EU Enlargement: Asymmetrical Costs and Benefits

Recent geopolitical and macroeconomic shocks have improved the prospect that the European Union will expand, potentially by up to one-third from the existing 27 member states to 36. The European Commission in November 2023 recommended that the Council start formal accession negotiations with Ukraine and Moldova, and that it grant candidate status to Georgia, joining six Western Balkans countries all at varying levels of accession status and preparedness. The costs and benefits of enlargement are likely to be asymmetrical, meaning the benefits will be dispersed across the Union while the costs could be borne unevenly. The long-term implications for our credit ratings will depend on how reforms, by the EU itself and by aspirant countries, affect the Union and its institutions.

-- Enlargement comes with strategic and economic benefits to the EU.
-- There are also financial and non-financial costs to opening up the union.
-- Credit risks could emerge over the long-term if the effort to enlarge the union ultimately undermines it.

“DBRS Morningstar considers expansion of the EU in some capacity as probable, though by no means imminent, which limits any immediate implications for the direction of our credit ratings,” said Jason Graffam, Vice President, Global Sovereign Ratings. “Over time, however, there could be credit rating implications. While EU enlargement comes with obvious strategic and economic benefits for the entire bloc, the reforms likely necessary to successfully enlarge the EU could stress member state cohesion. Credit risks could emerge for individual member states, or for the EU itself, if the financial and non-financial costs presented in this commentary overwhelm the benefits, or if the effort to enlarge the Union ultimately weakens it.”