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The European Union: History, Facts and Institutions


Overview of EU (economic) history from World War II to ... End of Cold War loosened EFTAns' resistance to EC membership. Result of force for inclusion' was ... – PowerPoint PPT presentation

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Title: The European Union: History, Facts and Institutions

The European Union History, Facts and
  • EC329 Economics of the European Union
  • Holger Breinlich
  • University of Essex

Plan of Talk
  • Overview of EU (economic) history from World War
    II to Eastern Enlargement and the rejection of
    the Constitutional Treaty
  • Important economic facts on the EU member states
  • EU institutions and decision-making procedures
  • The EU budget

Learning Outcomes
  • Know the outline and key events of EU economic
  • Be able to describe the functioning and
    understand the rationale of the most important EU
  • Know some of the basic economic facts about the
    EU and its budget (no need to know exact figures
    by heart though).

An Overview of EU Economic History
A Climate for Radical Change
A Climate for Radical Change
A Climate for Radical Change
Early Post War Period
  • A Climate for Radical Change

The prime question
  • How can Europe avoid another war?
  • What caused the war? 3 answers
  • German/Italian aggression
  • Capitalism
  • Destructive nationalism
  • These implied 3 post-war solutions
  • Neuter Germany , Morgenthau Plan, 1944
  • Adopt communism
  • Pursue European integration
  • European integration ultimately prevailed, but
    this was far from clear in the late 1940s.

Emergence of a divided Europe
  • Cold War begins
  • USSR pushes communism in the East
  • UK, French and US zones merged by 1948 in moves
    towards creation of West German government
  • Neuter Germany solution abandoned for strong
    West Germany European integration

First Steps
  • First Steps the OEEC and EPU
  • Organization for European Economic Cooperation
    (OEEC) and European Payments Union (EPU) set up
    in conjunction with Marshall Plan
  • OEEC coordinated aid distribution and prompted
    trade liberalisation
  • EPU facilitated payments and fostered

Need for deeper European integration
  • As Cold War got more war-like, West Germany
    rearmament became necessary
  • Wide-spread feeling that it was best to embed and
    economically and militarily strong W. Germany in
    European superstructure
  • OEEC was too loose to avoid future war among
    Western European powers
  • After failure of broader political and military
    integration (EDC, EPC), policy makers turned
    attention towards economic integration
  • Treaty of Rome signed in 1957 by France, W.
    Germany, Belgium, Luxembourg, the Netherlands and
  • Treaty considered too federalist by other OEEC
    members, seven of these formed the European Free
    Trade Area (EFTA)

1960-1973, two non-overlapping circles
Evolution to Two Concentric Circles
  • Preferential liberalisation in EEC and EFTA
    proceeded (EECs customs union and EFTAs free
    trade agreement completed by 1968)
  • Discriminatory effects emerge, leading to new
    political pressures for EFTAs to join EEC
  • Trade diversion creates force for inclusion
  • As EEC enlarges, force for inclusion strengthens
  • When UK decides to apply for EEC (1961), 3 other
    EFTAns also change their minds
  • De Gaulles non (twice)

Evolution to Two Concentric Circles
  • First enlargement, 1973
  • UK, Denmark, Ireland Norway admitted
    (Norwegians say no in referendum)
  • Enlargement of EEC reinforces force for
    inclusion on remaining EFTAns
  • Remaining EFTAns sign free trade agreements (FTA)
    with EEC-9
  • Why werent the FTAs signed before?
  • Domino-like affect of lowering barriers
  • EEC6 ? enlargement ? EEC-EFTA FTAs

Two concentric circles
The 1980s further enlargements
  • Greece, Spain and Portugal all adopt democratic
    governments in the 1970s, making them suitable
    for EEC membership
  • Greece joins in 1981
  • Spain and Portugal join in 1986

The Single Market Programme
  • In 1985, EU firms enjoy duty-free access to each
    others markets but numerous trade-inhibiting
    barriers remain (different technical standards,
    capital controls, preferential public procurement
  • Jacques Delors appointed president of the
    European Commission in 1985, pushed for the
    so-called Single Market Programme
  • Lord Cockfields White Paper in 1985 lists 300
    trade-inhibiting barriers to be eliminated
  • Single European Act adopted by all member states
    by July 1987
  • Implementation of measures until 1992

Single Market Programme
  • 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
  • Factor Trade Liberalisation
  • Removal of all capital controls, and deeper
    capital market integration
  • Liberalisation of cross-border market-entry

Domino effect, part II
  • Deeper integration in EC-12 strengthened the
    force for inclusion in remaining EFTAns
  • End of Cold War loosened EFTAns resistance to EC
  • Result of force for inclusion was
  • EEA-initiative to extend single market to EFTAns
  • Membership applications by all EFTAns except
    Iceland (though Norways voters rejected
    membership in a referendum)
  • Concentric circles, but both deeper

Fourth enlargement
  • 1994, Austria, Finland, Norway and Sweden
    admitted (Norwegians again vote no).

