European Economics Content Flashcards
What are the three main approaches were used to try and implement integration within Europe? To what extent are the three main approaches to integration present in the EU?
1) Intergovernmentalism – countries get together to decide/vote on key decisions but each country gets to keep independence in the key aspects.
2) Federalism – countries transfer power to a supernational authority where they feel represented.
3) Functionalist Approach – integrated but only in specific areas/functions. It is based on the functions you want to integrate rather than on a broader project.
To what extent are the three main approaches to integration present in the EU?
- Intergovernmentalism is present today in the EU Council. This is a key player in decision process where
countries sit and vote on procedures. - Federalism - For example, the ECB (responsible for monetary policy) is a federalist entity. There is no way for a country to control what the ECB is doing. Governors that are in ECB’s council are not representatives of their countries nor are bound politically to fulfill any obligation to their countries – they are supposed to decide as individuals, in the interest of EU and not of their respective countries. The EU Parliament constitutes another valid
example. - Functionalism was dropped
What are the advantages of enlargement?
The market increases (which is good for trade) and greater stability (accepting more unstable countries so that they become better managed – for example Portugal joined whilst still with a young and fragile democracy
What are the disadvantages of enlargement?
The more countries, the greater the heterogeneity in the Union, which leads to a higher probability of have blockages and things not moving. So there is the need to promote convergence, cohesion, which cost a lot of money.
What is the genesis of the EU?
1957 - Treaty of Rome
1986 - The Single European Act
1989 - Fall of the Berlin Wall
1991-1992 – Maastricht Treaty
1997 – Treaty of Amsterdam
1999 – Monetary Union was created
2000 – Treaty of Nice
2001 – Treaty of Venice
2007 – Treaty of Lisbon
What did the treaty of Rome entail?
1957 → Treaty of Rome - committed the Six to 4 fundamental liberties, but only 2 were applied initially: free movement of goods, services. In addition to forming a customs union with removal of tariffs, quotas and non-tariff barriers to trade.
- Creation of EURATOM
- Common policies established: CAP, Competition policy, mechanism for macroeconomic coordination.
- Supranational institutions established: European Parliamentary Assembly (forerunner of the European Parliament), ECJ, European Commission.
What did the Single European Act entail?
The Single European Act (1986) aimed to create a fully integrated internal market within the European Community by 1992. Key elements included:
- Internal Market: Removed barriers to allow free movement of goods, services, people, and capital across member states.
- Qualified Majority Voting: Expanded this voting method in the Council, making it easier to pass legislation.
- New Policy Areas: Strengthened cooperation in areas like environmental protection, research, and technology.
- Institutional Reform: Enhanced the powers of the European Parliament, giving it a more active role in the legislative process.
What did the Fall of the Berlin Wall mean for the European project?
1989 - Fall of the Berlin Wall – a total game changer. Germany is now much more powerful when united. Jacques Delor tries to integrate Germany even more in the European project. They accept the unification, but Germany has to give up the mark. The idea of a shared currency was quickly championed by French President François Mitterrand and German Chancellor Helmut Kohl. After extensive negotiations, the EU committed itself to a target of forming a monetary union by 1999 and adopting a single currency by 2002. This commitment was made in the Treaty of Maastricht.
What did the treaty of Maastricht entail?
1992 - The Maastricht Treaty
- Purpose: Establish the EU and prepare for a Monetary Union by 1999 with a single currency by 2002.
- Key Achievements:
1. Nominal Convergence: Aligning inflation rates for the monetary union.
2. Subsidiarity Principle: Decisions could be made at either the EU or national level as appropriate.
3. Three Pillars of Focus:
Economic and Social Policy Foreign Policy Justice and Police Coordination
What did the Treaty of Nice entail?
2000 – Treaty of Nice - had the goal to prepare institutions for new enlargements in 2004 and defining the new concept and criteria for the voting procedures → qualified majority.
What did the Treaty of Venice entail?
2001 – Treaty of Venice - voting and co-decision procedures.
What did the Treaty of Lisbon entail?
2007 – Treaty of Lisbon
- President of the European Council, High Representative for Foreign Affairs
- More unanimity to qualified majority voting.
- Enhances co-decision procedure between the European Parliament and the Council of Ministers.
What was the OEEC?
1948 → Set up of the OEEC (Organization for Economic European Cooperation), which was established to manage the Marshal Plan (‘west of the Urals’), if they could agree to a joint program for economic reconstruction.
What is the timeline of EU enlargements?
1957: Founding Members – Belgium, France, Italy, Luxembourg, Netherlands, West Germany.
1973: Denmark, Ireland, UK join.
1981: Greece joins.
1986: Spain, Portugal join.
1995: Austria, Finland, Sweden join.
2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia join.
2007: Bulgaria, Romania join.
2013: Croatia joins.
2020: UK exits (Brexit).
What did the treaty of Amsterdam entail?
The Treaty of Amsterdam (1997)
- Enhanced focus on employment, citizens’ rights, and justice.
