Chapter 1: History Chapter Overview. The Economics & Politics of European Integration. Early Post War Period

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1 The Economics & Politics of European Integration Chapter 1: History Chapter Overview Background: WWII way out? Economic integration as a method Rival conceptions of integration Intergovernmentalism Federalism Initiatives: success and failure Optimism pessimism revival Deeper and wider integration: a bumpy road Early Post War Period A Climate for Radical Change: Understanding the climate for radical change - Images: Death toll The Economic Set-Back: Prewar year when GDP equalled that of 1945 Austria 525, Belgium 82, Denmark 4, Finland 79, France 505, Germany 6,363, Italy 355, Netherlands 250, Norway 10, Sweden 0 GDP grew during WWII Switzerland 0 GDP grew during WWII UK 325,000 GDP grew during WWII Reichstag, 1945 Frankfurter Allee, 1945 Brandenburg Gate 3 4 Understanding the climate for radical change Understanding the climate for radical change Unter der Linden, 1945 Unter der Linden, 1997 Ortona, 1943 Verona Berlin Cathedral, 1945 Berlin Cathedral, Rotterdam,

2 Understanding the climate for radical change London 1940 The prime question in 1945 How can Europe avoid another war? What caused the war? 3 answers Blame the loser Capitalism Destructive nationalism These implied 3 post-war solutions Neuter Germany (Morgenthau Plan, 1944) Adopt communism (Soviet Union) Pursue European integration European integration ultimately prevailed, but this was far from clear in the late 1940s. 7 8 A divided Europe 9 10 East German Guard Towers Checkpoint Charlie, 1961 United States of Europe? Two strands of European integration On 19 September 1946, Winston Churchill, former British Prime Minister, gives an address at the University of Zurich in which he invites European countries to form a United States of Europe. 19_september_ (5 minutes) Federalism vs. intergovernmentalism Immediate disagreement about depth of European integration Federalism supranational institutions Intergovernmentalism nations retain all sovereignty A. Intergovernmental initiatives (led by Britain) Organization for European Economic Cooperation: OEEC (1948) Council of Europe (1949) European Free Trade Area: EFTA (1960) B. Federal initiatives (led by France and Germany) European Coal and Steel Community: ECSC (1951) European Economic Community: EEC (1958)

3 First Steps: OEEC and EPU Organization for European Economic Cooperation (OEEC) and European Payments Union (EPU) OEEC and EPU set up in conjunction with Marshall Plan (1948). OEEC coordinated aid distribution and prompted trade liberalisation. EPU facilitated payments and fostered trade liberalisation. Marshall Plan ends in 1952 USA prefers military agenda NATO OEEC wanes Organization for Economic Cooperation and Development (OECD, 1961) Federalism: predecessors Paneuropean Union: Founded by Count Richard von Coudenhove-Kalergi in Goal: the unity of a Christian Europe, free of "nihilism, atheism and immoral consumerism". Principles: liberalism, Christianity, social responsibility and pro-europeanism. Prohibited by Nazi Germany in 1933, and was founded again after the Second World War. Otto von Habsburg, the current head of the Habsburg dynasty, became the International Honorary President of the International Paneuropean Union after Coudenhove's death in Franco-German federalism Main protagonists: Jean Monnet and Robert Schuman (France) Konrad Adenauer (Germany) Franco-German federalism: ECSC European Coal and Steel Community (ECSC) Integration of industry Goal: to make wars impossible between France and Germany Success The Six (France, Germany, Italy, Belgium, Holland, Luxembourg) Monnet s other initiatives failed European Defence Community (EDC) European Political Community (EPC) From ECSC to EEC New attempt: high-powered pressure group Action Committee for the United States of Europe Two Treaties of Rome (1957) European Atomic Energy Community (Euratom) European Economic Community (EEC) Consolidation in 1965: ECSC + Euratom + EEC = European Communities (EC) EEC = common market Customs union: No mutual tariffs (liberalization) Common external tariff (discrimination) Not just economics fundamentally political goals British response: EFTA UK s geopolitical interests Commonwealth + global trade (still an empire!) Importance of USA Centuries-old rivalry with France and Germany Anti-Catholic prejudices (Monnet, Schuman, Adenauer) European Free Trade Area (EFTA) Stockholm Convention (1960) Copy EEC tariff-cutting Free trade area, not customs union no supranational decisionmaking (intergovernmentalism) UK: maintain preferential tariffs with the Commonwealth 3

