Part 4: More on the European Union
Moving Forward
Initially, the plan was for the common market, and other Treaty objectives, to be accomplished within 12 years; and, to a large extent, there was great success. A basic customs union was accomplished fairly quickly and by 1969 a basic common market was in place, although numerous barriers (technical, fiscal, and physical) to the movement of factors of production remained, particularly with labor. The Common Agriculture Policy (CAP) was fully in place, although transport policy was slow to evolve. Probably the single best indication of the progress of the community was their decision to participate in the Kennedy Round of the GATT negotiations with one European voice. Overall, the EEC averaged 5.7% GDP growth and an annual increase in per capita income of 4.5% during these years.
Feeling Left Out
With the success of the EEC clearly evident, and feeling the pressure of a declining economic standing within the global community, the UK set out to establish its own regional trade agreement with other European nations, which shared their view of an intergovernmentalist approach. In 1960 the European Free Trade Association (EFTA) was founded by the UK , Norway , Sweden , Denmark , Switzerland , Austria , and Portugal (later to include Finland , Iceland , and Liechtenstein ). The objective of this agreement was far simpler than the EEC's, seeking to only to establish a free trade area among the members and to establish more liberal trade relations with the EEC. In the end, however, the EFTA could not match the success of the EEC, and eventually most of the members dropped out, seeking application
into the EEC.
Pressing On
The EEC continued to press ahead toward further integration milestones in the 1970s. Most notably, these included:
- Establishment of the Common Fisheries Policy.
- Creation of the European Regional Development Fund (to aid less developed regions in the community).
- Initiatives to establish a community budget with its own source of revenues.
- Establishment of a European Council (not to be confused with the council of European Union, or Ministers), which serves an advisory function and is comprised of the "Heads of State" of the member nations.
- Direct elections for the European Parliament in an attempt to lessen the "democratic deficit" at the supra-national level.
- The establishment of the European Monetary System (EMS) following the collapse of the Bretton Woods system, which, although ultimately unsuccessful, sought to peg member exchange rates through active central bank intervention.
The 1970s also marked the first expansion of the community. By the mid 1960s it had became clear that the EEC, not the EFTA, was the economic and political force in Europe. Following three unsuccessful attempts at membership in the 1960s--vetoed by DeGaulle, who saw the British as sore losers and a threat to French influence--in 1973 the UK, Ireland, and Denmark became members of the EEC. (Norway was also offered membership but choose, in a national referendum, not to join.)
Eurosclerosis
Like much of the rest of the world, the late 1970s and early 1980s were hard on the EEC. Oil recessions, double-digit inflation, high unemployment, and endless debate over CAP rights and budget obligations brought integration to a standstill. On top of this, three of the poorer nations in Western Europe, Greece (1981), Spain (1986), and Portugal (1986), were admitted as members, with the expectation that their membership would encourage democracy and stability in the region.
Jump Start: The Single European Act
In response to the stagnation of the previous decade, the Commission issued a "white paper" entitled "Completing the Single Market," which recommended 270+ measures that needed to be taken in order to fully complete the common market. The Single European Act (SEA) essentially amended the Treaty of Rome, taking effect in 1986 and calling for completion of its recommendations before 1993. Some of the specific initiatives included:
- Dismantling numerous technical, physical, and fiscal barriers, particularly with regard to the free flow of investment and labor.
- Establishing majority voting (as opposed to super-majority or unanimous voting) in the Council of Ministers for issues relating to completion of the SEA.
- Amending the Treaty of Rome to allow for (and require) macro-economic policy coordination, the EMS , and further monetary integration.
- Requiring labor law and workplace issues to be addressed at the supra-national level.
- The creation of a Court of First Instance to filter and make judicial rulings in order to assist the increasingly burdened European Court of Justice.
- Formalizing European political cooperation in hopes of harmonizing member states' interactions with the rest of the world.
- The complete elimination of internal passport and customs controls within the community.
By December of 1992 the EEC, for the most part, had successfully completed the initiatives of the SEA. In celebration, the EEC changed its name to the European Community (EC) as a reflection of the deeper integration between the member states. In fact, the SEA was such a success that the community decided to continue pushing forward, hoping to transform itself into a monetary and political union.
