Internationale Politikanalyse Europäische Politik, Oktober 2005 Siegfried Schultz* The EU’s Medium-Term Financial Perspective and the Potential Slice of Turkey W hen considering the financial flows incurred by EU accession, the questions a country is likely to ask seem simple: How much will we get out of it(applicant’s perspective), or, what is the burden likely to be(EU perspective)? However, in the case of Turkey things are more complicated, for a number of reasons. Given its size and level of economic development, Turkey’s accession would undoubtedly have an important impact. Any estimate of the budgetary impact of the country’s accession is based on the current ~Åèìáë= and will be attended by numerous uncertainties, among which the likely timetable, future decisions on budgetary burden sharing and country-specific arrangements rank high. Similarly, the revenue side of the EU budget may undergo severe alterations. * In practical terms, it makes sense to distinguish between current flows of funds(pre-accession) and longer-term payments after Turkey becomes eligible for member programmes(post-accession). Accuracy of financial forecasting differs substantially between the two phases. 1 Relatively speaking, the simplest approach would be to confine computing exercises to calculating the budgetary consequences if Turkey were to enter under the present rules. However, as further extensions of the EU can realistically be realised only on the precondition of new allocation and distribution mechanisms – still to be determined, agreed upon and implemented – this approach may easily end up in an vicious circle. Key factors determining the EU budget are the financial allocations laid down by the multi-annual financial outlook. The current framework will expire in 2006, having been concluded by the EU-15 five years * Formerly senior economist at the German Institute of Economic Research(DIW) in Berlin, has been working for a long time in the field of foreign economic policy. More recently, he has been focussing on the relationship between the EU and Turkey 1 It ought to be noted that the term“financial perspective” goes beyond mere budgetary transfers in favour of the recipient because the overall cost of complying with the~Åèìáë will draw on national financial resources not fully compensated by Brussels. On top, financial consequences of membership comprise also political benefits(e.g., peace dividend) and economies of scale by economic integration. ago. The next financial perspectives cover the period 2007-2013. The budgetary figures proposed by the Commission are highly controversial. Turkey will have very limited influence over the upcoming financial framework, running until 2020. Full integration will not take place before negotiating the framework for 20212027. Under prevailing circumstances, the volume of financial transfers for the initial years of Turkey’s membership will have been decided by a body consisting of current member states, two present candidate countries plus Croatia. In this respect the situation of Turkey will resemble that of Bulgaria and Romania (which are likely to join by 2007) in accepting a financial framework determined by the existing‘club members’. Given that for all current member states it took between five and ten years before they were integrated into all support programmes, it is unlikely that Turkey will benefit fully from the EU’s budgetary re-allocation schemes much before 2020. By then, however, some of the present net recipients may have picked up considerably in terms of economic performance, enabling them to carry a higher share of the overall burden. Budgetary assignments in the planning period ending 2006 As an integral part of the EU’s accession strategy, candidate countries are invited to make use of financial resources designed to pave the way to the envisaged accession. Of course, this also applies to Turkey. 2 Up to the end of the current planning period(2006) pre-accession financial assistance is being focussed on 2 In this section, even the wording to some extent closely follows the underlying EU document, COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, Strengthening the Accession Strategy for Turkey. Proposal for a COUNCIL DECISION on the principles, priorities, intermediate objectives and conditions contained in the Accession Partnership with Turkey, COM(2003) 144 final, 26.3.2003, pp. 3/4.

