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From Europe to the Euro: European
economic integration, origins and
development
Pasquale Tridico
Jean Monnet Professor in
European Economic Integration
Jean Monnet Course
The European Union
The European flag The European anthem
Europe Day, 9 May
The motto: United in diversity
Beethoven and the EU
• This is the anthem not only of the European Union but also of
Europe in a wider sense.
• the Ninth Symphony composed in 1823 by Ludwig Van
Beethoven.
• For the final movement of this symphony, Beethoven set to
music the "Ode to Joy" written in 1785 by Friedrich von
Schiller.
• This poem expresses Schiller's idealistic vision of the human
race becoming brothers - a vision Beethoven shared.
5
What is the European Union?
• A unique institution – Member States
voluntarily cede national sovereignty in many
areas to carry out common policies and
governance.
• Not a super-state to replace existing states,
nor just an organization for international
cooperation.
• Shared values: liberty, democracy, respect for
human rights and fundamental freedoms,
and the rule of law.
• Largest economic region in the world.
• World’s most successful model for advancing
peace and democracy (2012 Nobel Peace Prize
winner).
• World’s largest donor providing assistance to
developing countries.
6
Sizing up the European Union
over 500 million combined population
6
28 member states
20% of global
exports and imports
22% of global GDP
4.2 million km2
total surface area
24 official
languages
The treaties – basis for democratic
cooperation built on law
1952 The European Steel and Coal Community
1958 The treaties of Rome:
The European Economic Community
The European Atomic Energy Community
(EURATOM)
1987 The European Single Act:
the Single Market
1993 Treaty of European Union
– Maastricht
1999 Treaty of Amsterdam
2003 Treaty of Nice
2009 Treaty of Lisbon
EU population in the world
Population in millions, 2009
500
1339
128 142
307
EU China Japan Russia United States
The area of the EU compared to the rest
of the world
Surface area, 1 000 km²
EU China Japan Russia United States
16 889
9327 9159
4234
365
How rich is the EU compared to the rest
of the world?
EU China Japan Russia United States EU China Japan Russia United States
12 508
1 326
3 329
468
9819
25 100
4 400
27 800
12 200
38 700
Size of economy: 2008 gross domestic product
in billion of euros
Wealth per person: 2008 gross domestic product
per person
GDP per inhabitant: the spread of wealth
Lit
hu
an
ia
2008 GDP per inhabitant
Index where the average of the 27 EU-countries is 100
271
137
135 123 118
114
122 117
115 116 107
101 103
100 95 94
91 80 76 76
68 63 72 61
54 58
46 40
Lu
xem
bo
urg
Irela
nd
Neth
erl
an
ds
Au
str
ia
Den
mark
Belg
ium
Sw
ed
en
Fin
lan
d
Germ
an
y
Fra
nce
Ita
ly
Sp
ain
EU
-27
Cyp
rus
Gre
ece
Slo
ven
ia
Malt
a
Po
rtu
gal
Esto
nia
Hu
ng
ary
Slo
vakia
Latv
ia
Po
lan
d
Ro
man
ia
Bu
lgari
a
Un
ited
Kin
gd
om
Czech
Rep
ub
lic
How big are the EU countries?
Surface area in 1 000 km²
Fra
nce
Sp
ain
Sw
ed
en
Germ
an
y
Po
lan
d
Fin
lan
d
Italy
Un
ited
Kin
gd
om
Ro
man
ia
Gre
ece
Bu
lgari
a
Hu
ng
ary
Po
rtu
gal
Au
str
ia
Czech
Rep
ub
lic
Irela
nd
Lit
hu
an
ia
Latv
ia
Slo
vakia
Esto
nia
Den
mark
Neth
erl
an
ds
Belg
ium
Slo
ven
ia
Cyp
rus
Lu
xem
bu
rg
Malt
a
544
506
410
357
313
305
295
244
230
131
111
93
92
83
77
68
63
62
49
43
43
34
30
20
9
3
0.3
How many people live in the EU?
Population in millions, 2009
500 million total 82.1
64.4
61.6
60.1
45.8
38.1
21.5
16.5
11.3
10.6
10.8
10.5
10.0
9.3
8.4
7.6
5.5
5.4
5.3
4.5
3.3
2.3
2.0
1.3
0.8
0.5
0.4
Fra
nce
Sp
ain
Sw
ed
en
Po
lan
d
Fin
lan
d
Italy
Un
ited
Kin
gd
om
Ro
man
ia
Gre
ece
Bu
lgari
a
Hu
ng
ary
Po
rtu
gal
Au
str
ia
Czech
Rep
ub
lic
Irela
nd
Lit
hu
an
ia
Latv
ia
Slo
vakia
Esto
nia
Den
mark
Neth
erl
an
ds
Belg
ium
Slo
ven
ia
Cyp
rus
Lu
xem
bu
rg
Malt
a
Ge
rma
ny
2011 EU budget: €141.9 billion = 1.13% of gross national income
Citizens, freedom,
security and justice
1%
Other, administration
6%
Sustainable growth:
jobs, competitiveness, regional development
46%
The EU as a global player:
including development aid
6%
Natural resources:
agriculture,
environment
41%
How does the EU spend its money?
15
Outline of the Presentation
History of the European Union - Half a Century of Change and Progress
How does the European Union function? - A Unique Institutional Structure
The €uro Currency and the Monetary Union - United in Diversity
The European Union and the United States - Partners in Global Leadership
16
Which Europe?
• in post-war Europe the idea of Pan-Europa
(Coudenhove-Kalergi 1922/23) was heatedly discussed
• even the British were in favour of European Unity
• Churchill: United States of Europe (Zurich 1946)
• Congress of Europe (The Hague 1948)
• Unionists vs. Federalists
• Result: Council of Europe (1949)
18
The push of J Monnet & Robert Schuman
for the European integration
Jean Monnet (1888 - 1979)
• responsible for the French economic
modernisation (Monnet Plan). Author of the
Schuman Plan and by this ‘architect’ of
European Unity
• assuming that integration does not follow grand
logics but functional necessities. Peace and
prosperity only in a federal Europe
Robert Schuman (1886 - 1963)
• French Foreign Minister from 1948 – 1952.
presented the Schuman Plan and announced
the Schuman Declaration on May 9, 1950
9 May 1950
»Schuman and Monnet
declaration The future is a federal and united Europe
20
The Schuman Plan
• Monnet’s idea was to subordinate parts of the energy and heavy industries sector to a joint and legislative authority
• common regulations should create a common market for related goods
• politically, the supranational approach promised control over all important military industries
• economically, France could benefit from the transnational, common market and the availability of energy, and improve its economic modernisation
• no alternative intergouvernemental approach was that auspicious
21
Monnet: peace and prosperity only in
a federal Europe
• close economic cooperation in specific sectors is the key to overcome national separation and to achieve European federation
• elite approach: leading politicians, not huge assemblies would determine the way
• only a great crisis would provide the necessary push for European integration
• destruction in post-war Europe emerging of Cold War (east west conflict)
• threat of internal communist subversion in Western Europe
• none of these crises challenged sufficiently the nation-state
22
Six founding countries ( Belgium, Federal Republic of Germany,
France, Italy, Luxembourg, the Netherlands) signed a treaty
to run heavy industries (coal and steel) under common management in 1951:
The European Coal and Steel Community was born, precursor of the EU.
