Rule transfer produces winners and losers

As Ukraine prepares for EU accession, Brussels faces an old problem with new urgency: how to make market integration work. Past enlargements show that the transfer of EU rules can destabilise weaker economies unless the Union acts not just as a market-maker, but as a developmental state.

Prominent studies on the politics of EU enlargement focus on rule transfer: candidates adopt the acquis, Brussels monitors compliance, accession follows. Political economists, however, remind us that the same rules applied to unequal economies do not produce equal outcomes. Integration generates winners and losers.

For weaker economies, the costs can be steep. Rule transfer often marginalises less competitive sectors, fuels social inequalities and territorial disparities, and drives emigration. Sovereigntists and illiberal parties can exploit these social and political strains, turning disappointment with 'Brussels' into backlash. Far from deepening integration, unmanaged consequences can sow disintegration.

In weaker economies, rule transfer often marginalises less competitive sectors, fuels social inequalities and territorial disparities, and drives emigration

As our recent research shows, during the 2004–2007 Eastern enlargement, the EU did not simply leave outcomes to market forces. Faced with the risk of collapse, it stepped in to manage the fallout. The question is how – and why – Brussels came to care about the negative consequences of rule transfer in the first place.

Managing the fallout: the EU’s quiet experiment

During Eastern enlargement, the EU quietly departed from the free-market orthodoxy of the time. Learning from the collapse of the former East German economy after the hastily executed market integration, Brussels laid the foundations for what we call a short-lived Transnational Developmental State (TDS). The TDS has used transnational public power for the timely detection and management of major potential negative economic consequences of market integration, rather than leaving the integrated market to determine the economic outcomes.

During the Eastern enlargement, the Transnational Developmental State used transnational public power for the timely detection and management of major potential negative economic consequences of market integration

This was not a grand strategy but a pragmatic assemblage: mandatory planning at national, sectoral, and regional levels, armies of technical advisers from member states, and close coordination with international financial institutions and development banks. The aim was not to design a master plan for economic transformation, but to prevent mass unemployment and systemic breakdown.

Protecting weaker economies

Of the two main functions of the developmental state – protection and promotion – the TDS leaned heavily on protection. These qualities shielded weaker economies from the harshest shocks of rule transfer and helped them build the minimal capacities needed to comply with, and live by, the rules of the Single Market.

It was the task of all Directorate-Generals (DG) of the European Commission (EC) involved in the process of enlargement to understand the weaknesses of candidate countries and why some of them would have difficulties implementing the acquis. DG Enterprise or DG Competition would, for example, highlight problems with state aid and – depending on the size of the problem – DG Enlargement, in cooperation with DGs Enterprise, Competition, or Economic and Financial Affairs, would ask countries to write plans on how to restructure the sectors and initiate certain co-financing measures with international financial institutions.

The EC, for example, permitted Poland to maintain subsidies until EU accession, provided it could justify their necessity. The EC raised no objection when Polish authorities argued that they still needed state aid for employment restructuring or debt reduction to make a particular steel mill more competitive or attractive to foreign investors.

Research has shown that longer transition periods helped industries survive by giving them time to adapt before facing full competition.

Why Brussels turned to market correction

The EU is often portrayed as a market-enhancing machine. It is therefore striking that, under the extreme power asymmetries of enlargement, Brussels turned to market-correcting policies.

Three dynamics forced the EU member states to act. First, with the collapse of the East German economy in recent memory, they knew they could not fully rely on the integrated market to manage the risks of enlargement. Economic interdependence and geographic proximity meant mass unemployment or large-scale migration from candidate countries would hit them directly. Second, widespread non-compliance risked a race to the bottom that could undermine the integrity of the Single Market itself. Third, a surge in post-accession demands for fiscal transfers threatened to destabilise existing bargains among member states, and paralyse decision-making.

Faced with these risks, insiders shared an interest in cushioning the losers of rule transfer. The result was the ad hoc supranational capacity-building we described earlier — a short-lived but telling experiment in market correction.

Ukraine’s accession as a stress-test for the EU

The case for an updated Transnational Developmental State is even stronger today than it was in 2004–2007. Ukraine’s integration will be a stress test for the EU: if it produces economic instability or weakens democracy, the damage will extend far beyond Kyiv.

There is a strong case for an updated Transnational Developmental State; if Ukraine’s integration produces economic instability or weakens democracy, the damage will extend far beyond Kyiv

As Veronica Anghel warned in this series' foundational blog piece, the costs would be borne by Europe as a whole, undermining both security and credibility.

The margin for error is vanishingly small. As Milada Vachudova argues, if Ukraine emerges from accession fragile — economically or politically — it would mark a strategic defeat for the EU, exposing it to new security threats and eroding its influence at the regional and global level.

The way forward: EU-Ukraine power-sharing in market integration management

Today’s enlargement strategy lacks the tools that once helped the EU anticipate and manage the negative consequences of rule transfer.

If the EU keeps centralising decisions in Brussels, and excludes Ukraine’s state and civil society from shaping development and spending EU funds, accession could incite instability. The alternative is power-sharing and the co-creation of policy outcomes. The lesson is clear: stability in Europe depends on what benefits enlargement will provide to the societies in the new member states. In the end, this is what makes enlargement work.

No.32 in a Loop series on 🧭 EU enlargement dilemmas

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