Siegfried Schultz The EU’s Medium-Term Financial Perspective and the Potential Slice of Turkey Europäische Politik (10/2005) 2 Turkey’s efforts to meet the Copenhagen criteria. AsTable 1: sistance is available for improving Turkey’s economy The EU’s pre-accession assistance for Turkey and its capacity to cope with competitive pressures within the internal market. As for all candidate coun2004 2005 2006 total tries, assistance is directed towards two main objectives: amount (€ million) 250 300 500 1050 NK=fåëíáíìíáçå=ÄìáäÇáåÖ= will take the form of assistance to help Turkey implement the~Åèìáë= and to prepare for participation in EU policies such as economic and social cohesion. Institution-building support will mainly be implemented with EU member states through the instrument of twinning. Non-governmental organisaOverlap of alterations: new policy emphasis and re-structuring of old instruments tions could also benefit from assistance with a view to The focal point of the debate on the next EU Financial supporting initiatives aimed at the consolidation and Perspective is the Commission's demand for a financial further development of democratic practices, the rule ceiling of 1.24% of Gross National Income(GNI) 3 as of law, human rights, gender equality and the protecthe basis of member countries' commitment approtion of minorities.= priations(corresponding, on average, to 1.14% in OK=fåîÉëíãÉåí= is scheduled to take two forms. First, payment appropriations). Major net payer countries there may be investment to establish and/or (Germany, France, Austria, the Netherlands, Sweden strengthen the regulatory infrastructure needed to enand the UK) are insisting on a smaller EU budget: it sure compliance with the~Åèìáë. Investment in the should be capped at 1% of the EU's GNI in commitregulatory infrastructure will be made only on the basis ment terms(about 0.9% in payments) at the start of of a clear-cut government strategy. Second, part of the the next planning period in 2007. 4 With the Luxemassistance programme will be directed towards investbourg presidency’s proposal in a highly politicised fight ment in economic and social cohesion, taking into acover miniscule percentages(1.06% instead of 1.14% count the importance of regional disparities in Turkey, or 1%), the hardliners’ position might be softened afas well as the gap between Turkey’s national income ter the German Chancellor’s move in view of the EU and the EU average. Constitutional Treaty’s failure to win acceptance in Assistance priorities will be drawn from the France and the Netherlands. However, all major deciAccession Partnership, the regular reports and Turkey’s sions with financial impact have been overshadowed national programme for adoption of the~Åèìáë. In by this dispute. these reports, attention is focussed on the political criFor any potential candidate country the budgetary teria. Beyond that, a number of priority areas have effects will result from both application of the Combeen identified, such as justice and home affairs(inmon Agricultural Policy(CAP) and the EU’s structural cluding migration), maritime safety, the environment, and cohesion policy. As regards agriculture, it is clear health, agriculture and rural development. A significant that Turkey would be eligible for substantial support increase in funding will also allow the EU to support under the current CAP. The size of the agricultural secsocio-economic development in Turkey, as it relates to tor in Turkey, both in absolute terms and in respect of the goals of the accession strategy. its economic and social role, will represent an imporTurkey needs to further improve its capacity to matant element in budgetary considerations. nage and use funds effectively. In order to facilitate full However, due to the Commission’s decision in Ocimplementation, Turkey will need to take further meatober 2002 there will be a shift of emphasis within the sures to ensure sound financial control. The EU ComCAP, affecting what will be available to Turkey. Direct mission has indicated the level of financial assistance payments(first pillar of the CAP) will shrink over time. for Turkey until 2006. This facilitates multi-annual Instead, a basket of rural development policies(second planning in areas in which it will take more than one year to address the objectives. The amounts(to be ap3 The recording of national account figures differs between proved annually) are as follows: countries. The World Bank has adopted a new terminology in line with the 1993 System of National Accounts. The GNI concept is gradually gaining ground. 4 A Committee of the European Parliament(for details see fn. 9) suggested in mid-May that for the sake of flexibility, the next financial perspective should be cut to a five-year period, running from 2007 to 2011.(EurActiv.com, Agenda 2004-09, 17 May 2005).