The Plan for a Peaceful Europe After WWII: Coal and Steel
Images: National Archives of the United States, German Federal Archive
1951:ECSC
Founders
New ideas for lasting peace and prosperity…
Konrad Adenauer
Robert Schuman
Winston Churchill
Alcide De Gasperi
Jean Monnet
Strands of European integration
• Federalism and intergovernmentalism
– Immediate disagreement about depth of European
integration
• Federalism – supranational institutions
• Intergovernmentalism – nations retain all sovereignty
• Intergovernmental initiatives
• OEEC (1948), Council of Europe (1949), EFTA (1960)
• Federal initiative
• European Coal and Steel Community, ECSC (1951),
European Economic Community (the Treaty of Rome),
EEC (1958)
Three view for European Integration
Suported mainly by the SIX
• Federalist
Beyond the stage of simple intergovernmental cooperation and supranational solutions to build economically and politically integrated union (headed primarily by France)
• Functionalist
Entrust the process of integration to the control of a supranational organization but to economic and market-determined by the cooperation between MS (led by UK in the first place)
26
A third view for Europe
Scandinavian and UK
Nantional member state
above all, no integration,
just intergovernamental
agreements in certain
areas, useful for economic
spillover and economic of
scale effects
Politics and History
1. Organization for European Economic Cooperation (OEEC) was founded in 1948 to administer US Marshall Plan aid to reconstruct postwar Europe. Europe sought to avoid fascism, Nazism and protectionism and establish peace and prosperity through trade kinks.
2. The Schuman (Monnet) Plan (1950) foresaw limited sectoral integration but on a supranational basis to place war-making sectors of coal and steel under one authority (The High Authority).
27
From Paris 52 to Rome 57
• Treaty of Paris (1951)-European Coal and Steel Community (ECSC): for the six member countries (West Germany, France, Italy, Belgium, the Netherlands and Luxembourg)-Nascent political integration through sectoral integration to avoid another French-German war.
• “Main concern” problem at the time was governmental failure. Twice in the 20th century governments failed to deliver peace and this led to ruin in Europe. By 1950s, a middle aged man had seen two incredibly destructive wars!
28
Motivations
• Propelled by a distinctive set of historical circumstances and impulses and motivated by political, economic and security considerations.
• Wish to avoid a repeat of governmental failures culminated in two World Wars in the 20th century and expansionist nationalism (Nazi Germany).
• Economic devastation caused by wartime destruction.
• Emergence of two superpowers, the USA and the Soviet Union with competing economic and political ideologies.
• Division of Europe (East and West) and the need for security from Soviet threat and expansionism.
• Need for rapid development in standards of living and economic performance to establish long-lasting peace and security. Poor economic performance was perceived as providing a climate of political instability conducive to the growth of Fascism and Communism as the extreme ideologies.
• Franco-German reconciliation as the bedrock of stability within
Western Europe.
29
Key historical events before Rome 1957
• Failure: The European Defense Community proposed by the Pleven Plan (another French!) failed in the French parliament (1954). The issue was German remilitarization. Germany became a member of NATO in 1955 through the intergovernmental Western European Union.
• DeGaulle and rising French nationalism obstructed a nascent political integration based on a common defense program.
• The Relaunch: The Messina Conference (1955): Proposals for the creation of a common market beyond the ECSC, a common transport and energy policies. The negotiations proposed a customs union and a commitment to deeper integration.
• The UK withdrew because of outright opposition to the supranational form of integration proposed in Messina.
• The Suez crisis made economic integration a necessity as it signaled the end of French-British status as global powers.
• Soviet invasion of Hungary was menacing 30
Emergence of a divided Europe before 1957
Cold War begins
◦ USSR pushes communism in the East
◦ UK, French and US zones merged by 1948 in moves towards creation of West German government
◦ Berlin blockade
strong West Germany
(controlled by neighbours)
= European integration
Another Step towards EU integration
• The Marshall plan, $12 billion (1948-52)
• Organization for European Economic
Cooperation (OEEC 1948) (Close to EU15)
◦OEEC coordinated aid distribution and prompted trade
liberalisation
◦ From 1961 OECD
33
Marshall Plan (European Recovery
Plan - ERP)
• announced by General George Marshall, US Secretary of State, Harvard 1947
• social situation in Europe
• containment of USSR influence
• US-fear for economic recession in the US
• leading position in Europe (isolation led the US into two wars)
• economic health to avoid communist subversion
• Organisation for European Economic Cooperation (OEEC) to push European integration (1948)
• US-engagement and cooperation for security reasons
• NATO strongly dependent on US
Need for deeper European integration
• As Cold War got more war-like, West
Germany rearmament became necessary
– Wide-spread feeling that it was best to embed
and economically and militarily strong W.
Germany in European superstructure
– OEEC was too loose to avoid future war
among Western European powers
• NATO was created in 1949
35
German Recovery and the Ruhr: Franco-German
tensions as new stimuli for integration
• the western parts participated in the Marshall Plan and
gained rapid economic success
• US and UK acknowledged the important role of the Ruhr Area for economic recovery of the entire continent and loosened restrictions
• political/military threat to France (Germanophobia)
• economic threat (Monnet’s modernisation plan for France relied on the assumption, that coal from the Ruhr would fuel French economy)
• US requested France to change their policy towards Germany
• the above mentioned Franco-German tensions proved to be the catalytic crisis according to Monnet’s strategy
The Benelux-Memorandum 1955
• The BeNeLux-memorandum proposed the establishment
of an Economic Community based on a general common
market and a sectoral approach for transport and
energy, especially nuclear energy (the last was in the
line of the approach taken with the ECSC).
• The common market was to be achieved by a gradual
reduction of trade restriction and custom tariffs.
• Besides the economic domain the memorandum
proposed an integration also at the social and financial
domain.
• In addition they proposed the creation of a joint
(supranational) independent authority. 36
Messina 1955
• The six ECSC countries turned after the
failure of the EDC their attention to the
idea of a customs union, which was
elaborated at Messina.
• The final resolution of the conference,
largely reflecting the point of view of the
three Benelux countries, formed the basis
for further work to relaunch European
integration. 37
Rome Treaty 1957 (1)
Treaty of Rome formally established the:
1. European Economic Community (EEC) and
2. European Atomic Energy Community (EURATOM) in 1957
In 1967, ECSC and EEC merged with the EURATOM to form the European Community (EC)
Rome Treaty 1957 (2)
• Based on “The Community Model” to forge “ an ever closer union among the peoples of Europe.’ Deadline for the removal of interstate tariffs were set at 1969 but achieved in 1968.
• (Deeper integration towards a common market in 1985 with the Single Market Program.)
• At this time, the EC was more than a customs union (CU) but less than an economic union (EU): 1. More than a CU because of common policies in coal/steel and agriculture (CAP), attempts to unify transport and energy sectors.
2. But less than an EU with free circulation of goods, services and only to some extent free movement in capital and no common macroeconomic and other sectoral policies
39
40
Six founding countries expanded cooperation to other economic sectors,
creating the European Economic Community (EEC) ─ or “common market“.
Elimination of tariffs* on trade between the six
original members achieved by 1968.
The Rome Treaties Set the Stage for Further Widening and Deepening
1957
Preamble of the EEC Treaty [The signatories are] "determined to lay
the foundations of an ever closer union
among the peoples of Europe, resolved
to ensure the economic and social
progress of their countries by common
action to eliminate the barriers which
divide Europe (…)”
* A tariff is a tax on imports or exports
Customs Union
• The EEC Treaty abolishes quotas and customs duties
between the Member States. It establishes a common
external tariff, a sort of external frontier for Member States'
products, replacing the preceding tariffs of the different states.
• This customs union is accompanied by a common trade
policy. This policy, managed at Community level and no
longer at state level, totally dissociates the customs union
from a mere free-trade association.
• The effects of dismantling customs barriers and eliminating
quantitative restrictions to trade during the transitional period
were very positive, allowing intra-Community trade and trade
between the EEC and third countries to develop rapidly.
41
Main notions of economic integration
• Free trade area
– Eliminates tariffs within the area only. Each country retains
its own policy towards non-members.
• Custom union
– Add a common external policy to the free trade area.
