The integration imperative Theory and practice. What is economic integration?

The integration imperative

Theory and practice

What is economic integration?

Types of integration – Tinbergen

• Negative integration: oRemoval of discriminatory restrictions on

movement across borders such as tariffs and quotas

• Positive integration:oModification of existing policies and

institutions, often by common policies, to enable transnational markets to function more effectively

• Integration combines parts to make a whole

• Economic integration based on removal of barriers that limit flow of goods, services, capital, labour and communication across borders

• Integration is a process

Stages of integration: free trade area

• Not followed by EUo Tariff and quota free trade among member stateso No positive integrationo Persistence of non-tariff barriers between stateso Retention of national tariffs against rest of the worldo Problems of trade deflection (goods from third

countries enter via member state with lowest tariff) overcome by rules of origin

Stages of integration: customs union

• EU built customs union by 1968oNo tariff quotas among member statesoCommon external tariff overcomes trade

deflection problemso Some positive integrationo Some common policies, especially regarding

trade with third countries

Stages of integration: common/single/internal market

• Launched in mid-1980s in Europe with view to completion by 1992 – but an ongoing processo Customs union but enhanced by free movement of

factors of production – goods, services, capital labouro More positive integrationo Fuller development of common policies such as

competition and regional policies

Stages of integration: economic and monetary union

• Partially achieved in Europeo Enhanced economic co-ordination and fiscal transferso More intense positive integrationo Removal of remaining obstacles to factor mobilityo Limits on independence of member stateso Single currency and monetary policyo More centralised supranational power, perhaps in a

federal context

Business opportunities and challenges from integration

• Greater intensity of domestic competition

• More opportunities in foreign markets

• More diverse sourcing possible

• Stimulus to product innovation

• Restructuring of production and distribution

• Cost and price pressure• Economies of scale• Specialisation• Greater price

transparency• Rationalisation of product

lines• Networking opportunities• Financing opportunities

through integrated financial markets

The origins, evolution and objectives of the European

Union

Concepts/ideas

• Federalism o a form of government in which power is

divided between central and regional authorities – e.g. US federal government and states; Germany and its länder

o concerned with the process of achieving political union within a Federal structure

Concepts/ideas

• Functionalism The linking of authority to a specific activity

– transport, competition regulation – thereby breaking the link between authority and national boundaries

• Neo-functionalism Functional and political spillover

Immediate post-1945: several Europes

• Central and Eastern Europe – Soviet satellites until 1989–91

• Western Europeo EEC → EU (expanding)o EFTA (contracting)

• The rest? CONVERGENCE?

EEC → EU:a growing membership (1)

• 1957: France, Germany, Italy, Holland, Belgium,

Luxembourg

• 1973: UK, Denmark, Irish Republic

• 1981: Greece

• 1986: Spain, Portugal

• 1995: Finland, Austria and Sweden

EEC → EU:a growing membership (2)

• 2004: Cyprus, Estonia, Lithuania, Hungary, Latvia, Malta, Poland, Slovakia, Slovenia, Czech Republic

• 2007: Bulgaria, Romania

• 2013: Croatia• In the wings? Albania, Turkey, FYROM, Serbia,

Montenegro

• Iceland suspended negotiations

Why did European co-operation flourish after 1945?

• To prevent recurrence of previous mistakeso to open economies to trade and co-operation

protectionism of 1920s and 1930s regarded as root cause of instability → growth of pre-war Fascism

o to include a defeated Germany in post-war reconstruction

reconciliation of France and Germany regarded as essential pre-requisite of peace in Western Europe

o to avoid excesses of nationalism and the nation state system

(continued)

• Economic reconstruction o To rectify economic dislocation caused by wartime

destruction• Political/security reasons

o i.e. the emergence of two superpowers with competing political and economic ideologies

o to provide a bulwark against Communism

Conclusion: Western security and defence should be based on economic reconstruction and well-being

European integration was motivated by economic, political and security reasons

Measures to promote post-war integration

• Intergovernmental organisations that did not challenge national sovereignty

• 1948 Council of Europe • 1948 OEEC (now OECD)

o Created to administer Marshall Aid (US financial assistance to aid economic reconstruction of post-war Europe)

• 1948 NATO o Provided security framework within which

economic integration could flourish

European coal and steel community

• 1951 – economic organisation with strong political undertoneso France, Germany, Italy and BENELUX (customs

union founded in 1948)o Franco-German reconciliationo National sovereignty sacrificed to achieve common

goals: common market for coal and steel

o envisaged as step one of neo-functionalist spillovero Creation of supra-national institutions such as High

