The European Union

Current State-Members
Current State: The European Union (EU) and the Euro-zone:
27members in EU and 15 members in the euro-zone excluding U.K.,
Sweden and Denmark but including Malta, Cyprus and Slovenia. 27
members are Germany, France, Italy, Belgium, Netherlands,
Luxembourg, Ireland, UK, Denmark, Greece, Portugal, Spain,
Austria, Finland, Sweden, Czech Rep., Estonia, Hungary, Poland,
Slovenia, Latvia, Lithuania, Slovak Rep., Cyprus, Malta, Bulgaria
(2007), Romania (2007).
Hence, there are currently 16 European Monetary Union (EMU)
members, Denmark and the UK negotiated opt-out clauses while
Sweden postponed entry into the Euroland. Slovenia adopted the Euro
on January 1st, 2007 and Malta and Cyprus on 2008. Slovakia
adopted the Euro on January 1
st
, 2009.
3 countries in the pre-accession state: These are Croatia, Turkey and
Macedonia.


Spain
Portugal
France
Germany
England
Ireland
Sweden
Finland
Denmark
Italy
Greece
Austria
Belgium
Netherlands
The EURO area
History of European Union I
Organization for European Economic Cooperation (OEEC)
was founded in 1948 to administer US Marshall Plan aid to
reconstruct postwar Europe. Europe sought to avoid
fascism, Nazism and protectionism and establish peace
and prosperity through trade kinks. Communism was
feared to encroach Europe.
The Breakthrough into supranationalism: The Schuman
Plan (1950) foresaw limited sectoral integration but on a
supranational basis to place war-making sectors of coal
and steel under one authority (The High Authority).
It was an explicitly political proposal but followed a
functional approach of economic integration but with wider
political objectives.

History of European Union II
Treaty of Paris (1951)-European Coal and Steel
Community (ECSC) founded in 1952 to realize a
common market for coal, steel and iron ore for the
six member countries (West Germany, France, Italy,
Belgium, the Netherlands and Luxembourg)-
Nascent political integration through sectoral
integration to avoid another French-German war.
Numero uno problem at the time was
governmental failure. Twice in the 20
th
century
governments failed to deliver peace and this led to
ruin in Europe. By 1950s, a middle aged man had
seen two incredibly destructive wars!
WHY EUROPEAN
COOPERATION and
INTEGRATION?
Propelled by a distinctive set of historical circumstances and
impulses and motivated by political, economic and security
considerations.
1. Wish to avoid a repeat of governmental failures culminated in two
World Wars in the 20
th
century and expansionist nationalism (Nazi
Germany).
2. Economic devastation caused by wartime destruction.
3. Emergence of two superpowers, the USA and the Soviet Union
with competing economic and political ideologies.
4. Division of Europe (East and West) and the need for security
from Soviet threat and expansionism.
5. Need for rapid development in standards of living and economic
performance to establish long-lasting peace and security. Poor
economic performance was perceived as providing a climate of
political instability conducive to the growth of Fascism and
Communism as the extreme ideologies.
6. Franco-German reconciliation as the bedrock of stability within
Western Europe.
History of European Union III
Failure: The European Defense Community proposed by the
Pleven Plan (another French!) failed in the French parliament
(1954). The issue was German remilitarization-less need after
Korean war. Germany became a member of NATO in 1955 through
the intergovernmental Western European Union.
DeGaulle and rising French nationalism obstructed a nascent
political integration based on a common defense program.
The Relaunch: The Messina Conference (1955): Proposals for the
creation of a common market beyond the ECSC, a common
transport and energy policies. The negotiations proposed a
customs union and a commitment to deeper integration.
The UK withdrew because of outright opposition to the
supranational form of integration proposed in Messina.
The Suez crisis made economic integration a necessity as it
signaled the end of French-British status as global powers. Soviet
invasion of Hungary was menacing.
History of European Union IV

Treaty of Rome formally established the European
Economic Community (EEC) and European Atomic Energy
Community (EURATOM) in 1957 and the European
Community (EC) consisted of ECSC, EEC and EURATOM.
[In 1967, ECSC and EEC merged with the (EURATOM) to
form the European Community (EC)-called the Merger
Treaty].
Based on The Community Model to forge an ever closer
union among the peoples of Europe. Deadline for the
removal of interstate tariffs were set at 1969 but achieved
in 1968. (Deeper integration towards a common market in
1985 with the Single Market Program.)
At this time, the EC was more than a customs union (CU)
but less than an economic union (EU): More than a CU
because of common policies in coal/steel and agriculture
(CAP), attempts to unify transport and energy sectors. But
less than an EU with free circulation of goods, services and
only to some extent free movement in capital and no
common macroeconomic and other sectoral policies.
Main notions of economic integration
Free trade area
Eliminates tariffs within the area only. Each country retains
its own policy towards non-members.

