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　　　　　　　　　　　　　　Consequences of EU Expansion and the Two-tier System
　　　　　　　　　　　　　　　　　

The European Union or EU is an organization that is dedicated to creating a united Europe. The relationship between the governing institutions of the European Union is unique as each is independent but has an interdependency at the same time. The overview of each of the six governing institutions is evidence of a seemingly wonderful system of checks and balances. Each entity has a different role. Further, there are some which are specifically designated to keep control over local areas. Because power is spread through six governing bodies, no one entity will have too much control. Power is spread throughout agencies and a multitude of people, from all the Member Countries, which make up what are the six different institutions.

Above all, the European Union is really a trading association and began as another entity in the 1950s but evolved into the grand organization that is well known today. Yet, while it is an organization that caters to various countries and their trading dilemmas, expansion of the union has raised substantial and relevant questions. This has been true over time, but is extremely noteworthy today. Expansion possibilities East raise provocative questions in part because some eastern countries are not as wealthy and can alter the current desirable situation. While fears have surfaced as a result of expansion possibilities, there have been a few remedies proposed.

One issue on the block is whether or not to treat all nations that same. When children grow up,they learn about fairness and this includes equal treatment for all siblings. However, in families, babies are born into the community with a clean slate. Many assume that each and every baby should be treated with the same respect and endowed with the same goodies as other babies who come into the same family. Whether that is the actual case is irrelevant. The point is that fairness is equated with equity in some situations, but not all.

Countries that join the EU, on the other hand, come with baggage and a history and all things are not equal. Things do not have to be equal. Fairness is not necessarily equated with equality and so the ides of a two-tier system comes to light in many respects. It is important to keep in mind that when a discussion on a two-tier system comes about, it may exist in a variety of ways, such as the ideation of a system where different countries are treated differently due to the money they make, or whether or not they can join the EU at all, or whether or not they adopt the euro as their currency. Two-tier thinking however has become a part of the mentality of decisions made in respect to the EU and as expansion becomes a real possibility once again, the two-tier system is on the table. Yet, prior to recent times, the idea of two-tier thinking regarding the euro came about as it respects the European Union.

Bucci & James (1997) have looked at the possibility of a two-tier system where some European nations would use a single currency but other nations would not. This discussion came about prior to the advent of the euro, when a single currency had been discussed, but was not official yet. At the time, it was not known whether or not many countries would join and the committee could only speculate as to what might occur. Fast forward to today and the euro is a reality and it is doing well. Yet, things are never stagnant. While many nations had gotten on board the euro train, some have not and now, the idea of enlargement changes things even more significantly.

According to a student, it is thought that enlargement to the East will inevitably lead to a two-tier EU. Is this really likely, or might other alternatives be the case? The thought may be supported, but there is always the other side of the coin. The EU notably faces enlargement challenges and this has been true

since the 1950's (Kokubo, 2001). Until the middle of the 1980's, the challenge was found in what was considered to be the ""West" European continent, " where the "West" was a term that was used in a political manner (2001). However, shortly after the Berlin Wall was torn down in 1989, a variety of European nations would apply for EU membership (2001). After that time period, negotiations with both Cyprus and Malta were opened after the Intergovernmental Conference that occurred in 1996 (2001). It was suggested that "the European Commission study the membership of the CEECs as well as the internal reform of the which will be a precondition for the next enlargement" (2001). The European Commission would give their recommendation in 1997 where six candidates were considered for membership (2001). Kosovo was one of these countries and the Kosovo crisis that occurred in 1999 would press existing members to challenge the existent "two tier method" in the negotiating process (2001). At the same time, an expansion East would likely requisite a two-tier EU. Whether or not the expansion will culminate in such a paradigm is of course speculative, but it seems likely due to the diversity between the East and West countries.

Any two-tier system is problematic by its design and implications. Not having an even, fair system is troubling on many counts. Yet, if the EU were to expand and become larger, and embrace the problems and predicaments inevitable in the East, then it stands to reason that such a system may be necessary. At least, it seems to be the most logical of alternatives. Also, it should be noted that the expansion of the EU will pose many strategic and organizational problems (Eichengreen, 2002). Although it is true that expansion will perhaps requisite a two-tier system, and that could create additional problems, it is also a positive step. Byrne & Halpin (2003) claim that "with a proactive focused approach, EU enlargement presents unparalleled business opportunities to reduce short and long-term costs of doing business, achieve significant market efficiencies and gain competitive advantage and market share" (p.48). Although enlargement may requisite change, and the advent of a two-tier system in a new way, it can be a positive step for the EU in the long run. It will not only create the obvious new opportunities, but enlargement can also create a new EU that resembles the more powerful European alliances of the past.

