Economic Integration – Part 1

How rich is the EU compared to the rest of the world? EU ChinaJapanRussiaUnited States EU ChinaJapan Russia United States Size of economy: Gross Domestic Product in billion of euros, 2006 Wealth per person: Gross Domestic Product per person in Purchasing Power Standard, 2007

The EU – a major trading power Share of world trade in goods (2006) Share of world trade in services (2005) Others 50.5% EU 17.1% United States 16% Japan 6.6% China 9.6% Others 44.9% EU 26% United States 18.4% Japan 6.9% China 3.8%

Growth in Comparative Perspective

Common Market: Examples – Aerospace (Negative) Deregulation and competition –1978 – Airline ticket: London-Madrid MORE EXPENSIVE THAN London-NYC-Madrid –State-owned, national airlines – “national champions” –Monopolies (Air France, Alitalia, Lufthansa) Arianespace –10 Countries involved, 1/3 stake held by EADS –>50% all commercial satellite launches EADS – European Aeronautic, Defence, and Space –2000 merger of Aerospatiale (Fr.); Daimeler(Chrysler) Aerospace (Germ.); CASA (Esp.); BAE (UK) –Airbus is a subsidiary, itself a consortium of European companies and governments

Common Market: Examples – TENs (Positive) Trans-European Networks –Infrastructure projects required for market’s efficient functioning –Transportation, Energy, Telecommunications Based in the Commission (Euro-bureaucracy) –Operate in any and all member states &src=1http://ec.europa.eu/avservices/video/video_prod_en.cfm?type=detail&prodid=681 &src=1

Euro-zone membership status ERM II States –Denmark, Estonia, Latvia, Lithuania, (Sweden) Expected to Join ERM –Poland, Hungary, Czech Republic, Bulgaria –Romania in Britain is fully out

European Central Bank and EMU INDEPENDENT ORGANIZATION tasked with PRICE STABILITY –Inflation near, but not to exceed, 2% per annum (aside: do we know about interest rates?) Modeled on the Bundesbank –Executive Board (8 members, unanimous agreement among Council –Board of Governors (Head of each euro-zone central bank) –Located in Germany, Dutchman (Wim Duisenberg) 1 st president of the Exec Board Exclusive Powers: –Set euro-zone interest rates –Authorize printing of euro notes and *coins* –Maintain national foreign reserves Eurosystem –Network of central banks of ALL member states (even Britain) –Carry out printing of money, application of ECB policy in the member states –ECB funding is FROM the Eurosystem’s banks, not from the EU budget

Convergence Criteria and SGP Convergence Criteria for euro membership –Budget deficit <= 3% GDP –National Debt <= 60% GDP –Inflation <= 1.5% of 3 best performers –Currency stability, +/-2.5% limit on ERM fluctuations –Interest rates not less than 2% lower than highest-rate state Stability and Growth Pact –Enforces convergence criteria among euro-zone members –Max 3% GDP deficits –Max 60% GDP debt –Amended in 2005 to allow “temporary” violations (loosely defined) criteriahttp://en.wikipedia.org/wiki/Stability_and_growth_pact#Member_states_by_SGP_ criteria

Economic Integration – Part 2

GDP per inhabitant: the spread of wealth GDP per inhabitants in Purchasing Power Standards, 2007 Index where the average of the 27 EU-countries is Luxembourg Ireland Netherlands Austria Denmark Belgium Sweden United Kingdom Finland Germany France Italy Spain EU-27CyprusGreece Slovenia Czech Republic Malta Portugal Estonia HungarySlovakia Lithuania Latvia Poland RomaniaBulgaria

Solidarity in practice: the EU cohesion policy : 347 billion euro invested for infrastructure, business, environment and training of workers for less well-off regions or citizens  Regional fund  Social fund  Cohesion fund Convergence objective: regions with GDP per capita under 75% of the EU average. 81.5% of the funds are spent on this objective. Regional competitiveness and employment objective.

How is the EU’s money spent? Total EU budget 2008: billion euro = 1.03% of Gross National Income Citizens, freedom, security and justice 1% Other, administration 6% Sustainable growth: new jobs, cohesion, research 45% The EU as a global player: including development aid 6% Natural resources: agriculture, environment 43%