Political Economy of the Single European Market - Essay Example

... ... ... 14 April Why has the EU chosen a deep form of economic integration? To what extent has deepening integration conflicted with enlargement of the EU? The European Union originated as an economic, not political, alliance in 1957; thus, its creation naturally led to a deeper economic integration and was a ’great achievement’ towards the creation of a fully-fledged customs union 11 years later (Jovanović, 2005). In this evolving process of integration, the EU went through at least four of Balassa’s stages of economic integration – namely, Free Trade Area, Customs Union, Common Market and Economic Union – while it is still unclear whether the EU is prepared and able to reach the fifth stage of Total Economic Integration when monetary, fiscal, social and macroeconomic policy are entirely unified and a supra-national authority exists, whose decisions are binding for all member states (Laffan et al., 1999). The economic nature of this union determined its integration in the field of economy to an extent the European founding fathers never imagined; however, the ongoing process of EU enlargement provoked many controversies and problems related to the core nature of integration within the EU and the subsequent process of further expansion of the union. Two consecutive waves of enlargement after the 1990s led to visible economic, political and social problems and since then ’European integration was accompanied by increasing levels of Euroscepticism among European voters’ (Richardson, 2006). Without the present deep economic integration, the EU would have never emerged as a leading global player and economic power on par with the United States. On the other hand, problems related to its aggressive expansion in the past two decades leave many question marks about the future of the union’s economic and political integration and the ways this integration will be pursued. A key element in this process will be the convergence between the new member states and the old, and the richest, ones due to the significant income gap between them and this convergence could occur only ’in the presence of certain key growth factors and supporting policies’ as Andre Sapir (2005) wrote in his foreword to Economics and Policies of an Enlarged Europe. Both theory and practice suggest that there was no other way of development for the EU but to pursue deep economic integration in order to establish a strong and viable union, its roots being in the European Coal and Steel Community created with the Treaty of Paris in 1951 by Belgium, France, Germany, Italy, Luxembourg and the Netherlands – a purely economic alliance. In 1957, the Treaties of Rome gave birth to the European Economic Community in an attempt to further deepen economic integration and to try to solve a situation when ’… if competition between states for individuals and businesses is undesirable, such competition can be reduced or even eliminated through common economic policies,’ as described by Jason L. Saving (2005) in his article European Economic Integration: A Conflict of Visions. As a matter of fact, free trade, free movement of goods, capitals and labour force and related economic integration form the core ideas around which the EU evolved as a union and still dominate the European agenda. The EU’s Lisbon programme envisages creation by 2010 of an economy, which must be the world’s most dynamic, hence the fastest growing, too. However, this ambitious goal raises another question – whether further economic liberalisation to be pursued within the EU or integration could be achieved in the framework of the existing ’social’ Europe. On the other hand, most theorists agree that integration per se does not solve the problem of economic growth, hence the path of integration chosen by Europe is not a universal tool to create what was intended as one of the most ambitious and prosperous federalist states in the history of mankind. Integration, both economic and political, looked as a suitable instrument to achieve the ultimate goal of creating a stable and competitive union, which can compete with the US, Russia and China as a global leader. Along this way the European nations, which at present constitute the EU partly abandoned their sovereignty, economic and political, in favour of deeper integration. Eurosceptics argue that this way leads in a wrong direction even in the light of recent problems with the common European currency, the euro, caused by troubles with Greek public finances. It is an example how an integrated economy could be hurt by misbehaviour of one of its constituents but also points to the need for states within such an economic union to abide by the rules set by supra-national bodies for the entire mechanism to work smoothly. Even France and Germany, Europe’s leading economies, were sometimes unable to meet all conditions related to