That exclusive club, the European Union (EU), will expand its membership. That is a given. But the path will be painful for both new and established members of the regional bloc. “When you talked about EU enlargement a couple of years ago, it was, ‘if.’ Now we don’t ask ‘if.’ The European Union is going to enlarge, and the only question is ‘when?’” said Nijole Zambaite, minister counselor at the Lithuanian Embassy in Washington.

Speaking at a European conference held in Philadelphia on Nov. 30 as part of the Wharton 2001 Global Business Forum, Zambaite said that the process of European integration carries with it huge benefits in access to new markets for new members. At the same time, however, it also entails societal costs on countries that must bring their laws and economic systems into line with EU rules, she said. That can result in unemployment and other kinds of economic dislocation.

“But enlargement is not only economic, it is also political,” she said. “The political benefits of enlargement will create political stability throughout Europe and within individual countries. That is the main goal of our people.”

Zambaite also pointed to some myths about EU enlargement. First, broad agreement exists that enlargement will benefit established EU members and newcomers by reducing national barriers to the flow of goods and services and capital, she said. But when it comes to labor mobility, governments have some concerns. “The assumption is that everyone will rush from the new member states to the rich countries,” said Zambaite. “That is a bit of a myth.” New EU members have their own concerns in this regard. “We are afraid that highly skilled people will move to the places where salaries are higher,” she pointed out. But she dismissed that fear, too, as mostly myth.

Wieslaw Wodyk, head of the economic office of the Republic of Poland in the U.S., said that the next phase of EU enlargement will occur in 2004 when Poland, the Czech Republic, Hungary and Slovenia join the EU, 15 years after the collapse of Communism. “The question is not if, but why?” he said. The answer, he noted, was a miracle: The fall of the Soviet Union. “We lived in a kind of prison,” he said. “After the Solidarity movement, this wall was broken.” Now Poland and other Eastern European countries are looking to the European Union as a trading partner and making political and economic reforms.

Wodyk noted that Poland has high unemployment, but so did Spain in the four to five years it was enacting economic reforms to prepare for EU membership. Unemployment in the former East Germany is lower than in Poland but only because it has received substantial aid from Germany. “In Poland, Hungary, the Czech Republic and the Balkan States, we haven’t such a rich uncle,” he said. “The process of enlargement is a suffering process in our countries.”

The possibility of joining the European Union is also under discussion in Russia, said Val Kogan, head of the Pennsylvania Russian Business Federation. ‘‘European enlargement is seen as a very complicated issue in Russia. There are different opinions, positions and feelings about various aspects of this process.” Still, he said the country’s economy is increasingly open to outsiders.

“It is understandable that Russia would like to be part of the process of EU’s expansion,” added Kogan. Russian leaders will become familiar with the steps involved in EU membership, but they will probably also try to negotiate special, extended schedules for their country. Kogan believes the process could be accelerated because of Russia’s assistance in helping the U.S. and its allies combat terrorism after the Sept. 11 attacks. “The most important part of this process is the significant support of Russian leadership,” he said, “and we see this process developing now.”

Gerald McDermott, a management professor at Wharton, who has been working on structural change in Eastern Europe for 10 years, discussed problems with enlargement, recalling that some original members of the EU entered with hesitation. “It is important to specify the challenges in integration,” he said. “I can tell you the real challenge is essentially maintaining your identity and sovereignty.” For example, the banking and financial sectors of the Czech Republic and Poland are already largely controlled by foreign companies. “The question is, at what point will the Poles and the Czechs start to say, ‘We don’t have any control over our lives anymore?’” he asked.

McDermott argued that EU’s enlargement will require upgrading institutions to the Union’s standards. “But the devil’s in the details,” he said. For example, Eastern European countries may want to protect their industries that are only now at a point where EU nations were 15 or 20 years ago. “Such sticking points are constantly coming up.”

Jozsef Toth, deputy chief of mission at the Hungarian Embassy in Washington, said sovereignty is an important issue for countries that aim to join the EU, but the same questions were raised when the existing members entered the Union. “Without EU membership your country will still be affected by decisions made by others,” he said. It is better to sit at the table.”

Toth said EU’s enlargement will also benefit the Union’s existing members. “The EU has some obsolete structures and protectionist policies. These are highly contentious political issues and it has been years since the members tried to reform them. Enlargement could act as a catalyst for these reforms,” he explained.

Meanwhile, EU membership has been the banner governments use to inflict painful economic reforms on their people, said Toth. “The prospect of becoming a member of the EU has helped these countries design and carry out very deep reforms which are highly unpopular. Some governments have actually lost elections because of these reforms,” he added.

Leslie Bergman, regional managing partner for Central and Eastern Europe, the Middle East, Africa and India for Accenture, a consulting firm, said the scenario for enlargement has changed radically. Originally four countries – the Czech Republic, Poland, Hungary and Slovenia – were expected to enter by 2001 or 2002. This will not happen, he said. “In the last few years popular opinion in the EU and the prospective member countries has moved away from enthusiasm for enlargement towards a great deal of concern and negativeness.”

“The politicians see danger ahead,” Bergman said. “If something is not done radically, this historic opportunity may be lost.” The key is the relationship between Germany and Poland. Historically it has been strained, but it is now strong. Bergman said Germany has decided that there will be no enlargement without Poland. As a result, Poland has been lagging in its negotiations. Now he expects Poland to enter the European Union in 2004 and 2005 along with a “Big Bang” of up to 10 countries.

But from a business perspective, Bergman observed, EU membership will have little effect on Eastern European economies. He said 85% of these countries’ trade is already with Western Europe. Most banks and factories have been privatized with capital from new Western owners. “I’m quite optimistic,” he said. “Significant hurdles remain to be overcome, but that will happen. Politicians are waking up to the huge disaster that could happen if it doesn’t.”