Current Issues in European Integration

LUBS 3570
Lecture 2: History, Institutions and the Current Crisis
Dr. Annina Kaltenbrunner
G.19
Tel.: 0113/343 0191


Outline

Short Economic History of Europe
Main Institutions and Governance
The Crisis

http://www.youtube.com/watch?v=sO75ZsvM
kc8&playnext=1&list=PLAF17CB4C96818C9F&
feature=results_video

Short History of the European Union
Customs Union
1950: Schuman Declaration
1951: Treaty of Paris (in effect July 1952) - European
Coal and Steel Community (ECSC)
Original Six: Belgium, West Germany, France, Italy,
Luxembourg, Netherlands
Common market for coal and steel
1957: Treaty of Rome (in effect January 1958) -
European Economic Community (EEC)
Formation of customs union (finished by 1986)
Competition policy and common agricultural policy (CAP)
Missing: factors, social policy and taxes





Short History of the European Union
Common Market

1965: Merger Treaty European Community (in effect
1967)
Combined the executive bodies of the European Coal and Steel
Community (ESCS), Euratom, and the European Economic
Community (ECC)
Direct election of European Parliament (EP)
1971: Werner Report
Limit intra-union exchange rates
Macroeconomic coordination
Centralize EU monetary policy decisions
1986: Single European Act (in effect July 1987) - Single
Market Programme
Common Market: Factor Mobility
Short History of the European Union
Economic and Monetary Union
1989: Delors Plan Proposal of an economic and
monetary union
1. All members join European Monetary System (EMS)
exchange rate mechanism (European Currency Unit (ECU);
2.25% band)
2. Narrower exchange rate margins and EU control
3. Single currency and ECB
1992: Speculative attacks on EMS (UK, Italy) wider
bands
1992: Maastricht Treaty (Treaty on European Union)
European Union (in effect November 1993)
Economic and Monetary Union

Short History of the European Union
The Euro
Several Treaties (1997: Amsterdam Treaty; 2001: Nice
Treaty; 2007: Lisbon Treaty)
Successive Accessions/EU Enlargement
1999: Launch of Euro as virtual currency
2002: Euro becomes currency of 12 member countries
(Portugal; Spain; France; Ireland; Belgium; Luxemburg;
Netherlands; Germany; Austria; Italy; Finland; Greece)
Successive accession of 6 additional countries (Lecture 1)
2009/2010 - : Sovereign Debt Crisis and Austerity
Reasons for Crisis (Lecture 6 and 13)
ECB and Banking Union (Lectures 12 and 13); Fiscal Compact
(Lecture 7); Structural Adjustment (Lectures 8-11)
Institutions and Governance
European
Commission
Council of
the
European
Union
European
Parliament
Seeks to uphold interest of the Union as entity
One commissioner from each EU member - Appointed by member countries
and serve for five years
Proposes, implements and supervises new laws and EU policies (Parliament
and Council adopt them)
Guardian of the Treaties
Executive, particular in competition and common agricultural policy



Represents individual member countries - One member of each country:
Government minister responsible for area under consideration
Main decision making body approves nearly each piece of legislation
Coordinates general economic policies of member states (Council for
Ministers for Economic and Social Affairs (Ecofin)
Concludes international agreements between EU and other
countries/international organisations
Approves the EU budget (together with Parliament)
Takes decisions pertaining to common Foreign and Securities Policies
(CFSP)


Represents the EUs citizens
732 members - Directly elected by EU citizens
Shares legislative powers with the Council of Ministers and the
Commission
Oversees all EU Institutions, but especially the Commission
Conscience of the EU


Institutions and Governance
Court of Justice: upholds the rule of European law
Supranational legal system which stands above national
law
Ensures observance of law and justice in the interpretation
and application of the Treaties (primary law), EU laws
(secondary law), and decisions of the Court itself (case
law)
Court of Auditors: checks the financing of the Unions
activities
European Investment Bank
European Central Bank (Lecture 6)


Institutions and Governance
Institutions and Governance
National-Shared-Exclusive Competences
Subsidiarity and Proportionality






Policies Examples
Single
Policy
Monetary policy; exchange rate;
competition policy; agricultural
policy
Close
co-ordination
Budgetary policy
(Stability and Growth Pact);
structural policies (internal market)
Weak
co-ordination
Budgetary policy in terms of level
and structure of taxation and
public expenditure; labour market
policies
Institutions and Governance
Broad economic policy guidelines (BEPGs)
Council recommendation - the central link in coordination of the
Member States' economic policies.
4 areas:
Budgetary issues (SGP)
Product and labour market Issues (The Cardiff Process)
Employment Issues (Luxembourg Process)
Macro-social and Economic Dialogue Issues (Cologne Process)
Guidelines - Ecofin supervises
Non-coercive, soft enforcement; peer pressure
Critique
Dominance of SGP
Progressive Accumulation of Guidelines (Lisbon Treaty)
Peer pressure has failed to bite as deterrent against non-compliance

