Why might existing EU members support enlargement even if they anticipate increased competition in product and labour markets?

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BlackTom AI · Accepted Answer

Here is the question and the full set of answer options as provided: Why might existing EU members support enlargement even if they anticipate increased competition in product and labour markets?

a. Enlargement reduces the interest rates for member states
b. Enlargement increases economies of scale and market access for firms from existing members
c. Enlargement harmonises tax policy, reducing the risk of capital flight to the periphery.
d. Enlargement tends to decrease within-country economic inequality

Now, let us evaluate each option in turn, exploring what it would imply and where it aligns or conflicts with economic intuition.

Option a: Enlargement reduces the interest rates for member states
This claim suggests a direct effect of enlargement on national interest rates. In standard economic theory, membership enlargement affects the real and financial environment, but there is no general mechanism by which simply adding more members automatically lowers a country's policy or market interest rates. Interest rates are driven by macroeconomic conditions, monetary policy, inflation, and risk premia, not primarily by the size of the market itself. Therefore, this option misattributes the channel through which enlargement would influence rates and is unlikely to be correct.

Option b: Enlargement increases economies of scale and market access for firms from existing members
This statement highlights a plausible and well-documented channel. When a larger integrated market forms, firms in existing members can exploit larger economies of scale due to bigger output, production specialization, and more extensive distribution networks. The removal of border frictions expands market access, enabling firms to reach more customers within the enlarged union. This typically generates efficiency gains, improved competitiveness, and potentially higher welfare in existing member countries, even if some sectors face more competition. The logic aligns with standard theories of regional integration and trade, making this a strong candidate explanation.

Option c: Enlargement harmonises tax policy, reducing the risk of capital flight to the periphery.
This option debates tax policy harmonization and capital flight concerns. While harmonization can ease cross-border investment and reduce tax-induced distortions, it is not the primary and widely cited reason why existing members would welcome enlargement. The claim about reducing capital flight to the periphery is also not a universal or automatic outcome of enlargement; capital mobility depends on tax rates, enforcement, and broader fiscal policies. Moreover, the statement implies a specific effect (reducing capital flight) that is not the central, broadly accepted motive for preferring enlargement from the perspective of existing members.

Option d: Enlargement tends to decrease within-country economic inequality
This option asserts a redistributional outcome within member states following enlargement. In practice, enlargement can have mixed distributional effects: some regions or groups may gain from new jobs and investment, while others may face increased competition and adjustment costs. There is no general, guaranteed tendency that enlargement reduces within-country inequality. In fact, some analyses suggest that inequality could widen in the short term in certain areas as resources reallocate. Therefore, as a universal claim about enlargement, this option is not robust and is more context-dependent.

To summarize the reasoning across options, we weigh the mechanisms by which enlargement could affect existing members. The most coherent and widely recognized channel is the boost to economies of scale and market access for firms already operating in member states, which captures the direct benefits of a larger integrated market for producers and consumers. The other options rely on less direct, less certain, or theoretically weaker links between enlargement and the stated outcomes, making them less convincing as overarching explanations.

SESS0026_25-26 MCQ TEST (30%) in-class 11th December 2025, 1pm

Why might existing EU members support enlargement even if they anticipate increased competition in product and labour markets?

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