Custom union
Add a common external policy to the free trade area.

Common market
Factors of production can flow freely within a custom union.
Free movement of capital, labor and goods/services.

Economic union
Common market with common determination of some
structural and macroeconomic policies.
Massive extension of the Community Model to forge an
ever closer union among the peoples of Europe.
The EEC as a Customs Union.
Progressive elimination of internal tariffs by 1969- Formation of a free
trade area (FTA) for the EEC with the gradual elimination of tariffs,
quotas and other barriers to trade among members.
Common external tariffs of 15 percent (members average)-the
creation of a uniform tariff schedule applicable to the imports from the
rest of the world. The Goal was the formation of a common market (CM):
the removal of all barriers to the movement of labor, capital and business
enterprises. And coordination of economic policies (a distant goal at the time.)

Treaty of Rome (1957)
The Adoption of the Common Agricultural Policies (CAP)-French pushed
for this as a tilt of balance against the industrial Germany.
It was a vital instrument of Community solidarity and helped restructure the
declining Western European agriculture.

The creation of an investment fund (European Investment Bank) to channel
capital from the more advanced to the less developed regions of the
community.
Tax and social policy harmonization.
Coordination of fiscal, monetary and exchange rate policies.

Institutionalize the virtuous circle of export-led growth.
The elimination of tariffs would create trade (trade creation).
The imposition of external tariffs would reduce dependence from the
United States, Soviet Union, etc. (trade diversion).

The Treaty of Rome (1957)

History of European Union V
British subservient to American foreign policy, but not
France! UK did not apply for EEC until 1961 for several
reasons.
Hence, despite entrenched protectionism in the French
industry, France agreed to economic integration through
common trade policies and a customs union in the Treaty
of Rome but made common agricultural policy (CAP) a sine
qua non for signing the Treaty. common agricultural policy
(CAP)- a condition insisted by DeGaulle for signing the
Treaty.
France opposed US domination both in foreign policy and
international monetary policy (Bretton Woods(1944) with a
fixed exchange rate regime with dollar as the reserve
currency convertible to gold.).

History of European Union
VI
European Free Trade Association (EFTA) started in 1960 for those
not willing to move to degree of integration in the Treaty of Rome
(UK, Norway, Denmark, Sweden, Austria, Finland(1961), Iceland
(1970), Portugal and Switzerland.) No threat to national sovereignty!
EFTA would allow the UK to set its own external tariffs, maintain its
special relationship with the Commonwealth countries and avoid
participation in the common agricultural program (CAP) of the
Rome Treaty (1957) which would raise the cost of imported food
stuff for UK. Also, the UK did not want to relinquish national power,
a precondition of the Schuman Plan and preferred a free trade area.
A Note: Since 1994, the European Economic Area (EEA) allows free
movement of people, products, services and capital in the EU and
EFTA. EFTA today consists of Iceland, Liechtenstein, Switzerland
and Norway. Except Switzerland, the rest is part of the European
Unions Internal Market EEA (1994). Switzerland, opted to conclude
bilateral agreements with the EU.
BRITISH ENTRY
For UK under MacMillan-merits of entry.
---Special Anglo-American relationship was becoming less
important (Macmillan-Kennedy meeting in 1962).
---UK risked political isolation by remaining outside the EEC.
---Rapid growth in the EEC market and lack of any free trade
links with EFTA.
---However, UK had missed the boat! Suspicious of UK entry,
DeGaulle vetoed twice (1963, and 1967) the British requests
for membership for fear that this would dilute the EEC into a
free trade area and make it subservient to American foreign
policy interests. Only after DeGaulle, Pompidou allowed it to
join as a counterweight to Germanys inevitable future
political and economic domination in the Community (1973
British, Irish and Danish entry).
History of European Union
VII
A climate of consolidation and challenge: Between Progress and
Conflict in the era of DeGaulle (1958-1969)
DeGaulles attempt to reestablish the prestige of the French state by
strengthening the French grandeur.
Primacy of EU Law over national law established in the 1960s reinforcing
the supranationalism of the EEC
Paradoxically, this was also a period of resurgence in national interests.
DeGaulle believed that an equitable transatlantic was impossible as long
as Western Europe remained subservient to the US. This was one of the
major reasons why he vetoed British entry twice! France was against the
supremacy of the US in foreign affairs.
DeGaulles concept of a Europe of the nation-states bluntly emphasized
intergovernmentalism and epitomized hostility to supranationalism.
Against some stateless construction, (quelque construction apatride).
Fouchet Plan of political cooperation failed in 1962, and later, in 1963,
bilateral Treaty between Germany and France on permanent cooperation
failed. A punch in the stomach for France: Germany refrained from siding
with France against NATO and the US.
By 1968, the EEC was a duty-free zone but intra-community trade was far
from free due to the existence of non-tariff barriers to trade.
History of European Union
VIII
A climate of consolidation and challenge (1958-1969)
Empty Chair Crisis 1. Hallstein (1
st
President of the European
Commission) wished to create self-financing or own sources EEC budget
autonomous of the national budgets. 2. the 1966 introduction of the qualified
majority voting in the Council of Ministers. Both of these were perceived as a
major threat to national sovereignty and a reinforcement of supranationalism
by DeGaulle. Hence, France withdrew from the meetings of the Council of
Ministers from June 1965 to January 1966 until the adoption of the
Luxembourg Compromise.
The compromise was: On matters of vital national interest to one or more
member states, unanimity would be required. This meant the integration
would be dictated by the pace of the most reluctant member state. A change
in the ethos from Community spirit to a calculated, selfish and pragmatic
cost-benefit attitude of the member states.This slowed down the decision
making process and brought a decline in supranationalism till the 1980s.

