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EUROPEAN ECONOMIC AND MONETARY UNION LECTURER ITIR BAGDADI OVERVIEW Economic Integration One of the most powerful dynamics of this era in world politics Nations are ... – PowerPoint PPT presentation

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  • Economic Integration
  • One of the most powerful dynamics of this era in
    world politics
  • Nations are increasingly driven to unite their
    economies for greater efficiency and growth
  • Integrated markets do NOT necessarily mean
    integrated states

  • Began life in 1957 as the European Economic
    Community (EEC) often called the Common Market
  • 1980s - economic element in group's name was
    eliminated European Community (EC) created
  • 1993 name changed to the European Union (EU)
  • Fundamental question Is economics more important
    than politics?
  • Does the individualistic motives of the market
    matter more than the unifying social values of
    the nation-state?

20th Century in Europe
  • Most violent century in history
  • 2 common enemies
  • External threat of the USSR during the Cold War
  • Internal threat of a return to divisions and
    conflicts that created war and instability in
    Europe in the past
  • Europe has been able to achieve political
    cooperation and even unify by using economics as
    a political tool

21st Century
  • Regionalism is a distinctive feature of IPE in
    the 21st century
  • IPE is pulled in 2 directions
  • On the one hand security concerns make the state
    as important now as it has ever been.
  • At the same time, the forces of economic
    globalization are blurring the distinction
    between home and abroad. From an economic
    standpoint the world is defined by markets and
    they are global.

  • Refers to the process by which groups of
    nation-states, usually in the same geographic
    region, agree to cooperate and share
    responsibility to achieve common goals.
  • Regional groups are clubs formed by
    nation-states to accomplish objectives that
    require coordinated or collective action
  • The goals may be narrow and specific (ex.
    Ecotourism) or very broad and ambigous (like the
  • Regionalism takes many forms in IPE
  • Regional environmental agreements, regional
    economic development programs, regional
    scientific and health regimes, and regional
    security arrangements
  • Regionalism is not a new thing but what is new is
    its strength as an organizing force due to the
    incrasing importance of economic integration and
    the rise of regional trade blocs

  • The process by which a group of nation states
    agree to ignore their national boundaries for at
    least some economic purposes, creating a larger
    and more tightly connected system of markets
  • Several degrees of economic integration
  • Free Trade Area (FTA)
  • Customs Union
  • Economic Union

Free Trade Area
  • Involves a relatively minimal degree of
  • Nations in FTA agree to eliminate tariff barriers
    to trade for goods and services they produce
  • However, each nation still retains the right to
    set its own tariff barriers with respect to
    products from outside the FTA
  • In essence, some goods are still subject to
    differential trade barriers while some goods are
    tariff-fee (for ex. Goods from other countries)
    this leads to complications

North American Free Trade Area (NAFTA)
  • Example of an FTA
  • Goods from the USA, Canada and Mexico will be
    traded freely within NAFTA borders
  • Goods from other countries will be subject to
    differential trade barriers of these three
  • (ex. Chile has negotiated three separate
    bilateral trade agreements with each of the NAFTA
    members separately)

  • Trade bloc in North America created by the U.S.A,
    Canada and Mexico
  • Came into effect January 1, 1994
  • Between 1993 2004 trade among NAFTA members
    increased 129.3

Customs Union (example Turkey - EU)
  • A group of nations agree both to tariff free
    trade within their collective borders and to a
    common set of external trade barriers
  • If NAFTA were to evolve into a customs union, the
    USA, Canada and Mexico would need to agree to a
    unified set of tariff barriers that would apply
    to products from other countries
  • The Treaty of Rome, which created the EEC, was
    based upon the idea of a customs union
  • The movement to a customs union is an important
    step in terms of economic and political

Customs Union (cont.)
  • Nations involved give up some degree of
    sovereignty or national political economy since
    they can no longer set their own trade barriers
    without consulting their economic partners
  • Nations gain a far greater degree of economic
  • Products flow more easily within a customs union
    without need for border inspections or customs
    fees because of the unified trade structure
    (however, member nations still retain right to
    impose some non-tariff barriers such as health
    and safety standards