Institutions and Governance
Open Method of Coordination
New framework for cooperation between member states peer review
Commission surveillance
Four key elements
Short, medium and long term guidelines with specific timetables for their
achievement
Performance indicators and benchmarks tailored to each member state and
sector
Translating targets from European to national and regional level
Periodic monitoring, peer review and evaluation mutual learning
For areas which fall within the competence of the member states (e.g.
Employment, social protection, social inclusion etc.)
Critique
Complexity and lack of shared model
Inconsistent (e.g. employment and budgetary issues-SGP)
Effectiveness


The Eurozone Crisis
September 2008: Global Financial Crisis
200 billion euro stimulus plan
November/December 2009: Beginning concerns
about EU sovereign debt following Dubai
sovereign debt crisis
Greece sovereign debt 300 bn Euros (113% GDP);
accounting irregularities budget deficit revised
upwards from 3.7% to 12.7% - austerity measures
first downgrades
February 2010: Concerns about other European
countries grow (Spain, Ireland, Portugal)


The Eurozone Crisis
May 2010: 110bn bail-out package to rescue
Greece Euro continues to fall; Introduction of
European Financial Stability Facility (EFSF)
November 2010: 85 bn bail-out package for
Ireland impose toughest budget in countrys
history
February 2011: permanent bailout fund:
European Stability Mechanism (ESM) worth
about 500bn euros
May 2011: 78 bn euro bail-out package for
Portugal


The Eurozone Crisis
Hesitation of core leaders aggravates Crisis
August 2011: yields of core countries affected - ECB
buys bonds from Italy and Spain to stabilize yields
December 2011: Fiscal Pact
January 2012: Core country debt (France) and
EFSF/ESM downgraded
Rising Spreads, Budget Cuts, Austerity, Social Protests
August 2012: ECB Outright Monetary Transactions
Banking Union under Supervision of ECB
Single Resolution Mechanism

The Eurozone Crisis


http://www.bbc.co.uk/news/business-
13359367

The Eurozone Crisis


http://www.youtube.com/watch?v=LetBHIbIYy0
Reasons for Eurozone Crisis?

Government Profligacy? (Lecture 7)
Structural Imbalances in the Eurozone due to
Heterogeneity of Member states (Lectures 5
and 6)
Financial Markets and Capital Flows (Lectures
12 and 13)
Core Readings
R. Baldwin and C. Wyplosz, The economics of
European integration, Chapters 1-3 (3rd Edt:
1-3)
P. Arestis, A. Brown and M. Sawyer, The Euro :
evolution and prospects, Chapter 2
Lapavitsas et al. (2012): Crisis in the Eurozone.
Verso, London
Additional Readings
D. Hodson and I. Maher, The open method as
a new mode of governance: the case of soft
economic policy co-ordination, Journal of
Common Market studies., vol. 39, no 4, pp.
719-46
Huffschmid, J. (eds) (2005): Economic policy
for a social Europe : a critique of neo-
liberalism and proposals for alternatives,
Chapter 13
Additional Readings Eurozone Crisis
Comments on the Eurozone Crisis by Economist and Blogger Yanis
Varoufakis: Available at: http://yanisvaroufakis.eu/
Current report by the EuroMemo Group. Available at:
http://www.euromemo.eu/
BBC News: Timeline of Eurozone Crisis. Available at:
http://www.bbc.co.uk/news/business-13856580
Hein, E., A.Truger and T. van Treeck (2011). The European financial
crisis: Alternative solutions from a (Post-) Keynesian Perspective.
IMK Working Paper 9/2011. Macroeconomic Policy Institute.
Dsseldorf: Hans-Bckler-Stiftung
Mourlon-Druol, E. (2011). The Eurocrisis: A historical perspective.
LSE Strategic Update. June. London: LSE. Available at:
http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SU007.pdf
BBC Current Eurozone Data: http://www.bbc.co.uk/news/business-
13361930




EU expansions
Original members: Belgium, France, (West)
Germany, Italy, Luxembourg, Netherlands (EU-
6)
Expansion in 1973: UK, Ireland and Denmark
1981 Greece
1986 Portugal, Spain
1995 Austria, Finland, Sweden
Above referred to as EU15



EU expansions
2002 Euro introduced for 12 original countries
2004 Cyprus, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland Slovakia, Slovenia (new
member states NMS)
2007 Bulgaria, Romania; Slovenia joins Euro
2008 Malta and Cyprus join Euro
2009 Slovakia joins Euro
2011 Estonia joins Euro
2013 Croatia due to join EU
Candidates: Iceland, Macedonia, Montenegro and
Turkey