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Economics in a European Context Origins, meaning and nature of European economic integration © Economics Department, King’s School, Chester Origins of the European Union Immediate post WWII problem in Europe was one of reconstruction Marshall Aid and OEEC European Unity pursued through economic means 1948 Customs Union (Belgium, Luxembourg and Netherlands) 1951 European Coal and Steel Community 1957 Treaty of Rome created EEC UK favoured ‘looser integration’ (EFTA) European integration has developed through enlargements deepening widening © Economics Department, King’s School, Chester Origins of the European Union Enlargement has seen more countries participate in economics integration in addition to original six 1973 UK, Ireland, Denmark 1981 Greece 1986 Spain, Portugal 1995 Sweden, Austria, Finland 2004 Poland, Hungary, Czech Republic, Slovenia, Slovakia, Estonia, Latvia, Lithuania, Malta and Cyprus ‘Deepening’ of its economic liberalisation, common policies and regulations and commitments from members extension of CAP to cover more commodities strengthening of powers of EU Competition Policy principle of mutual recognition (Cassis de Dijon) harmonisation of product standards 1986 – 1992 Single European Market Programme © Economics Department, King’s School, Chester Origins of the European Union ‘Widening’ of the scope of its economic powers ‘own’ resources now include tariff revenue from CET and agricultural levies, share of member states’ VAT receipts (1%), levy on member states’ GNP (up to 1.27%) European environmental policy European Regional Policy Common Fisheries Policy Schengen convention Social Charter Single currency and common monetary policy © Economics Department, King’s School, Chester Meaning of economic integration “Economic integration refers to the merging together of national economies and the blurring of the boundaries which separate economic activity in one nation state from another.” Nigel Healey, The Economics of Europe (1995) © Economics Department, King’s School, Chester Meaning of economic integration The boundaries which separate economic activity reduce the free movement of goods, services and the factors of production between member states They result in a lack of integration since markets are segmented along national lines The purpose of economic integration is to replace separate national markets with a ‘single’ market that transcends national boundaries In Europe this should mean that prices converge to their lowest level and are determined by demand and supply at the European, rather than the national, level As a result, competition is increased and consumers benefit from allocative, productive and dynamic efficiencies © Economics Department, King’s School, Chester Nature of economic integration Negative integration this refers to the removal of boundaries and distortions to the free movement of goods, services and the factors of production for example, negative integration would involve the removal of tariffs and quotas on intra-EU trade and subsidies for domestic producers Positive integration this type of integration requires agreement on common rules and standards and, therefore, some ‘pooling’ of decision making for example, positive integration would include a common EU policy for the agricultural sector, for environmental taxation, for competition issues or, indeed, rules for the conduct of fiscal and monetary policy in the EU Market integration this refers to attempts to create single, borderless, European wide markets Policy integration this refers to measures to bring about greater co-operation and coordination of economic policies © Economics Department, King’s School, Chester Negative economic integration: tariff and quota removal Price Duk Suk Tariffs distort the free movement of goods and services by raising their price, reducing demand and replacing EU supply with domestic supply. Peu + t Peu Quotas have a similar effect in restricting foreign supply and raising the domestic price Quantity © Economics Department, King’s School, Chester Negative economic integration: domestic subsidy removal Price Duk Suk S uk + subs Governments can achieve similar effects to tariffs and quotas by subsidising domestic firms. Free movements of goods and services is distorted by encouraging domestic production and reducing imports. Peu Quantity © Economics Department, King’s School, Chester