Internationale Politikanalyse International Policy Analysis Unit pillar) will gain in importance for Turkey. ł qÜáë=áë=ÄÉJ • Instrument for Pre-Accession Assistance(IPA) Å~ìëÉ=é~óãÉåíë=ìåÇÉê=íÜÉ=ëÉÅçåÇ=éáää~ê=Å~å=ÄÉ=í~êÖÉJ(will ultimately replace current pre-accession proíÉÇ=~í=ãÉ~ëìêÉë=ïÜáÅÜ=~êÉ=~áãÉÇ=~í=áãéêçîáåÖ=éêçÇìÅJ grammes intended to cover allocations for recogíáîáíó=áå=qìêâáëÜ=~ÖêáÅìäíìêÉK=pìÅÜ=ãÉ~ëìêÉë=ãáÖÜí= nised candidate countries and also for potential canáåÅäìÇÉ=íê~áåáåÖ=Ñ~êãÉêë=áå=çêÇÉê=íç=áåÅêÉ~ëÉ=íÜÉáê=éêçJ didate countries, in brief:‘pre-candidates’) ÇìÅíáîáíó=áå=~ÖêáÅìäíìêÉ=çê=íç=Éå~ÄäÉ=íÜÉã=íç=äÉ~îÉ=íÜÉ= ëÉÅíçêI=éìÄäáÅ=áåîÉëíãÉåí=áå=êìê~ä=áåÑê~ëíêìÅíìêÉI=ãçÇJ • European Neighborhood and Partnership Instrument (ENPI) 8 (a new instrument intended to enable the Éêåáò~íáçå=çÑ=íÜÉ=ÑççÇ=éêçÅÉëëáåÖ=áåÇìëíêóI=~åÇ=ãÉ~ëJ Community to make commitments to bordering ìêÉë=íç=áãéêçîÉ=íÜÉ=ÇáëíêáÄìíáçå=çÑ=ä~åÇ=~ãçåÖ=Ñ~êãÉêë= EÉKÖK=êÉé~êÅÉääáåÖFK“ R countries and others in the vicinity; extension of benefits of the internal market, no promise of At the same time, a feature which is specific to Turmembership) key is the substantial regional disparities within the • Development and Economic Co-operation Instrucountry. With a per capita GDP of about 29% of the EU-25 average 6 – close to Bulgaria and Romania – Turment(a new instrument intended for allocations to the‘rest of the world’; allegedly, it is supposed to key would(under the current support regime) be eligicover also the European Development Fund, to be ble for significant levels of structural operations expenditure. 7 The existing rules, however, have never integrated into the budget as of 2008 – unlikely, as unanimity is required in the Council) been applied to a large country that also has a low level of economic development and substantial dispariDuring the period 2007-2013 and beyond – although ties. it is also a neighboring country- Turkey will clearly be Referring to structural funds, there is the ongoing treated under the IPA heading. With a view to absorpdiscussion(between old and new member states) tion capacity, the budgetary preview allows for a graabout how to deal with the traditional limit(4% of dual increase of funding during this period. On a per GDP) on what a country can get from the structural capita basis, Turkey is scheduled to ultimately to reach funds. the same level as the Western Balkans. Above all, there is a move to re-organise the institutional set-up as regards the tools of the EU’s coTo conclude, the budgetary proposal for IPA provides‘no visibility for levels of funding’ 9 per country, operation with external partners. According to a region, objective or component. It ought to be noted Commission proposal, the current situation is highly complex because a wide variety of instruments, with that standard European pre-accession support programmes such as PHARE, 10 originally assisting preparavastly different geographic and thematic scope and financial envelopes, have developed in an~Ç=ÜçÅ mantory reforms in Central and Eastern European accession countries, SAPARD 11 and ISPA 12 (in future under the ner. The new basic differentiation will be between geographic and thematic instruments(three of each) – roof of IPA) will ultimately be replaced. The same applies to MEDA 13 and TACIS 14 (under ENPI). When and a semantic distinction which may be misleading since how these old programmes are going to be affected is the geographical part will definitely dominate while not fully transparent yet since these regulations – as the rest are intended for use only in exceptional cirwell as the special one on Turkey – have no financial cumstances: these are crises and threats to security(inreference amounts and no specific end-dates. cluding nuclear safety), humanitarian aid and a‘macrofinancial’ instrument that leaves, as before, room for ~Ç=ÜçÅ decisions. Thus the main purpose of this reshuffling of the toolkit is to provide separate instruments for different regions closer to or further from the EU. The new titles for the next Financial Perspec8 ENPI is addressed to the belt of countries South and East of the present EU. In detail, ENPI is supposed to cover Algeria, Armenia, Azerbaijan, Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya, Moldova, Morocco, the Palestinian Authority of the West Bank and Gaza Strip, the Russian Federation, Syria, Tunisia, and the Ukraine. tives and beyond are: 9 European Parliament 2004–2009, Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union, Financial Perspectives 2007–2013, WORKING DOCUMENT No. 13 on Pre-Accession and the European Neighbor5 Harald Grethe,‘Turkey's accession to the EU: What will the hood, 28.1.2005, p.6. Common Agricultural Policy cost?