Economic History of Integration – General Points  Economic “Stuff” at the Core of Integration  Definitions and Theories Hierarchy of Degrees of “Union” Static - Dynamic, Creation - Diversion  Context Types of European Postwar Economies Cycles of Postwar Economic Change  Stages and Timelines

Definitions of Integration  Hierarchy of “Union” Free-trade area Customs union (CET) Common market Economic union Monetary union Economic and monetary union Political/Full union

Definitions (cont’d)  Another way of “reading” Union Market integration  Of “goods and services”  Of “factors of production” (labor, capital) Policy integration  Coordination of economic policy Related to Common Market: competition, regulation, industrial structure “Macro-economic” and monetary policy Re-distribution and other social policies  Fixed currency linkage, or single currency

Theories of Integration  Classic liberal theories of international trade – “freer trade is in everyone’s interest” (comparative advantage)  Static effects (“today-tomorrow”) More trade More goods  Lower prices More “Welfare”  Dynamic or “Restructuring” Effects (“over time”) Competition and Efficiency – Allocation of Resources Economies of Scale  Potential “Downside” Trade Diversion vs. Trade Creation Need for a “balance sheet” of effects  The Integration Process as a Whole Neofunctionalism and “spillover”

The Economic Historical Context of Integration  New Breed of Postwar European Economies Growth economies: export-led growth Government-intervention economies  Full-employment goal as priority  Welfare state  Nationalizations (Britain, France): “public sector economy”  Implications Huge government budgets National economic policy  Break with the Past France: Modernization, Agriculture to Industry Britain: De-regulation and Privatization (Thatcher)

The Economic Historical Context (cont’d)  Economic Cycles and Turning Points Reconstruction and Recovery ( ) Long period of dynamic growth ( ) Crisis, stagnation and inflation ( ) Renewed growth ( ) Momentary recession and recovery ( ) Key turning points: , 1973,  Main themes Dynamic growth of world trade Global currency regime changes (1972 key date) Recurring problem of unemployment

The Elements of Economy  International trade Restrictions: tariffs, quotas, non-tariff barriers (NTBs) Balance of payments (exports and imports component)  Government and the economy Budget: taxes and expenditures Monetary policy: interest rates Regulation  Currency value Relation to balance of payments (hence trade) The “good” and the “bad” of a “strong currency” Restrictions and their removal (currency convertibility) Fixed vs. variable “exchange rates”  Bretton Woods ( )  Reserve currency, cornerstone currency: $

The Course of Economic Integration  Role of the Treaties Establish goals and priorities Provide mechanisms for achieving goals – concrete, pointed, precise, or vague Articulate timelines and deadlines  Initial achievements of the EEC Customs union (1968) Common Agricultural Policy (by 1970) Kennedy Round of GATT – one voice ( )

The Course of Economic Integration (cont’d-1)  Period of “Eurosclerosis” (1973 – early 1980’s) Stagnant economies: unemployment as a leading concern, along with inflation Proliferation of NTBs One exception: 1979 Cassis de Dijon Court of Justice decision  “Mutual Recognition”

The Course (cont’d-2)  Breakthrough and renewal, A new approach to removing barriers – the White Paper of Lord Cockfield (1985): Internal MarketInternal Market “Spillover”: from Single Market to Single Currency Grand implications of “the 4 freedoms”: from economic to political union  The tortuous history of monetary union The “snake in the tunnel” (1972-4) EMS, ERM, and the ‘ecu’ (1979) Maastricht and EMU in 3 stages with deadlines (timeline): the “euro” by March 2002 European Central Bank

The Course (cont’d-3)  EEC/EU and Global Trade The “rounds” of GATT ( ) The special relationships  With West European non-members (EFTA)  With 70 “Associated States” (sub-Saharan Africa mainly) WTO (1995 – present)

Record of Some Achievements  Trade in Goods : intra-EEC trade grows more rapidly than trade with other countries : less dynamic intra-EEC trade; trade with third countries greater among “the Six” (oil imports) : intra-EU trade grows very rapidly Germany is the largest trade partner, both as importer and exporter of other EU goods

Achievements (cont’d)  CAP A very complex program that is less “free trade” than “managed trade” A balance of political interests By a system of levies, creates:  Funds to distribute to eligible regions (supposedly for improving production, but in fact to support farm interests)  A European Community Budget

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