Study green-lights EU accession

  • 2003-07-10
  • Melanie O’Connell

A major study on the economic impact of Estonia joining the European Union has concluded accession will lead to greater economic growth than would occur if Estonia remained outside the union.
The research, commissioned by Estonia's EU Information Secretari-at and undertaken by auditing firm KPMG, gave a more positive light toward accession than a similar survey completed last year.
Released last week, the research predicts Estonia's GDP, export of both goods and services, and level of foreign investment would all increase more dramatically with EU accession.
The forecast for GDP increase with EU membership was 5.6 percent, almost 2 percent higher than the growth level should Estonia remain outside the EU.
Salary levels are expected to increase to an average of 12,500 kroons (800 euros) per month by 2010, about 2,000 kroons greater than the estimation in the case of nonaccession. Currently the average monthly is less than 7,000 kroons (448 euros) a month.
The bad news for consumers, according to the report, is that goods and services are expected to increase regardless, but more so in the case of EU membership. In 2005 - 2010 the CPI is expected to be 3.8 percent with EU membership, compared with 3.2 percent without.
However, according to the director of the Estonian Institute of Future Studies, Erik Turk, the general economic situation will be better after EU accession with wages expected to increase more swiftly than the cost of goods.
"The growth rate will increase, but the taxation burden will also rise a little bit. Wages and prices will also increase, but the growth of wages will be bigger than that of prices," Turk said.
The survey forecast the tax burden to be 35.5 percent with EU membership, compared with 35.7 percent without.
As one of the economists involved in the study, Erik Turk believes it is a realistic analysis of the future economy.
"I think in general the information is positive toward accession. Of course it is not paradise in any situation. For example, if you look at unemployment, it is quite high in both circumstances, but generally the situation is better in the case Estonia joins the EU," Turk said.
According to KPMG partner Andres Root, the report, which analyzed the views of 17 economists, is not based solely on economic modeling.
"We asked their opinion. What they did to reach their opinions we don't know. Maybe some used sophisticated models - others may not [have]. I have a feeling that under such circumstances that is the best that can be done. I'm a statistician by background, but I don't think using fine modeling would be appropriate given [EU accession] is such a big change," Root said.
According to Turk, it is easier to predict the economic situation should Estonia join the EU than what would happen should it not.
"It's harder to predict the result if it doesn't join, because there are no similar cases in other countries to use as an example. Previously we looked at the history where new countries joined the European Union, like Ireland, Portugal and so on, and then what were the macroeconomic impacts to the new EU member countries," Turk said.
But according to Hannes Rumm, director of the EU Information Secretariat, the report is a clear endorsement for Estonia to join the European Union.
"Any choice has negative aspects. In this case, if it is up to the analysts, it is obvious they think Estonia should join the EU because it will develop our economy and create more wealth," Rumm said.