Turkey EU Customs Union
  • Came into effect on 31 December 1995
  • Does not cover essential economic areas like
    agriculture (bilateral trade concessions still
    apply) and services
  • Turkey applied for full EU membership in 1987
  • Helsinki Summit (December 1999) Turkey given
    candidate country status
  • October 3, 2005 European Council began
    accession negotiations with Turkey

Turkish Exports
Turkey in World Trade in Regional Perspective in
1993, 1996 and 2004
Turkeys Foreign Trade By Sectors
Turkeys Foreign Trade by Country Groups
Direction and Dynamics of Turkeys Trade in 1985,
1995 and 2001-2004 (in millions of dollars and
Change in shares in EU external imports in
Economic Union (example EU)
  • The final stage of economic and political
  • Non-tariff barriers are eliminated along with
    tariff barriers creating an even more fully
    integrated market
  • Member nations also agree to four freedoms of
  • Goods
  • Services
  • People
  • Capital

Economic Union (cont.)
  • Four freedoms represent significant limitations
    on national sovereignty but have significant
    effects on economic activity
  • Free Movement of Goods
  • Goes beyond the elimination of tariff barriers
  • Requires a variety of governmental health, safety
    and other standards and regulations to be
    harmonized so that a product that can be sold
    somewhere in the economic union can be sold
    everywhere in it
  • Free Movement of Services
  • The service sector includes many industries such
    as banking and finance traditionally subject to
    heavy regulation that varies considerably among

Economic Union (cont.)
  • Free Movement of People
  • Requires a unified immigration policy since a
    person free to enter and work in one member of
    the economic union would be able to live and work
    anywhere in the area
  • Free Movement of Capital
  • Individual nations give up their ability to
    regulate investment inflows and outflows
  • Many nations have traditionally imposed capital
    controls to encourage domestic investment,
    promote financial stability or reduce foreign
    exchange variations
  • These controls are not eliminated in an economic
    union but must be harmonized so that national
    regulations are similar enough to not become a
    barrier to economic activity

Economic Union (cont.)
  • If we consider the different state in an
    alliance, then the US is the most successful
    economic union in the world
  • Economic integration is appealing because it is a
    way for nations to achieve greater efficieny in
    their use of scarce resources and higher rates of
    economic growth
  • Leads to both static efficiency gains and dynamic
    efficiency gains

Static Efficieny Gains
  • With completely free trade within the area, each
    member nation is able to specialize in producing
    the goods and services in which it is most
  • Protective barriers that preserve inefficient
    industries and promote redundancy are eliminated
  • The creation of a large, integrated market
    promotes efficiency in certain industries where
    large scale production or long production runs
    are possible. These gains from economies of
    scale make products cheaper and more competitive

Dynamic Efficiency Gains
  • Promotion of economic growth
  • A larger and more competitive market is likely to
    be more innovative
  • As internal trade barriers are removed,
    previously protected firms are forced to compete
    with one another and this makes them more
  • If economic integration is successful, economic
    growth rates tend to increase, which raises
    living standards

Trade Diversion Effect
  • Regional Trade Blocs became important and
    controversial in the 1990s because of the trade
    diversion effect of a FTA, customs union or
    economic union
  • By dropping internal barriers members create more
    trade between and among member nations
  • Some of this is newly created trade but some of
    it is trade that is lost from another non-member
  • Ex. With NAFTA, Mexican trade to the USA
    increased while other developing nations trade

Trade Diversion
  • Trade diversion is a two-fold problem
  • It is an economic problem because it means that
    economic integration is not as efficient as it
    may seem. Trade blocs may be economically
    beneficial for the nations that form them but
    they create inefficiency and economic loss for
    other countries that suffer the loss.
  • It is also a political problem since as more and
    more countries enter into regional economic
    groups non members find themselves locked out and
    vulnerable. They have a strong motivation to
    gain membership in an existing bloc to get trade
    creation effects or to form their own bloc with
    other countries in the same boat.
  • The threat of trade diversion and of being left
    out has led to an expansion in size and number of
    trade blocs

