Friday, 10 May 2013

The European Union - A Process of Economic Integration

The European Union is a very contentious issue in current affairs. To stay? To leave? The benefits? The drawbacks? These are dilemmas that will never really be resolved, regardless of what action is taken. What we can discuss, though, is how the European Union came to be what it is today - and what exactly that is.


Today's EU is has derived from more than 50 years of European economic, political and social integration. The process started on the 25th March 1957 when the Treaty of Rome was signed by the six founding members of the European Economic Community: West Germany, Italy, France, Luxembourg, the Netherlands and Belgium. The treaty was laid out into a series of articles, with Articles 1, 2 and 3 being the most important. Article 1 established the European Economic Community. Articles 2 and 3 set out all of the economic goals and initiatives to achieve them for the six nations.

Article 3 would be the main focus for us economists, here the methods of creating economic integration between the nations are discussed. The main points are outlined below:
  • Article 3a - Removal of trade barriers, tariffs and quotas between member states.
  • Article 3b - Adoption of a 'Common Commercial Policy'. This in essence is a tariff on imports from all non-members. This common policy with respect to tariffs made the EEC a 'customs union'.
  • Article 3c - Integration of capital and labour markets, which meant there should be a freedom of movement of services.
  • Article 3g - Ensures undistorted competition in member states. This meant subsidies from governments to national firms that distorted trade were banned, there had to be a common competition policy, a harmonizing of national laws that affected market operation and harmonization of some national taxes.
  • As well as these, there was a call for mechanisms to coordinate member state macroeconomic policy in case of Balance of Payments crises and they all agreed on goals and principles for agriculture (The Common Agricultural Policy came into effect in 1962).

One thing that wasn't included in the treaty was integration on social policy and taxes (bar the ones that affected competition). The argument was that both of these would greatly affect the lives of citizens in the EU and therefore a harmonization would cause difficulties and conflict. There was also an economic argument put forward as to why both of these weren't necessary for success.

Since the Treaty of Rome was signed in 1957 there has been very little modifications to the actual content of the articles - until the signing of the Treaty of Lisbon in 2007, changes only came in the form of additions to the original policies. For example, Article 2 stated that the EU should be promoting the 'economic good life'. The definition of this has changed and been expanded over time and now includes all of the following criterion: high employment, gender equality, high degree of competition, environmental quality improvements and rising living standards, to name but a few. Article 3 set out a list of activities to achieve the 'economic good life', this list has also been added to as the years have progressed and the dynamic of the community has changed. It now includes the following non-exhaustive list: immigration policy for non EU members, coordination of employment policy, environmental policies, improvements in industrial competitiveness, promotion of research and development and promotion of health and consumer protection. The Treaty of Lisbon is set to overhaul the original treaty in terms of its form, not its content. The main change would come in its promotion of the 'good life' as opposed to the 'economic good life', suggesting less emphasis is being placed on economic integration in more recent times. The result of this treaty will not be seen for many years yet as most of the policies aren't set to take effect until 2014 and beyond.

So European economic integration took place in a variety of stages. An index was created so economic historians could quantify the extent of integration (Mongelli et al. 2007). The suggestion from this index was that from 1958-1968 integration happened quickly and over these 10 years a Customs Union was formed. From 1973 to roughly 1986 there was a period of Euro-pessimism where little integration occurred because people were unsure of the effects. From 1986 to 1992 things picked up again as the Single Market was formed through the Single Market Programme. Finally, from 1992 onwards integration continued as the Economic and Monetary Union was adopted and of course the common currency came into effect.  

The structure of the EU changed drastically in 1992 and is set to change again when the effects of the Lisbon Treaty fully take effect. Prior to the signing of the Maastricht Treaty in 1992, all new integration had to be subject to majority voting before it was passed. This system was problematic - it created a divide. On one side we had "the Vanguards", Germany for instance, who were all for the spread of integration and would agree to any policy that improved things. On the other side was "the Doubters", the UK for example, who feared that further integration was forcing EU citizens to accept more integration that they didn't even want - therefore this side rejected most attempts at further integration. The solution was the Maastricht Treaty and its three pillar system. This organisational structure drew a line between supranational and intergovernmental policy areas. The first pillar contained all integration under the Treaty of Rome, and was still subject to supranational-ity (majority voting between members). This was the European Community. The second pillar was for all foreign and defence matters and the third pillar for police, justice and 'other home affairs'. This treaty put member states in full control of the second and third pillars, giving some independence. Integration is these two pillars was subject to direct negotiation between member states and required a full "yes" consensus before anything was passed. The development of the Treaty of Lisbon is set to remove the three pillar system.

What we can conclude is that economic integration in Europe has come about through a progressive series of treaties. The three most important ones to remember are the Treaty Establishing the European Community (Treaty of Rome), the Treaty on the European Union (Maastricht Treaty) and finally the Treaty of Lisbon. These three are the only ones that created real structural change to integration in Europe. The results of the Treaty of Lisbon are still in the pipeline, so it'll be a while before we can analyse the success of such a policy. Cheers for reading.

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