THE European Union marks the second anniversary of its “Big Bang” expansion to include 10 mainly central and eastern European states on May 1 — but celebrations are likely to be muted as policymakers in both the old and new EU states assess the pros and cons of the 2004 enlargement.

On the plus side, entry into the EU of eight former Soviet-bloc communist countries has certainly brought peace, stability and prosperity to eastern Europe. The EU is pouring billions of euros into its new member states to prop up reform, speed up development and help out poor farmers. This in turn has prompted a spate of new foreign investments into the region, further boosting the local economy.

Relations between the EU’s western and eastern European states, however, have become increasingly strained as many of the older states refuse to abolish barriers imposed on workers from the new countries. Reflecting the political rather than economic nature of the concerns, reluctance to open up to eastern labourers continues despite increasing evidence that allowing in such workers is good for western European economies.

A recent report by Ernst & Young’s ITEM Club released in London said that an influx of workers from the central and eastern European countries that joined the EU in 2004 has had a positive impact on the British economy, especially by holding down interest rates. “As a direct result the UK workforce has become younger, more flexible and economical, easing the pensions burden and keeping interest rates lower than many commentators could have predicted,” said the ITEM Club’s chief economic advisor, Professor Peter Spencer.

The report said migrants from eastern Europe had been “remarkably” beneficial for the British economy and kept interest rates half a point lower than they would otherwise have been.

Some 329,000 eastern and central Europeans, more than half of them from Poland, have registered to work in the UK since their countries joined the EU. “We think people who are just going around saying immigration causes problems should be combated by professional economists,” said Spencer. “We are on the crest of a new immigration wave. The steady flow from the most recent accession countries to the UK has proved remarkably positive for the economy.”

Britain, Ireland and Sweden were the only three EU countries to open up their markets to eastern European workers following enlargement in 2004.

In addition to the furore over labour mobility, politicians in countries like Germany and France fret openly over the decision of many of their companies to move east in search of low-cost workers and low-tax havens.

A determined bid by the European Parliament to water down new rules which would have allowed a sweeping liberalisation of the EU services market has further aggravated tensions between east and west Europe. The original proposal was changed earlier this year after massive labour protests in several old EU states, with workers fearing that free cross-border competition in the EU services sector would give firms in the bloc’s new states an edge over their western rivals.

While several EU newcomers voice frustration at such discrimination, politicians in many of the bloc’s old states say it is time to put any plans for a further EU expansion on ice. Buffeted by last year’s rejection of the EU constitution by voters in France and the Netherlands and an ill-tempered debate over a new budget for the bloc, some politicians are now insisting the Union must retrench and set firm limits for its future borders. “A Europe without borders will become a subset of the United Nations,” warned Nicolas Sarkozy, a presidential hopeful in next year’s French elections, reflecting fears that an ever- expanding EU would become too big and unwieldy to handle.

Lack of enthusiasm for further EU enlargement is no surprise given the prevailing fear of change and reform prevailing in many European countries. EU heavyweights France, Germany and Italy are preoccupied by domestic issues as they grapple with weak economic growth, joblessness and a failure to implement reforms as seen in the recent caving in by Paris to mass protests over labour market liberalisation. German unemployment is a grim 12 per cent and in the impoverished eastern part of the country a staggering 20 per cent of the workforce is jobless.

The fact that countries seeking to join the EU are from the Western Balkans poorhouse, or Muslim nations like Turkey, only adds to growing antipathy over further expansion of what is still largely a wealthy and Christian or at least post-Christian club.

German Chancellor Angela Merkel flatly declares Turkey cannot be given full membership and instead proposes a “privileged partnership” — a sort of second class association with the 25-nation bloc. French President Jacques Chirac, meanwhile, has vowed his country will hold a referendum on Turkish membership. Given the French public’s rejection of the EU constitution, this looks like an all but certain “non” to Ankara’s membership bid.

Nevertheless, the EU is probably heading towards a “mini-bang” enlargement on January 1, 2007, when Bulgaria and Romania are expected to join the 25-nation bloc. Accession for both countries could be delayed until 2008 owing to concerns over judicial reform and corruption but their admission to the bloc is largely a done deal and almost impossible to stop.

After this, however, the future of EU enlargement is less clear. The one sure bet is that Croatia — if it arrests war criminals wanted by the UN International Tribunal — will be admitted to the EU. Membership talks have started but a 2009 target date set by Zagreb has almost no chance of being met.

But in a sign of toughening attitudes, EU foreign ministers, meeting in Salzburg last month, took a hard look at the Western Balkans and promptly raised the hurdle for further expansion by making “absorption capacity” of old member states a major criterion for any enlargement.

This basically means that old members will look at their own economies, public opinion and almost anything else before deciding whether anybody else can join the club. Therefore, a big question mark hangs over accession chances for Serbia and possibly soon to be separated Montenegro, as well as Albania, Bosnia-Herzegovina, Macedonia and Kosovo which looks headed for some form of independence. Ditto for Turkey whose membership negotations with the EU have made little progress since beginning last year. Even if talks move forward, Turkey is unlikely to join the bloc before 2020.

Even further back in the line is Ukraine which has not started membership negotiations with Brussels despite its much-heralded 2004 “Orange Revolution” which brought pro-western forces to power in Kiev. On the fringes of Europe, Georgia’s EU prospects following its 2003 “Rose Revolution” appear to be on ice.

Eurozone enlargement is also proceeding far more slowly than most analysts had been predicting just a few years ago. Hopes that the three Baltic states — Estonia, Latvia and Lithuania — would win early membership as a group appear to have been dashed, mainly because of high inflation linked to their sizzling growth.

Countries like Poland and Hungary are increasingly hesitant to give up their high economic growth rates for the fiscal straitjacket of the European Central Bank (ECB). Analysts say Poland is not expected to join before 2012 and Hungary probably won’t become a member until 2014. The Czech Republic is targeted for 2011 at the earliest with Slovakia not set to join before 2009.

EU foreign ministers may hold an emergency meeting to deal with the increasingly divisive issue in late May and the geographical and cultural limits of the EU are expected to top the agenda at the bloc’s June summit in Brussels. But few expect the debate to die down, whatever decision is taken by EU leaders.