• Common market
– Factors of production can flow freely within a custom union. Free movement of capital, labor and goods/services.
• Economic union
– Common market with common determination of some
structural and macroeconomic policies.
Eurozone…for EU
1960-1973, two non-overlapping circles
E GR
IRL
FIN
IS
EFTA-7
EEC-6
N
S
P CH
A
UK I
D
F
B L
NL
DK
•EEC-6 was a custom union
•EFTA-7 was a free trade area
Evolution to Two Concentric Circles
• Preferential liberalisation in EEC and EFTA proceeded
• (EEC’s customs union and EFTA’s FTA completed
by 1968)
• Discriminatory effects emerge, leading to new political
pressures for EFTAs to join EEC
• Trade diversion creates force for inclusion
• As EEC enlarges, force for inclusion strengthens
• When UK decides to apply for EEC (1961), 3 other EFTAns
also change their minds
– De Gaulle’s ‘non’ (twice, 1963, 1969)
Evolution to Two Concentric Circles
• First enlargement, 1973
• UK, Denmark, Ireland & Norway admitted
(Norwegians say no in referendum)
• Enlargement of EEC reinforces ‘force for
inclusion’ on remaining EFTAs
– Remaining EFTAs sign FTA agreements with
EEC-9
– Domino-like affect of lowering barriers
Two concentric circles
E GR
West Europe's Trade Arrangement in mid-1970s :
I
D
F
B L
NL
IRL
P
UK
CH
A
FIN
N
S
IS
DK
EEC-9
EFTA-7
Euro-pessimism, 1975-1986
• Political shocks:
– ‘Luxembourg Compromise’ (1966) + enlargement leads to
decision-making jam.
• Unanimity voting if issues are of “very important interest” for a MS
• Failure of Monetary Integration
– Stagflation
• Economic shocks:
– Bretton Woods falls apart, 1971-1973.
• Failed monetary integration schemes (except within DM bloc).
– 1973 and 1979 oil shocks with stagflation.
– Failure of Deeper Trade Integration.
– Growing cost of Common Agricultural Policy creates frictions
over budget.
Euro-pessimism - It’s the Economy?
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
65 70 75 80 85 90 95 00 05 10 15
FRANCE GERMANY
Billio
ns
GDP in current USA Dollars
49
Margaret Thatcher
• perceived EC as complementary but subordinated to
NATO
• enforced in 1979 renegotiation of British budgetary contribution ( I want my money back)
• “Thatcher’s tactics were to grind her enemies down by endlessly repeating her main arguments and keeping everyone up late after dinner. Infuriated, the Danish prime minister hurled insults; bored, the German chancellor feigned sleep; disdainful, the French president ignored her; embarrassed, the Irish prime minister wished it weren’t happening.” (Dinan, 82)
• the dispute was settled with a compromise in 1983
• obstructed further integrative steps for a couple of years
• forced the Community to rethink the distributive monster called CAP
Bright spots
• Democracy in Spain, Portugal and Greece
• Greece joins in 1981 (Is it still a bright
spot?)
• Spain and Portugal join in 1986 after long a
difficult accession talks
• EMS set up in 1979 works well
• Budget Treaties
Single market programme
• Delors launches completion of the internal
market with Single European Act (1986)
– create "an area without internal frontiers in
which the free movement of goods, persons,
services and capital is ensured".
…SCHENGEN..
• Important institutional changes, especially
move to majority voting on Single Market
issues
Single Market Programme, EC92
• Basic elements
– Goods Trade Liberalisation
• Streamlining or elimination of border formalities,
• Harmonisation of VAT rates within wide bands
• Liberalisation of government procurement
• Harmonisation and mutual recognition of technical
standards in production, packaging and marketing
– Factor Trade Liberalisation
• Removal of all capital controls, and deeper capital
market integration
• Liberalisation of cross-border market-entry policies
Domino effect
• Deeper integration in EC-12 strengthened
the ‘force for inclusion’ in remaining
EFTAns
• End of Cold War loosened EFTAns’
resistance to EC membership
• Result of ‘force for inclusion’
– EEA – initiative to extend single market to
EFTAs
– Membership applications by all EFTAns except
Iceland
• Concentric circles, but both deeper
Fourth enlargement
• 1994, Austria,
Finland, Norway
and Sweden
admitted
(Norwegians
again vote no).
• Still divided
Europe
1958
1973
1994
1986
1981
Communism’s spectacular collapse
By the 1980s, Western European system clearly superior due to the creeping failure of planned economies…
Up to 1980s, Soviets upset reform efforts (economic & military pressure)
Changes in USSR due to inadequacy economic system
◦ hesitant pro-market reforms (perestroika)
◦ openness (glasnost)
Velvet revolutions in CEECs
– June 1989 Polish labour movement ‘Solidarity’ forced free
parliamentary elections & communists lost
• Moscow accepted new Polish government.
– Moscow’s hands-off approach to the Polish election triggered a
chain of events.
• Reformist in Hungarian communist party pressed for
democracy & Hungary opened its border with Austria, 1000s
East Germans moved to West Germany via Hungary and
Austria.
• Mass protests in East Germany; Wall falls 9th November 1989
• End of 1989: democracy in Poland, Hungary, Czechoslovakia
and East Germany (unification in 1990).
USSR collapses
• 1990, Estonia, Latvia and Lithuania –
declared their independence from the
USSR
• End of 1991, the Soviet Union itself
breaks up
• Cold War ends without a shot
• Military division of Europe ended
EU reacts
• The European Union reacted swiftly to this
geopolitical earthquake by providing
emergency aid and loans to the fledgling
democracies.
• Signing of ‘Europe Agreements’ with newly
free nations in Central and Eastern Europe
– These are free trade agreements with promises of
deeper integration and some aid
From Copenhagen 1993 to Copenhagen 2002
EU says CEECs can join the EU (June 1993)
◦ Set out famous 3 Copenhagen criteria for membership
1. stability of institutions guaranteeing democracy, the
rule of law, human rights and respect for and,
protection of minorities,
2. the existence of a functioning market economy as well
as the capacity to cope with competitive pressure and
market forces within the Union
3. To be able to receive the ACQUIS
COMMUNAUTAIRE
Copenhagen summit December 2002:
◦ 8+2 CEECs can join in 2004+2007
German unification and Maastricht
Jacques Delors proposes radical increase in European economic integration ◦ the formation of a monetary union
◦ Idea championed by French President Francois Mitterrand and German Chancellor Helmut Kohl.
◦ Grand deal? German can unify if it gives up the DM
Maastricht Treaty, signed 1992 ◦ A monetary union by 1999, single currency by 2002.
◦ Also, sets up EU’s ‘three pillar’ structure
Preparing for Eastern Enlargement
• Coming enlargement required EU to reform
its institutions
• Three tries:
– Amsterdam Treaty, 1997
– Nice Treaty, 2000
– Draft Constitutional Treaty, 2003
– Lisbon treaty 2007
Amsterdam Treaty
Failed to reform main institutions
Tidied up of the Maastricht Treaty ◦ Less social policy, Parliament powers modestly
boosted,
◦ Flexible integration, ‘closer cooperation introduced
Amsterdam leftovers ◦ Voting rules in the Council of Ministers,
◦ Number of Commissioners,
◦ Extension of issue covered by majority voting
Nice Treaty
Reforms of main institutions agreed, but poorly done
◦ Council voting rules highly complex and reduce EU’s ability to act with more members
◦ No important extension of majority voting
◦ Make shift solution for Commissioners
◦ No reform of decision making in ECB
Generally viewed as a failure
Main changes re-visited in draft Constitutional Treaty, 2004
Fifth and Sixth enlargement
2004 EU-8 from
the CEE
2007 Romania and
Bulgaria
Cyprus
Malta
1958
1973
1994
2004
1986
1981
2007
Constitutional Treaty
Treaty of Lisbon (20072009):
◦ Introduced qualified majority voting in the EU Council
◦ Enhanced co-decision of the European Parliament and the EU Council
◦ Created the President of the EU and a HR for Foreign Affairs
◦ Made legally binding Charter on Human Rights and
◦ Three pillars of the EU (EC, CSFP, HJA) with a different balance between supranational and intergovernmental principles.