Sovereignty at Risk The Politics of Integration
  • There are many political implications that should
    be considered when looking at an economic union
  • Trade-offs between economic benefits and
    political costs
  • Cooperation in economic sphere cooperation in
    political sphere
  • Example an economic union requires that a nation
    negotiate a new immigration policy, safety
    standards, methods of financial regulation and
    adopt a harmonized system of investment controls
  • Political choices no longer influenced mainly by
    domestic voters and groups now the wishes of
    groups in other member states must also be

Politics of Integration (cont.)
  • Fundamental problem loss of sovereignty that
    occurs when nations form regional trade blocs
  • At some point each member state risks being
    forced to ignore national interests as a
    consequence of maintaing its international
  • This tension between national interest and
    international obligations poses a severe dilemma
    for states which tend to value security and
  • Another school of thought that does not believe
    that economic integration weakens political power
    states that integration weakens the hold of
    national interest groups on political decisions
    specific interest groups are less likely to
    benefit and resulting policies will reflect the
    public interest

Politics of Integration (cont.)
  • Another argument states that individual nations
    may actually gain political power, especially in
    relations with other nations, by being members of
    a powerful economic alliance.
  • Example Belgium a more powerful political
    presence as a leading nation of the EU than if it
    were simply a small but autonomous European
  • Basically, it is argued that smaller countries
    are far more powerful as members of a larger
    group than tney would be as separate,
    unaffiliated individual nations

European Economic Community (cont.)
  • Movement toward a united Europe was founded upon
    two important ideas
  • It is possible for nations to live in a state of
    perpetual peace (attributed to Immanuel Kant)
    under a federal system of governance, where each
    yields some sovereignty and sacrifies some
    national interests in return for like actions by
    others. However, it was difficult to transform
    an environment of nearly perpetual war (Europe
    from 1914-1945) into one where Kant's vision of
    perpetual peace would take hold
  • Economic cooperation and the gains therefrom
    would strengthen the cooperative ties that bind
    European nations together (attributed to David

European Economic Community (cont.)
  • More than perpetual internal peace was desired.
    Postwar Western leaders sought to create strong,
    democratic, capitalist nations to a firm wall of
    resistance to the spread of communism
  • Marshall Plan (1948)
  • The first formal postwar step toward building an
    integrated European economy
  • President Harry S. Truman's Secretary of State,
    General George Marshall called upon the nations
    of Europe to form a continentwide economic market
    like the USA
  • Marshall Plan aid was designed to hasten economic
    recovery by providing a resource base on which to
    build a European community

How different states viewed European integration
  • USA saw European integration as a strong
    anticommunist ally
  • Many Europeans supported it as a solution to
    the German problem the need to embed German
    political and economic power in supranational
  • Germany wanted to be reintegrated into the
    international community after the disaster of
  • Great Britain Winston Churchill saw the United
    States of Europe as a balance to US influence in
    the postwar era
  • France President Charles de Gaulle imagined a
    Europe of States in which the structure of
    regionalism would enhance the sovereignty and
    status of all its members

European Economic Community (cont.)
  • An integrated Europe also needed European
  • Jean Monnet, a French political economist,
    provided the intellectual guidance
  • He proposed an alliance along functional economic
    lines a zone of free trade uniting the heavy
    industry regions that spanned the French-German
  • This plan for the European Coal and Steel
    Community (ECSC) was implemented by Robert
    Schuman, a French statesman, in 1950
  • ECSC was a critical test for Europe and provided
    a model for futher integration in Western Europe

