The development of the European Union, 1945-2012
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The development of the European Union, 1945-2012



University of Canterbury course ECON339: Lecture 1

University of Canterbury course ECON339: Lecture 1



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The development of the European Union, 1945-2012 Presentation Transcript

  • 1. ECON339 EURO339Historical and PoliticalIntegration in Europe, 1945-2012 January 2012
  • 2. ECON339 / EURO339The EU in 2012 2
  • 3. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change D eath to ll T he E co no m ic S et-B ack: Pre- w ar year w he n G D P equa lle d that o f 1945A u stria 525,000 1886B e lg iu m 82,750 1924D enm ark 4,250 1936F in la nd 79,000 1938Fra nce 505,750 1891G erm a ny 6,363,000 1908Italy 355,500 1909N etherla nd s 250,000 1912N o rw ay 10,250 1937S w eden 0 G D P grew during W W IIS w itzerla nd 0 G D P grew during W W IIUK 325,000 G D P grew during W W II 3
  • 4. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change London 1940 East London, 1940 4
  • 5. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change Rotterdam, 1940 5
  • 6. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change Reichstag, 1945 Frankfurter Allee, 1945 6
  • 7. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change Brandenburg Gate 7
  • 8. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change Unter der Linden, 1945 Unter der Linden, 1997 8
  • 9. ECON339 / EURO339Early Post War Period: the Climatefor Radical Change Berlin Cathedral, 1945 Berlin Cathedral, 1997 9
  • 10. ECON339 / EURO339Refugees and famine  The situation worsens 1945-47  1946/47 winter  Famine and starvation  1m refugees in UN camps  7m Displaced Persons (DPs) returned home  Political turmoil – monarchies abolished 10
  • 11. ECON339 / EURO339How can Europe avoid anotherwar? What caused the war?  Blame the loser (as in 1919)  Capitalism  Rampant nationalism (fascism) Three different post-war solutions  Blame the loser? - deindustrialise Germany – Henry Morgenthau (US Treasury Secretary), 1944  Capitalism? - adopt communism  Nationalism? - pursue European integration European integration ultimately prevailed 11
  • 12. ECON339 / EURO339Emergence of a divided Europe Germany, Austria & Berlin divided into four zones 12
  • 13. ECON339 / EURO339Winston Churchill, Fulton, Missouri,March 5th, 1946 ‘From Stettin in the Baltic to Trieste in the Adriatic an iron curtain has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia…’ 13
  • 14. ECON339 / EURO339Winston Churchill, Fulton, Missouri,March 5th, 1946 ‘… all these famous cities and the populations around them lie in what I must call the Soviet sphere, and all are subject, in one form or another, not only to Soviet influence but to a very high and in some cases increasing measure of control from Moscow.’ 14
  • 15. ECON339 / EURO339The Iron Curtain 15
  • 16. ECON339 / EURO339The Iron Curtain 16
  • 17. ECON339 / EURO339The Iron Curtain East German Guard Towers 17
  • 18. ECON339 / EURO339The ‘Cold War’ begins  USSR enforces communism in the East  UK, French and US zones merged by 1948  Moves towards creation of West German government  Berlin „air bridge‟, June 1948  Neuter (“deindustrialise”) Germany solution abandoned for strong West Germany plus European integration 18
  • 19. ECON339 / EURO339First Steps at European integration  The Organisation for European Economic Cooperation and the European Payments Union  Marshal Plan, 1948-52: $12bn US aid to western Europe (CMEA USSR response, 1949-)  OEEC (1948-61) coordinated aid distribution and prompted trade liberalisation  EPU (1950-58) multilateralised bilateral barter deals between bankrupt states and fostered trade liberalisation 19
  • 20. ECON339 / EURO339Need for deeper Europeanintegration  As Cold War got more war-like, West German rearmament became necessary.  1949, Federal Republic of (West) Germany established  Strong and independent Germany feared  OEEC too weak to bind strong, rearmed Germany and avoid future wars  Economic integration of Germany essential to permit rearmament 20