/ Der EU-Beitritt der Türkei: 10 Poland and Hungary: Aid for Restructuring of the Economies. Wie teuer wird die Gemeinsame Agrarpolitik? in: Agrarwirt11 Special Accession Programme for Agriculture and Rural Deveschaft 54, no.2(2005), p. 135. lopment. 6 At Purchasing Power Standards. 12 Instrument for Structural Policies for Pre-Accession. 7 For some basic indicators pertaining to Turkey and its 13 Euro-Mediterranean Partnership. neighbors vis-à-vis the country group which acceded to the 14 Technical Assistance to the successor states of the Soviet UnEU in May 2004, see Table A-1 in the Appendix. ion(Commonwealth of Independent States). 3

Siegfried Schultz The EU’s Medium-Term Financial Perspective and the Potential Slice of Turkey Europäische Politik (10/2005) 4 Areas of conflict within the EU affecting budgetary allocations _ìÇÖÉí~êó=ëÅçéÉ= = Keeping in mind the clearly diverging views of member As is customary in the budgetary planning of public countries with respect to future financial regulations, bodies, the EU financial perspective is characterised by four areas of conflict can be identified: 15 a gap between fund allocation to programmes/projects = and actual payments. In the EU this gap is widening, Úqçé=ÇçïåÛ=çê=ÚÄçííçã=ìéÛ\= affecting the quality of forecasting the likely budgetary = volume and thus a cause for concern for member The Commission is in favour of the approach which states. In particular, the net contributors are afraid of involves compiling the tasks to be performed and, subcommitments being made between 2007 and 2013 sequently, computing the amount of financial rethat will be an extra burden for the subsequent plansources likely to be necessary to meet these requirening period commencing in 2014 – a scenario which ments(‘bottom up’). In contrast, the group of net conmost likely will materialise in the case of Turkey. tributors to the EU budget prefers the opposite, i.e. defining the upper limit of fiscal obligations first and kÉí=ÑáëÅ~ä=Ä~ä~åÅÉë=~åÇ=íÜÉ=rhÛë=ÄìÇÖÉí=êÉÄ~íÉ= then setting priorities within this framework(‘top = down’). In a way, this methodological dispute is beside In view of increasing budgetary bottlenecks, the EU the point because, as a rule, any limitation of resources Commission now seems to favour a proposal(originally vis-à-vis competing targets calls for a political decision. tabled in 1998) to cap national contributions by applyIt should be noted that in the field of financial planing a correction mechanism which would give some ning an important decision was taken as early as in Ocrelief to the majority of net contributors and mobilise tober 2002 when future agricultural policies were outfunds, e.g., for the Lisbon objectives. This move would lined up to 2013. Thus, even more intensive efforts to be at the expense of the UK which has been benefitmake savings and discussions on how to adjust Euroting from the rebate since in 1984 Margaret Thatcher, pean support programmes will have to be confined to in her second term as Prime Minister, pointing to the the second major tier of EU finance, i.e. structural and small agrarian sector in the UK – threatened to veto cohesion policy. any expansion of EU spending. 16 oÉçêáÉåí~íáçå=çÑ=ÑìíìêÉ=ëíêìÅíìê~ä=~åÇ=ÅçÜÉëáçå=éçäáÅó= = Undoubtedly, last year’s accession of eight less-wealthy member states has increased heterogeneity within the EU. For this reason, to overcome socio-economic disparities(or, at least, to minimize them) demand has increased for intra-European aid. At the same time, the Commission is trying to increase international competitiveness, contain unemployment and push innovation and development. In this context, growth and cohesion are considered to be non-conflicting targets and thus can successfully be promoted simultaneously within the framework of the Lisbon Strategy. This notion contrasts starkly with the position of the net contributors. They maintain that structural and cohesion funds are not supposed to be affected by the Lisbon approach; rather, the development differences of different regions should be the governing principle in fund allocation. 