European Economic Community (cont.)
  • 1957 Treaty of Rome
  • Created the European Economic Community (EEC, or
    the Common Market) a customs union that brought
    together the markets of Italy, France, Belgium,
    Luxembourg, the Netherlands and West Germany
  • This union of the six was a great success
    because these nations were natural trading
  • Great Britain participated in the negotiations
    but decided against it for fear of losing
    political and economic autonomy and preferential
    trading relations with the Commonwealth nations
    and the USA

European Economic Community (cont.)
  • European Free Trade Area
  • Great Britain did not want to be isolated from
    the rest of Europe and organized a weaker
    alliance of trading nations called the European
    Free Trade Area (EFTA)
  • EFTA brought together Denmark, Sweden, Austria,
    Switzerland, Portugal and the United Kingdom
  • An FTA, being more restricted than a customs
    union, could never offer these nations the
    benefit of a common market
  • Geographic separation, deep cultural divisions,
    huge economic gaps between rich and poor members
    contributed to limit trade and growth
  • EFTA members soon sought EEC membership

European Economic Community (cont.)
  • Trade among EEC members was never entirely free
    non-tariff barriers to trade abounded and
    sometimes nations would simply refuse to accept
    imports of any items from another member, in
    violation of the Treaty of Rome because of
    domestic political or economic concerns
  • It was also necessary to create an elaborate
    system of agricultural subsidies across the EEC
    to defuse political opposition from powerful farm
  • The Common Agricultural Policy (CAP) provided for
    a complex pattern of payments to farmers in all
    EEC nations

European Economic Community (cont.)
  • Although a far cry from free trade and
    laissez-faire, CAP was the price of achieving
    greater liberalism and cooperation in other
    spheres of economic life.
  • The CAP eventually led to a budget crisis in the
  • The EEC changed its name to the European
    Community (EC) in 1967 signaling intention to
    move beyond purely economic issues

Common Agricultural Policy
  • One of the most controversial and divisive
    elements of economic and political integration in
  • An EU-wide system of agricultural subsidies,
    financed through value-added-taxes imposed by EU
    member nations
  • Largest item of expenditure of the EU and has
    been a point of contention both within the EU and
    in its relations with other nations
  • Perfect example of the use of economic means to
    achieve political ends

Common Agricultural Policy
Common Agricultural Policy (cont.)
  • When the EEC was being formed, farm interests
    were a major political obstacle
  • Farmers feared a more comopetitive market would
    make them suffer to sell their own goods
  • Since farm groups could have potentially blocked
    the European integration the CAP was created
  • CAP created a unified system of farm subsidies
    that insulated farmers from many aspects of
    competitive market forces
  • CAP can be thought of as a system that collected
    some of the economic gains of European
    integration in the form of taxes that were then
    paid to farmers in exchange for their political

Common Agricultural Policy (cont.)
  • Provides Europe's farmers with high prices
    through a system of price supports the EU
    purchases excess farm produce to keep prices from
    falling and farm incomes from declining a
    system that benefits farmers at the expense of
    the tax-paying public
  • Over the years the CAP's guarantees have
    encouraged European farmers to over-produce
  • CAP is now a source of deep political disagreement

Common Agricultural Policy (cont.)
  • Problems of CAP
  • As the EU expanded, the cost of maintaining
    agricultural subsidies has grown. Rising costs
    have pitted nations that are net recipients of
    CAP funds against nations that are net payers of
    the taxes that fund the program
  • The future of the EU's expansion into Central and
    Eastern Europe have created additional pressures.
    The countries that believe they unfairly pay the
    bills are worried that the bills will get larger.
    At the smae time, current EU members are fearful
    that more subsidies to new EU members will come
    at the expense of payments to their own farmers
  • EU is under pressure from the US and other
    countries to reduce agricultural subsidies
    generally as part of the WTO's process of trade
  • - Plans are in the works to reduce agricultural

Common Agricultural Policy
The European Community, 1973-1993
  • The second stage of development of the EU lasted
    from 1973-1993
  • Great Britain, Ireland and Denmark entered the EC
    in 1973
  • Greece entered in 1981, followed by Spain and
    Portugal in 1986
  • EC membership for these three countries was in
    part a reward for the triumph of democratic
    institutions over authoritarian governments.
    Free trade and closer economic ties were intended
    to solidify democracy and protect it from
    communist influence

