Economic Integration in Europe - Example

Name: Institution: Date: ECONOMIC INTEGRATION IN EUROPE Introduction to economic integration in Europe The phrase ‘economic integration’ is defined in different terms by various scholars. However, Bela describes economic integration as a deliberate process which aims at eliminating discriminating terms and conditions belonging to various independent nations. In addition, this scholar describes economic integration as a state of affairs which is represented by avoiding all forms of discrimination between economies of member states. The scholar gives further explanation by describing discrimination as removal of all barriers relating to trade. This makes the economic atmosphere favourable for all parties to the agreement. Economic integration is therefore an intentional economic agreement made among different independent nations. This takes the form of process whereby the relation develops with time until full integration is realised. It takes different forms based on extent of relations among member states. These may include free trade area, common market or even custom union among others. Trade restrictions are only lifted to member countries but applied when dealing with non-member state. Background History of Economic Integration in Europe Economic integration in Europe has a long history. It dates back to the days of Treaty of Rome in 1957 which established European Union commonly known as EU. In 1968, European Union countries realised full customs union. According to Miroslav Jovanovic, this step was a landmark achievement in the history of economic integration in Europe (Miroslav,18). This happened before the anticipated deadline in 1970 as indicated in the treaty thus recorded as a great success. Formation of single market program followed in 1985 which gave European Union an essential remedy towards its success. This aimed at removing all trade related barriers to open up internal market as well as stimulate healthy competition among member states. This greatly improved regional economic welfare thus creating urgent need for stronger integration. Elimination of exchange rate fluctuations was adopted later thus moving European Union to monetary and economic union. In 1991, Maastricht Treaty was signed among member countries with an aim of sustaining the benefits realised and to propel the union to gain momentum. Twelve member countries started European monetary union in 1999 thus replacing their currency in 2002. Before then, members had set strategic goal in Lisbon to make the region most competitive knowledge based economy in the world. This made the union more competitive and attractive to other European non-member countries. Later, membership increased from 15 to 27 thus widening investment advantage in the region. Although European integration faces numerous challenges due to socio-political differences among member countries, it is recognised as one of the stable economic bloc in the world today. Features of economic integration in Europe Economic integration has several implications on both money and financial markets of all member countries. Miroslov Jovanovic (41) observes that member countries within the economic integration have various features in common. These features are felt through operation of money and financial market since advantages gained are shared. Bekaert, Geert, et al (24) sought to uncover some of the predominant features of economic integration in Europe. These scholars conducted the study on impact on membership in European Union by use of industry valuation differentials across all member countries. Initially, member states within European Union adopted free mobility of goods. This is where commodities of trade would move around member states without restrictions. The advantage is advanced to only member country to allow friendly economic relationship among them. (Miroslov, 45) observes that this kind of policy demonstrate serious trade relations which propels economies of all members in equitable manner. He further argues that free mobility of goods provides fair competition in trade. As a result, people within the region get quality commodities at a competitive rate thus improving living standards in all member countries. This comes along with high supply of goods from the region which encourages consumption of commodities from member states. However, each country retains its terms when dealing with non-member state. Besides free movement of trade goods among member countries, economic integration in Europe since its inception has provided for free movement of labour and capital. Corporates and individuals within European Union are encouraged to invest within the region. This policy has facilitated growth of European countries especially those within the EU pact. Although members adjust terms from time to time, benefits of free movement of capital are still felt by current generation. (Ivo,76) argues that this particular policy has had great impact on financial market in all member countries within European Union. The currency is strong and competitive since high attention is given to goods and services from member countries. In addition, there is less payment made to non-member countries since sufficient investment opportunities are made available in European Union for members. Common currency is also a common feature in any economic integration. This is where member stated adopt a common currency when trade among themselves. This is also extended to non-members while retaining the individual currency. According to Bekaert, Geert, et al, as countries become more integrated, they strengthen their financial market by adopting common currency. They observe that this is also extended to discount rates allowed in trade since valuation differentials either narrow or no longer apply depending on stage of integration. The more they are integrated, valuation differentials become narrower. Benefits of economic integration in Europe Economic integration in Europe has numerous long-term benefits to member countries. (Bekaert, Geert, et al, 34) enumerate removal of capital markets restrictions as key factor towards total economic integration. This is where foreigners are allowed to participate in domestic stock market. Listing of domestic companies in foreign market also takes place thus encouraging liberalisation. Such changes facilitate sustainable growth of the economy and lowering the investment risk since it is shared among both domestic and foreign investors. In this case, currency becomes stronger due to high demand especially from foreign investors. Consequently, economy grows at a high rate thus benefiting both locals and foreign investors. This aspect is shared in all countries within the European Union pact. Countries also benefit from diversified opportunities provided by financial and capital liberalisation. This is where different viable opportunities are availed to all member countries thus lowering the risk and increasing chances for returns. Bekaert, Geert et al indicates that anticipated growth opportunities among member countries are equitable. This is due to similar discount rates allowed within one industry regardless of country. There are several other comparative advantages enumerated by Levchenko A., and Jing Z. They argue that average output per worker in different sectors is made closely similar thus providing equal living standards for all. Essential services provided to the citizens are similar since countries are able to learn from and emulate others. This is brought by sharing of ideas especially those with impact to people’s social and economic welfare. Realisation of strong political vision has cemented economic integration among members of European Union. Maes, observes this political relation as a cord that keeps the integration alive. Leaders are able to foster unity of the people thus sustaining interlinked financial and trade flows. Leaders are able to identify common features among them and to concentrate with unifying factors. This creates enabling atmosphere for trade and economic development since people identify themselves with common aspects such as currency and market. Miroslov has singled out this aspect as a key driving force towards total and sustainable economic integration in Europe. Cost obligation versus benefits of economic integration in Europe Benefits of economic integration go hand in hand with cost implication. Before benefits are fully realised, (Maes, 76) states that member countries bear numerous costs. Deliberation talks between delegations from each member country need financial facilitation. This implies that member countries contribute funds from public treasury in every deliberation. Realisation of full economic integration especially in Europe has faced several challenges such as political differences. Trade agreements require consensus among members and sometimes they differ. However, European Union has overcome such challenges by consistent agitation. Through persistent talks among member countries, they are able to counter the challenges and reap benefits that come with integration. Conclusion There are a lot of lessons one can learn from history of economic integration in Europe. Member states share common experiences from Second World War which serve as a unifying factor and driving force towards stronger integration. By elimination trade barriers and introducing common market, countries involved are able to draw economic stability and sustainability. In case of any economic challenge in any member country, others experience the same due to liberalisation. Each country within the bloc is affected since corporates and individuals have investments there. Consequently, it is translated as a common challenge thus attracting urgent deliberation from the region. European Union has remained relevant both politically and economically throughout the world due to this aspect. Currently, it is evident that unifying factors among member countries within EU are more than differences. Besides trade and political ties, there are other activities that bring them together. They include sporting activities and cultural events. All these activities also benefit these countries economically. All these are gains attributed to economic integration. References Balassa, Bela. The Theory of Economic Integration (Routledge Revivals). Routledge, 2013 Bekaert, Geert, et al. "The European union, the euro, and equity market integration." Journal of Financial Economics (2013). Jovanovic, Miroslav N. The economics of European integration. Edward Elgar Publishing, 2013. Levchenko, Andrei A., and Jing Zhang. "Comparative advantage and the welfare impact of European integration." Economic Policy 27.72 (2012): 567-602. Maes, Ivo. "Macroeconomic thought at the European commission in the 1970s: The first decade of the annual economic reports." PSL Quarterly Review 51.207 (2013). Read More