AROUND Tallinn, the Estonian capital, smart houses are sprouting amid an unprecedented rise in construction. People drive expensive cars. This is a boom town, not a depressed former Soviet city.

Foreign investment is pouring into a low-tax economy that grew at 6.2 per cent last year. But even that left Estonia the slowest of the three Baltic Tigers: Lithuania grew at 6.7 per cent and Latvia at 8.5 per cent — as much growth in one year as the EU achieved in the previous five. Unemployment is falling fast.

One year after eight former communist countries joined the EU, few feel nostalgic. “I’d have thought that support for the EU would have dropped as people became disillusioned, but it’s higher than it has ever been,” Andrez Kasekamp, the director of the Estonian Foreign Policy Institute, said. The mood could not have been more different on May 1, 2004, the day of Europe’s reunification of East and West. The West feared a flood of cheap labour and organised crime, job losses to low-cost competitors and a Europe so large it would be unmanageable. The East feared the loss of national identity, soaring prices and domination by bigger neighbours.

Now there is something approaching triumphalism about enlargement. “I’m far more positive than I was a year ago. It’s gone much better than I expected,” Denis MacShane, the Europe Minister, said.

Janusz Reiter, the director of Warsaw’s Centre for International Relations, said: “It’s gone much better than expected. Many of the fears we had have simply been forgotten.”

EU funds are paying for new roads across Poland, where foreign investment has jumped from $4 billion (£2 billion) to $10 billion in two years, and whose exports are up 30 per cent as Western European markets open up. “The fear was that we would lose our identity, but that is a non-issue today. We were frightened we would be a second-class member, but that isn’t an issue either. Why should Poland feel dominated by other countries, when the economy is expanding more and more?” Mr Reiter asked.

Western fears have also dissolved. Government figures show that 130,000 Eastern Europeans have arrived in Britain, 20 times the Government’s prediction, but almost all are working and generally appreciated. There has been no influx of crime gangs.

Only in France and Germany, with their stagnant economies and fear of losing jobs to the East, do anxieties persist.

Enlargement — first championed by Margaret Thatcher in 1988 — has shifted the centre of gravity in Brussels. It is proving the death-knell of the Franco-German vision of a high-tax social Europe and sealing the domination of the Anglo-Saxon free-market, transatlantic vision.

Just a month after enlargement the new Eastern European states joined Britain and Italy in rejecting Guy Verhofstadt, the Belgian Prime Minister and Franco-German candidate for European Commission president. Instead they installed José Manuel Barroso, the Prime Minister of Portugal and an economic liberal.

France and Germany initially responded to the threat of low-cost, low-tax competition from the East by demanding tax harmonisation. But they have been forced to retreat, and Germany and Austria have started cutting taxes.

“The new members are setting a very good example. We want a dynamic Europe. France and Germany will have to reform their labour markets in the face of competition from the East,” Mr MacShane said.

The new states, refusing to be bullied, have also transformed EU foreign policy. Poland and Lithuania demanded EU support for Ukraine’s pro-Western Orange Revolution, sidelining France and Germany. They have fostered a more pro-American agenda, countering the French desire to make the EU a counter- balancing power to the US.

“The British view that we should have good relations with the US, and that we shouldn’t try to create a ‘pole’ to oppose them in a multipolar world is now in the majority,” Charles Grant, director of the Centre for European Reform, said.

But enlargement’s biggest impact may be yet to come. A principal reason why the “no” camp leads in the French referendum on the European constitution is that voters do not like the EU’s new direction. If France rejects the constitution, it will severely damage its leadership role in the EU.

Mr Grant said: “Enlargement is not the end of the Franco-German motor, but has made it less important. A French ‘no’ would be the end of the Franco-German motor.”

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