Economic Union

1. Economic Union Is the final stage of economic and political integration NTB’s are abolisheda more fully integrated market Agreement to FOUR FREEDOMS Goods– “harmonization” of health safety and other standards.. Services – complex process-banking and finance traditionally heavily regulated People- a unified immigration policy Capital- nations give up their ability to regulate investment inflows and outflows

2. Economic Integration • Is appealing because it is a way for nations to achieve greater efficiency in their use of scarce resourceshigher rates of ECONOMIC GROWTH • Static efficiency gains a) specialization in production of goods and services-protective barriers that preserve inefficient industries are abolished.

3. Economic Integration • The gains from specialization in terms of production ,efficiency ,and profitability are significant. • Creation of larger integrated markets –makes large scale production possible in certain industries-the “economies of scale”.

4. Dynamic Efficiency Gains • Dynamic efficiency promotes economic growth • A larger and more competitive market is likely to be more innovative-firms becomemore efficient and “nimble”. • If economic integration causes the long term rate of economic growth to rise by by 2%  by end of a single generation this can cause living standards to double.

5. The Sovereignty-Unity trade off • Trade off between economic benefits and political costs. • Closer economic ties closer political ties • Wishes of domestic voters not now paramount-needs of partner states also now important “democratic deficit” ?

6. A Loss of Sovereignty… • Regional trade blocs –pluralistic organizations which necessarily place constraints on on the actions of members. • tension between national interests and international obligations-(McCreevy v the ECB?) • Also as markets merge,some parts of the bloc prosper and others declinechanging geography of wealth & powertensions.

7. But…a reduction ofnationalspecial interest groups power • Evidence that whilst integration reduces power of individual nations..it also reduces power of national special interest lobbies. • Ability of specific national lobbyists watered down in international negotiations- many labour, safety, and standards regs. now adopted across the EU would not have been enacted at a national level

8. Some smaller nations gain in status • Smaller nations such as Ireland have gained in political power. • Ireland now punches above its weight as a leading nation of the EU than if it were a small but autonomous European nation making its own way in international politics. • For some the sacrifice of sovereignty results paradoxically in more power-but for others it marks a reduction…may explain UK ambivalence to the EU.

9. The birth of a united Europe… • Immanuel Kant-the philosopher-envisaged the possibility of nations of Europe in “perpetual peace” under a federal system of governance where each yields some sovereignty and sacrifices some national interests in return for some reciprocal actions by others. • “Perpetual peace”…was very appealing compared to a European history of virtually perpetual war especially 1914-18 and1939-45

10. Ricardo’s contribution to the vision…and a bulwark against communism.. • Free trade between nations would result in an interdependence and interconnected commercial life which would render war obsolete. • Also post WW2 western European political elites wanted an economic and politically strong bulwark against the spread of communism-which emerged from WW2 stronger than ever-not least due to the military power of USSR and the role of CP’s in the resistance movements…esp. France and Italy.

11. The Role of Jean Monnet and Robert Schuman • Jean Monnet- distinguished French political economist- put the vision into practice and realized it would have to be an incremental process towards unity-not a “big bang” approach • Initially modest ambitions of the European Coal and Steel Community (ECSC) –implemented by Robert Schuman-key aspect was a sacrifice of some legal sovereignty by the creation of an ECSC judicial system. • Spillover effects of ECSCTreaty of Rome 1957Creates EEC-France, Germany, Belgium, NL, Luxembourg, and Italy.

12. The EEC- A Success • The “Six” were natural trading partners and each had something significant to gain form its membership…. • All benefited from the static and dynamic benefits of economic integration. • Post-war recoveryeconomic boom of the late 1950’s and 1960’sstrengthened the ties of prosperity • Britain meanwhile stood aside and attempted to dominate a looser alternative..EFTA. Ireland still tied very closely to the UK and fearful of moving outside of the UK’s inner economic circle of former commonwealth states.

13. The Common Agricultural Policy (CAP) • The EEC did not embrace free trade entirely… • Widespread non-tariff barriers to trade still existed. • CAP an elaborate system of agricultural subsidy-ensured food supply autonomy- a far cry from the free market-dominated EEC budgets-and eventually led to a budgetary crisis in the 1980s-but was seen as source of stability- a necessary evil in the 1960snad 1970s.

14. European Community-1967 • Formal unity of the EEC, ECSC,and Euratom-to create an institution with broader responsibilities-change in name signaled an intention to move beyond purely economic issues. • Read through CAP study-box insert in notes….