The collapse of Communism
  • By the 1980s, Western European system clearly
    superior due to the creeping failure of planned
  • Up to 1980s, Soviets thwarted reform efforts
    (economic military pressure). Then changes in
    USSR due to inadequacy of economic system
  • timid pro-market reforms (perestroika)
  • openness (glasnost)
  • Pro-democracy forces in central and eastern
    European countries (CEECs) found little
    resistance from Moscow in the late 1980s
  • Starting with Poland, CEECs democratised rapidly
    in 1989/90. Soviet Union collapsed end 1991.

EU reacts
  • The European Union reacted by providing emergency
    aid and loans to the fledgling democracies.
  • But initially reluctant to have CEEC countries
  • Instead signing of Europe Agreements with CEECs
  • These are free trade agreements with promises of
    deeper integration and some aid
  • EU finally says CEECs can join the EU (June
    1993). Sets out Copenhagen criteria for
    membership (democracy, rule of law, human rights,
    functioning market economy)
  • Copenhagen summit December 2002 10 CEECs can
    join in May 2004

German unification and Maastricht
  • Prospect of German Reunification raises concerns
    in many other EU countries.
  • Strengthening of economic ties again seen as a
  • Jacques Delors proposes radical increase in
    European economic integration, in particular the
    formation of a monetary union
  • Idea championed by French President Francois
    Mitterrand and German Chancellor Helmut Kohl
  • ? Grand deal? Germany can unify if it gives up
    the DM?
  • Maastricht Treaty, signed 1992
  • A monetary union by 1999, single currency by 2002
  • Also brings additional changes to way EU
    institutions work
  • ? Most profound deepening of European integration
    since the Treaty of Rome

Preparing for Eastern Enlargement
  • Impending enlargement required EU to reform its
  • Three tries
  • Amsterdam Treaty, 1997
  • Nice Treaty, 2000
  • Constitutional Treaty, 2003-2005
  • Lisbon Treaty, 2007-present

Amsterdam Treaty
  • Failed to reform main institutions
  • Tidied up of the Maastricht Treaty
  • More social policy, Parliaments powers modestly
  • Flexible integration, closer cooperation
  • Amsterdam leftovers
  • Voting rules in the Council of Ministers,
  • Number of Commissioners,
  • Extension of issues covered by majority voting

Nice Treaty
  • Reforms of main institutions agreed, but poorly
  • Council voting rules highly complex and reduce
    EUs ability to act with more members
  • No important extension of majority voting
  • Makeshift solution for Commissioners
  • Generally viewed as a failure
  • Main changes re-visited in Constitutional Treaty,

The Constitutional Treaty
  • European Council meeting in Laeken in 2001
    convened a Convention on the Future of Europe
    (better know as the European Convention)
  • Aim was to study the fundamental questions that
    enlargement poses for the future of Europe
  • European Convention run by former French
    President Valéry Giscard dEstaing redefined
    into a constitution-writing convention
  • First draft in 2003 rejected by EU15, final draft
    accepted in 2004 by the EU25
  • Constitutional Treaty needed to be ratified by
    all 25 members, in some countries by referendum
  • Voters in France and the Netherlands reject the
    treaty in mid-2005

Lisbon Treaty
  • Germany started another attempt at institutional
    reform during its 2007 EU Presidency.
  • The Constitutional Treaty was declared dead and
    its main elements repackaged in the Reform/Lisbon
  • Similar in substance to the Constitutional
  • But very different packaging all references to a
    European State dropped (constitution, flag,
    anthem, the Foreign Minister etc.).
  • Idea was to avoid referenda where possible by
    making the new treaty more of a technocratic
  • New treaty signed in Lisbon on 13 December 2007.
  • But ratification again difficult
  • Irish voters initially reject treaty in 2008
    (rerun in 2009 successful)
  • Ratification by Poland and the Czech Republic
    still outstanding