  • 21. ECON339 / EURO339Brief aside from the chronology Nobel Peace Prize 2012 awarded to EU for: „for over six decades [having] contributed to the advancement of peace and reconciliation, democracy and human rights in Europe‟ „By building up mutual confidence, historical enemies can become close partners‟ „introduction of democracy‟ in Greece, Spain and Portugal overcoming of „the division between East and West‟ contributing to „process of reconciliation in the Balkans‟ 21
  • 22. ECON339 / EURO339Two strands of European integration  Federalism vs intergovernmentalism  Federalism – supranational institutions (G, F, I)  Intergovernmentalism – nations retain sovereignty (UK, Scandinavia, neutrals)  Intergovernmental initiatives  OEEC (1948)  Council of Europe (1949)  Court of Human Rights (1950)  EFTA (1960) 22
  • 23. ECON339 / EURO339Two strands of European integration  Federal initiatives  Robert Schuman Plan – European Coal and Steel Community (1951)  Coal and steel – „commanding heights‟  1955 Germany joins NATO, Warsaw Pact formed  ECSC not enough  1957 „Treaties of Rome‟  Euratom  European Economic Community (EEC) – customs union 23
  • 24. ECON339 / EURO3391960-1973, two non-overlappingcircles ISEEC-6 NL EFTA-7 B D L N S FIN F I DK EEC-6 UK P A IRL CH E EEC GDP 2x > EFTA and GR growing faster 24
  • 25. ECON339 / EURO339Evolution to Two Concentric Circles Preferential liberalisation in EEC and EFTA proceeded Discriminatory effects emerge, leading to new political pressures for EFTA members to join EEC  Trade diversion creates „force for inclusion‟  As EEC enlarges, force for inclusion strengthens When UK decides to apply for EEC (1961), I, DK and N also change their minds.  De Gaulle‟s „non‟ (twice) 25
  • 26. ECON339 / EURO339Force for inclusion „Domino theory‟ of regional integration Preferential lowering of trade barriers leads to trade diversion …which leads to pressure on outsiders to join …as bloc grows… …‟force for inclusion‟ on remaining outsiders grows further 26
  • 27. ECON339 / EURO339Evolution to Two Concentric Circles  1st enlargement, 1973  UK, Denmark, Ireland & Norway admitted (Norwegians say „no‟ in referendum)  Enlargement of EEC reinforces „force for inclusion‟ on remaining EFTA members  Remaining EFTA members sign FTA agreements with EEC-9 27
  • 28. ECON339 / EURO339Two concentric circles IS FIN DK N NL S UK B D IRL L EEC-9 F A I CH EFTA-7 P E GR 28
  • 29. ECON339 / EURO339Euro-pessimism/Eurosclerosis, 1975-1986  Political shocks:  „Luxembourg Compromise‟ – unanimity/switch to intergovernmentalism (1966) + enlargement (1973) leads to decision-making jam  Economic shocks:  Bretton Woods falls apart, 1971-1973, kills Werner Plan for monetary union  1973 and 1979 oil shocks with stagflation  Growth of NTBs to trade  Growing cost of Common Agricultural Policy 29
  • 30. ECON339 / EURO339Positive milestones 1975-86  Democracy in Spain, Portugal and Greece  Greece joins in 1981 (2nd enlargement)  Spain and Portugal join in 1986 after difficult accession talks (3rd enlargement)  EMS set up in 1979 works well  Budget Treaties  1979 Cassis de Dijon decision  Challenged validity of national rules that introduce non-tariff barriers to trade  Mutual Recognition Principle introduced 30
  • 31. ECON339 / EURO339Deeper circles: single marketprogramme Mutual recognition as threat to national regulatory control; race to bottom? How to put member governments 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 minimum standards 31
  • 32. ECON339 / EURO339Single Market Programme: ‘EC92’  Goods Trade Liberalisation  Streamlining or elimination of border formalities  Harmonisation of VAT (GST) 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 32
  • 33. ECON339 / EURO339Domino effect, part II  Deeper integration in EC-12 strengthened the „force for inclusion‟ in remaining EFTA members  End of Cold War loosened EFTA members‟ resistance to EC membership (eg, Austria, Finland)  Result of „force for inclusion‟  European Economic Area (EAA) – initiative to extend single market to EFTA members  Membership applications by all EFTA members except Iceland  Concentric circles, but both deeper 33
  • 34. ECON339 / EURO3394th enlargement 1994 1973 2004 1994, Austria, Finland, 1958 Norway and Sweden admitted (Norwegians again vote no) Cyprus 1973 Malta 1981 34
  • 35. ECON339 / EURO339Communism’s creeping failure andspectacular 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 and military pressure)  Gorbachev reforms:  restructuring (perestroika)  opening up (glasnost)  Our „common European home‟ Prague, April 1987 35