15. Broader and Deeper..EC 1973-1993 • 1973-1986 emphasis on broadening-due in part to a lack of progress in deepening the institutions due to the French reluctance to allow greater supranational developments in the 1970’s. • 1985-1993- a dramatic period of deepening of the unity-notably the Single European Market and the EMU project which would culminate in the Euro.

16. The Process of broadening… • 1957- Treaty of Rome- France, Belgium, Netherlands,Luxembourg,(W)Germany,Italy • 1973-Britain,Denmark,Ireland, • 1981-Greece-post-colonels-strengthening democracy • 1986-Iberian expansion-Spain & Portugal-also strengthening democracy • 1995-Austria, Finland, Sweden

17. 1980s-Stresses and Strains • Entry of 4 agricultural nations placed fiscal strains on other nations-due to CAP and ESF and ERDF • Entry of poorer nations-lower living standards-limited the extent of their trade with the rest of the EC.Lower wage structures threatened some jobs in EC industries. • Mid-80’s higher EC programme costs-Jacques Delor returned to the EC’s roots-in advancing a programme of deepening the market. • 1985-Single Market Act proposing a single integrated market by 1992 • Identified 200 general areas of agreement towards the creation of a single European market.

18. The Four Freedoms of 1992..Free.movement of goods, services, capital and people-removal of thousands of non-tariff barriers-esp. health safety and technical standardsharmonization achieved through mutual acceptance of one another’s standards.. • Service freedom tricky due to complex systems of financial regulations each nation has in place-still not achieved. • Capital-a process confirmed best within the Euro zone • People-a common immigration policy-makes the EU a prized destination for economic migrants • Still too early to gauge the full effects of 1992-the first two years were a recession-effects are likely to be slow but incremental a 1.5% increase in annual growth say from 2 to 3.5% ends up doubling living standards over a 50 year period.

19. European Commission-the EU executive body-each commissioner has a special portfolio of responsibilities. • President of the European Commission is the CEO of the EU..Represents the EU on International bodies such as the G7 summits. • Council of Ministers provides –one member per state-provides a balancing forum for more narrow national interests-is the EU main legislative body. • European Parliament-only institution directly elected-not a legislative body but can amend Commission proposals. • Heads of Governments meet regularly at the European Council to consider high level concerns.Leadership of the Council rotates every six months. • European Court of Justice-One representative from each of the EU member nations-Provides an independent agency to interpret and enforce EU agreements

20. European Central Bank • Created after the decision to adopt the Euro. • An executive board appointed for 8 year terms • A governing board which includes the executive board and the heads of all EU member nation central banks. • Sets the unified ECB minimum lending rate which determines all interest rates across the EU-once a tool available to individual governments-now applied with a broader brush stroke across the euro-zone.

21. The 1990’s Euro, Europe and EUROPA • Newhouse-”western Europe had a good cold war”-because the common enemy of the USSR gave the western European nations a good reason to set aside their differences and compromise. • Economic integration provided the means to achieve the political goal of peaceful cooperation • Without the cohesion provided by a common external threat will the EU drift back to its old pattern of conflict. • Will the euro deepen unity-(at least among Euro zone members! • Can the EU evolve into a cohesive political entity capable even of a common foreign policy-there appears to be particular difficulties here.

22. A Marxist Assessment of the tensions within the EU highlighted by the Iraq crisis “ What is just as striking is the rift that has opened up between the USA andBritain, on the one hand, and France and Germany on the other, with Russiamore aligned at present with the latter group. The level of vitriol, thediplomatic stand-off, marks the worst state of inter-imperialist relationssince 1945. These are the harbingers of still more serious conflicts than those we facetoday. They show that the "uni-polar" world which has emerged since 1991,centred on US military supremacy does not merely embody US hegemony but atthe same time undermines it by calling forth an increasingly assertivechallenge to Washington"s policies among other powers now convinced that theUS will look after its interests alone, rather than those of imperialism asa whole…” Andrew Murray

23. A Marxist Assessment of the tensions within the EU highlighted by the Iraq crisis-continued “In the current crisis, this is shown by the actions being taken by the Bushgroup to undermine the unity of the EU, to prevent its emergence as analternative pole of power in the world economy, something spelt out inBush"s security doctrine. Hence the rounding up of the east European statesinto a bloc against France and Germany, hence the drive to force Turkey intothe EU in order to weaken the Union"s cohesion. We do not wish to see themergence of an EU superpower, nor do we want to replace a world with onegreat imperialist state by a world with several. But we should not be blind to the purpose and plan behind the attitude now being taken by Washington, withBritain"s support, towards European politics. It may be noted in passing that all the parties to this conflict arecapitalist countries, more-or-less democratic. This makes a nonsense of thetheory of the "end of history", which posited that the universal dominanceof democratic capitalism would remove systemic conflict from the conduct ofhuman affairs.” Andrew Murray