67
Widening the Union - EU Enlargements
2013 and later
Candidate:
* under UNSCR 1244
Bulgaria
Romania
Cyprus
Czech
Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovakia
Slovenia
Austria
Finland
Sweden
Portugal
Spain
Greece Denmark
Ireland
United
Kingdom
2007
2004
1995
1986
1981
1973
Map: Wikimedia Commons
Summer 2013 :
Croatia
Iceland ??
FYR Macedonia
Turkey
Serbia
Montenegro
Albania
Bosnia & Herzegovina
Kosovo*
Potential
candidates:
Eastern Partnership
• Vilnius Agreement, November 2013
• Georgia, Moldova, Azerbaijan, Armenia
• Ukraine???Belarus???
• Politics, geopolitics, Russia
68
The European Union today
Western Balkans
SAP
Neighboring Policy
Fast-Track
Accession
Turkey
CU/No
date
Croatia 28th
member state
•70
Three pillars and one roof
Supranational decision making Intergovernmental decision making
EC
The European (Economic)
Community
Customs union, single market,
agricultural and structural policies,
trade and competition policies, etc.
Treaty establishing the European
Community (TEC/TFEU)
CFSP
Common Foreign
and Security Policy
JHA
Justice and Home
Affairs
Treaty on European Union (TEU)
European Union
•71
Fundamentals
Security
NATO
(No European Defense
Community)
Economy
Single
market
(European
Economic
Community
)
Polity
Common Affairs
(No European
Political Community)
United States of Europe
QMV
on all issues Fis
cal
Cen
trali
zati
on
The
Economic and political integratuion: Treaties
0
10
20
30
40
50
60
70
80
90
100
57 62 67 72 77 82 87 92 97 02 07
Index of economic integration
Common
Agricultural
Policy
Customs Union
EMS
Common
Market
Monetary
Union
Euro cash
Treaties of Rome
(EEC/Euroatom)
TEC
Maastricht
Treaty
(TEU)
Treaty of
Lisbon
TEU/TFEU
Euro crises:EFSF
11
Economic and political integratuion: Enlargements
0
10
20
30
40
50
60
70
80
90
100
57 62 67 72 77 82 87 92 97 02 07
Index of economic integration
Common
Agricultural
Policy
Customs Union
EMS
Common
Market
Monetary
Union
Euro cash
IT, FR, DE, BE,
NE, LU
DN, IR, UK
GR
SP, PO
AU, FI,
SW
SI, SL, HU,
CZ,MA,CY,CY
LA,LI, ES
RO, BU
CR
Euro crises:EFSF
11
Euro-pessimism – Sovereign debt crisis
Sovereign debt
EC is in trouble?
Peripheral countries??
PIGS triggered the crisis???
Avg. Growth of GDP per capita in EU and US, 1961-2009
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
Germany France Spain Italy EU15 USA
1961-80 1981-91 1992-2009
Bad and good economic time drive EU integration?
76
Outline of the Presentation
The €uro Currency and the Monetary Union - United in Diversity
77
The Euro and the Economic and Monetary Union (EMU)
77
1986 Single European Act
Sets objective of establishing
an internal market
1999 Introduction of the euro
2002 Banknotes and coins
Introduction of euro banknotes and coins,
replacing national currencies
The euro is officially introduced as a virtual
currency in Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain.
1992 Maastricht Treaty
Sets out how to achieve EMU, lays
down convergence criteria
78
EMU? Euro? Single Market? Some Definitions…
Treaty
Economic integration is the cornerstone of the EU
Economic and Monetary Union (EMU) enshrined
as an objective in the EU Treaties
The euro area – Countries share the euro as their
currency, ECB sets interest rates.
The single market – elimination of trade and competition
barriers; free movement of goods, services, capital and people
Enhanced policy coordination – countries maintain
control over economic policy, but have to coordinate at EU level
28 member
states
28 member
states
19 member
states
79
Euro Area ≠ European Union
Of the 28 EU Member States today,
19 have adopted the euro
What about the other 9?
Austria, Belgium, Cyprus, Estonia, Finland,
France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, the Netherlands, Portugal,
Slovakia, Slovenia, Spain and Latvia.
Bulgaria, Czech Republic, Hungary, Poland,
Romania, Sweden
aim to adopt the euro eventually, when
they are ready.
Denmark and the United Kingdom
have opted out and are
not obliged to adopt the euro.
Map: Wikimedia Commons
80
What Are the Additional Benefits and “Costs” of Adopting the Euro?
Price stability and
security of
purchasing power
Elimination of
transaction costs
Price transparency
across countries
Countries can no longer change their interest rate or their exchange rate.
Elimination of
exchange rate risks
1990 1997 2004
1€
2€
Countries cannot have an independent monetary policy!
81
How Do Countries Qualify for Membership of the Euro Area?
Countries must fulfill the convergence (or “Maastricht”) criteria
Price Stability
(low inflation)
Public finance
discipline
(low government
debt and deficit)
Interest rate
convergence %
Exchange rate
stability
Beating inflation
European Economic and Monetary Union: stable prices
Average annual inflation in the 15 EU-countries that used the euro in 2008
0
2
4
6
8
10
12
14
16
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009f
Maastricht criteria 1992
• Inflation < 1,5% than the best 3 MS.
• Interest rate < 2% than the best 3 MS.
• Exchange rate: in the 2 years before the EMU within the EMS (fluctuations +/-15%).
• Public Deficit : < 3% of GDP
• Public Debt < del 60% of GDP
A fundamental disagremeent in the
EMU • Monetarists
Progress in the
monetary field, fiscal
discipline, with a strong
independent bank and
fixed ER among MS as a
safe way to reach the
UEM
• Structuralists
gradual harmonisation of
economic policies and
strenghening of EU
institutions as the better
way to reach EMU
Background teorico Optimal Currency Area
OCA (AVO in it.)
Rinuncia alla moneta:
• perdita di sovranità,
• perdita signoraggio,
• perdita della possibilità di fissare il prezzo
della moneta,
• perdita della possibilità di implementare
politiche di svalutazione/rivalutazione
AVO: Shock asimmetrici
S
pr
D
E
Y Francia
S
prG
D
E
Y Germania
D’
D’
CA= GDP- Internal Expenditure
Conseguenze di una variazione di domanda asimmetrica
In Francia
• Disoccupazione
• Disavanzo della
Bilancia delle partite
correnti
• Rischio
svalutazione
competitiva
In Germania
• Eccesso di domanda di lavoro (le imprese domandano lavoro, i lavoratori offrono lavoro)
• Avanzo della Bilancia delle Partite correnti
• Rischio inflazione
Come si arriva al ri-equilibrio?