15 For a fairly comprehensive discussion of different options see Peter Becker(2004), Die Agenda 2007, Die erste Etappe der europäischen Finanzverhandlungen 2007–2013, SWP-aktuell 34, August 2004(8 p.). – With kind permission of the author, this section draws extensively on his paper. Summing up, it must be recognised that the European heads of state or government have repeatedly reaffirmed their intention to reach an agreement on EU financial perspectives by June 2005 in order to lay the ground for the solid programme planning of structural funds for the upcoming fiscal period. However, being realistic, in the EU-25 elections or referendums are being held almost constantly, which hardly allows for any window of opportunity for debates on general principles which might eventually materialise in something worth calling a new alignment. Rather, it is likely that at the end of the day both the British Prime Minister and the French President will once again succeed in imposing their special national interest. Survey of estimates To make discussion process more transparent, present and future deliberations ought to distinguish clearly between the period of communications, talks, and ne16 Presently the rebate amounts to€ 4.6 bill. annually; it will rise to€ 7-8 bill. during 2007-2013, if unaltered.

Internationale Politikanalyse International Policy Analysis Unit gotiations ÄÉÑçêÉ accession and the period íÜÉêÉ~ÑíÉê. For both periods the sources of information are different and so is the outcome of the estimates. One important reservation, however, applies to all these approaches: What will determine Turkey’s future benefits and contributions are the rules that will by then apply to all, as well as the level of development reached by both the EU and Turkey. The discussion about the financial burden entailed by Turkey's membership for the EU budget or, vice versa, the outcome for Turkey as a recipient, lacks clarity, particularly as regards the extent to which today's rules will apply tomorrow. No one can know with certainty what these rules will be precisely, even mid-term projections are highly speculative. Table 2: Distribution of funds for External Activities ”Heading 4”(€ million; excl. admin. expenditure) 2007 IPA ENPI Dev’t Cooperation Stability Instrument Total 1 400 1 350 5 170 325 8 245 2010 1 828 1 850 6 124 591 10 393 2013 2 235 2 513 6 490 750 11 988 2007– 2013 (Total) 12 919 13 139 38 956 3 915 71 779 Source: Technical sheet of Working Document No 13 on establishing an Instrument for Pre-Accession Assistance; Proposal for a Council Regulation, COM(2004) 627 final, 29.9.2004. mêÉJ~ÅÅÉëëáçå= The Commission’s proposal for the financial perspective 2007–2013 has triggered a heated debate among member countries about who will bear how much of the burden. The controversy may have repercussions for the envisaged targets. While the overall frame of the EU's future external relations(budget line“Heading 4”) is being set by the commitment appropriations, no country-specific details have been spelled out, not even under sub-headings for individual instruments. Thus, no meaningful quantitative assessment of Turkey’s share can be derived from this table of figures at present. What can be deduced instead from the 2007–2013 framework of commitment appropriations for the EU's external activities(see Table A-2 in the Appendix) is the relative weight the Commission is attaching to the budgetary instruments for organising relations with foreign countries.(“Heading 4”) The bulk(54%) is earmarked for development co-operation. During these seven years, it is planned to put aside about€ 13 billion(=18%) for preparing current accession candidates (Croatia, Turkey) and those which may obtain this status later on(the Western Balkans). To give a rough indication, future distribution of EU funds under the heading‘relations with external partners’ in the legislative proposals is reflected in the following table: ‡ To pinpoint the main characteristics: After slight increases in the financial allocations earmarked for both IPA and ENPI, gradually more importance will be assigned to the latter at the end of the period. With over 50% of the entire financial volume, development co-operation will dominate throughout. The amounts to be put aside for IPA are scheduled to rise somewhat more slowly(10% annually) than those for ENPI (14%), while both will increase faster than the total (7.5%). Actual payments are scheduled to begin gradually – with a diminishing time-lag compared with commitments. This is because the absorptive capacity of the recipient country will increase only gradually over time. Conversely, at the end of the period payment authorisations will extend well into the next financial planning period(see following table). ‡ Technical note: There are(partly substantial) differences in the presentation of data in Commission documents(e.g. between this table and Table A-2 in the Appendix). The most prominent reasons for these deviations are: i) valuation in current or, respectively, in(2004) constant prices, ii) differing treatment of administrative costs. 5

