European Union Economics

1. European Union Economics Patricia Nouveau 2012 - 2013

2. General information • 1. My details: pnouveau@yahoo.com; p.nouveau@ephec.be • 2. Objectives of the lecture: • Introduction to macroeconomic analysis (at European Union level); • Basic knowledge of European economic environment and general EU policy-making. • 3. Overall structure of the lecture: • Part One: The historical process of Economic Integration in Europe; • Part Two: The Economic and Monetary Union; • Part Three: Social and Economic Cohesion within the EU. • 4. Examination: • Oral examination – 3 questions; • Thirty minutes to prepare / fifteen minutes to present. • 5. ENGLISH: how to take advantage of a lecture taught in English?

3. Back up material • 1. Material • Slideshow: (≠ syllabus): Giving structure and main information • Lecturer’s oral presentation • 2. Student responsibility: Taking notes & review last week’s slides and notes • 3. Sources and readings: • Ivan T.Berend, Histoire économique de l’Europe du XXe siècle, Eds De BoeckUniversité, 2008; • Origins and Evolution of The European Union, Eds Desmond Dinan, Oxford University Press, 2006; • H. Wallace, W. Wallace & M.A. Pollack, Policy-Making in the European Union, Oxford University Press, 2005; • Ali M. El-Agraa, The European Union, Cambridge University Press, 2007; • Jacques Ziller, Les Notices, Edition Traité de Lisbonne, La Documentation Française, 2008; • AgnèsBénassy-Quéré/BenoîtCoeuré, Economie de l’Euro, La découverte, Paris, 2010; • Patrick Artus, La crise de l’Euro, Armand Colin, 2012; • Paul De Grauwe, economics of Monetary Union, Oxford, 2012.

4. 6.61 8.14 10.24

5. Some rules of discipline • No delay; • No nap; • No chattering; • No net surfing; • No cell phone switched on; • Questions and interactivity are most welcome ! !

6. Chapter One:The historical process of Economic Integrationin Europe • Introduction: what do we call economic integration? • The origin of the American economic supremacy • The European reactions 1900-1945 • The American support for during the launching of the European construction • The launching of the Common Market • The national champions strategy and the slowdown of European integration • The acceleration of European integration and the removal of intra-European NTBs 1980-2001 • The wave of M&A 1986-2001 and its consequences • The renewal of the US competition and the European reaction 1995-2007 • Conclusions

7. Introduction: what is economic integration? • 1. Attempt of definition: • To be distinguished from political integration: • Political centralisation: from several political centres towards one single political centre; • French political integration: from small dukedoms (Burgundy, Brittany, Normandy, Aquitaine) to the Kingdom of France (From 12th century to 17th century); • German Unification: 36 Central European States (Kingdom of Prussia, of Bavaria, etc, free cities of Bremen, Hamburg or Lübeck, etc) unite as the German confederation (1815) towards complete unification in 1870; • Leads to an unified territory under one single government and centralised institutions.

8. Introduction: what is economic integration? • Economic integration concerns: • Elimination of various obstacles preventing the free circulation of goods, services and production factors (labour and capital) on a territory (within a region, between various regions, etc); • The disappearance of all barriers turns separate economies into more interdependent economies. Can go as far as a unified market; • What are the obstacles to an integrated market: • Geographical obstacles; • Technological obstacles; • Institutional obstacles; • Cultural obstacles.

9. Introduction: what is economic integration? • Geographical obstacles: • Physical barriers • The Alps mountains separating Western Europe from Central and Eastern Europe: few communication paths and many bottlenecks; • Climate: Siberian permafrost - an obstacle between Western Russia and Far-Eastern Russia; • Insular position of some areas; • Distance between economic centres • Long-lasting travels for merchants in the past; • Problems of security (for goods and cash transported); • Transportation improvements reduce distance.

10. Geographical obstacles in Europe

11. Key market hubs in Middle Age Europe

12. Introduction: what is economic integration? • Technological obstacles: • Transportation barriers: • Today from Brussels to Seville, two days by truck whereas from Mumbai to Calcutta (same distance), 11 days by truck; • Progress in transport enables further economic integration: • Railways, air travel, maritime transport, etc; • Developments of routes, motorways, navigable channels, etc; • Logistics impediments: • Revolution of containerisation in the 1970s; • Communication barriers: • Progress in communications is also key to an more integrated market; • Post networks; • Power use and development of communications: telegraph, telephone; • IT development: Internet.

13. Introduction: what is economic integration? • Institutional obstacles: • Customs duties • Numerous tolls between localities in the past; • Tolls between provinces and sometimes localities in China today; • Technical barriers: • Standards, weights and norms; • Differences in railway gauge tracks between two areas; • Differences in electricity standards: plugs, cables, etc… • Legal barriers: • Labour rules & regulation of migratory flows: • No peasants in the cities in the Middle Ages; • Slavery in the United States; • Chinese “Hukou” or permit of residence; • Coexistence of several currencies and means of payments.

14. Introduction: what is economic integration? • Cultural barriers: • Language • Education systems; • Religion, beliefs; • Self-perception of the world; • → Jules Ferry laws in France (1881-82), establishing mandatory education in French for primary level

15. Introduction: what is economic integration? • 2. Expected theoretical outcomes of economic integration: • Economic convergence through: • Catching up process between lagging regions and more advanced areas; • Equalisation of productivity levels; • Equalisation of wages and prices; • Further growth & competitiveness: • Increased production levels due to increased market size: • Increase fiscal revenues for the state; • Improved international bargaining position for companies; • Enforced changes in efficiency brought about by intensified competition between firms.

16. Introduction: what is economic integration? • 3. Regional economic integration: the usual steps • Free trade area (FTA): member nations remove all trade impediments among themselves but retain their freedom to determine their own policies vis-à-vis the outside world (current NAFTA); • Customs Union: member nations must conduct and pursue common external commercial relations: German Zollverein in 1830s (see following map); • Common market: free factor mobility across national members’ frontiers (capital, labour, technology and enterprises should move unhindered between member states; • Economic and monetary union: unification of monetary and fiscal policies. Setting up of a central authority to exercise control over these matters (German unification, Sterling area); • Complete political integration: the participating countries become literally one nation.

17. Introduction: what is economic integration? One example of Customs Union: The German confederation in 1815 and the implementation of the Zollverein in 1834