THE COSTS AND BENEFITS OF EASTERN ENLARGEMENT - THE IMPACT ON THE EU AND CENTRAL-EUROPE

Eastern enlargement of the EU is a central pillar in Europe's post-Col d War architecture. Keeping the eastern countries out seriously endang ers their economic transition, and economic failure in the east could threaten peace and prosperity in western Europe. The perceived economi c costs and benefits will dictate the enlargement's timing. There are four parts to the calculus - the costs and the benefits in the east an d in the west. Here we break new ground in estimating the economic ben efits of enlargement for east and west using simulations in a global a pplied general equilibrium model. Our analysis includes a scenario in which joining the EU significantly reduces the risk premium on investm ent in the east - with resulting huge benefits to the new entrants. We also review the existing literature on the EU budget costs and arrive at a surprisingly well-determined 'consensus' estimate, which we supp ort with a new political economy analysis of the budget. The bottom li ne is unambiguous and strongly positive: enlargement is a very good de al for both the EU incumbents and the new members.