Siegfried Schultz The EU’s Medium-Term Financial Perspective and the Potential Slice of Turkey Europäische Politik (10/2005) 6 Table 3: costs of Turkey’s potential accession. These reports are Multi-annual expenditure for the Instrument of not fully comparable. Still, they give an indication of Pre-Accession(IPA); Schedule of appropriations the wide spectrum of estimates. In a way, rough overall calculations are fairly simple Commitments Payments since the EU budget is dominated by two items: Struc€ million(current prices) tural Funds(destined for regions with a GDP per capita 2007 1 426 285 below 75% of the EU average) and the Common Agri2008 2009 2010 2011 2012 2013* Total** 1 631 1 734 1 977 2 294 2 441 2 564 14 067 754 1 264 1 690 1 898 2 116 6 060 14 067 * and following years(applies to payment appropriations only). Source: Proposal for a Council regulation establishing an Instrument for Pre-Accession Assistance(IPA), COM(2004) 627 final, 29.9.2004[2004/0222(CNS)], pp. 31 et seq. ** Total allocation amounts to 14.653 million€. The table gives the appropriation excluding staff(286 mio) and support expenditure(300 mio) thus remaining 14.067. cultural Policy. This is how the gross receipts of any member country will, to a large extent, be determined. How much is Turkey supposed to receive by a likely accession date, e.g. 2015? Following the reasoning in recent Centre for European Policy Studies papers, 17 to delineate an upper limit of the costs of Turkish accession would mean starting from the assumption that Turkish farmers will obtain the same 20% of value added from the CAP as their Western European colleagues in the EU-15. While the Turkish economy may account for 4% of the EU's GDP(with Turkish agriculture in the medium term contributing 10% to national GDP), the gross cost(Structural Funds plus CAP) might amount to around a quarter of 1% of EU-28 GDP. On the other hand, Turkish At present, this is the most detailed presentation availtransfers to Brussels – this share being equal to the able with regard to the targeted group. As for all the percentage of the EU budget in overall GDP – will be in proposed instruments falling under‘external relations’ the order of 1.2% of its own GDP. in the budget, an indicative financial envelope has Consequently, the ceiling of net costs would be been allocated for IPA as a whole. The precise figures around 0.2% of EU GDP. The table below spells out depend on the result of the negotiations on the Finanthe findings in relative terms, i.e. as a percentage of cial Perspectives. For the time being, there will be no the Community's GDP. 'ringfencing' as to individual measures. The specifications will follow in the framework of the so-called Table 4: ‘Multi-annual Indicative Financial Framework’ – still to Budgetary Cost of Turkey Becoming an be presented to the Council and the Parliament – EU Member, 2015 which will spell out details as to the allocation of funds by component and by country. This scheme will be esCost in% of EU GDP tablished for 3 years(representing the limits of political Receipts predictability) and revised each year by adding a new Structural Funds 0.16 year on a rolling basis. Common Agricultural Policy 0.08 As outlined, no country-specific figures can be deTotal 0.25 ducted from this payments scheme. Of course, educated guesses are feasible. Given these overall figures, the average annual will amount to something like€ 2 billion. Grossly assessing about two thirds for Turkey according to the size of its population, under prevailing circumstances the country's slice may be around € 1.3 – 1.4 billion annually. Contributions to the 0.05 EU budget Net receipts for Turkey 0.20 (maximum) Note: Calculations based on current budgetary rules and regulations. Source: CEPS(for details see footnote). mçëíJ~ÅÅÉëëáçå= In case of membership, the best approximation of the costs involved or the transfers to be expected may be found in the outcome of a number of studies on the 17 Kemal Dervi/ Daniel Gros/Faik Östrak/Yusuf I ş ik(and F. Bayar),‘Turkey and the EU Budget, Prospects and Issues’; EUTurkey Working papers, No. 6 August 2004, p. 3/4 and(identical) Daniel Gros,‘Economic Aspects of Turkey's Quest for EU Membership’; CEPS Policy Brief, No. 69 April 2005, p.3.

