The European Union’s expansion into ex-communist eastern Europe has brought big economic benefits to the bloc’s old and new members, a study by the EU’s executive arm showed on Tuesday.

The EU’s enlargement two years ago to 25 members has boosted economic growth and trade, and increased investment in the 10 newcomers without putting much strain on the economies of the old members, said the report said.

“Enlargement has acted as a catalyst of dynamism and modernisation for the EU, helping the economies of old and new member states better face the challenges of globalisation,” said the report, which Reuters obtained on the eve of publication.

Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia joined the EU on May 1, 2004 in the bloc’s biggest expansion.

The report sought to quash fears in many of the 15 old EU member states that enlargement had prompted big companies to move jobs eastwards due to lower labour costs in the region, in a process known as delocalisation.

“Recent research for some EU-15 countries suggests that a mere 1-1.5 percent of the annual job turnover can be attributed to delocalisation, and that only a part concerns delocalisation to new member states,” it said.

Fears that enlargement may undermine the western Europe’s generous social security system played a role in the rejection of the EU’s constitution last year in French and Dutch referendums, many politicians say.

The report said the prospect of EU accession and then entry into the bloc has helped to increase average income in the newcomers to 50 percent of the old EU’s average in 2005 from 44 percent in 1997.

Meanwhile, foreign direct investment into the region, which was modest 10 years ago, soared to total 190 billion euros ($240 billion) in 2004. Three quarters of that sum came from the old EU member states.

“Germany is the top investor and is particularly active in the Czech Republic, Hungary, Poland and Slovakia, while Scandinavians are the main investors in the Baltic states,” the report said.

Hungary, the Czech Republic and Slovakia have been more effective in attracting investors to modern manufacturing sectors, such as office machinery, computers, telecoms and cars.

In the Baltic republics and Poland investment has focused on more traditional areas such as food processing, textiles and wood products.

The report reiterated that pre-enlargement fears of floods of cheap workers into old member states had not materialised, and Britain, Ireland and Sweden has benefited from opening their labour markets to newcomers from 2004.

On Monday, Finland, Spain, Portugal and Greece also lifted labour restrictions fully while many other countries such as Belgium and France softened them.

EU Employment Commissioner Vladimir Spidla said on Tuesday he would press the countries that kept job curbs to lift them as soon as possible. “A distinction between old and new members should become an anachronism,” he told a news conference.

The newcomers will also see more and more benefits from EU regional aid, which totalled 28 billion euros over the last 15 years, and is bound to soar thanks to a recently approved EU budget for 2007-2013.

Old members continue to benefit from large surpluses in trade with newcomers, but the latter easily finance the resulting current account gap by foreign direct investment.

“The trade of the EU-10 is dominated by low- and medium-low technology specialisation using labour intensively. The trade of the EU-15 is more specialised in products requiring a higher skill and capital intensity,” the report said.

<B>Marcin Grajewsk</B>