4 : two non-overlapping circles Domino Effects Preferential liberalisation in EEC and EFTA proceeded Discriminatory effects pressures for EFTAns to join EEC Trade diversion creates force for inclusion EEC market bigger & growth faster Important discrimination facing EFTA exporters. Market Size (GDP) EEC vs EFTA, $ billions EEC6 EFTA Source: A test of endogenous trade bloc formation theory on EU data, Richard Baldwin and Roland Rieder, Journal of International Economic Studies, December Evolution to Two Concentric Circles Evolution to Two Concentric Circles UK government changes mind & applies for EEC in 1961 EEC7 would have meant discrimination in an even larger market, so 3 other EFTAns also changed their minds after the UK decided to apply. De Gaulle s non (twice). German Chancellor Willy Brandt trying to get the UK into the EEC past the objections of French President Charles de Gaulle. First enlargement: 1973 UK, Denmark, Ireland & Norway admitted (Norwegians say no in referendum) Enlargement of EEC reinforces force for inclusion on remaining EFTAns To avoid new discrimination as UK, Denmark & Ireland join EEC customs union, remaining EFTAns sign free trade agreements with EEC-9. Source: Two concentric circles Euro-pessimism, Political shocks: de Gaulle opposes majority voting in Council of Ministers Luxembourg Compromise (1966) unanimity as a rule. Enlargement leads to decision-making jam. Plans for economic integration promised in Treaty of Rome postponed (approximation of laws, monetary integration). Economic shocks: Bretton Woods falls apart, Failed EEC monetary schemes (except within DM bloc) and 1979 oil shocks and stagflation. Growing cost of Common Agricultural Policy (CAP) creates frictions over budget (especially with the UK)

5 Mid-1980s: new optimism Single Market Programme Economic growth (bubble economy) Market economics (decline of Marxism) Jacques Delors: Single Market Programme Create "an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured". Majority voting (most economic integration issues) 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 Treaty of Rome: 4 freedoms Free movement of goods, services, people and capital Problem: non-tariff barriers Differing technical standards & industrial regulation Capital controls Administrative formalities Differing transport regulations Factor Trade Liberalisation Removal of all capital controls, and deeper capital market integration Liberalisation of cross-border market-entry policies Implementation: majority voting (federalism) Domino effect, part 2 Domino effect, part 2 Deeper integration in EC-12 strengthened the force for inclusion in remaining EFTAns. EFTA nations saw FDI outflows. End of Cold War loosened EFTAns resistance to EC membership Middle-way: EEA Fourth enlargement Delors new push for integration: European Economic Area (EEA) Initiative to extend single market to EFTAs Agreement: almost part of EEC (excluding agriculture and the common external tariff) Membership applications by all EFTAns except Iceland. New forces for inclusion domino effect. 1994, Austria, Finland, Norway and Sweden admitted (Norwegians again vote no). EEA: must accept most EEC legislation, but cannot participate why not join EEC?

6 Communism s failure and collapse Velvet revolutions in CEECs By the 1980s, Western European system clearly superior due to the creeping failure of planned economies. June 1989 Polish labour movement Solidarity forced free parliamentary elections communists lost! - Moscow accepted new Polish government. Up to 1980s, Soviets thwarted reform efforts (economic & military pressure). Changes in USSR due to inadequate economic system. timid pro-market reforms (perestroika). openness (glasnost). 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 1000s East Germans moved to West Germany via Hungary and Austria. - Mass protests in East Germany Wall falls 9 th November End of 1989: democracy in Poland, Hungary, Czechoslovakia and East Germany (unification in 1990) Soviet Union collapses 1990: Estonia, Latvia and Lithuania declare their independence from the Soviet Union. End of 1991, the Soviet Union itself breaks up. EU: emergency aid and loans to the fledgling democracies. Europe Agreements with newly free nations 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, a market economy. Copenhagen summit December 2002 says 10 CEECs can join in th enlargement in May 2004 German unification & 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 another radical increase in European economic integration: monetary union (EMU) Goal: deeper political integration Maastricht Treaty (European Union) signed Monetary union by 1999, single currency by Sets up EU s three pillar structure to reduce EU s competency creep Ratification difficulties Britain: formal opt-out from common currency and Social Chapter Germany: Treaty challenged as unconstitutional Denmark: voters reject in referendum (accept in a second vote after opt-outs and public opinion manipulation)