The European Community (cont.)
  • The entry of poorer nations of Ireland, Greece,
    Spain and Portugal magnified a variety of
    tensions within the EC
  • Lower living standards limited the extent of
    their trade with richer member states
  • Lower wage structures threatened some jobs in EC
  • The entry of four largely agricultural nations to
    the EC institutions, like the CAP, put severe
    fiscal strains on the other nations

The European Community (cont.)
  • These economic and political stresses caused a
    split in the EC.
  • Jacques Delors, the new president of the European
    Commission tried to find a way to reunite the EC
    and he produced a proposal for the creation of a
    single market by 1992 the Single Market Act
  • Although it seemed as if the EC was already a
    single market, it was still far from its goal
  • The goals were the four freedoms
  • Free movement of goods
  • Free movement of servies
  • Free movment of capital
  • Free movement of people

The European Community (cont.)
  • National sovereignty and economic growth were
    often in conflict
  • For example Germany wanted its stringent
    environmental laws applied to the EC but Portugal
    and Greece objected because it was too costly
  • The four freedoms required sacrifice of some
    domestic freedoms, such as the right to
    self-determination of environmental and safety
  • Not all of the goals of the Single Market were
    achieved by 1/1/1993, the basic thrust of the
    program succeeded, however, Europe did not
    immediately experience economic growth

  • 1995
  • Accession of Austria, Finland and Sweden to the
  • Schengen Agreement (abolishing border controls)
    implemented by Germany, France, Benelux states,
    Spain and Portugal
  • 1997 - European Council agrees on the Treaty of
    Amsterdam strengthening EU institutions
  • 1999 The Euro goes into effect in 11 of the 15
    EU member states
  • 2000 European Council agrees on the Treaty of
  • 2002 Euro coins and banknotes enter circulation
    and replace national currencies
  • 2003 The Draft of a Constitution for Europe

  • 2004
  • 10 new states (Czech Republic, Slovakia,
    Slovenia, Hungary, Poland, Cyprus, Malta,
    Lithuania, Latvia and Estonia) joined the Union
  • The European Council signs the treaty
    establishing a Constitution for Europe
  • 2005 The treaty for establishing a constitution
    is rejected in referanda in France and the
  • 2007
  • Bulgaria and Romania join
  • Today
  • Croatia, Turkey and Macedonia await future

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Political Institutions of the EU
  • The Treaty of Rome did more than commit six
    nations to economic integration it also began
    the process of developing a set of political
    institutions to make policy, settle disputes and
    provide leadership for Europe
  • The most important political institutions in the
    EU today are
  • The European Commission (and its President)
  • The Council of Ministers
  • The European Council
  • The European Parliament
  • The European Court of Justice

Political Institutions of the EU (cont.)
  • Each of these institutions plays a specific role
    in setting the delicate balance between the
    national interests of member nations and the
    collective interest of the EU

President of the European Commission
  • Head of the state of the EU
  • Leads the European Commission
  • Represents EU to other nations
  • Jose Manuel Barroso, the former Prime Minister of
    Portugal, began his term in 2004, taking over
    from Romano Prodi, the former Prime Minister of

European Commission
  • The executive branch of the EU serving much the
    same function as the cabinet in the USA or UK
  • Proposes legislation to the Council of Ministers
  • Administers EU programs
  • Represents the EU in economic relations with
    other countries or international organizations
  • Each commissioner has a special portfolio of
    responsibilities, such as competition or

Council of Ministers
  • Main lawmaking body of the EU
  • Composed of a single representative from each
    member nation
  • The Council can accept or reject legislation
    proposed by the European Commission, but it
    cannot draft legislation itself
  • Intended to provide a balancing forum for more
    narrow national interests
  • The voting rules of the EU allow a minority of
    member states to block action in the European
    Commission when they believe their national
    interests are threatened