fiscal deficit and public debt levels set by the Maastricht Treaty, thus undermining one of the core goals of the euro as an instrument protecting Europe against speculative attacks, Spyros Pappas (2010) explains in an article called Greek Crisis: Degeneration or Regeneration of European Integration. He also claims that ’[n]ational solutions are no solutions here since they must advance and serve the common interest and all members of the European legal Community must side with them,’ (Pappas, 2010) which hints that the EU is still seeking a proper level of integration to avoid crises like this. On the other hand, without this level of integration and without the common European mechanisms of mutual economic protection, the Greek crisis would have become a real disaster similar to the free fall of the British pound some two decades ago. Economic and financial integration proved useful although some EU members, Britain being a perfect example, still doubt such an extended integration is the right path to the future and refuse to abandon their national currencies in favour of the euro. Their major concerns are related to the sovereignty a national currency bears and its role as a tool of the national economic policy. However, Pappas (2010) concludes, that ’… national sovereignty can only be understood from the perspective of European sovereignty. Without the latter, national sovereignty would not be meaningful in an international context.’ This was one of the reasons why Europe took the thorny path of deeper economic integration in the past half a century. According to Jurgen Habermas (2009), a leading prophet of EU’s amalgamation, Europe can solve its problems and pave the way for its brighter future only through deeper European integration, while capital can be regulated effectively only at the supra-national level, which in turn requires harmonisation of social, economic and fiscal policy. However, this contradicts with a reality where particular states within the EU are free to set their national taxation levels according to their needs and development ideas, undermining the advantages of the single market. Bulgarians, for instance, enjoy flat income and corporate tax of 10%, while French and Germans have to pay considerably higher taxes for the state to be able to sustain these largely ’social’ societies. Following the largest wave of EU enlargement in 2004, when eight former Communist countries from Central and Eastern Europe plus Cyprus and Malta were adopted, former German chancellor Gerhard Schröder complained that these new member states introduce new and ’unfair’ tax competition within the EU. There would have not been such a problem if the EU had reached the stage of Total Economic Integration and the German chancellor’s concerns reflect a situation when the EU is still uncertain which way to choose: a further enlargement with preservation of broad national sovereignty or slower expansion combined with deeper integration in the meantime. Some critics of the enlargement are ready to blame this enlargement process even for the recent economic troubles of the EU, saying that the new member states imported financial instability and corruption to the union, but an insider, the former Enlargement Commissioner Olli Rehn, explained in a recent interview with European Report: “I am often confronted with the argument that enlargement is causing an institutional deadlock or economic problems. But the current economic crisis has not been caused by a Polish plumber or a Czech auto worker...” (Rehn, 2009) Following the expansion rounds of 2004 and 2007, German politicians spoke about the inability of the EU to ’digest’ its latest enlargement wave and to undergo a process of internal consolidation before further enlargement takes place, according to an analytical text in European Report, entitled Enlargement – Special Dossier: Previous Waves Leave Bad Legacy. The authors of the article (European Report, 2009), however, refer to the European Commissions enlargement anniversary report, issued in February 2009, which concludes ’that new investment opportunities created by the last two waves of enlargement helped enterprises in the old member states to strengthen their global competitiveness and safeguard jobs at home.’ Hence, enlargement contributed to sustainable growth and development within a highly integrated EU economic landscape. It is up to future researchers to determine whether this enlargement boosted EU’s integration process and the overall development of the union, which decided to ’pursue three main objectives of economic policy: growth, stability and cohesion’ (Altomonte & Nava, 2005). The more integrated Europe becomes, the more sceptic views about consequences of integration occur in the light of EU’s ability to cope with sustainable growth and cohesion. The two sides of the coin are well depicted by the authors of Economics and Policies of an Enlarged Europe, who claim that ’the widening of the EU to Spain and Portugal in the 1980s induced the deepening of EU policies in the new field of economic and social cohesion,’ while the opposite process could be observed in the 1990s when the deepening in the field of monetary policy acted as an obstacle to member states in their effort to enlarge the EU institutions (2005: p. 400). In this respect, EU resembles a federalist rather than an imperial model of integration and the most relevant form of domestic governance for the EU is federalism or federal governance of an economy covering and comprising a whole continent (Laffan et al., 1999). At present, the EU is increasingly becoming a federalist state union with all positive and negative aspects of such a process. The search for balance is crucial for this type of a project and the ongoing process of inevitable integration is transformed into an uneasy task when ’policy process has become an ongoing balance between diversity and unity, between territorial and functional interests’ (p. 104). Moreover, some of the founding fathers of the European unification did not believe that integration could be achieved explosively, in a year or two, by some colossal social fluctuations. ’The pragmatic method we had adopted would… lead to a federation validated by the people’s vote, but that federation would be the culmination of an existing economic and political reality,’ Jean Monnet (1978), one of these founding fathers, wrote in his Memoirs. Just like the rulers of the Roman Empire, Europe’s leading political minds of the 1950s and 1960s bet on the deep economic integration, entailing inevitable political integration, to create a new powerhouse similar to the Roman Empire in its heyday. And like the Roman emperors experienced difficulties integrating new tribes and nations and creating a common single imperial market with a common currency, the EU went through a bitter, yet unfinished, process of integration and expansion. This far reaching process began with the Treaty of Paris in 1951, went through the creation of the European Economic Community in 1957 and the enforcement of the Common External Tariff of the EU Customs Union in 1968. It was followed by the creation of the European Monetary System in 1979 and the introduction of the Economic and Monetary Union in 1991. The culmination was the launch of the single European currency, the euro, in 1999, a triumphant step towards more and more economically integrated Europe trying to compete in an increasingly globalised world, thus simply forced to unite and integrate. However, the union is still in a phase of ’betweenness’ (Laffan et al., 1999) and is experiencing problems to reconcile its integration approach and enlargement ambitions, while all its efforts are determined by realities of the day. The Single European Market was an answer to the growing economic strength of U.S. and Japanese corporations, complemented at a later stage by Chinese and East Asian companies. The scary presence of neighbouring USSR fuelled the process of EU integration and after the collapse of the Soviet Union boosted EU’s enlargement process, sometimes adopting countries which were not well prepared to become members of this ’club of riches’. This controversial process is far from finished, but it is really a great achievement in terms of how deep tens of independent national economies can integrate to create a single market and to waive sovereignty in the name of the European common economical and political space. Works Cited Altomonte, C. & Nava, M. (2005.) Economics and Policies of an Enlarged Europe. Cheltenham: Edward Edgar Publishing. Enlargement – Special Dossier: Previous Waves Leave Bad Legacy (2009) European Report. Europolitics, 30 April [Online]. Available from http://www.highbeam.com [Accessed 12 April 2010]. Habermas, J. (2009) The Faltering Project. Cambridge: Polity Press. Olli Rehn (2009) Interview with Enlargement Commissioner Olli Rehn: No Contradiction between Enlargement and Iintegration. European Report. Europolitics. 4 May [Online] Available from http://www.highbeam.com [Accessed 12 April 2010] Jovanović, M. (2005) The Economics of European Integration. Cheltenham: Edward Edgar Publishing. Laffan, B., O’Donnell, R. & Smith, M. (1999) Europe’s Experimental Union: Rethinking Integration. New York: Routledge. Monnet, J. (1978). Memoirs. London: Collins. Pappas, S. (2010) Greek Crisis: Degeneration or Regeneration of European Integration? European Report. Europolitics. 12 March [Online] Available from http://www.highbeam.com [Accessed 12 April 2010] Richardson, J. (Editor). (2006) European Union: Power and Policy-Making. New York: Routledge. Saving, J. (2005) European Economic Integration: A Conflict of Visions. Southwest Economy. Issue 4, July/August 2005. [Online] Available from http://www.dallasfed.org/research/swe/2005/swe0504b.html, [Accessed 12 April 2010] Read More