The potential enlargement of the European Union to encompass a number of eastern (Georgia, Moldova and Ukraine) and Western Balkan (Albania, Bosnia-Herzegovina, Kosovo, North Macedonia, Montenegro and Serbia) neighbours would involve significant net transfers to those countries under current EU budget rules. Moreover, if budget allocation rules remain unchanged, ‘cohesion’ funding that helps pay for economic catching-up in poorer parts of the EU would be reduced for many current EU regions.
This could trigger fears about the budgetary impact of EU enlargement. However, myths about an excessive burden on current EU members, turning several current net beneficiaries into net payers (Kribbe and van Middelaar, 2023), should be refuted. In any cost-benefit calculation, the broader fiscal benefits that would accrue to current EU countries following the accession of new members should also be considered.
To illustrate these points, we estimate the hypothetical impact on the EU budget of including these nine countries in the EU’s 2021-2027 Multiannual Financial Framework (MFF), treating them as if they were already EU members. We apply the current EU budget rules with one exception: the overall upper limits on EU spending.
Assumptions and data
For all EU budget spending items except cohesion policy, we assume that the current EU countries will receive the same amounts in the event of enlargement as currently. Cohesion policy is the only EU budget spending category with a specific methodology for fund allocation across countries, partly based on GDP per capita relative to the EU average. Since the EU average GDP per capita would decrease with enlargement, several current EU members would receive less cohesion funding under unchanged rules.
For our hypothetical calculations, we added spending in the nine new EU members, along with other related expenditures such as increased EU administrative costs, to the actual 2021–2027 MFF. Consequently, all but one 2021-2027 MFF heading increases with enlargement; only spending on the neighbourhood decreases, as these countries, as EU members, would no longer benefit from the EU budget’s neighbourhood spending. For cohesion spending, we apply the detailed current rules to determine how much the new members would receive. For other EU spending categories, including the common agricultural policy (CAP), we assume new members would receive amounts proportional to those allocated to the 13 countries that joined the EU between 2004 and 2013. Proportionality is based on agricultural land area for CAP, and on GDP and population for other EU budget categories. We also account for the expected contributions to the EU budget from the nine new members.
We use population and GDP data and projections from 2020, the year when the 2021–2027 MFF was finalised. These figures do not account for the impacts of the full-scale Russian invasion of Ukraine, which has had a devastating impact on Ukraine’s GDP and population. Our calculations assume Ukraine will regain its territorial integrity and the war will have no long-term impact on its population or GDP. If Ukraine’s territory, population or GDP were to be reduced permanently by to the war, the net transfers to the country from the EU budget would be smaller than our current calculations.
See the annex for further methodological details.
Impact on the size of the budget
Our calculations indicate that the overall size of the 2021-2027 MFF would increase from €1,211 billion to €1,356 billion, or from 1.12 percent of EU GDP to 1.23 percent, as a consequence of enlargement (Table 1).
Table 1: The 2021-2027 MFF: approved expenditures and a hypothetical budget including nine new countries (current prices, € billions)
| Approved budget | Hypothetical budget with nine new countries | |||
| EU27 | EU36 | EU27 | New 9 | |
| Cohesion Policy | 393 | 422 | 361 | 61 |
| Common Agricultural Policy | 379 | 491 | 379 | 113 |
| Neighbourhood and the world | 111 | 96 | ||
| European public administration | 82 | 89 | ||
| Others | 246 | 258 | 246 | 12 |
| Total | 1,211 | 1,356 | ||
| % GDP | 1.12 | 1.23 | ||
Source: Bruegel.
Cohesion spending for the current EU would drop from €393 billion to €361 billion, while the nine new countries would receive €61 billion in cohesion funding, bringing total cohesion spending to €422 billion. CAP spending for the current EU would remain unchanged at €379 billion (as per our assumption), but the inclusion of €113 billion in CAP spending for the nine new countries would raise the total CAP allocation to €491 billion.