Revival would take place only after the departure of DeGaulles resignation
in 1969.
History of European Union
IX
Commissions President Hallstein: The
notion of Economic and Political Union was
closer to that of a Political Union, federation
or a confederation, than to the notion of a
customs union. Practically identical, in fact, to
a political union, it would have to include a
European political power, a Community
budget, and integrated system of central
banks. All these would require profound
changes for which the member states were
not ready.

History of European Union
X
The First enlargement and the Hague Summit (1969)
A joint initiative of Brandt and Pompidou symbolizing the optimism
of the post-De Gaulle era. Barre plan (1968) formed the basis of
the summit.
Idea of creating an economic and monetary union for the first time.
Greater monetary solidarity needed (Widely uneven economic
performances of the member states in the late 1960s and early
1970s.) The Werner Report (1970):First blueprint for a single
currency, stages of economic and monetary union with a single
currency were laid out (by 1980!), a large dose of centralization of
policies, monetary and fiscal.
Pompidou allowed British entry to limit German potential to
displace France as the center of gravity in the EC. British
accession could bolster French leadership as a bulwark against
German economic and political resurgence. Germany: an
economy in search of a political purpose.
French devaluation and the strength of Mark-threatening the
economic balance of power between the two core countries. The
oil price shocks, economic recession, bloated CAP and recalcitrant
British severely tested EC solidarity. Yet, the EC survived the
1970s- the decade of Eurosclerosis.
History of European Union
XI
The Decade of Eurosclerosis (1973-1983)
---- German Ostpolitik-normalization of relations with Eastern
Europe. Goal: reunification, unachievable without the collapse
of the Soviet Union. But by agreeing to a single currency
(Werner Report), Brandt of Germany demonstrated that it did
not ask for supremacy in Europe. Balancing of aspirations
towards East Germany with a renewed dynamism in West
Europe.
--- Enlargement in 1973, creation of a more financially
independent Community achieved through own sources
consisting of custom duties, agricultural levies and a % of
VAT tax.

History of European Union
XII
The Decade of Eurosclerosis (1973-1983) and Post-1973
Blues..
-- Failure of monetary integration and failure of deeper trade integration.
-- Break-down of the Bretton Woods Exchange Rate System (1958-1971).
-- Community in a Flux: Euro-pessimism due to 1) Failure of monetary
integration, and 2) failure of deeper trade integration.
-- Major differences in economic performances and policies and general level
of stagnation, failure to develop a common energy policy towards Arab
countries and failure to develop common set of economic policies to deal
with the stagflation which wrecked the possibility of a common monetary
union by 1980 despite the projection of the Werner Report (1970).
-- Resurgence of protectionism-took the form of non-tariff barriers mostly
directed against Japan and NICs, especially in agriculture and textiles.
-- Increasing recourse to government aid, and technical barriers to trade were
key elements of this new tide of protectionism due to strong social
resistance to economic adjustment. Creation of national champions.