Deepening Integration: The Treaty on European Union
In 1992 the EC signed the Treaty on European Union with three specific "pillars" of focus:
- To transform the common market into a true economic/monetary union with a common currency, the Euro, and a European Central Bank to oversee all monetary policy.
- To introduce a Common Foreign and Security Policy (CFSP).
- To introduce the system of Cooperation on Justice and Home Affairs (CJHA).
Some of the more important specifics of the Treaty on European Union TEU included:
- Establishing "European" citizenship.
- Setting procedures for the transition toward monetary union.
- Setting procedures for intergovernmental cooperation in foreign policy.
- Expanding the use of majority voting in the Council of Ministers (as opposed to a higher consensus super-majority requirements).
- Increasing the power of European Parliament in order to strengthen the democratic process.
- Creating a Committee of Regions to address the concerns of specific locals.
The TEU and its push toward deeper integration had its proponents as well as its critics. Those in favor argued that it was the next logical step on the road of integration:
- It would narrow the "democratic deficit" through a more powerful Parliament.
- There would be additional growth through the efficiency of a single currency.
- It would strengthen Europe's hand in geopolitical negotiations.
- Without it, previous integration accomplishments would regress.
The proponents, however, felt that the TEU was simply a power grab by the "Eurocrats" in Brussels, and filled with little more than vague commitments and promises. They saw it as a treaty too soon, believing that enlargement of the community was more important than "deepening" it. And finally, they had concern over the opinion polls that showed average citizens to be ambivalent, if not opposed, to further integration. In fact, most had very little understanding of what the Treaty even entailed. Regardless, the Treaty was ratified, integration moved forward, and the European Community officially changed its name to the European Union (EU).
The mid-1990s also included the entry of some of the remaining European Free Trade Association members--Sweden, Finland, and Austria--into the European Union in 1995, as well as the signing of the Amsterdam Treaty in 1997, which set specific dates for completion of monetary union.
The Euro--Monetary Union in the EU
Since January 1, 1999, the Euro has been used for all foreign exchange operations in the participating countries. Euro banknotes and coins began to circulate on January 1, 2002 and completely replaced national currencies by July 1, 2002. (Existing national currencies ceased to be legal tender in the participating countries on or before this date.) Twelve of the fifteen EU members choose to participate, with the UK, Denmark, and Sweden opting out, although this may soon change.
Supporters of the European Monetary Union argue that the introduction of a common currency will reduce transaction costs and increase the volume of trade among the participating countries. This results in larger gains from trade and increases the extent of competition in most product markets. Tourists will also benefit from the lower transaction costs associated with a single currency.
The introduction of a single European currency, however, also means that the participating countries will no longer be able to pursue independent monetary and fiscal policies. Monetary policy for the EU will be under the control of the European Central Bank. One of the major concerns about the success of the monetary union is whether this central bank will be able to maintain an independent policy of a low inflation target if different member states require different policy prescriptions. Fiscal policy in each state is restricted because the ability to engage in expansionary deficit spending is limited due to the common interest rate the members must share. Higher levels of government borrowing in one country would raise interest rates in all participating countries, harming their potential for economic growth. In an attempt to avoid this problem, countries that maintain deficits that exceed a specified value are subject to sanctions. The debate over the potential success of monetary union in Europe theoretically centers on whether or not the EU represents an "optimal currency area," which requires certain macroeconomic conditions to be met. These inclu
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free mobility of labor and capital
- balanced government budgets
- manageable government debt
- balanced trade
From 15 to 25
The most recent milestone in EU integration was expansion into Eastern Europe in May 2004. This expansion was the largest and most challenging to date, and included the nations of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. Because of the substantially lower socioeconomic conditions in these nations, the integration of these nations will be slow, with limitations on the flow of labor and a gradual transition towards monetary union and adoption of the Euro.
Websites and Resources
A wealth of information is available on the internet that addresses the history and current status of the EU. Below are links to a variety of websites that should help you learn more about the issues and help you answer the discussion questions for this part of the unit.
