8 January 2004 • Austria, Finland and Sweden in the European Union. Economic Effects • Fritz Breuss

The European Union is faced with the most far-reaching enlargement in its history. Economic integration has made rapid progress over the past decade. After establishing the Internal Market in 1993, the EU achieved the highest possible level of economic integration by introducing its single currency (the euro) within the scope of Economic and Monetary Union (EMU) in 1999.

Austria, Finland and Sweden joined the EU in 1995. Whereas both Finland and Austria are members of the Internal Market and EMU, Sweden has so far held back in introducing the euro. Overall, the three countries have taken different courses in their economic development. Since 1995, real GDP has grown faster in Finland and Sweden than in Austria. Finland and Sweden benefited from a strong catching-up process following a major recession in the early 1990s. On the other hand, Austria could boost its per-capita GDP to a higher extent than the two other countries. Measured by per-capita GDP at purchasing power parities in 2002, Austria is the fourth-richest country (one rank up from 2001) among the EU 15, following Luxembourg, Ireland and Denmark, with Sweden ranking eighth (one rank down) and Finland at tenth position in both years.

At over 9 percent, unemployment in Finland is still double that of Austria and Sweden, in spite of its high growth rate in recent years. In all the three countries, inflation has converged towards the EU average of about 2 percent.

Economic structures differ greatly between the three countries: whereas Austria is still dominated by small and medium-sized enterprises, both Sweden and Finland host multinationals of global standing. Interestingly enough, neither of the three countries has experienced the trade-generating effects expected from EU membership. Both exports into and imports from the EU have actually declined when measured against figures previous to 1995. What did rise was trade with Central and Eastern European countries.

The extent to which citizens are satisfied with membership in the European Union is also mirrored by its effect on the economy. According to a Eurobarometer poll, Swedes are least convinced of the benefits of EU membership, whereas a large and broadly equal number of Finns and Austrians approve of membership.

An integration model is used to estimate the overall economic effects of EU integration in the three countries. According to this model, Finland appears to have benefited most from EU membership in economic terms (0.8 percentage point higher annual GDP growth since 1995), followed by Austria (+0.4 percentage point) and Sweden (+0.3 percentage point). Competitive pressure has contributed to a slowdown of inflation in all three countries.

Vienna, 7 January 2004.

For further information, please refer to Fritz Breuss, phone (1) 798 26 01, ext. 220, E-Mail-address Fritz.Breuss@wifo.ac.at For the full text of this article see the Internet under http://www.wifo.ac.at