European Council
  • Meetings of the EU heads of states and
    governments are called the European Council
  • Meetings are held at least once every six months
    by the country holding the Presidency of the
    Council of Ministers

European Parliament
  • The only body of the EU whose members are
    directly elected by the citizens of its member
  • European Parliament committees review legislation
    proposed by the European Commission and may
    propose amendments to the legislation before
    submitting it to the Council of Ministers
  • May veto a proposal after it reaches the Council
    of Ministers if it does not agree with the
    Council's position
  • Has 736 members as of 2009

European Parliament (cont.)
  • Organized along political party lines, not
    according to national citizenship
  • For example socialists from all EU nations act
    together, as do conservatives and other groups
  • Provides a forum for debate and discussion from
    the perspective of political ideology, not
    national interest (Council of Ministers) or
    European interest (European Commission)
  • Not a legislative body but can have important
    influence over EU policies

European Parliament
European Parliament
  • National apportionment of MEP seats (2009)
     Germany99 France72 Italy78 United
    Kingdom72 Spain50 Poland50 Romania33 Netherlands25
     Belgium22 CzechRepublic22 Greece22 Hungary22 Port
    ugal22 Sweden18 Austria17 Bulgaria17 Finland13 Den
    mark13 Slovakia13 Ireland12 Lithuania12 Latvia8 Sl
    ovenia7 Cyprus6 Estonia6 Luxembourg6 Malta5
  • Total 736

European Court of Justice
  • Supreme Court of EU law
  • Composed of 15 judges who are appointed to
    six-year terms
  • Deals with disputes between member governments
    and EU institutions and among EU institutions and
    with appeals against EC rulings or decisions
  • Made up of one representative from each of the EU
    member nations

European Central Bank
  • EU's central bank
  • Created after the decision to adopt the euro
  • Executive board, appointed for eight-year terms,
    and a governing board which includes the
    executive board and the heads of all EU member
    nation central banks
  • Currently responsible for the monetary policy of
    the 16 member states of the Eurozone
  • (Austria, Belgium, Cyprus, Finland, France,
    Germany, Greece, Ireland, Italy, Luxembourg,
    Malta, Netherlands, Portugal, Slovakia, Slovenia
    and Spain)

The 1990's
  • The collapse of communism eliminated the threat
    of Soviet domination but not the need for
    peaceful cooperation
  • The questions for Europe now are
  • Is Europe just a geographical unit that lies
    north of Africa and west of Asia?
  • Will it be united by money (its common currency,
    the euro) alone?
  • Or will it become more Europa a people with a
    common will?

Post-Cold War Issues Confronting the EU
  • The EU was confronted with at least several
    issues at the end of the Cold War
  • The Ever-Wider Union
  • How to accommodate the new demands for membership
    in the EU without hopelessly alienating current
    EU members
  • How to deal with rising membership applications
    at the end of the Cold War
  • 12 countries filed formal membership
  • Cyprus, the Czech Republic, Estonia, Hungary,
    Poland and Slovenia were given top priority
    joined in 2004
  • Bulgaria, Latvia, Lithuania, Romania and Slovakia
    were given second priority joined in 2004 (with
    the exception of Romania and Bulgaria which
    joined in 2007)
  • Croatia awaits membership and Macedonia has
    received candidate status
  • Turkey's application continues to be snubbed
  • New members were and will continue to be poorer
    than current members causing tension between
    member states
  • Like it or not, the EU opened its gates to these
    countries to ensure democracy persists

Post-Cold War Issues Confronting the EU (cont.)
  • The Challenge of the Regions
  • What to do about demands for greater regional
    autonomy within the EU
  • As nation-states secede power within the EU,
    regions have begun to assume more importance
  • Sometimes the regional focus is rooted in
    culture, for ex. Catalan region in Spain
  • In other places the issue is money and the
    perceived need to be free of the shackles of
    national government, for ex. Bavaria in Germany
    and Northern Italy
  • The EU needs to find a way to address the desires
    of richer regions while trying to accommodate
    newer members