Important Facts on the EU
Facts Population (2008)
Facts Income per capita (2008)
Facts Size of Economies (2008)
Some Generalisations
  • Huge amount of heterogeneity across members
  • Especially true for economic size
  • 6 economies (Germany, the UK, France, Italy,
    Spain and the Netherlands) account for gt70 of
    the EU27s GDP
  • The ten new members who joined in 2004 still
    represent only about 8 of total GDP
  • But also huge differences in standards of living
    and population size
  • Six biggest nations (Germany, the UK, France,
    Italy, Spain, Poland) make up 75 of total
  • Richest member (Luxembourg) is seven times richer
    than the poorest (Bulgaria) in 2008
  • ? This heterogeneity helps to explain many of
    the tensions within the EU!

An Overview of EU Institutions
Institutions The Big Five
  • There are dozens of EU institutions but only five
    are really important
  • European Council
  • Council of Ministers (legislative power)
  • Parliament (legislative power)
  • Commission (executive power)
  • EU Court (judicial power)

Institutions European Council
  • Consists of the leader (prime minister or
    president) of each EU member plus the President
    of the European Commission.
  • By far the most influential institution - its
    members are the leaders of their respective
  • Provides broad guidelines for EU policy and
    thrashes out compromises on sensitive issues
  • reforms of the major EU policies
  • the EUs multiyear budget plan
  • Treaty changes
  • final terms of enlargements, etc.

Institutions European Council
  • Meets at least twice a year (June and December)
  • Determines all of the EUs major moves
  • Strangely, the European Council has no formal
    role in EU law-making its political decisions
    must be translated into action via Treaty changes
    or secondary legislation.

Institutions Council of Ministers
  • Usually called by old name Council of Ministers
    (formal name is now Council of the EU).
  • Consists of representatives at ministerial level
    from each member state, empowered to commit
    his/her Government
  • Typically representatives are ministers for
    relevant area (e.g. finance ministers on budget
  • Council uses different names according to the
    issue discussed
  • Famous ones include EcoFin (for financial and
    budget issues), the Agriculture Council (for CAP
    issues), General Affairs Council (foreign policy

Institutions Council of Ministers
  • The Council is the EUs main decision-making body
    (almost every EU legislation must be approved by
  • Main task is to adopt new EU laws
  • Measures necessary to implement the Treaties.
  • Also measures concerning the EU budget and
    international agreements involving the EU.
  • Is also supposed to coordinate the general
    economic policies of the Member States in the
    context of the Economic and Monetary Union (EMU),
    e.g. famous 3 per cent deficit rule.
  • Two main decision-making rules
  • On the most important issues, e.g. Treaty
    changes, enlargement, multi-year budget plan,
    Council decisions are by unanimity.
  • On most issues (about 80 of all decisions),
    qualified majority voting (see Baldwin/Wyplosz,
    p.84ff. for details).

Institutions European Parliament
  • Two main tasks
  • Oversees EU institutions, especially Commission
  • Shares legislative powers, including budgetary
    power, with the Council and the Commission
  • Organisation
  • Up till the 2004 enlargement, 626 members (MEPs)
  • After enlargement 732 members
  • Directly elected in special elections organised
    by member nation
  • Number per nation varies with population but
    rises less than proportionally (e.g. Germany had
    99 MEPs in 1999-2004 Parliament and Luxembourg 6
    MEPs, although Germanys population 160 times
    that of Luxembourg)

Institutions European Parliament
  • MEPs supposed to represent local constituencies,
  • Generally organised along classic European
    political lines, not national lines as in Council
    of Ministers
  • Centre left and centre right two main party
    groupings (together about two-thirds of seats)
  • The Parliament and the Council are the primary
    democratic controls over the EUs activities
  • Indirect control through Council of Ministers
    (whose members represent democratically elected
  • Direct control through EU Parliament since MEPs
    are directly elected by EU citizens
  • In practice, low participation in European
    Parliamentary elections often dominated by
    national politics rather than by purely EU issues

Institutions The Commission
  • European Commission is at the heart of the EUs
    institutional structure.
  • Traditionally a driving force behind deeper and
    wider European integration (e.g. Delors
  • Has three main roles
  • propose legislation to the Council and Parliament
  • to administer and implement EU policies
  • to provide surveillance and enforcement of EU law
    (guardian of the Treaties)
  • it also represents the EU at some international

