Economic Integration – Part 1

1. Economic Integration – Part 1

2. How rich is the EU compared to the rest of the world? 37 300 27 800 24 700 10 793 10 035 10 000 6 400 3676 1 326 468 China Japan Russia United States Russia China Japan United States EU EU Size of economy: Gross Domestic Product in billion of euros, 2006 Wealth per person: Gross Domestic Product per person in Purchasing Power Standard, 2007

3. The EU – a major trading power Share of world trade in goods (2006) Share of world trade in services (2005) EU 17.1% EU 26% Others 44.9% Others 50.5% United States 16% Japan 6.6% United States 18.4% China 9.6% China 3.8% Japan 6.9%

4. Growth in Comparative Perspective

5. Common Market: Examples – Aerospace (Negative) • Deregulation and competition • 1978 – Airline ticket: London-Madrid MORE EXPENSIVE THAN London-NYC-Madrid • State-owned, national airlines – “national champions” • Monopolies (Air France, Alitalia, Lufthansa) • Arianespace • 10 Countries involved, 1/3 stake held by EADS • >50% all commercial satellite launches • EADS – European Aeronautic, Defence, and Space • 2000 merger of Aerospatiale (Fr.); Daimeler(Chrysler) Aerospace (Germ.); CASA (Esp.); BAE (UK) • Airbus is a subsidiary, itself a consortium of European companies and governments

6. Common Market: Examples – TENs (Positive) • Trans-European Networks • Infrastructure projects required for market’s efficient functioning • Transportation, Energy, Telecommunications • Based in the Commission (Euro-bureaucracy) • Operate in any and all member states • http://ec.europa.eu/avservices/video/video_prod_en.cfm?type=detail&prodid=681&src=1 • http://www.youtube.com/watch?v=XGPO-YmSbfs

7. Euro-zone membership status • ERM II States • Denmark, Estonia, Latvia, Lithuania, (Sweden) • Expected to Join ERM • Poland, Hungary, Czech Republic, Bulgaria • Romania in 2010-2012 • Britain is fully out

8. European Central Bank and EMU • INDEPENDENT ORGANIZATION tasked with PRICE STABILITY • Inflation near, but not to exceed, 2% per annum (aside: do we know about interest rates?) • Modeled on the Bundesbank • Executive Board (8 members, unanimous agreement among Council • Board of Governors (Head of each euro-zone central bank) • Located in Germany, Dutchman (Wim Duisenberg) 1st president of the Exec Board • Exclusive Powers: • Set euro-zone interest rates • Authorize printing of euro notes and *coins* • Maintain national foreign reserves • Eurosystem • Network of central banks of ALL member states (even Britain) • Carry out printing of money, application of ECB policy in the member states • ECB funding is FROM the Eurosystem’s banks, not from the EU budget

9. Convergence Criteria and SGP • Convergence Criteria for euro membership • Budget deficit <= 3% GDP • National Debt <= 60% GDP • Inflation <= 1.5% of 3 best performers • Currency stability, +/-2.5% limit on ERM fluctuations • Interest rates not less than 2% lower than highest-rate state • Stability and Growth Pact • Enforces convergence criteria among euro-zone members • Max 3% GDP deficits • Max 60% GDP debt • Amended in 2005 to allow “temporary” violations (loosely defined) • http://www.nrc.nl/international/article2160480.ece • http://en.wikipedia.org/wiki/Stability_and_growth_pact#Member_states_by_SGP_criteria

10. Economic Integration – Part 2

11. Beating inflation European Economic and Monetary Union: stable prices Average annual inflation in the 15 EU-countries that used the euro in 2008

12. GDP per inhabitant: the spread of wealth GDP per inhabitants in Purchasing Power Standards, 2007 Index where the average of the 27 EU-countries is 100 280 144 131 129 127 123 121 118 117 113 113 104 102 100 94 89 87 79 77 75 67 66 63 58 56 53 38 37 Malta Ireland Sweden Portugal Estonia Hungary Slovakia Poland Austria Finland France Latvia Romania Bulgaria Spain EU-27 Cyprus Greece Belgium Germany Italy Denmark Slovenia Lithuania Luxembourg Netherlands United Kingdom Czech Republic

13. Solidarity in practice: the EU cohesion policy 2007-2013: 347 billion euro 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.