Il meccanismo di riequilibrio
automatico con flessibilità dei salari
• I lavoratori francesi
disoccupati
diminuiranno le loro
pressioni salariali, e
i salari diminuiranno,
conseguentemente
la curva di offerta si
sposterà a dx
• I lavoratori tedeschi
aumenteranno le
loro pressioni
salariali, e i salari
aumenteranno,
conseguentemente
la curva di offerta si
sposterà a sx
Si ritornerà automaticamente in equilibrio
Ri-equilibrio automatico con
flessibilità del lavoro
S
pr
D
E
Y Francia
S
prG
D
E
Y Germania
D’
D’
Il nuovo equilibrio, dopo l’aggiustamento automatico
è in E’ con prezzi + alti in Germania (inflazione) e +
bassi in Francia (svalutazione competitiva)
S’
E’
S’
E’
Il meccanismo di riequilibrio
automatico con mobilità del lavoro
• I lavoratori francesi
disoccupati
emigreranno verso
la Germania. In
Francia la
disoccupazione
diminuisce
• In Germania la
nuova offerta di
lavoro francese
assorbe l’eccesso di
domanda di lavoro
tedesca. La
pressioni al rialzo
sui salari in
Germania, si riduce
e l’inflazione si
contiene
Si ritornerà
automaticamente in
equilibrio
Ri-equilibrio automatico con
mobilità del lavoro
S
pr
D
E
Y Francia
S
prG
D
E
Y Germania
D’
D’
Il nuovo equilibrio, dopo l’aggiustamento automatico
è in E’ con prezzi + alti in Germania (inflazione) e +
bassi in Francia (svalutazione competitiva)
S’
E’
S’
E’
Il meccanismo di riequilibrio
automatico con mobilità del capitale
• I capitali tedeschi si
spostano in Francia.
Il disavanzo della
Bilancia dei
pagamenti si riduce
e la disoccupazione
diminuisce, la D si
sposta a dx
• Il deflusso di capitali
tedeschi riduce
l’avanzo della
Bilancia dei
pagamenti e causa
una diminuzione
della Domanda
Aggr., la D si sposta
a sx
Si ritornerà automaticamente in equilibrio
Ri-equilibrio automatico con
mobilità del capitale
S
pr
D
E
Y Francia
S
prG
D
E
Y Germania
D’
D’
Il nuovo equilibrio, dopo l’aggiustamento automatico
è in E’ con prezzi + alti in Germania (inflazione) e +
bassi in Francia (svalutazione competitiva)
S’
E’
S’
E’
Il meccanismo di riequilibrio
attraverso politiche ri-distributive
• All’interno di una stessa nazione (o di
un’unione monetaria), se ci sono shock
asimmetrici, è facile risolverli attraverso ri-
distribuzioni di risorse, diverse pressioni
fiscali, diverse politiche salariali, ecc.
• CIO’ RICHIEDE UNA
CENTRALIZZAZIONE DEL BILANCIO
Coordinamento delle politiche
• I dis-equilibri si POTREBBERO altresì
risolvere/ridurre se gli SM dell’ Unione
Monetaria coordinano le loro politiche
economiche. Nel caso specifico:
• la Francia fa politiche espansive,
• la Germania fa politiche restrittive
Aree valutarie ottimali
1. FLESSIBILITA’ DEL LAVORO
2. MOBILITA’ DEL LAVORO
3. BILANCIO CENTRALIZZATO
Se i paesi che formano l’Unione monetaria non hanno queste 3 caratteristiche, incontreranno maggiori difficoltà nel tornare in equilibrio e adeguarsi a shocks (variazioni della domanda)costo:inflazione in Germania disoccupazione in Francia
Risoluzione del dilemma inflazione/disoccupazione
attraverso politiche del TC nazionali (senza unione)
• RIVALUTAZIONE DEL TC del marco tedesco rispetto al franco riduce la domanda aggregata e sposta la curva di domanda, D, verso sx
• SVALUTAZIONE DEL TC del franco rispetto al marco aumenta la competitività dei prodotti francesi e fa spostare la curva D verso Dx.
• La Francia risolve i problemi di disoccupazione e la Germania evita l’inflazione.
• Allo stesso tempo, l’avanzo delle partite correnti in Francia e il disavanzo in Germania tenderanno a scomparire. Tuttavia non e’ cosi semplice e molte critiche esistono al riguardo
Shock simmetrici (with Union)
S
pr
D
E
Y Francia
S
prG
D
E
Y Germania
D’ D’
Se lo shock è simmetrico la BCE può ridurre il tasso di
interesse e stimolare la Domanda in ambedue gli SM
Shocks simmetrici in Paesi non-
membri di un’unione monetaria
• La svalutazione del TC non è una buona
opzione perché si esporterebbe il
problema nell’altro paese.Se la Francia
svaluta il TC, aumenta la sua D, ma in
Germania la D diminuisce. Si potrebbe
innescare un pericoloso sistema di
“svalutazioni competitive”
CONCLUSIONI
Nell’Unione Monetaria (UM):
• Gli shocks asimmetrici comportano dei costi aggiuntivi in un’Unione Monetaria che non è una AVO, area valutaria ottimale: (-flessibilità l.;-mobilità l.; bilancio non centralizzato). Se siamo invece in presenza di AVO, no.
• Nel caso di shock simmetrici le cose sono + semplici e si può realizzare l’equilibrio attraverso manovre sul tasso di interesse da parte della BC.
Senza Unione Monetaria:
• Politiche sul TC (valutazioni/svalutazioni) possono riportare l’equilibrio in caso di shock asimmetrici
• In caso di shock simmetrici la svalutazione competitiva non funziona
101
Increased competition
Lower prices
Wider choice of
products and services
More jobs
What Are the Benefits of the Single Market?
+
More opportunities to live, work and study in other EU countries
+
Easier travel +
The Theory of Economic Integration
The Theory refers to the commercial policy of
discriminatively reducing or eliminating trade
barriers only among the nations joining together. It
includes the preferential trade arrangements to free
trade areas, customs unions, common markets, and
economic unions.
• Preferential trade agreements
They provide lower barriers on trade among participating
nations than on trade with non-member nations. It is the loosest
form of economic integration. Such as British Commonwealth
Preference Scheme established in 1932.
The Theory of Economic Integration
• A Free Trade Area
It is the form of economic integration wherein all barriers are
removed on trade among members, but each nation retains its
own barriers to trade with non-members.
Such as European Free Trade Association (EFTA) formed in
1960 (U.K, Austria, Denmark, Norway, Portugal, Sweden, and
Switzerland); North American Free Trade Agreement (NAFTA)
formed in 1993 ( U.S., Canada, Mexico); Southern Common
Market (Mercosur) formed in 1991 ( Argentina, Brazil, Paraguay
and Uguguay)
The Theory of Economic Integration
• A Customs Union
It allows no tariffs or other barriers on trade among members,
and in addition it harmonizes trade policies toward the rest of
the world.
Such as European Union (EU) or European Common Market
formed in 1957 (West Germany, France, Italy, Belgium,
Netherlands and Luxembourg)
• A Common Market
It goes beyond a customs union by allowing the free movement
of labor and capital among member nations.
Such as EU in 1993
The Theory of Economic Integration
• An Economic Union
It goes further by harmonizing or even unifying the monetary
and fiscal policies of member states. It is the most advanced
type of economic integration. Such as EU.
• Recent Tendency—Duty-Free Zones or Free
Economic Zones
These zones are areas set up to attract foreign investment by
allowing raw materials and intermediate products duty-free.
Trade Creation
Take the customs union as the example to analyze
the effects of the economic integration. It has two
kinds of effects: trade creation and trade diversion.
1. Trade Creation
It occurs when some domestic production in a nation that is a
member of the customs union is replaced by lower-cost imports
from another member nation (assuming that all economic
resources are fully employed before and after formation of the
customs union);
It increases the welfare of member nations because it leads to
greater specialization in production based on comparative
advantage.
Trade Diversion
• Trade Diversion
It occurs when lower-cost imports from outside the
customs union are replaced by higher cost imports from
a union member
• Trade Diversion and Welfare
Trade diversion reduces welfare because it shifts
production from more efficient producers outside the
customs union to less efficient producers inside the
union
• Trade Diversion and Resource Allocation
Trade diversion worsens the international allocation of
resources and shifts production away from comparative
advantage
Illustration of a Trade-Creating
Customs Union
• Explanation of Figure 1
With Tariff, the nation’s production surplus
increases while the consumer surplus
decreases, the deadweight loss is the total of
protection effect and consumption effect. And it
reduces the national welfare;
The formation of a customs union, no tariff, it
can increase the national welfare, it is the total of
protection effect and consumption effect.