Internationale Politikanalyse International Policy Analysis Unit Putting EU's GDP before last year's accession round, at about€ 10,000 billion, Turkish net receipts would be equivalent to€ 20 billion. To complement this brief survey of quantitative approaches – although with differing emphases and not fully comparable results – there are a few other studies worth mentioning. Referring to Grethe, a widely cited study by Quaisser and Reppegather 18 puts EU expenditure in applying the current CAP to Turkey at a margin between€ 4.4 and€ 5.4 billion. This approach, however, does not consider the country's specific production structure, nor does it allow for additional variables which matter in the allocation of rural development funds. In addition, it seems unlikely, as Grethe points out(p. 129), that the current scheme of direct payments to agricultural producers(accounting for more than 60% of CAP outlays) will be in existence by 2013, which Quaisser and Reppegather pick as the year of accession. Grethe makes a good point in defending the idea of assessing the magnitude of payments well in advance because unforeseen budgetary outlays may jeopardise Turkish accession altogether and/or, given the envisaged accession, long-term pressure must be maintained within the EU to lay the ground for successful integration of the country into Community structures by organising and implementing the necessary internal reforms first. The main characteristics of the most widely traded estimates are presented for rapid overview in the following table: Table 5: Different Estimates of Net Transfers EU-Turkey = Author- Status Reform Method Amount ship quo Scenario Employed p.a. (billion€, rounded) ZfT Status (2002/03) x quo pro8 jection Flam Regres(2004) x sion 12 analysis Togan Regres(2004) x sion ana14 lysis Dervi et Status al.(2004) x quo pro9 → 20 jection Quais- Projection ser/Wood(basis: (2004) x(x) Commis- 9 → 21 sion estimate) Grethe x (2005) x Model 7- 31 simulation Source: W. Quaisser and S. Wood,‘ br=jÉãÄÉê=qìêâÉó\=mêÉÅçåJ ÇáíáçåëI=`çåëÉèìÉåÅÉë=~åÇ=fåíÉÖê~íáçå=^äíÉêå~íáîÉëÛ; forost Working Paper No. 25,(October 2004), modified and supplemented. The data for the estimates of ZfT(Zentrum für Türkeistudien, Türkei-Jahrbuch des Zentrums für Türkeistudien 2002/2003, Münster), Flam(‘Turkey and the EU: Politics and Economics of Accession’, CESifo Economic Studies, vol.50, no.1(2004), pp.171-210) and Togan(‘Turkey: Toward EU Accession’, in: The World Economy, vol.27, no.7) are taken from Quaisser and Wood. At this point, a word of caution may be appropriate. Without questioning arithmetical correctness, the wide range of projections and estimates reflects different reference years, diverging assumptions and/or methods of calculation. In some cases, the outcome of the computations seems, at first sight, to produce absurd results. This is due to higher transfers under the EU structural policies on the basis of sustained high growth rates in the recipient country(indicating a substantial increase in absorptive capacity) while own contributions lag behind. However, such calculations do not account for the effect of good performance in regional development which might result in lower transfer payments because more prosperous regions lose their 18 W. Quaisser and A. Reppegather,’EU-Beitrittsreife der Türkei eligibility for external support 19 . At any rate, there will und Konsequenzen einer EU-Mitgliedschaft’, Working Paper No. 252, Osteuropa-Institut München 2004. be no reliable automatic mechanism. Rather, political 19 See Grethe, op.cit., p. 136. interventions to cap substantial flows are quite likely. 7

Siegfried Schultz The EU’s Medium-Term Financial Perspective and the Potential Slice of Turkey Europäische Politik (10/2005) 8 Outlook The time schedule of the Commission's road map for the approval of the Financial Perspective 2007–2013 is extremely tight. Should the suggested structural changes end up in tough political haggling in the Council or lengthy debates in Parliament, implementation beginning in early 2006 is at risk. However, any major disturbance will also affect fund allocation to partner countries. Yet, with Germany and France unwilling to re-discuss the 2002 Berlin agreement on financing the CAP, the UK's obvious reluctance to see its rebate eroded and the not exactly harmonious relations between the EU-15 and the latest accession group of countries over structural funds, this process could stretch well into 2006. With regard to the agrarian sector, newly acceding countries cannot expect to receive direct payments for their agricultural producers under the old rules. On the Community level direct payments will be reduced, probably fully de-coupled from agricultural production, before Turkey comes anywhere near membership. The precise conditions of potential accession are hard to predict as the budgetary side of membership is generally left to the very end of the negotiations. In money terms, it clearly is a zero sum game: what the recipient gains, others must pay for. Besides referring to established rules or suitable precedents, in this situation the only real option for any applicant country is to put the club members in a predicament by getting its own house in order by performing well in terms of political, economic and social progress, so complying with the entry conditions agreed upon at the outset.