7 Deeper integration: a bumpy road Amsterdam Treaty (1997) Five tries: Amsterdam Treaty, Nice treaty, draft Constitutional Treaty, Reconsidered by IGC 2003 Tidied up the Maastricht Treaty More social policy, Parliament powers modestly boosted. flexible integration, closer cooperation introduced. Constitutional Treaty, June Reform/Lisbon Treaty, Failed to agree main reforms set out as the goal for the Amsterdam Treaty Amsterdam leftovers : voting rules in the Council of Ministers, number of Commissioners, Extension of issue covered by majority voting Nice Treaty (2000) European Convention Reforms of main institutions agreed, but poorly done: Council voting rules highly complex and reduce EU s 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. Ratification difficulties: Irish rejection (forced through in a 2 nd vote) Main changes re-visited in draft Constitutional Treaty, year after Nice Summit, EU leaders admit Nice Reforms are not enough. They ask for reform of the Nice reforms even before the Nice reforms have been tried. Declaration on the Future of the European Union (Laeken Declaration) set up European Convention to outline a new Treaty. Convention decides to write a Constitution No voting just consensus as determined by Chairman Constitutional Treaty (2004) Rejection Improved decision-making rules for Council of Ministers & slightly more majority voting. Switch weighted voting to double majority (Chapter 3). France & Holland reject Constitutional Treaty in referendums in summer Inclusion of Charter of Fundamental Rights. Other things where CT not strictly required: - Many gestures (flag, anthem, single document instead of Treaty of Rome and Maastricht Treaty, etc.) and tidying up (renumber articles, eliminate archaic provisions, etc.). - Moves towards more coherent foreign policy decision making. - Many de facto points turned into de jure (e.g. supremacy of EC law). EU leaders suspend the ratification deadline

8 Reform/Lisbon Treaty (2007) Under German EU Presidency (2007) EU leaders decide still need to reform the Nice rules to keep the enlarged EU operating efficiently and legitimately. Constitutional Treaty declared dead. Outline of replacement agreed, the Reform Treaty, also known as the Lisbon Treaty (where it was signed by leaders in 2007). Reform/Lisbon Treaty Germany s repackaging strategy Mostly same as CT, but framed as a reform of Treaty of Rome & Maastricht Treaties Different form & no symbols of statehood. Very hard to read no one really knows what it means Goal: to avoid referendums without changing the substance! Irish reject Reform/Lisbon Treaty June 2008, Irish voters reject Reform Treaty in a referendum (which is mandatory under Irish Constitution). European Flag: history Stars: nothing to do with member states 1923: Paneuropean Union flag (Coudenhove-Kalergi) 1953: Modified flag for Council of Europe (not related to EEC or EU) Paneuropean cross element rejected by Turks and socialists 1985: same flag adopted for ECC (later EU) European Flag: religious symbolism? Summary Design by Arsène Heitz Inspiration from Book of Apocalypse: "A great sign appeared in heaven, a woman clothed with the sun, and the moon under her feet, and on her head a crown of twelve stars Date of adoption, 8 December 1955, coincided with the Catholic Feast of the Immaculate Conception of the Blessed Virgin Mary No more wars Franco-German cooperation Competing visions(intergovernmentalism vs. federalism) Path-dependency of institutional development Democratic deficit: politicians want integration voters see loss of self-determination and lack of democratic accountability Step-by-step reforms compromises and maneuvering

9 Read Compulsory: textbook chapter 1 Additional: EU founder biographies (Wikipedia) Learning test (recommended): uiz.html 49 9