Illustration of a Trade-Creating
Customs Union
• Theory of A Customs Union
Viner, who pioneered the development of the
theory of customs unions in 1950, concentrated
on the production effect of trade creation and
ignored the consumption effect;
Meade extended the theory of customs unions in
1955 and was the first consider the consumption
effect;
Johnson added the two triangles to obtain the
total welfare gain of a customs union.
Conclusion
• A trade-creating customs union can increase the
national welfare— the trade creation: production
welfare and consumption welfare from the
comparative advantages
• A trade-creating customs union also increases
the welfare of non-members because some of the
increase in its real income spills over into
increased imports from the rest of world
Trade Diversion
• The Effects of a Trade-diverting Customs Union
In the end, a trade-diverting customs union results in
both trade creation and trade diversion
• Conclusion
Whether a trade-diverting customs union can increase or
reduce the welfare of union members, depending on the
relative strength of these two opposing forces
While the non-members can be expected to decline
because their economic resources can only be utilized
less efficiently than before trade was diverted away from
them
Illustration of a Trade-Diverting
Customs Union
• Figure 2
FIGURE 2 A Trade-Diverting Customs Union.
Conclusion
• A trade-creating customs union leads only to
trade creation and un-equivocably increases the
welfare of members and non-members
• A trade-diverting customs union leads to both
trade creation and trade diversion, and can
increase or reduce the welfare of members (and
will reduce the welfare of the rest of the world)
Conditions More Likely to Lead to
Increased Welfare
• Conditions
The higher of the pre-union trade barriers of member countries, it is more probable that the greater trade creation rather than trade diversion
The lower of the customs union’s barriers on trade with the rest of world, the less likely to costly trade diversion
The more competitive rather than complementary are the economies of member nations, the greater opportunities for specialization in production and trade creation
The closer geographically are the members of the customs union, less transportation costs barriers to trade creation among members
The greater of pre-union trade economic relationship , the greater opportunities for significant gains
Other Static Welfare Effects of
Customs Unions
• Administrative Savings
It means the elimination of customs officials, border patrols.
• The Improvement in Collective Terms of Trade
• Much More Bargaining Power
Several countries act as a single unit in international trade
negotiations. It is more powerful than a single country
Dynamic Benefits from
Customs Unions
Increased Competition
Economies of Scale
Stimulus to Investment
Better Utilization of Economic
Resources
Increased Competition
• In the absence of a customs union
Producers are likely (especially those in monopolistic and
oligopolistic market ) to sluggish and complacent behind trade
barriers
• With the customs union
Producers in each nation must become more efficient to meet the competition of other producers within the union, merge, or go out of business, reducing the cost of production to the benefit of consumers
The increased level of competition is also likely to stimulate the development and utilization of new technology, reducing the cost of production to the benefit of consumers
Economies of Scale
• The Enlarged Market
The formation of a customs union leads to the enlarged
market . It is likely to benefit from the economies of scale.
Such as EU, before the formation of the customs union, some
of several small countries have obtained the economies of
scale through the scale production for domestic consumption
and exports, after the formation EU achieved significant
economies of scale.
Stimulus to Investment
• The stimulus to investment to take the
advantage of the enlarged market and to meet
the increased competition
• The formation is likely to spur outsiders to set
up production facilities within the customs
union to avoid trade barriers imposed on non-
union products (called as tariff factories)
• Examples for U.S. Investment in EU after 1955
and after 1986
History of Attempts at
Economic Integration
The European Union
The European Free Trade Association
U.S. Free Trade Agreements and the
North American Free Trade
Attempts at Economic Integration among
Developing Countries
Economic Integration in Central and
Eastern Europe and in the Former Soviet
Republics
The European Union
( European Community)
Economic Community
Single European Act (86) provided for the removal of all
remaining barriers to the free flow of goods, services, and
resources among members (by 1992) and, in fact, became a
single unified market at the beginning of 1993.
The European Union
• Main Provisions Common Commercial Policy
the EU constitute one single market with a
Common Commercial Policy which includes the uniform EU-wide
application of Trade Policy Instruments( dispute settlement, trade
barriers regulation, anti-dumping, anti-subsidy, safeguard, injurious
pricing instrument, trade defense instruments-enlargement, trade
defense instruments-small & medium-sized enterprises (SMEs),
monitoring of third country commercial defense actions)
with a Common value-added tax system;
.
The European Union
Common Agricultural Policy (CAP)
It was formed in 1968. EU determines common farm prices, and
then it imposes tariffs so as always to make the imported
agricultural products equal to the high established EU prices. There
are two measures to reach the purpose.
1. Variable Import levies
2. Deficiency Payments
Negative effect: huge agricultural surplus, high storage costs and
subsidized exports
The European Free Trade Association
• EFTA
It was formed in 1960 by UK, Austria, Denmark, Norway,
Portugal, Sweden, and Switzerland, Finland becoming an
associate member in 1961(full member in 1986). EFTA
achieved free trade in industrial goods in 1967, but only a
few special provisions were made to reduce barriers on
trade in agricultural products
On January 1, 1994, the EFTA joined the EU to form the
European Economic Areas (EEA)
U.S. Free Trade Agreements and the
North American Free Trade
• In September 1985, US negotiated a free trade
agreement with Israel. It was the first bilateral
trade agreement signed by US
• In 1988 a free trade reached with Canada
• In 1993, North American Free trade Agreement
(NAFTA) agreed among US, Canada and
Mexico, which took effect on January 1, 1994
Attempts at Economic Integration
among Developing Countries
• Economic Integration in Developing Countries
Central American Common Market
Latin American Free Trade Association
Southern Common Market ( Mercosur)
Free Trade Area of Americas (FTAA)
Caribbean Free Trade Association
East African Economic Community
West African Economic Community
19-member Preferential Trade Area of Eastern and Southern Africa
Association of Southeast Asian Nations (ASEAN)
Economic Integration in Central and
Eastern Europe and in the Former
Soviet Republics
• Council of Mutual Economic Assistance (CMEA
or COMECON)
It was formed in 1949 in Soviet Union with the communist bloc
nations in eastern Europe (Bulgaria, Czechoslovakia, East
Germany, Hungary, Poland, and Romania) plus Mongolia
(Cuba, North Korea, and Vietnam jointed later).
• Main Purpose
It was to divert trade from Western nations and achieve a
greater degree of self-sufficiency among communist nations
Economic Integration in Central and
Eastern Europe and in the Former
Soviet Republics
• Commercial Policy Among the member countries, the state decided and
controlled all International transactions through a number of state trading companies
Trade among the member countries conducted on the basis of bilateral agreements (barter trade and counter trade in which one good was exchanged for another) and bulk purchasing (the agreement of a state trading company to purchase a specified quantity of a commodity of a year or for number of years from a state trading company of another nation )
• The End of CMEA After the end of 1989, it collapsed all over due to the political
changes
The single market: freedom of choice
Four freedoms of movement: 4 goods
4 services
4 people
4 capital
© G
ett
y Im
age
s
The single market has led to: significant reductions in the price of many products and services, including internet access and airfares. 40% drop in price of phone calls from 2000-2006 2.8 million new jobs
Free to move
“Schengen”:
4 No police or customs checks at borders
between most EU countries
4 Controls strengthened at EU external
borders
4 More cooperation between police from
different EU countries
4 You can buy and bring back any goods
for personal use when you travel between
EU countries
© C
orb
is
The Schengen agreements
• The Schengen agreements came into force on 25 March
2001.