Appendix Table A-1: Basic Economic Indicators in the EU, Bulgaria& Romania and Turkey Population(2002,mill.) GDP(2003, bill.€) GDP PPS per capita (2003,€/ year) GDP of the agr. sector (2003, bill.€) GDP Agr/ total GDP(in%) Agr. production value (2001/02, bill.€) Share of employment in agriculture(EU 2002, Turkey 2002/03; in%) EU(25) 453.0 9 738.9 23 270 194.8 2.0 282.8 5.4 NMS(10) 74.6 437.1 11 302 15.7 3.6 27.1 13.4 Bulgaria& Romania 29.7 68.1 6 331 7.8 11.5 13.9 32.3 Turkey 70.3 212.3 5 750 23.6 11.1 25.6 Turkey/EU(25) 15.5 2.2 24.7 16.1 13.3 34.4 PPS= At purchasing power standards.- NMS= New member states. pçìêÅÉ: GRETHE(2005), slightly modified. Calculations on the basis of various data from national authorities(SIS 2003) and international bodies(European Commission, EUROSTAT, and FAO – 2004 each). Table A-2: Overview of the Financial Framework 2007 – 2013(€ million, 2004 prices) Commitment Appropriations 1. Sustainable growth 1a. Competitiveness for growth and employment 1b. Cohesion for growth and employment 2. Preservation and management of natural resources of which: Agriculture – market-related expenditure and direct payments 3. Citizenship, freedom, security and justice 4. The EU as a global partner(a) 5. Administration(b) Total appropriations for commitments Total appropriations for payments(a) Appropriations for payments(in% of GNI) Margin Own resources ceiling (in% of GNI) 2007 59.675 12.105 47.570 57.180 43.500 1.630 11.400 3.675 133.560 124.600 1,15% 0,09% 1,24% 2008 62.795 14.390 48.405 57.900 43.673 2.015 12.175 3.815 138.700 136.500 1,23% 0,01% 1,24% 2009 65.800 16.680 49.120 58.115 43.354 2.330 12.945 3.950 143.140 127.700 1,12% 0,12% 1,24% 2010 68.235 18.965 49.270 57.980 43.034 2.645 13.720 4.090 146.670 126.000 1,08% 0,16% 1,24% 2011 70.660 21.250 49.410 57.850 42.714 2.970 14.495 4.225 150.200 132.400 1,11% 0,13% 1,24% 2012 73.715 23.540 50.175 57.825 42.506 3.295 15.115 4.365 154.315 138.400 1,14% 0,10% 1,24% 2013 76.785 25.825 50.960 57.805 42.293 3.620 15.740 4.500 158.450 143.100 1,15% 0,09% 1,24% (a) The integration of the Development Fund in the EU budget is assumed to take effect in 2008. Payments on commitments before 2008 are not taken into account.-(b) Includes administrative expenditure for institutions other than the Commission, pensions and European schools. Commission administrative expenditure is integrated in the first four expenditure headings.