- Prepared the EU for enlargement by reforming voting procedures and the role of the European Parliament.
What does the European Commission do?
- Initiate and implement policies once approved
- They draft everything
- They are the ‘Guardians of the Treaties’
How is the European Commission organized?
The European Commission consists of one Commissioner per EU member, including a President and two Vice-Presidents, all appointed for five-year terms. Commissioners are nominated by their national governments but must be approved by the European Parliament. Although independent of their home governments, they often consider national concerns. Each Commissioner oversees a specific EU policy area, similar to a national ministry, through Directorates-General (DGs), such as DG Trade and DG Ecfin (economic and financial affairs).
Who chooses the European Commission’s President?
The EU Commission President is chosen by the EU Council and approved by the EU Parliament, though tensions exist between these bodies over the process.
How are decisions made in the EU Commission?
The Commission decides, in principle, on the basis of a simple majority. The ‘in principle’ proviso is necessary because the Commission makes almost all of its decision on the basis of consensus. The reason is that the commission usually has to get its actions approved by the Council and/or the Parliament. A Commission decision that fails to attract the support of a very substantial majority of the Commissioners will almost surely fail in the Council and/or Parliament.
How is the Council of the European Union composed?
It’s composed by representatives of the member states that are organized in Councils of Ministers.
For 6 months a coutry holds the presidency and it is assisted by two other countries.
What is the European Council?
The European Council consists of the leaders of each EU member plus the President of the European Commission. The European Council provides broad guidelines for EU policy and thrashes out the final compromises necessary to conclude the most sensitive aspects of EU business, including reforms of the major EU policies, the EU’s multi-year budget plan, Treaty changes and the final terms of enlargements.
The presidency of the European Council is held by a permanent president, who is elected by the European Council itself for a renewable term of two and a half years. The President is a former head of state and is elected through simple majority.
What is the role of the European Parliament?
The Parliament has two main tasks:
- Voting laws along with the Council of Ministers and the Commission
- Overseeing all EU institutions, but especially the Commission.
- The European Parliament (EP) has 720 members who are directly elected by EU citizens in special elections organized in each Member State. The number of MEPs per nation varies with population, but the number of MEP’s per million EU citizens is much higher for small nations than for large.
What is the European Court of Justice?
The role of the ECJ is to settle disputes between Member States, between the EU and Member States, between EU institutions, and between individuals and the EU.
- How is it organized?
The European Court of Justice, located in Luxembourg, consists of one judge from each Member State. Judges are appointed by common accord of the Member States’ governments and serve for six years. The Court also has eight ‘advocates-general’ whose job is to help the judges by constructing ‘reasoned submissions’ that suggest what conclusions the judges might make. The Court reaches its decisions by majority voting. The Court of First Instance was set up in the 1980s to help the EU Court with its ever-growing workload.
What are the three pillars of the EU?
1ST Pillar – Social and Economic Coordination
2ND Pillar – Foreign Policy Coordination
3RD Pillar – Police and Justice Coordination
Describe the co-decision process in the EU.
CO-DECISION PROCESS – (under the ToA)
The commission initiates the process (a draft proposal). Then Parliament and Council state opinions on it and goes to be voted and decided via Quality Majority Voting in the Council.
Then a series of revisions and amendments and, in the end, it only goes forth if both EU Parliament and Council are in agreement on it.
The Commission is not deciding anything – they just propose and draft. European Parliament is more and more important in the process, together with the council. More than 90% of the legislation go through this co-decision procedure where the different institutions participate.
The co-decision procedure aims at having legislation that gets the green light from the Council, the Commission and the Parliament.
Where do the EU’s money come from?
- GNI - own resources - 69
- Customs duty - 17
- VAT - 12.4
What factors should exist for Open Currency Areas to be successful?
- Labor and Capital mobility
- Production diversification
- Fiscal transfers
- Homogeneous preferences
- Solidarity
- Nominal convergence criteria
Why is labor mobility important for OCAs?
This is important because this is a mechanism to smooth asymmetric shocks that affect members of MU. If people are freely allowed to move, then they will move from recession areas to booming areas. This would smooth unemployment in recession countries and also smooth wage growth in booming countries. This is possible, for example, in the US. Such a mechanism helps economy smoothing the impact of the cycles.
Do we have labor mobility in Europe?
We have some migration but it’s not
something that actually leads to cycle smoothing. There are obstacles to labor mobility – language barriers; legislation (even with some effort to solve this point); services directive not put in place (countries have resisted it very strongly). Also, a big obstacle is the housing market → if people have the tradition of buying a house, then they are linked to a place – they don’t move. It’s very hard to sell everything and buy somewhere else. It’s a very powerful force preventing people from moving.
There is also the risk that things don’t exactly play out as expected with labor mobility. If people are moving to a region, that region would grow even more. Then, richer regions get richer and poorer regions get poorer. These dynamics would actually increase the gap. We also see this happening inside countries, with rural vs urban areas.