According to those agreements, if one of the Schengen
signatory countries controls entry to the Schengen area,
there are no further formalities at its borders with other
Member States.
• For example For visa
• Thus, if the purpose of the visit is tourism or business
and if its duration is no more than 90 days in the
Schengen area, the benefits of the Schengen
agreements apply.
Going abroad to learn
Over 2 million young people have studied or pursued personal
development in other European countries with support from EU
programmes:
4Comenius: school education
4 Erasmus: higher education
4 Leonardo da Vinci: vocational
4 Grundtvig: adult education
4 Youth in Action: voluntary work
• Today: Horizon 2020
© G
ett
y Im
age
s
136
The European Central Bank – managing the Euro
• The European Central Bank (ECB)
is the central bank for the euro area.
• The ECB’s main task is to maintain
price stability in the euro area, i.e.
keep inflation low.
• This is done by steering interest
rates, thereby influencing economic
developments (by affecting
borrowing and lending by
consumers and companies)
• The ECB operates independently
from Member State governments.
137
Economic policy making: the euro area and the US
Monetary
policy ECB President
Mario Draghi
Fiscal
policy
Eurogroup Finance Ministers
Economic policy co-ordination is required for this
complicated set-up to function!
Euro area
138
The European Union and the United States - Partners in Global Leadership
The European Union and the United States
- Partners in Global Leadership
139
China6.7%
Japan4.9%
Others34.9%
EU2721.4%
Canada19.7%
Mexico12.4%
Canada15%
Mexico11%
Japan6%
Others30%
China20%
EU2718%
US and EU – A Dynamic Transatlantic Economy
EU is the 2nd largest
source of US imports
EU is the most important
destination of US exports
Source: Eurostat, data for 2009
• The EU and the US are by far the two largest
economies in the world. They account together for
about half the entire world economy.
• EU and U.S. together account for 40% of total global
trade (more than $1.7 billion in transatlantic trade every
day).
• The $3.75 trillion EU-U.S. transatlantic economy
employs 14 million workers on both sides of the
Atlantic.
• Since 2001, Europe has accounted for roughly two-
thirds of total global investment flows into the U.S.
– by far the most significant source of foreign
investment in the U.S. economy.
140
Eurozone 2009 US 2009
World share of GDP 14.8% (EU27: 21%) 20.2%
Global market share in terms of exports (world
%)
15% (EU27: 20%) 13%
Population 328 mln: (EU 27:
498mln)
317mln
Inequality - Gini coefficient 0.29% 41%
GDP per capita $ ppp 33,452 46,653
Life expectancy at birth 81 79
Poverty (50% of median income) 2006 10% 17.1%
Combined gross enrolment ratio in education
(primary, secondary & tertiary levels, % of pop)
Secondary enrolment ratio (% of
secondary school-age population)
Primary enrolment ratio (% of primary
school-age population)
Expected years of schooling (children)
95%
91%
97%
16
92%
88%
91%
15
EU and USA closer and static
comparison
Social Expenditure, % of GDP (OECD selected countries 2007)
0
5
10
15
20
25
30
Austra
lia
Austri
a
Belgi
um
Can
ada
Den
mar
k
Finla
nd
Franc
e
Ger
man
y
Irela
ndIta
ly
Japa
n
Net
herla
nds
New
Zea
land
Swed
en
Uni
ted
Kingd
om
Uni
ted
State
s
Avg E
SM
Avg A
nglo
sax
co.
THE EUROPEAN SOCIAL MODEL?
Passive and Active Unemployment measures (% of GDP), OECD 2007-08
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
Den
mar
k
Belgium
Nethe
rland
Finland
Ger
man
y
Swed
en
Fra
nce
Spa
in
Aus
tria
Irelan
dIta
ly
Can
ada
Aus
tralia
New
Zea
land
Japa
n
United Kingd
om
S. K
orea
USA
Avg
ESM
active passive
0,49
2,8
Passive and Active Unemployment measures (% of GDP)
OECD, 2007-08
THE EUROPEAN SOCIAL MODEL
Employment (left) and unemployment (right) rates in US 2006-2010
72
64.54.6
9.8
60
62
64
66
68
70
72
74
2006 2007 2009 2008 2010
0.0
2.0
4.0
6.0
8.0
10.0
12.0
US Employ. US Unempl.
THE EUROPEAN SOCIAL
MODEL
Employment (right) and unemployment (left) rates in Eurozone 2006-10
66.2
65.7
8.4
9.6
64.5
65
65.5
66
66.5
67
67.5
2006 2007 2009 2008 2010
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Eurozone Employ. Eurozone Unempl.
THE EUROPEAN SOCIAL
MODEL
What about…LABOUR
• Objective: Proposal for a new vision for
Europe: LABOUR AND FULL
EMPLOYMENT FOR EUROPE
• Key words: Full Employment, EU
integration, ECB.
• Agency for full employment, 5% GDP
• Resources:
146
Resources
• Pension Funds – In Europe in the last 20 years a big amount of money
were accumulated through private pension funds of workers. This
amount is about 70 bln per year in countries like Italy; much more,
around 300 bln in UK, and much less in smaller Member States. Much
of this money, we discover during the terrible years of the crisis, were
used also for speculative purposes by investment and insurance
companies. My proposal here is to regulate these private funds at
European level in order to buy European Bonds (issued by the ECB)
which would finance public investment at national level. At least 50% of
national private pension funds should be used for this objective.
• ECB – The European Central Bank should change its statute and
should include, as the Fed does in the USA, also the mission of full
employment along with the one of price stability. This would allow for a
creation of a ECB agency with the specific objective to buy national
bonds which would serve uniquely for productive investments in
Member States. In other words, the ECB could buy national bonds with
the specific objective, only, that they would finance public investments
which have an employment impact in the country. 147
•149
Chronology: EU
Year Event Explanation
1948 OEEC Organization for European Economic Cooperation established
1950 Schuman Plan French Foreign Minister Robert Schuman proposes the
establishment of the European Coal and Steel Community,
ECSC
1952 ECSC Established, expired 2002
1952 EDC Treaty establishing European Defence Community, French
National Assembly rejected it 1954
1953 EPC Plan for the European Political Community was published
1957 EEC The European Economic Community established by the Treaty
of Rome (including Euroatom)
1959 EFTA Stockholm Convention established EFTA (Austria, Denmark,
Norway, Portugal, Sweden, Swiss and UK)
1962 CAP Common Agricultural Policy starts
1968 CU Customs Union completed within the EEC, common external
tariffs established
•150
Chronology: EU
Year Event Explanation
1969 EMU born At the Hague summit, it was agreed to establish a single market, to
accelerate integration, and to introduce EMU by 1980
1972 EC-EFTA FTA FTAs signed between the EEC and Austria, Iceland, Portugal,
Sweden and Swiss
1973 First enlargement Denmark, Ireland and the UK became members, Accession treaties
signed 1971, FTA with Norway and Finland
1974 European Council
formalized
At Paris Summit, EC leaders agree to meet regularly as a European
Council
1978 EMS founded Bremen European Council established EMS and ECU
1979 Parlament First EC Parlament elected by citizens
1981 Second
enlargement
Greece joins
1985 EC92 White Paper Blueprint for economics in Single European Act
1986 Third enlargement
and Single
European Act
Spain and Portugal join, Single European Act signed (to enter into
force 1987)
•151
Chronology: EU
Year Event Explanation
1990 EMU stage 1 and
German
unification
The first stage of EMU begins, Germany was united
1991 First Europe
Agreement
Signed with Poland, Hungary and Czechia&Slovakia (1993),
with other CEECs signed in 1995
1992 Maastricht Treaty Treaty on European Union (entered into force 1993)
1992 EEA European Economic Area created by EC and EFTA
1993 Copenhagen
criteria
CEECs have to meet accession criteria within the framework of
European Agreements
1994 EMU second
stage
EMU2 begins
1995 Fourth
enlargement
Austria, Finland and Sweden
1997 Amsterdam
Treaty
Singed and came into force 1999, deals with leftovers from the
Maastricht Treaty
•152
Chronology: EU
Year Event Explanation
1998 The Eurozone
and ECB
Eleven countries decided to join Eurozone, ECB was
established
1999 EMU stage three Euro becomes a currency of its own right, but only electronic
currency until 2002
2000 Nice Treaty Singed, but came into force 2005 (except Ireland)
2002 Euro cash Euro notes and coins circulate
2003 Draft
Constitution and
IGC
Accepted Giscard d’Estaing’s draft Constitution as a starting
point for IGC, Italian draft of the Treaty was rejected, IGC
continues
2004 Eastern
enlargement, and
Constitutional
Treaty
The fifth enlargement, 10 new members join, The
Constitutional Treaty signed, ratification begins
2005 French and Dutch
reject
Constitution
French and Dutch referendums failed
•153
Chronology: EU
Year Event Explanation
2007 Sixth
enlargement
Bulgaria and Romania join
2007 Treaty of Lisbon Signed, but comes into force in 2009
2010 Greek drama The Greek crisis started, sovereign debt crises, and other PIIGS
followed
2010 Consultation on
Treaty of
Lisbon’s change
The Heads of State or Government agreed to establish a
permanent crisis mechanism to safeguard the financial stability
of the euro area.