Institutions The Commission
  • Before the 2004 enlargement
  • One Commissioner from each member
  • Extra Commissioner from the Big-Five (Germany,
    UK, France, Italy and Spain in the EU15)
  • Since Nice Treaty, one Commissioner per EU25/EU27
  • Commissioners are chosen by their own national
  • Subject to political agreement by other members
  • The Commission, and the Commission President
    individually, are approved by the EU Parliament.
  • All members of a Commission appointed together,
    serve for five years
  • Note Commissioners are not national
    representatives, should not accept or seek
    instruction from their country.

Institutions The Commission
  • Each Commissioner in charge of a specific area of
    EU policy (Directorate-Generals, DGs).
  • Executive powers
  • Commission is the executive in all of the EUs
  • Power most obvious in competition policy and
    trade policy
  • Manage the EU budget, subject to EU Court of
  • Decision making
  • Decides on basis of a simple majority
  • In practice, almost all decisions on consensus

Institutions European Court of Justice
  • EU laws and decisions open to interpretation that
    lead to disputes that cannot be settled by
  • Court settles these disputes, especially disputes
    between Member States, between the EU and Member
    States, between EU institutions, and between
    individuals and the EU.
  • EU law is an independent legal system that takes
    precedence over national laws in EC matters (i.e.
    mainly matters related to economic integration,
    e.g. common market, single market programme,
    competition policy …)
  • This supranational power is highly unusual in
    international organisations

Institutions European Court of Justice
  • Organisation
  • Located in Luxembourg
  • Consists of one judge from each member state
  • Appointed by common accord of the member states'
    governments and serve for six years
  • Decisions taken by majority voting.

Legislative Process Structure
Legislative Processes
  • New legislation can (almost) only be proposed by
    the Commission
  • This right to initiate makes the Commission the
    gatekeeper of EU integration
  • But proposals usually based on general guidelines
    established by the Council of Ministers, the
    European Council, the Parliament or the various
  • Commission also consults widely before proposing

Legislative Processes
  • Main legislative procedure is the so-called
    co-decision procedure
  • About 80 of EU legislation
  • Proposals require approval by both Parliament
    (deciding by simple majority) and Council of
    Ministers (deciding by qualified majority) before
    they become law
  • Other procedures give more power to the Council
  • Consultation procedure (used for a few issues
    over which member states want to keep tight
    control, e.g. price fixing agreements in
    agriculture) Parliament can only give its
  • Assent procedure (e.g. decisions concerning
    enlargement, international agreements,
    sanctioning member states) Parliament can veto,
    but cannot amend a given proposal.
  • Constitutional Treaty foresaw co-decision for
    almost all decisions.

The EU Budget
The EU Budget
  • EU budget funds spent by the EU on various
  • Budget negotiations repeatedly source of tensions
    between EU members
  • Look at
  • Expenditures by area, evolution of spending over
  • Sources of revenue
  • Contributions by member states

The Budget Expenditures (2009)
Evolution of Spending Priorities
Evolution of Spending, Level
Evolution of Funding Sources
Contribution vs. GDP
Net Contribution by Member
The Budget Summary
  • Overall EU expenditure relatively small (about 1
    of total EU27 GDP, much smaller than national
  • Agriculture and transfers to poor regions
    (cohesion) make up over 80 of expenditures
  • Main funding sources (in increasing importance)
  • Tariff revenue (from common external tariff)
  • VAT resource (like a 1 per cent value added
  • GNP based (tax paid by members based on their
  • Budget contributions by member states
  • Approx. 1 of GDP per member regardless of
    per-capita income
  • EU contributions are not progressive
  • The net contribution of the poorest members are
    positive and on average they are negative for the
    rich EU members, but Belgium, Ireland and Spain
    are exceptions.

Concluding Wrap-Up
Concluding Wrap-Up
  • What we have learnt
  • Overview of EU (economic) history from World War
    II to Eastern Enlargement and the rejection of
    the Constitutional Treaty
  • Important economic facts on the EU member states
  • EU institutions and decision-making procedures
  • An overview of the EU budget
  • Where we go next
  • Making economic sense of some of the key facts
    seen today
  • Start with impact of common market on economic
    efficiency and growth