There will be opportunities with enlargement, but there are also negative implications that might be brought about with the use of the two-tier system. For example, Bucci & James (1997) look at how such a system can affect the manufacturing sector. Authors claim that devaluation render products less expensive in the other nations (1997). However, at the same time, supplies that are derived from those same countries, could be more expensive (1997). Reevaluations do quite the opposite but both create a sense of uncertainty and will therefore end up where there could considerably be some customer resistance in respect to committing to new ventures (1997). This is therefore a risky process. Authors add: " Exchange rate instability is anathema to supply chains management" (p.48).

In respect to this issue, Bucci & James (1997) continue and come to two primary conclusions, one of which is that companies in nations inside EMU will have definite advantages over those on the outside, particularly as it respects transaction costs. At the same time, such nations will continue to incur transaction costs if in fact they do business in nations that exist outside of the organization (1997). Effects on particular companies will of course vary, and much will depend upon where they are found and where they actually do business (1997). Another point that authors look at-- again prior to the advent of the euro-- is the fact "that whether or not the EU moves to a single currency which includes all members of the EU...should not cloud the issue of competitiveness" (p.48). This point cannot be overemphasized. All of the EU countries will have to look at competitiveness partially due to the escalating globalization in respect to the global economy (1997). The role of the two-tier system thus needs a careful look. Will it truly be necessary and will it be advantageous?

There are many issues which loom over the European Union since the advent of the Euro and two-tier possibilities come up on a variety of topics related to the EU. With expansion a very real possibility in the near future, what are the issues on the table now exactly? It seems that today, member states that do not make as much money as others, or are considered to be under 75% of the EU national average GDP can say that they have "Objective 1 status" ("EU Enlargement," 2001). With this particular status, these nations are entitled to "generous Structural Fund aid" (2001). This is quite advantageous for countries that qualify. However, it is throughout that after 2007, and when the enlargement process is over, the average EU GDP would plummet ("EU Enlargement," 2001). Jose Luis Olivas Martinez tells it this way: "Enlargement will bring in countries with national incomes well below the European average, with only limited experience of working within a market economy" (2001). The result of such a thing is that the demand for "structural funds" will substantially increase, and so the GDP of beneficiaries today will naturally meet or exceed that 75% mark (2001). Under such circumstances, they will not be entitled to a claim and so the situation would suggest financial burdens for current EU regions (2001). This would be true unless more money is obtained or current rules are changed (2001). Two solutions to the dilemma have been proposed, one of which is a two-tier structure that would promote "different qualifying levels for both present and new EU members" (2001). This is a rather bold, but seemingly necessary, step for the EU. It also appears to be better than other alternatives, and it is better than leaving the status quo while allowing new nations to join. It also seems that creating a two-tier system is an improvement over simply disallowing expansion because expansion is positive in many ways. Hence, something needs to be done to level the playing field and the creation of a two level system is preferable to perhaps any other option. It also seems inevitable at this point.

The two-tier system will probably be necessary for a multitude of reasons, but looming large is the inequality in incomes between the East and West. Hence, in evaluating relationships within the EU, and its inevitable expansion, many different systems have been proposed, inclusive of the two-tier approach. Each solution of course comes with its own set of problems as well as with positive features. However, using the two-tier model seems to be a simple solution to a complex problem and one that the states will likely be able to live with.

While such a plan looks good on paper, there are sometimes problems with such innovations. Further, in reviewing the proposal it is very important to note that anything can change as it has over time. New countries join. Other countries change. There are many things which can happen. Rules are also subject to change. At the same time, there is disagreement in respect to the implementation of such a system and so, one has to wonder whether or not it is the best solution after all.

In any event, with expansion possibilities in the near future, and other changes for Europe, the European Union will likely be kept busy. In implementing a two-tier system, it is possible that the future for the EU will be successful. Only time will tell if it is a good alternative. If so, it would allow the EU to expand while also trying to mitigate future losses for the organization. One thing to keep in mind is that any change will create controversy and it seems that with an expansion East, change is inevitable. Finally, the two tier system is a solid measure, but one that needs to be explored with other alternatives. Again, thus far, even with some draw backs, it appears to be the only measure that makes sense.

References

Note: not disclosed