14. How is the EU’s money spent? Total EU budget 2008: 129.1 billion euro = 1.03% of Gross National Income (ELMO – Alternative Breakdown) Citizens, freedom, security and justice 1% The EU as a global player: including development aid 6% Other, administration 6% Natural resources: agriculture, environment 43% Sustainable growth: new jobs, cohesion, research 45%

15. Three pillars The European Union Police and judicial cooperation in criminal matters Common foreign and security policy European Community domain (most of common policies) The Treaties

16. Common Agricultural Policy • 5% of the European Population, <3% GDP is agriculture (EU-15) • 1950s, the Six – 20% population, 12% GDP • Currently, 19% population in Poland; 22% in Romania • 2007 about 40% EU Budget • Contrary to the free market – protectionist • “The most idiotic system of economic mismanagement” ever devised (The Economist) • Why? • France demanded as key concession from Germany under Treaty of Rome • Price stability (Agri prices fluctuate more than industrial goods) • Push for European agricultural self-sufficiency • EU has 4x more agri exports than the US, largest in the world • Farmers vote (more than the rest of us)

17. Common Agricultural Policy • Common Agricultural “Price-support” program • Target prices – what farmers should get • Threshold prices – price of imported goods (to protect local agriculture) • Guaranteed prices – what the Commission will pay to take goods off the market • EU obliged to buy surpluses – warehoused or given away as aid • Problems: • Too much production – technological advances • Problems with “dumping” surpluses • Inequality – 70% of CAP funds 20% of farms, usually the biggest and wealthiest • Inefficiency – prices artificially high (and costs to produce getting lower constantly) • Consolidation – fewer little farms, more conglomerates • EU payments to not grow (a boon to the golf course industry) • Reforms • Separate payments from production, now a set amount per farm(er) (Decoupling) • Subsidies dropped for the biggest farms • What about the East? – Lump sums and a phase-in to CAP (10 years)

18. Structural and Cohesion Funds • Economic development aid when GEP/capita <75% EU average • Regional competitiveness aid when >75% average EU GPD/capita • Territorial cooperation – transnational development and common problems • 7 Structural Funds • European Regional Development Fund (aid to poor areas) • European Social Fund (employment and worker mobility aid) • “Guidance Section” incorporated in CAP (agricultural diversification) • Cohesion fund (aid to poor states to reform environmental standards and transport) • Fisheries Guidance (upgrade fleets, aid to ports, aqua-culture) • Solidarity fund (aid to respond to natural disasters) • Globalization adjustment fund (aid to sectors hurt by globalization and safety regulations)

19. Structural and Cohesion Funds • Major foci: Development (of course) and tackling unemployment • Job creation, worker training, educational programs, mobility • Problems: • No standard education • 27 States, 23 Languages • Lifelong Learning Program • Preschool – vocational training

20. Europe of Regions: NUTS • NUTS – Nomenclature of Territorial Units for Statistics • Here: NUTS-2 • http://www.youtube.com/watch?v=uoU-Qz9T86o&feature=related

21. Economic Integration – Odds and Ends

22. CAP: Beneficiaries • Recall that CAP subsidies only apply to the EU-15, thus excluding the 12 new members

23. CAP: A possible future • Assuming all current reforms are finished, and no new policy changes are made

24. EU Budget • http://news.bbc.co.uk/2/hi/europe/8036097.stm • This is far better than anything I can offer you, bar me ripping off the BBC and re-packaging this as my own

25. Ireland: Celtic Tiger • WideAngle Documentary -- http://www.pbs.org/wnet/wideangle/episodes/mixed-blessings/video-full-episode/1119/ • Includes discussion of all your favorite topics – including history, the common market, globalization, immigration, property bubbles, the marginalization of religion at the hands of big business, Poland, and much, much more! • Newshour report on the Ireland more recently (also Poland) – • http://vvi.onstreammedia.com/cgi-bin/visearch?user=pbs-newshour&template=template.html&squery=%2BVideoAsset:pbsnh020409 • OR I can talk about it (as I intended to do yesterday), and then you can have group time. • EITHER WAY I need 5-10 minutes with each group/country, so “group time” would not mean “hooray, let’s leave early”

26. Ireland • asdf