Post-Cold War Issues Confronting EU (cont.)
  • The Security Issue
  • How to deal effectively with security issues
    other than the Soviet threat
  • EU is surrounded by conflicts (the Balkans,
    Middle East, North Africa) and threats
    (terrorists, environmental dangers, organized
    crime, illegal immigration)
  • Europe needs a common defense policy, however, a
    collective policy would require a good deal more
    political unity than the EU has ever demonstrated
    in the past

Post-Cold War IssuesConfronting the EU (cont.)
  • The German Problem
  • How to make sure that Germany remains committed
    to a united Europe without dominating it
  • The German problem was one of the original
    problems that the EC was meant to address
  • Germany today, a decade and one half after
    unification of its Eastern and Western sections,
    finds itself bound by the EU to the rest of
    Europe but faced with very serious economic,
    social and political problems at home, both in
    the poorer Eastern provinces and in the rising
    tensions between East and West
  • Germany has so many domestic problems that it
    would be natural for it to put domestic issues
    above those of European unity
  • RISING NATIONALISM a new problem??

Post-Cold War IssuesConfronting the EU (cont.)
  • The Political Challenge of the Euro
  • Once the Euro was launched in 2002 the member
    nations faced a transformed political environment
  • Their ability to influence domestic economic
    conditions was much reduced and interest rates
    were now set by the ECB and not the policymakers
    of these states this left national leaders in
    an awkward position.
  • One states economic problems also become
    problems of other member states (ex. Greek
    financial crisis)

Post-Cold War IssuesConfronting the EU (cont.)
  • The Constitutional Challenge
  • In its movement towards an ever closer union
    the EU is aiming at political union and an EU
    constitution this raises issues of national
  • The draft of the Constitution was rejected in
    referanda in France and the Netherlands in 2005

Monetary Union
  • Discussed in Maastricht in 1991
  • France proposed a single currency
  • In theory, a monetary union was supposed to
    address the four issues mentioned previously
  • A single currency would make European markets
    more efficient and Europe's economies more
  • It would provide economic gains to offset the
    costs of enlargement and boost the prospects of
    the regions the German problem would be soved
    because Germany would be chained to the rest of
    Europe with money

Monetary Union (cont.)
  • Finally, political cooperation would be
    accomplished through an indirect mechanism with
    a single currency EU nations would need to
    cooperate more on political issues
  • Germany did not have much interest in a common
    currency. It saw more to lose than to gain
    because of its strong deutschemark however
    Germany wanted a political union

Monetary Union (cont.)
  • A deal was struck Germany would gets its
    political union and France would get its monetary
    union (before Maastricht)
  • However, at the end of Maastricht, the monetary
    union had been adopted and the political union
    was not
  • The criteria for nations to be part of the single
  • Low government debt
  • Low inflation rates
  • Low interest rates
  • Greece initially failed to qualify on economic
    grounds and the UK and Sweden opted to remain
    outside the euro zone

Political Economy of the Euro
  • The euro is still a political issue
  • The name euro was chosen because it means nothing
    in any European language (ECU European Currency
    Unit was considered but was rejected because
    France once had such a coin in medieval times)
  • Images on any euro currency look like what
    appears to be classic Europe but none of them are
    authentic because putting any real European scene
    could lead to disagreements
  • The euro symbol means nothing

Political Economy of the Euro
  • Three levels of political issues that surround
    the euro
  • The monetary union has created a reason for
    nations to unify in the absence of a common
    security threat. Being left out of the euro might
    mean being doomed to peripheral status.
  • Qualifying for membership in the monetary union
    has forced European nations to make very
    difficult political decisions like cutting
    government spending, increasing taxes and
    becoming more laissez-faire.
  • The single currency changes the domestic
    political environment member nations will not
    longer be able to spend their way out of a
    recession or print money to pay for unemployment
    because fiscal autonomy is surrendered.
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