, Germany and France the opportunity to boss them around.
Looking ahead, investment in the "ten" has certainly grown more attractive for a variety of reasons. First, subject to phase-ins, the whole EU market with nearly a half billion consumers will now be fully available for export production. Second, due to infrastructure improvements aided by the Regional Fund (which has aided Iberia, southern Italy and northern England) and faster income growth, especially in the poorest countries such as Latvia, the domestic market well grow faster as well. Lower wage rates will be an incentive as well for investment from elsewhere in the Union, as was the case earlier with Portugal. Overall, trade and investment will be substantially boosted by the "ten's" new membership in the EU, and a more prosperous and democratic Europe, from the Irish Sea to the Russian frontier, obviously benefits the global community as well.
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