Authority and Court of Justice

Towards the European Economic Community (EEC)

• 1955 Messina Conference

• 1956 Spaak Report proposeso Common marketo Nuclear energy community

• 1957 Treaty of Rome (Signatories: France, Germany, Italy and BENELUX) 3 communities:o ECSCo European Economic Community (EEC)o European Atomic Energy Community (EURATOM)

The UK position

• Participated in Spaak Committee until 1955 BUT

• Wanted a loose free trade area• Withdraws after the ‘6’ indicate they want

closer ties• RESULT: European Free Trade Area (EFTA)

created in 1960

1957 Treaty of Rome

• A strong economic orientation, stressing economic integration based on economic liberalism (not the CAP)

• Aims:o establish a common market – to stimulate internal

free tradeo ‘ever closer union’o economic and social progresso constant improvement of living and working conditions

• No agreement on political objectives

First two decades

• 1960s• Failed British

applications• ‘Empty chair’ crisis and

Luxembourg compromise

• Customs union complete

• Relaunch of integration

• 1970s• First enlargement• Limited successes

e.g. ERDF• Few signs of further

integration• First attempt at single

currency failed

Early 1980s – Eurosclerosis

• Integration paralysis – budget and CAP dominant issues

• Concern about Europe’s competitiveness• Above plus international economic crisis →

pressure for change • Single market campaign overcame integration

paralysiso start of policy activismo 1985 Single Market White Papero 1987 Single European Act – institutional reform

The Single European market

• 1985 White Paper with nearly 300 measures to establish the SEM

• 1986 Portugal and Spain become new members• 1987 Single European Act – first Treaty reform

o Institutional reform to facilitate passage of SEM measures • SEM

o removed technical, physical and fiscal barriers to trade

o EC policy into new areas – e.g. environment, R&Do Existing policies strengthened to support SEM – e.g.

competition policy

Controversy

• Late 1980s – re-emergence of EMU idea • 1993 Maastricht Treaty

o foreign and security and justice and home affairs pillars

o institutional reform and subsidiarityo timetable and conditions for EMUo Union citizenshipo extension of competenceso opt-outs

• Ratification problems

Maastricht problems

• Very ambitious – ahead of public opinion• Fears of loss of national sovereignty and identity

and rise of European super-state• Complex, technocratic and incomprehensible• End of Cold War and CEE transformation• German unification• Timing – recession• Currency crises

Post-Maastricht

• Lower profile for integration but some successes• 1995 enlargement – Austria, Finland, Sweden• Increasing preparations for Eastern enlargement• May 1, 1999 – Amsterdam Treaty in force• 1999 – decision to proceed with EMU

Amsterdam Treaty

• Employment Chapter• Anti-discrimination• Schengen into Treaty• Social Chapter into Treaty• Some strengthening of European

Parliament• Some disappointments on institutional

reform

Treaty of Nice – in force 2007

• Expressly to prepare for enlargementoNumber of CommissionersoWeighting of votes in CounciloNational vetooCharter of Fundamental Rightso ‘Flexible integration’ – at least 8 countries able

to co-operate more closely • Ratification delayed by ‘no’ in Irish

referendum – overturned in 2nd vote

Post-Nice

• Dissatisfaction with limited achievements of Amsterdam and Nice → convention on the Future of Europe and

eventually to the Draft Constitutional Treaty• Fierce opposition – fears of ‘European Super

State’• 2005: Constitution fell after ‘no’ votes in

French and Dutch referenda • Back to the drawing board

Lisbon Treaty – in force 2009

• Retained many features of constitution but not referred to as constitution

• Less fierce opposition and, despite Irish ‘no’ (overturned in 2nd referendum), ratification relatively trouble-free

Main features of Lisbon Treaty

• Clarifies exclusive competences of EU; competences shared with member states and supporting competences

• Charter of Fundamental Rights given legal force• EU citizens given rights to petition the Commission• Extension of EP powers and national parliaments given

formal powers to challenge EU legislative proposals• Member states given rights to negotiate exit from EU• New voting procedures in the Council• Posts of President of the Council and the High

Representative for Foreign Affairs and Security Policy created

Challenges for the EU?

• The survival of EMU – response to crises?• More enlargement – especially Turkish

challenge• International challenges and obligations –

economic and political • Popular support declining – evidence for

this in many EU member states• Diverging visions of Europe