History of European Union
XIII
Early 1970s: Monetary developments..
The Collapse of the Bretton Woods and the
suspension of the convertibility of dollar against gold
announced by Nixon in 1971 along with restrictive
trade measures.
The Smithsonian talks of December 1971 sought to
repair the regime and called for action among the Six
for closer coordination of economic policies.
Basle Agreement (April 1972), the Six hatched the
Snake- a regimen to keep EC currency fluctuations
within 2% (1%) margin inside the tunnel against
the dollar (2.25%) established during the
Smithsonian talks.


History of European Union
XIV
Early 1970s: Political Developments
Nixons frustration with the ECs foreign policy
measures: lifting of oil embargo in return for EC
support for Arab cause. The US bitterly resented
ECs unwillingness to relieve pressure on the
dollar and share more of the expense of keeping
troops the US overseas.
Kissengers legendary question: Who speaks for
Europe? in 1973.
His calls for a coordinated Western response
exposed deep transatlantic tensions and
considerable disarray in the EC.
History of European Union
XV
Post-1973 Blues..
1973 British entry along with Denmark and Ireland
Helmut Schmidt and Giscard DEstaing- New Chancellor of Germany and
President of France in 1974. Both spoke the languages of Economics and
English! Non-tariff barriers, protectionism and stagflation in the EC impeded
the emergence of a single market, an objective cherished by both leaders.
Dubious benefit of CAP and The British Budgetary Question: BBQ or the
Bloody British Question: Britain paid too much into the EC budget, it
imported far more agricultural products and industrial goods from outside
the EC. A net contributor to the budget like Germany.
Britain demanded CAP reform, protection of Commonwealth interests and
retention of Parliamentary sovereignty.
In 1975, discussions on the size of the Britains refund (Dublin agreement)
for an acceptable rebate flopped. The issue would be settled only in 1984
when Thatcher aggressively demanded: We want our money back! after 15
summits!
Only after the BBQ was resolved in 1984, the EC gained momentum.
Another important decision: Direct election of the European Parliament by
1979 and holding of regular summits known as European Councils! (attended
by heads of state and government).

History of European Union
XVI
Turning the Corner (1979-1984)- A sense of alarm and urgency.
Conviction that the EC was under serious threat of disintegration.
CAP out of control, BBQ, a paralyzed decision making process
etc. BUT favorable developments in the following areas:
Accession Treaty with Greece in 1979.
Launch of the EMS (European Monetary System).
Deregulation and Liberalization sweeping Europe from the US
Increasing Cooperation between the Commission and the leading
EC industrialists to boost competitiveness, esp. in high-tech
sector.
Growing business interests in the realization of the Single Market
(to be completed by 1992).
Direct elections of EP (Both Britain and France feared it would
undermine national supremacy).
History of European Union
XII
Norway was to join in 1995 but its citizens
rejected membership via a referendum (as
they did in 1973) Twice! Switzerlands
decision to stay out of the EEA stalled
negotiations over EU membership.
Euro-pessimism, 1975-1986
Political shocks:
Luxembourg Compromise (1966) +
enlargement leads to decision-making jam.
Economic shocks:
Bretton Woods falls apart, 1971-1973.
Failed monetary integration schemes (except within
DM bloc).
1973 and 1979 oil shocks with stagflation.
Failure of Deeper Trade Integration.
Growing cost of Common Agricultural Policy
creates frictions over budget.
Bright spots
Democracy in Spain, Portugal and Greece
Greece joins in 1981
Spain and Portugal join in 1986 after long a
difficult accession talks
EMS set up in 1979 works well
Budget Treaties
1979 Cassis de Dijon decision built on 1974
Dassonville ruling
Challenged validity of national rules that introduce
non-tariff barriers to trade.
Mutual Recognition Principle introduced.
Deeper circles: single market
programme
Mutual recognition as threat to national regulatory
control; race to bottom?
How to put member govt back in charge?
Delors launches completion of the internal market with
Single European Act
create "an area without internal frontiers in which the free
movement of goods, persons, services and capital is
ensured".
Important institutional changes, especially move to
majority voting on Single Market issues.
Mutual recognition is disciplined by minimum harmonisation
More efficient decision making procedures allow agreement
on min. standards New Approach Directives.
Single Market Programme, EC92
Basic elements
Goods Trade Liberalisation
Streamlining or elimination of border formalities,
Harmonisation of VAT rates within wide bands
Liberalisation of government procurement
Harmonisation and mutual recognition of technical
standards in production, packaging and marketing
Factor Trade Liberalisation
Removal of all capital controls (!!!), and deeper
capital market integration
Liberalisation of cross-border market-entry policies,
Fourth enlargement
1994, Austria,
Finland, Norway
and Sweden
admitted
(Norwegians
again vote no).
Cyprus
Malta
1958
1973
1994
2004
1973
1981
Communisms creeping failure and
spectacular collapse
By the 1980s, Western European system
clearly superior due to the creeping failure
of planned economies.
Up to 1980s, Soviets thwarted reform
efforts (economic & military pressure).
Changes in USSR due to inadequacy
economic system.
timid pro-market reforms (perestroika).
openness (glasnost).
Velvet revolutions in CEECs
June 1989 Polish labour movement Solidarity
forced free parliamentary elections & communists
lost
Moscow accepted new Polish government.
Moscows hands-off approach to the Polish election
triggered a chain of events.
Reformist in Hungarian communist party pressed for
democracy & Hungary opened its border with Austria, 1000s
East Germans moved to West Germany via Hungary and
Austria.
Mass protests in East Germany; Wall falls 9
th
November 1989.
End of 1989: democracy in Poland, Hungary, Czechoslovakia
and East Germany (unification in 1990).
USSR collapses
1990, Estonia, Latvia and Lithuania
declared their independence from
the USSR.
End of 1991, the Soviet Union itself
breaks up.
Cold War ends without a shot.
Military division of Europe ended.
EU reacts
The European Union reacted swiftly to
this geopolitical earthquake by providing
emergency aid and loans to the fledgling
democracies.
Signing of Europe Agreements with
newly free nations in Central and Eastern
Europe
These are free trade agreements with
promises of deeper integration and some aid


