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European Union

EU eastern enlargement, 10 years later

It was the biggest expansion in EU history when ten countries joined the bloc ten years ago amid great expectations and joy. Entrepreneurs in the old EU states were the only ones who remained wary.

On May 1, 2004, the capital cities of the EU's ten new member states were decorated with a sea of fluttering European flags, and they held fireworks displays and light shows in myriad colors in celebration.

Brussels welcomed the newcomers with open arms.

But business and industry in the established EU states were less ecstatic. They had mixed feelings in view of the EU's eastward expansion. A large domestic market may mean more consumers, but it also means more competition. German companies, in particular, were skeptical.

"German companies were concerned mainly about three things: more competition from eastern European firms and their products in Germany, and more competition and a stronger push toward having to streamline production as a result of companies moving to Germany and producing their goods in the country," says Michael Grömling of the Cologne Institute for Economic Research (IW).

There was also concern among the old member states that differences in prosperity and high unemployment in the new EU states could lead to a surge in immigration westward. In 2003, the average GDP per person in the new member states was about half of what the average worker made in the 15 member states at the time.

Cartoon, Fortress Europe

There was widespread fear of a flood of immigrants....

Felix Pakleppa, CEO of the Central Association of the German Building Industry, recalls the concerns ten years ago. At the beginning of the new century, Germany's construction industry was mired in a long phase of recession, as a whole it was "weak and poorly positioned," Pakleppa says. There was immense fear of competitors who could offer their services at significantly lower prices because at the time, the wage differential was much greater.

Surprising realization

Ten years later, it's safe to say everything went well after all. According to a 2014 IW study, only ten percent of the companies surveyed said eastward expansion had a great affect on their business.

Since accession in 2004, exports from - and imports to - the new EU member states have nearly doubled, the study says. Poland, the target country of German exports, made the greatest leap, while Hungary has lost importance. The worst misgivings never came true also, Pakleppa points out, "because there were fewer immigrants than expected."

Felix Pakleppa

....which never occurred, Felix Pakleppa says

The impact of eastward expansion is more subtle. "We've noticed that competition on the German construction market has picked up," Pakleppa says, adding that is due mainly to still existing differences in wages and social security that add up to a discrepancy of up to 19 euros ($26) per hour. EU law allows employees and companies to remain within their native country's social security system for several months even if they are working in another EU member state.

Immigrants finally welcome

Optimists and supporters of EU enlargement are slightly disappointed, however, as their expectations have not been fulfilled. Ten years ago, the IW asked entrepreneurs whether they expected growing, booming markets in Eastern Europe. "Back then, the companies were cautiously optimistic," Grömling remembers – but even that cautious optimism went too far.

Developing and emerging countries that recorded growing markets at the very same time may be to blame. "The positive impetus that initially focused more strongly on Eastern Europe may have moved on to other countries," Grömling says. German construction companies also didn't record notable expansion to the states of Central and Eastern Europe.

Ten years ago, companies and trade associations feared a massive surge in immigration, while today, Eastern European workers are more than welcome. As a result of the demographic development, companies are increasingly looking eastward to find skilled labor. "The number of young people in Germany we can get to work in our companies is on the decline, so of course workers from Central and East Europe are very welcome, even more so than ten years ago," Pakleppa says. How the times have changed.

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