Spending on the neighbourhood would decline by €15 billion, as the nine new members would no longer benefit from it, while spending on European public administration would rise by €7 billion. All other spending directed at the current EU countries would remain unchanged (as assumed), with the nine new members receiving €12 billion in additional spending from these categories.
Regional reclassification
An important indicator for allocation of EU cohesion policy money is regional GDP per capita relative to the EU average. The EU’s regions are classified into three categories: less developed (regional GDP per capita below 75 percent of the EU average), transition (between 75 percent and 100 percent) and more developed (above 100 percent)
The nine prospective EU members have GDPs per capita significantly below the EU average. They would thus lower the overall EU average, causing some current less-developed EU regions to shift to transition status, and some transition regions to shift to more-developed status. This reclassification would result in reduced cohesion funding for affected regions (Figure 1).
Figure 1: Regional reclassification due to enlargement
Source: Bruegel.
Italy and Spain would experience the largest reductions in cohesion funding, each losing close to €9 billion, followed by Portugal (€4 billion) and Hungary and Romania (around €2 billion each). Poland, despite some shifts of regions into higher categories, would not face reduced cohesion funding, as its allocation was already constrained by an overall ceiling of 2.3 percent of GDP for most cohesion payments in the approved MFF (see the annex for details).
The impact on net positions
The nine prospective EU members would be net beneficiaries from the EU budget, paying in less than they receive. The net cost to the current EU countries of the accession of these nine members would amount to €170 billion at current prices over the 2021-2027 period, or approximately €26 billion per year, equivalent to 0.17 percent of EU GDP.
This cost would have a modest impact on net positions. Several net beneficiaries (including Hungary, Bulgaria, Latvia, Lithuania, Greece, Romania, Poland, Czechia, Slovenia and Malta) have already seen significant reductions in the net transfers they received from the EU budget during 2021-2023 compared to the 2014-2020 MFF (Figure 2). For these countries, any additional reductions in net transfers from the EU budget would be relatively minor compared to the reductions they have already experienced. Most net payers, meanwhile, would need to contribute an additional 0.13 percent of their GDP to the EU budget.
In practice, these costs are likely to be significantly lower, as the EU is expected to revise its budget rules in anticipation of enlargement, and to implement transition periods before new members are given access to funds, reducing the payments they would receive.
Boosts to national budgets from enlargement
It is important to emphasise that the net cost to current EU governments in terms of the EU budget differs from the net fiscal cost. EU budget-related costs do not account for what national budgets will gain in additional corporate tax, personal income tax and social security contributions as a result of the entry of the nine new countries. Enlargement will create a larger European market, benefiting companies across the EU. Businesses in current EU members will also participate in EU-financed programmes in the new member states.
Additionally, the new EU members would increase imports from current EU countries, and EU member status is likely to trigger foreign direct investment (FDI) into the new members. FDI flows from western to central and eastern European countries that joined the EU between 2004 and 2013 have proven profitable, and this trend could be expected to continue with the nine new members. Furthermore, EU membership could facilitate increased migration from these new countries to current EU members, helping alleviate labour shortages and creating more employment opportunities. These developments will contribute to increased budget revenues in current EU members.
Conclusion
Assuming unchanged EU budget rules (except expenditure ceilings) and no permanent damage to Ukraine’s territory, GDP or population from Russia’s aggression, the size of the EU budget would increase from 1.12 percent of GDP to 1.23 percent of GDP, as a result of the hypothetical enlargement to nine new countries. The new members would be net beneficiaries, at a net cost to current members of 0.17 percent of EU GDP via the EU budget.
Claims that several current net beneficiary countries would become net payers are unfounded. While net beneficiary countries would receive slightly less from the EU budget after enlargement, this reduction would be minor compared to the reduction in the current MFF compared to 2014-2020. And the overall economic boost from enlargement would be reflected in larger national budget revenues.
Source : Bruegel