24. Four Other Issues which challenge the EU • The Ever Wider Union dilemma • The Challenge of the regions. • The Security Issue • The German Problem

25. The Ever Wider Union dilemma • With the collapse of communism – the EU became the only club for European nations with assurances of political stability, access to markets and capital-and most importantly a guarantee that they would not be left behind in the future. • 12 countries filed membership applications-Cyprus, the Czech Republic, Estonia, Hungary, Poland, and Slovenia were given priority. • A second wave including Bulgaria,Latvia, Lithuania,Romania,and Slovakia will be considered next. • Main problem is that all the new entrants are much poorer than the existing member states-therefore net recipients of EU funds-reducing Ireland’s share and making Ireland a net contributor for the first time.

26. The Challenge of the Regions • As nation states have seceded power-regions have taken on a new importance- sometimes cultural e.g.the Catalonia region in Spain. • Or economic separatist tendencies e.g. the efficient and wealthier north of Italy resents the poorer and more backward “Latin” south of Italy. • Regional inequalities persist in Ireland we have substantial imbalances between the East and the West- what can the EU do now to overcome this • Most of the new entrants will represent one huge regional challenge to the rest of the EU members states-will funding be available-and who will foot the bill?

27. The Security Issue • Europe is in quite a dangerous location despite the removal of the former USSR… • Potentially surrounded by conflicts –former Soviet republics such as Chechnya, the Balkans, the Middle East,North Africa. • Threats to EU security include terrorism, environmental dangers, organized crime,illegal immigration,the drug trade,eastern European mafia, etc etc • EU needs common defense policy-but this would require more political unity than so far demonstrated by leading members in the past. • It seemed like it was evolving towards an effective security regarding Kosovo but Iraq has blown that progress apart.

28. The German Problem • The problem here is how to keep Germany engaged in the project of European Unity without dominating it. • Germany faces serious economic, social and political problems-its economy has been in recession for over two years now-and it is widely regarded as being in need of an injection of the “chill wind of the free market” to allow it to recover from its current flabbiness. • Germany could become preoccupied with its own issues. • Yet the Franco-German alliance appears stronger than ever.

29. Political Union or Monetary Union • All these problems were to the fore at the Maastricht Summit in 1991. • France proposed monetary union-a single currency- a potential solution to the main problems? • A single currencyEU markets more efficient and the economies more dynamic • Economic gains to offset the costs of enlargement and boost the prospects of the regions • Germany would be locked into Europe through money-Germany was reluctant to relinquish the strong DM but wanted political unity.

30. The Political Economy of the Euro.. • Monetary union was adopted at Maastricht –but political union was once again put on the back burner.. • The criteria for membership of the monetary union was thought to be so strict as to ensure that only a core of stronger economies could participatefears of a two tier Europe • Britain refused to join-the “wait and see” approach-and now seems to be even more out of kilter with the rest of EU as a result.

31. The Political Challenge of the Euro • The political implications of the Euro are enormous • FIRSTLY-monetary union has created a REASON for the nations to unify-to be left out can be to be marginalized and this creates an imperative towards more unity. • SECONDLY- Qualifying for membership has forced Euro zone states to adopt a much more LIBERAL economic view with regards to public sector deficits and taxation and inflation…forcing the Euro zone towards an inbuilt antipathy to wealth redistribution financed by an increased level of taxation on corporations and the wealthy, as well as an askance view of public sector growth-it makes socialist policies for individual EU states difficult to implement.

32. Further Political Challenges of the Euro • THIRDLY- Now the single currency is fully implemented it creates a significant advance towards a single European market-this will outpace much policy making taken on a national level still- strategies will have to be EU wide to have any impact or else there will be seepage between nations if policies differ significantly. Also trade unions will need to increasingly organanise across EU boundaries to be effective. • Lastly- will the Euro futher advance political union or will it merely remain an alteration in the currency

33. Euro-Optimists and Euro-Pessimists • Euro-Pessimists focus on the deep historical divisions that separate the nations of Europe-see the divisions over Yugoslavia and more recently Iraq-divisions of interest and influence that date back to the 19th century or even before.. • Euro-Pessimists also suggest that the universal pursuit of wealth is insufficient a foundation for a community of nations-See Luigi Barzini quote- • Euro-Optimists point to the EU’s achievements over a relatively short time span. • Also not least the absence of war in Western Europe since the second world war- a not inconsiderable achievement despite all the challenges it faces ahead in the 21st century • Lastly-in some respects the EU must succeed since so much political and economic commitment has been entrusted to the enterprise by all those concerned-so as to make failure inconceivable.