US embassy cable - 05VIENNA328

UNCLAS SECTION 01 OF 02 VIENNA 000328 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/IFD/OIA, EUR/ERA, EUR/SE AND EUR/AGS 
USDOC FOR 4212/MAC/EUR/OWE/PDACHER 
 
E.O. 12958: N/A 
TAGS: ECIN, PREL, TU, AU, EUN 
SUBJECT: AUSTRIAN BANK HIGHLIGHTS BENEFITS TO EU OF 
TURKISH MEMBERSHIP 
 
 
SUMMARY 
------- 
1.  (U) A recent study by Austria's largest bank, Bank 
Austria Creditanstalt, concludes the EU would benefit 
economically from Turkish membership and that costs would 
be approximately the same as the costs from the May 2004 
enlargement.  There are certain caveats associated with 
Turkish membership, but the study clearly lays out the 
economic benefits to the EU from Turkey's strong growth 
potential and youthful workforce.  The study declares 
Turkey's accession is an affordable investment, which 
would yield economic dividends to the EU.  End Summary. 
 
 
Benefits of Turkish EU Membership.. 
----------------------------------- 
2.  (U) Austria's largest bank, Bank Austria 
Creditanstalt, recently published a study on the economic 
impact of Turkish membership on the EU.  The principal 
message is that the EU would economically benefit from 
Turkish membership.  The study also predicts that 
membership costs would not exceed the costs of the May 
2004 enlargement.  The study lists the following economic 
and political benefits accruing from Turkish membership: 
-- a large internal market with huge growth potential; 
-- a window to the countries farther east for EU exports; 
-- substantial FDI potential; 
-- alternative supply routes to Europe for oil and gas; 
-- incentives for further fiscal discipline within the 
EU; 
-- a strategic partner with abundant water supplies; 
-- a young population compared to the EU's aging 
workforce; and 
-- continued focus by Turkey on observing human rights. 
 
The study also emphasizes that it is impossible to 
quantify the positive influence on regional stability of 
Turkish membership compared to the cost of future 
subsidies for Turkey. 
 
 
..and Some Caveats 
------------------ 
3.  (U) The report lists the following caveats that could 
impede Turkey's progress towards accession: 
-- reforms depend on continued political stability and 
commitment; 
-- strong economic growth depends on increased levels of 
FDI and progress on structural reforms; and 
-- instability in northern Iraq could negatively impact 
the Turkish economy. 
 
 
Young Population and Dynamic Economic Growth 
-------------------------------------------- 
4.  (U) The Bank Austria study emphasizes the advantages 
Turkey's young workforce would bring to the EU.  With the 
median age expected to rise from 25 presently to 33 in 
2025, Turkey's population would still be considerably 
younger than the EU average.  The median age in Germany, 
the study notes, will rise from 40 to 48 during the same 
period.  In 2025 in a EU-29 (i.e. with the expected 
addition of Bulgaria, Romania, and Croatia, as well as 
Turkey), Turkey would be the most populous country, 
assuming current population growth projections. 
 
5.  (U) With its dynamic growth prospects, Turkey's 
importance as a strategic and economic partner for the EU 
will increase even more after membership.  Turkey's total 
GDP is about half of the combined GDP of the ten new EU 
members.  However, the study maintains that Turkey's 
current growth potential is about 6% annually.  Turkey, 
according to the study, is already "catching up quickly," 
in particular compared to certain new EU member states 
and candidates (e.g., Poland, Hungary, Romania, and 
Bulgaria).  Turkey's per capita GDP already exceeds that 
of Bulgaria and Romania, and the per capita income of 
half the Turkish population is equal to Poland's per 
capita income. 
 
6.  (U) If the Turkish Government continues its reforms 
and prudent fiscal policies, the study predicts the total 
public sector deficit will fall below 3% of GDP by 2007 
and the public sector debt to below 60% by 2009.  Thus, 
according to the study's projections, Turkey would meet 
the Maastricht deficit and debt criteria well ahead of 
its anticipated accession date. 
 
 
Membership Costs 
---------------- 
7.  (U) The study argues that Brussels can afford to 
absorb Turkey into the EU.  The study estimates total 
annual net costs of Turkish membership for the EU of Euro 
10.8-35.1 billion (USD 14.0-45.6 billion), based on 
Turkish EU contributions of Euro 8.1 billion (USD 10.5 
billion) and EU payments to Turkey of between Euro 18.9- 
43.2 billion (USD 24.6-56.2 billion).  This estimate is 
based on the following assumptions:  annual GDP growth of 
2.3% in the EU-25 and 6% in Turkey; and EU payments for 
regional programs varying between 1-4% of Turkish GDP. 
At the high-end of the estimate (Euro 35.1 billion), this 
would represent 0.21% of the combined EU-25 GDP or 19% of 
the EU budget (assuming budgetary policies remain 
unchanged).  Turkish membership costs would therefore be 
roughly equal to the costs of the 2004 enlargement.  The 
study opines this would be affordable, and that changes 
to the EU's financing and subsidy regime, particularly in 
agriculture, in the medium-term would ease the process. 
 
 
Comment 
------- 
8.  (SBU) Turkish EU membership is an emotional issue in 
Austrian society, with many warning that accession would 
lead to limitless Turkish immigration and enormous costs. 
The Bank Austria Creditanstalt study presents another 
face of Austria, one that is outward looking, export- 
oriented, and constantly seeking new commercial 
opportunities.  The study objectively challenges fears 
that the EU cannot afford Turkish membership. 
BROWN