From Copenhagen to Copenhagen
EU says CEECs can join the EU (June 1993).
Set out famous Copenhagen criteria for membership.
stability of institutions guaranteeing democracy,
the rule of law,
human rights and respect for and, protection of minorities,
the existence of a functioning market economy as well as the
capacity to cope with competitive pressure and market forces
within the Union.
Copenhagen summit December 2002 says 10
CEECs can join in 2004.
5
th
enlargement in May 2004
German unification and Maastricht
Pending 1990 unification of Germany opens door to a
grand bargain (Mitterrand, Kohl).
Germany gives up DM for European Monetary Union & East
Germany joins the EU without negotiation.
Jacques Delors proposes 2
nd
radical increase in
European economic integration.
the formation of a monetary union.
Idea championed by French President Francois Mitterrand and
German Chancellor Helmut Kohl.
Maastricht Treaty, signed 1992
a monetary union by 1999, single currency by 2002.
Also, sets up EUs three pillar structure to reduce EUs
competency creep;
ERM exchange rate crises, 1992-1994.

Preparing for Eastern Enlargement
Impending enlargement required EU to
reform its institutions
Four tries:
Amsterdam Treaty, 1997
Nice treaty, 2000
draft Constitutional Treaty, 2003
Reconsidered by IGC 2003
Constitutional Treaty, June 2004.

Amsterdam Treaty
Failed to reform main institutions
Tidied up of the Maastricht Treaty
More social policy, Parliament powers
modestly boosted,
flexible integration, closer cooperation
introduced
Amsterdam leftovers
voting rules in the Council of Ministers,
number of Commissioners,
Extension of issue covered by majority
voting
Nice Treaty
Reforms of main institutions agreed, but
poorly done
Council voting rules highly complex and
reduce EUs ability to act with more
members
No important extension of majority voting
Make shift solution for Commissioners
No reform of decision making in ECB
Generally viewed as a failure
Main changes re-visited in draft
Constitutional Treaty, 2003
Constitutional Treaty
Improved decision-making rules for
Council of Ministers and slightly more
majority voting.
Inclusion of Charter of Fundamental
Rights.
Other things where CT not strictly
required:
Many gestures and tidying up.
Moves towards more coherent foreign policy
decision making.
Many de facto points turned into de jure.


Constitutional Treatys Problems
France and Netherlands reject the Constitutional
Treaty in referendums in Summer 2005.
EU leaders suspend the ratification deadline. Next
steps uncertain as of early 2006.