  • 36. ECON339 / EURO339Mathias Rust (19), May 28, 1987 36
  • 37. ECON339 / EURO339Velvet/bloody revolutions ineastern European June 1989 Polish labour movement „Solidarity‟ forced free parliamentary elections - communists lost  Moscow accepted new Polish government Moscow‟s hands-off approach to the Polish election triggered a chain of events:  Reformists in Hungarian communist party pressed for democracy, Hungary opened its border with Austria  „000s East Germans moved to West Germany via Hungary and Austria.  Mass protests in East Germany; Berlin Wall falls November 9th 1989  End of 1989: democracy in Poland, Hungary, Czechoslovakia, East Germany, Romania and Bulgaria 37
  • 38. ECON339 / EURO339The fall of the Berlin Wall 38
  • 39. ECON339 / EURO339The end of the USSR  1990, Estonia, Latvia and Lithuania declared independence from USSR  August 1991, Soviet coup  December 1991, USSR dissolved  Cold War ends (Georgia 2008?)  Military division of Europe ends 39
  • 40. ECON339 / EURO339The EU and the reconstruction ofthe CEECs  The EU reacted to the end of the Cold War by:  providing emergency aid and loans to the fledgling democracies in the Central and Eastern European Countries (CEECs)  signing of „Europe Agreements‟ with newly free nations in Central and Eastern Europe  Europe Agreements were free trade agreements with promises of deeper integration and some aid 40
  • 41. ECON339 / EURO339From Copenhagen to Copenhagen EU says CEECs can join the EU (June 1993) 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, robust market economy Copenhagen summit December 2002 says 10 CEECs can join in 2004 5th enlargement in May 2004 (10 CEECs) 6th enlargement in May 2007 (Bulgaria and Romania) 41
  • 42. ECON339 / EURO339The by-product of the peace dividend:German unification and Maastricht  Jacques Delors proposes radical increase in European economic integration - formation of a monetary union  Pending 1990 unification of Germany opens door to a „grand bargain‟ (Mitterrand, Kohl).  Germany gives up DM for European Monetary Union…  …and East Germany joins the EU without negotiation  Maastricht Treaty, signed 1992  monetary union by 1999, single currency by 2002  sets up EU‟s „three pillar‟ structure to reduce EU‟s „competency creep‟ 42
  • 43. ECON339 / EURO339Mid-2000s – high water mark for theEU?  By 2007:  European Union of 500m people, 27 countries, 20% global GDP  Single European Market complete – single European market for goods, services, labour and capital  European monetary union – single currency for 17 of EU27  CEECs reintegrated into „western Europe‟ 43
  • 44. ECON339 / EURO3392008-2012 European sovereigndebt crisis  Causes of European sovereign debt crisis complex  Easy credit in US and EU 2002–08 period and financial engineering led to:  high-risk lending by banks (believed to be safer because of securitisation of bank loans)  Real estate „bubble‟ in many countries  Borrowing to fund capital projects by national and regional EU governments 44
  • 45. ECON339 / EURO3392008-2012 European sovereigndebt crisis (2)  Default on loans led to collapse in a number of banks in 2008  Credit dried up, real estate market crashed  Governments nationalised banks to avoid financial contagion (socialised private debt)  As economy went into recession, fiscal stabilisers increased budget deficits and added to rising public debt 45
  • 46. ECON339 / EURO339The Eurozone’s double diprecession 46
  • 47. ECON339 / EURO339Government debt in the EU, 2012 47
  • 48. ECON339 / EURO339Government debt and the euro  Eurozone governments are effectively borrowing in „foreign currency‟  They cannot borrow from their own central banks, monetise the debt and inflate away their debts (like US and UK)  Financial markets demand ever-higher risk premium from indebted governments and eventually they will default  Bail-outs of countries like Greece is putting huge pressure on the European project 48
  • 49. ECON339 / EURO339The spread of Euroscepticism 49
  • 50. ECON339 / EURO339Conclusions  Economic means to a political end  Non-linear process:  Common market  Eurosclerosis  SEM  EMU  Reunification of Europe  European sovereign debt crisis  Force for inclusion  Supranationality vs intergovernmentalism 50