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In the enlarged European Union (EU) with 25 members, the free movement of capital, coupled with the free movement of goods and services should be a major direct attraction for both intra-EU and external foreign direct investment (FDI) inflows. EU membership does not, however, lead to a linear increase in FDI inflows as many analysts suggest (ECE, 2001). With EU accession, the structure of FDI may change substantially (Hunya, 2000; Dyker, 2001). Activities based on the existence of closed domestic markets (e.g. food and beverages) and on cheap labour (e.g. assembly activities) might be reduced, or even closed down, giving way to more knowledge-intensive activities in the new EU member countries (Kalotay, 2004a). FDI in the new EU member countries is not yet on an uninterrupted growth path. In the pre-accession phase (1995–2003), the relative importance of new EU members in global FDI flows when compared to that of the “old” members of the EU, was actually shrinking. Thus, if new members want to use FDI as one channel for catching up, they have to reverse this trend and increase their inward FDI quite rapidly.

Yusaf Akbar is Associate Professor of International Business at the Southern New Hampshire University, United States. His teaching and research interests are in foreign direct investment, public policy and strategy, and his geographical area interests are in East and Central Europe. He has published widely in peer-reviewed journals including Journal of World Business, Thunderbird International Business Review and World Competition. Yusaf has been Visiting Professor at various schools around the world, including the American University in Bulgaria, ESSCA, the KMBS, the MIB School of Management-Trieste, and Thunderbird.

The history and prospects of European integration are both fascinating and exciting. Analysts of every aspect of this process, including its cultural, economic, financial, historical, political, and social dimensions, should recall that its main rationale remains as it has always been, to permanently end conflict and to secure peace and prosperity for all Europeans. As the European Union's (EU's) own website (see http://europa.eu.int) points out Europe has been the scene of many and frequent bloody wars throughout the centuries. In the 75-year period between 1870 and 1945, for example, France and Germany fought each other three times with huge loss of life. The history of modern European integration commenced in earnest with the realization in the early 1950s that the best way to prevent future conflict is to secure more economic and political integration. This led to the establishment of the European Coal and Steel Community in 1951, followed shortly by the European Economic Community (EEC) in 1957. Since then, the process of integration and enlargement has progressed at varying speeds, but always moving forwards. In 1967, the founding institutions of the EEC were merged to form today's European Commission (EC), the Council of Ministers, and the European Parliament. The members of the European Parliament were initially chosen by the member governments of the EEC, but direct elections commenced in 1979, and have continued every 5 years since then. The Treaty of Maastricht created the EU in 1992 and established the process of economic and monetary union (EMU) that culminated in the introduction of the euro in 12 of the 15 Member States in 2002.