European Integration – A Brief History Introduction into Economic System of the EU

1. Miroljub Labus European Integration – A Brief History Introduction into Economic System of the EU Faculty of law, Belgrade Literature: R.Baldwin and C. Wyplosz: The Economics of European Integration, 3rd ed. Ch.1-2 Thursday, November 3rd ,2011 18:00 – 20:25

2. Agenda • Where we are today • Brief history of economic and political integration • Enlargements • Chronology – up to date

3. 1. Where we are today

4. The European Union today Fast-Track Accession Neighboring Policy Turkey CU/No date Western Balkans SAP Croatia 28th member state

5. Three pillars and one roof European Union Intergovernmental decision making Supranational decision making EC The European (Economic) Community Customs union, single market, agricultural and structural policies, trade and competition policies, etc. CFSP Common Foreign and Security Policy JNA Justice and Home Affairs Treaty on European Union (TEU) Treaty establishing the European Community (TEC/TFEU) • 5

6. Fundamentals United States of Europe The Security NATO (No European Defense Community) Economy Single market (European Economic Community) Fis cal Centralization QMV on all issues EDC Polity Common Affairs (No European Political Community) • 6

7. Economic and political integratuion: Treaties Euro cash Euro crises:EFSF Monetary Union Common Market EMS Treaty of Lisbon TEU/TFEU Customs Union Common Agricultural Policy Maastricht Treaty (TEU) 11 Treaties of Rome (EEC/Euroatom) TEC

8. Economic and political integratuion: Enlargements Euro cash Euro crises:EFSF Monetary Union Common Market EMS Customs Union Common Agricultural Policy 11 SI, SL, HU, CZ,MA,CY,CY LA,LI, ES CR RO, BU GR SP, PO AU, FI, SW IT, FR, DE, BE, NE, LU DN, IR, UK

9. Euro skepticism in Serbia Enlargement policy Goal Conditionality Recourses Owners of the program

10. Euro-Pessimism in the EU

11. Post-conflict period Zagreb Summit: SAP for WB

12. Euro-pessimism - It’s the Economy

13. Euro-pessimism – Sovereign debt crisis • EC is in trouble • Peripheral countries PIGS triggered the crisis Sovereign debt

14. Euro skepticism - Similarity and differences • Post-conflict challenge • World War II • Collapse of the Soviet Union • Civil War in Ex YU • Stabilization by integration • Assistance • The Marshall Plan • Structural funds • Reconstruction and stability program: CARDS • EFSF • Political and strategic integration • NATO • Post-conflict open issues

15. Means and Goals • Economic integration and law approximation are two striking outcomes • Market integration was the most visible driving force • But, they are means, not the goal • The goal is deeply rooted in a common European security system • Hence, it would be misleading to ignore security issues • There are two drivers of the EU • Economy plus security • Integration of the WB into the EU is more a security issue, than an economic issue

16. 2. Brief history

17. Early Post War Period • A Climate for Radical Change • “How can Europe avoid another war?” • What caused the war? 3 answers • Blame the loser • Capitalism • Destructive nationalism • These implied 3 post-war solutions • Morgenthau Plan, 1944 (Stripping Germany of its industry) • Adopt communism • Pursue European integration (Churchill’ United States of Europe) • European integration ultimately prevailed, but this was far from clear in the late 1940s.

18. Emergence of a divided Europe • 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 The Morgenthau plan abandoned, opting for strong West Germany controlled by neighbours = European integration

19. First Steps • 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 • Great success in promoting intergovernmental trade • European Payment System (EPU 1950-58) • No convertible local currencies • Clearing mechanism in a multilateral barter arrangement • Facilitated payments and fostered liberalisation

20. 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

21. Two 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)

22. IS EFTA-7 NL D B L N FIN S F DK I UK EEC-6 A P IRL CH E GR 1960-1973, two non-overlapping circles • EEC-6 was a custom union • EFTA-7 was a free trade area

23. 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)

24. 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

25. West Europe's Trade Arrangement in mid-1970s : IS FIN N DK S NL UK D B IRL L EEC-9 A F I EFTA-7 CH P E GR Two concentric circles

26. First Euro-pessimism, 1975-1986 • Political shocks • ‘Luxembourg Compromise’ (1966) • Unanimity voting if issues are of “very important interest” for a MS • Failure of Monetary Integration • Staflation • Failure of Deeper Trade Integration • Technical Barriers to Trade • Growing cost of Common Agricultural Policy creates frictions over budget

27. 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

28. 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". • Important institutional changes, especially move to majority voting on Single Market issues

29. 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

30. 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

31. 3. Enlargements

32. Fourth enlargement • 1994, Austria, Finland, Norway and Sweden admitted (Norwegians again vote no). • Still divided Europe 1994 1973 1958 1986 1981

33. 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)

34. 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).

35. 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

36. 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

37. From Copenhagen to Copenhagen • EU says CEECs can join the EU (June 1993) • Set out famous Copenhagen criteria for membership • stability of institutions guaranteeing democracy, • the rule of law, • human rights and respect for and, protection of minorities, • the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union • Copenhagen summit December 2002 • 10 CEECs can join in 2004

38. 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 • ERM exchange rate crises

39. 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

40. Amsterdam Treaty • Failed to reform main institutions • Tidied up of the Maastricht Treaty • More 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

41. 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

42. Fifth and Sixth enlargement 1994 • 2005 EU-10 from the CEE • 2007 Romania and Bulgaria • Integrated and Outer Europe 1973 2004 1958 2007 1986 Cyprus Malta 1981

43. Constitutional Treaty • Treaty of Lisbon (2007): • 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.

44. 4. Chronology

45. Chronology: EU • 45

46. Chronology: EU • 46

47. Chronology: EU • 47

48. Chronology: EU • 48

49. Chronology: EU • 49

50. Chronology: Serbia’s accession to the EU