By Trevor Barton, Vice President and Managing Director, PBN-London

Merrill Lynch's Chief Global Strategist, David Bowers, described EU enlargement as "one of the most tantalising economic events of all time." There is no denying that, from a political perspective, 1 May was truly a historic occasion both in Europe and globally. However, the impact of enlargement on the business and investment community is rather less certain.

Anybody expecting immediate, radical changes and fabulous new investment opportunities will probably be disappointed. As the former Polish Prime Minister, Tadeusz Mazowiecki, eloquently stated, "the only change I will notice is that my cigarettes may cost more."

To say that a rise in cigarette prices will be the most significant effect of the European Union opening its borders to 10 new countries is perhaps an oversimplification. But increasingly, people are questioning the true impact of accession. Will the promised tighter fiscal controls and increased political stability become a reality? Will emerging European stocks suddenly become more attractive to investors as a result? Will enlargement actually bring meaningful benefits to European business?

European Stocks Already Reflect EU Enlargement

As far as investment opportunities are concerned, there is strong evidence to suggest that the economic benefits of enlargement have already been priced in to emerging European stocks. So investors looking for fast and high returns should look elsewhere -- probably further East.

As for the impact on business as a whole, in theory what is on offer in the accession countries should be attractive to Western European companies -- notably cheap and flexible workforces and advantageous corporate tax rates. But most companies of any significance woke up some time ago to the competitive advantages of operating out of Central and Eastern Europe. Foreign companies are already there in force.

In terms of trade, a recent EU report confirmed that there will be no "big bang" for trade after EU's expansion. In fact, more than 95% of EU trade with the accession countries has already been liberalised. A Grant Thornton UK survey found that less than one fifth of businesses believe that accession will have any impact on their access to new European markets.

Does this then explain why many people are failing to get excited about this recent momentous occasion? For many, EU enlargement took place a while ago. Indeed, Londoners could be forgiven for thinking that Russia and Ukraine have already joined the European Union, let alone Latvia, the Czech Republic, Poland, et al.

Serious Players will Benefit

So again, what will accession really mean for Western European business interests? Certainly opportunities will open up for companies and investors alike, but the high-risk, high-return days are gone. The invigorating rollercoaster ride of the 1990s is over, which is probably a good thing. Accession countries are already subject to stable, democratic rule, and now is the time for serious players, not cowboys.

Attractive opportunities still exist for those who adopt a creative, long-term approach to the markets. Financial investors may want to take an indirect route by identifying which Western European companies already have the most exposure to growth in the accession countries, for example those in consumer goods, retail and finance. President Prodi pointed out in November of last year that "European financial institutions have already invested heavily in the newly privatised banking systems of the acceding countries. The ten new members will have high financing needs during their catch-up phase, and this will fuel demand for EU capital and financial expertise."

Alternatively, Western European manufacturers may be able to cut costs considerably by moving production capacity to the accession countries, either through greenfield investments or joint ventures. Lower cost production was clearly an attractive prospect for major global companies like Volkswagen, Bosch and others, and will continue to be so in the coming years.

So while we in London might expect to bump into a few more Jerzys and Frantiseks this summer, the immediate and apparent effects of enlargement will be limited. But for those who truly understand the subtler nuances of a larger, unified Europe and its new markets, rewards will be reaped for many years.

Email Trevor: trevor.barton@pbnco.com