2011 EFSF A bail-out plan for resolving the sovereign debt crisis in the
Euro zone
2012 Draghi speech Draghi Speech in September 2012 helped to restore trust in the
Eurozone, around Euro (“the ECB will do everything to save
the Euro, including unlimited buying of national bonds”)
2013 Croatia Croatia joined the EU.
2013 Vilnius Council Easter Partnership (Moldavia-Georgia…UCRAINE CRISIS)
Regional GDP 2012 < 50
50 - 75
75 - 90
90 - 100
100 - 125
>= 125
Assenza dati
Index UE 25 = 100
Solidarity in practice: the EU cohesion
policy
2007-2013: €347 billion invested for infrastructure, business, environment and training of workers for less
well-off regions or citizens
4 Regional fund
4 Social fund
4 Cohesion fund
Convergence objective: regions with GDP per capita under 75% of the EU average. 81.5% of the funds are spent on this objective.
Regional competitiveness and employment objective.
< 56
< 56.0 – 60.2
< 60.2 – 64.4
64.4 – 68.6
>= 68.6
no data
% pop 15-64
Dev = 8.4
Source Eurostat and NSI
UE-27 = 62.4
Employment rate 2012
Employment in high tech sector 2009
Source: Eurostat
Media = 10.6 Stand dev = 4.30
.
The EU – a major trading power
Share of world trade in goods (2007)
Share of world trade in services (2007)
Others
53.2%
EU
17%
United States
14.5%
Japan
5.8%
China
9.5%
Others
40.6%
EU
28.5%
United States
18.2%
Japan
6.8%
China
5.9%
EU27 CA surplus/deficit with main partners, 2008 (millions of Euros)
-200
-150
-100
-50
0
50
100
Series1 68.3 12.6 2.6 2.5 -6.5 -32 -61.3 -157.6
United States Switzerland India Canada Brazil Japan Russia China
US: worse symptoms than the EU
The EU is the biggest provider of
development aid in the world
Official development assistance per citizen, 2007
93€
44€
53€
EU Japan United States
The EU provides 60% of all development aid
Four Key player?
163
The European Commission - promoting the common interest Jean Claude Junker President of the European Commission
The council of Ministers - voice of the Member States Donald Tusk, President of the European Council
The European Parliament - voice of the people Martin Schultz, President of of the European Parliament
Federica Mogherini A high representative for foreign affairs and security
164
European Commission – Promoting the Common Interest
• 28 Commissioners,
representing the European
perspective, each responsible
for a specific policy area.
• EU’s executive branch
proposes legislation,
manages Union’s day-to-day
business and budget,
and enforces rules.
• Negotiates trade agreements
and manages Europe’s
multilateral development
cooperation.
• DONALD TUSK
José Manuel Barroso
President of the European Commission 164
165
Council of the EU – Voice of the Member States
Council of the EU (Council of
Ministers by field, e.g., agriculture,
foreign policy, economy)
• EU’s main decision-making body,
comprised of ministers of 28 Member
States, representing Member State’s
point of view.
• European Council meets at the level of
heads of state and government to set
the main political direction of the EU.
• Junker is the official President
representing the Council for a 2-year
term; but a country “presidency” rotates
among Member States every six
months.
Jean Calude Junker
166
European Parliament and European Court of Justice
European Parliament
The voice of the people
• European citizens directly elect members
for five-year terms.
• With the Council, passes EU laws and
adopts EU budgets.
• Approves EU Commissioners.
European Court of Justice
Upholding the Law
• Highest EU judicial authority.
• Ensures all EU laws are interpreted and applied
correctly and uniformly.
• Can act as an independent policy maker and
overrule national law in areas (economy, agriculture)
covered by the Treaties.
(Parliament in session pictured below)
166
European Parliament
The EU institutions
Court of Justice
Court of Auditors
Economic and Social Committee
Committee of the Regions
Council of Ministers
(Council of the EU) European Commission
European Investment Bank European Central Bank Agencies
European Council (summit)
How EU laws are made
Citizens, interest groups, experts: discuss, consult
Commission: makes formal proposal
Parliament and Council of Ministers: decide jointly
Commission and Court of Justice: monitor implementation
National or local authorities: implement
The European political parties
Greens/European Free Alliance
55
European Conservatives
and Reformists
54
Alliance of Liberals and
Democrats for Europe
84
European People’s Party
(Christian Democrats)
265
Non-attached
members 27
Total : 736
Progressive Alliance of Socialists
and Democrats
184
European United
Left - Nordic Green Left
35
Europe of Freedom
and Democracy
32
Number of seats in the European Parliament per political group
(January 2010)
Council of Ministers – voice of the member
states
4One minister from each EU country
4Presidency: rotates every six months
4Decides EU laws and budget together
with Parliament
4Manages the common foreign and
security policy
Summit at the European Council
Summit of heads of state and government of all EU countries
4Held at least 4 times a year 4Sets the overall guidelines for EU policies
4President: Donald Tusk
The European Commission – promoting
the common interest
28 independent members, one from each EU country 4Proposes new legislation 4Executive organ 4Guardian of the treaties 4Represents the EU on the international stage
The Court of Justice – upholding the law
28 independent judges, one from each EU country 4Rules on how to interpret EU law 4Ensures EU countries apply EU laws in the same way
The European Court of Auditors: getting value for your money
28 independent members
4Checks that EU funds are used properly 4Can audit any person or organisation dealing with EU funds
4Ensures price stability
4Controls money supply and decides interest rates
4Works independently from governments
The European Central Bank: managing the euro
Mario Draghi President of the Central Bank
The European Economic and Social Committee: voice of civil society
344 members
4Represents trade unions, employers,
farmers, consumers etc 4Advises on new EU laws and policies
4Promotes the involvement of
civil society in EU matters
The Committee of the Regions: voice of local government
344 members
4Represents cities, regions
4Advises on new EU laws and policies
4Promotes the involvement of local
government in EU matters
Civil servants working for the EU
4Permanent civil servants
4Selected by open competitions
4Come from all EU countries
4Salaries decided by law
4EU administration costs €15 per EU citizen per year
Commission employs about 23 000 permanent civil servants and 11 000 temporary or contract workers
Other EU institutions: about 10 000 employed
