The European Union: History, Facts and Institutions

1. The European Union: History,Facts and Institutions EC329 – Economics of the European Union Holger Breinlich University of Essex

2. Plan of Talk • Overview of EU (economic) history from World War II to Eastern Enlargement and the Lisbon Treaty • Important economic facts on the EU member states • EU institutions and decision-making procedures • The EU budget H. Breinlich, University of Essex, EC329

3. Learning Outcomes • Know the outline and key events of EU economic history. • Be able to describe the functioning and understand the rationale of the most important EU institutions. • Know some of the basic economic facts about the EU and its budget (no need to know exact figures by heart though). H. Breinlich, University of Essex, EC329

4. An Overview of EU Economic History H. Breinlich, University of Essex, EC329

5. A Climate for Radical Change: Reichstag, 1945 Frankfurter Allee, 1945 H. Breinlich, University of Essex, EC329

6. A Climate for Radical Change: Rotterdam, 1940 H. Breinlich, University of Essex, EC329

7. A Climate for Radical Change: London 1940 H. Breinlich, University of Essex, EC329

8. Early Post War Period • A Climate for Radical Change H. Breinlich, University of Essex, EC329

9. 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. H. Breinlich, University of Essex, EC329

10. 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 H. Breinlich, University of Essex, EC329

11. 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 liberalisation H. Breinlich, University of Essex, EC329

12. 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 an 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 Italy • Treaty considered too federalist by other OEEC members, seven of these formed the European Free Trade Area (EFTA) H. Breinlich, University of Essex, EC329

13. 1960-1973, two non-overlapping circles IS EFTA-7 NL D B L N FIN S F DK I UK EEC-6 A P IRL CH West European Trade Arrangements in the 1960s: The EFTA-7 and the EEC-6 form two E GR non-overlapping circles.

14. Evolution to Two Concentric Circles • Preferential liberalisation in EEC and EFTA proceeded (EEC’s customs union and EFTA’s 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 Gaulle’s ‘non’ (twice) H. Breinlich, University of Essex, EC329

15. 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 weren’t the FTAs signed before? • Domino-like affect of lowering barriers • EEC6 → enlargement → EEC-EFTA FTAs H. Breinlich, University of Essex, EC329

16. Two concentric circles West Europe's Trade Arrange- ment in the mid-1970s IS FIN N DK S NL UK D B IRL L EEC-9 A F I EFTA-7 CH P E GR

17. 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 H. Breinlich, University of Essex, EC329

18. The Single Market Programme • In 1985, EU firms enjoy duty-free access to each other’s markets but numerous trade-inhibiting barriers remain (different technical standards, capital controls, preferential public procurement etc.) • Jacques Delors appointed president of the European Commission in 1985, pushed for the so-called ‘Single Market Programme’ • Lord Cockfield’s 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 H. Breinlich, University of Essex, EC329

19. 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 policies H. Breinlich, University of Essex, EC329

20. 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 membership • Result of ‘force for inclusion’ was • EEA-initiative to extend single market to EFTAns • Membership applications by all EFTAns except Iceland (though Norway’s voters rejected membership in a referendum) • Concentric circles, but both deeper H. Breinlich, University of Essex, EC329

21. Fourth enlargement • 1994, Austria, Finland, Norway and Sweden admitted (Norwegians again vote no). 1994 1973 2004 1958 Cyprus 1986 Malta 1981

22. The collapse of Communism • By the 1980s, Western European system clearly superior due to the creeping failure of planned economies • 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. H. Breinlich, University of Essex, EC329

23. EU reacts • The European Union reacted by providing emergency aid and loans to the fledgling democracies. • But initially reluctant to have CEEC countries joining • 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 H. Breinlich, University of Essex, EC329

24. German unification and Maastricht • Prospect of German Reunification raises concerns in many other EU countries. • Strengthening of economic ties again seen as a solution • 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 H. Breinlich, University of Essex, EC329

25. Preparing for Eastern Enlargement • Impending enlargement required EU to reform its institutions • Four tries: • Amsterdam Treaty, 1997 • Nice Treaty, 2000 • Constitutional Treaty, 2003-2005 • Lisbon Treaty, 2007-2009 H. Breinlich, University of Essex, EC329

26. Amsterdam Treaty • Failed to reform main institutions • Tidied up of the Maastricht Treaty • More social policy, Parliament’s powers modestly boosted, • Flexible integration, ‘closer cooperation’ introduced • Amsterdam leftovers • Voting rules in the Council of Ministers, • Number of Commissioners, • Extension of issues covered by majority voting H. Breinlich, University of Essex, EC329

27. Nice Treaty • 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 • Makeshift solution for Commissioners • Generally viewed as a failure • Main changes re-visited in Constitutional Treaty, 2003-2005 H. Breinlich, University of Essex, EC329

28. 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 d’Estaing; 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 H. Breinlich, University of Essex, EC329

29. 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 Treaty: • Similar in substance to the Constitutional Treaty. • 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 amendment. • New treaty signed in Lisbon on 13 December 2007. • Came into force on 1 December 2009 after a difficult ratification process. H. Breinlich, University of Essex, EC329

30. Important Facts on the EU H. Breinlich, University of Essex, EC329

31. Facts: Population (2008) H. Breinlich, University of Essex, EC329

32. Facts: Income per capita (2008) H. Breinlich, University of Essex, EC329

33. Facts: Size of Economies (2008) H. Breinlich, University of Essex, EC329

34. 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 >70% of the EU27’s 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 population • 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! H. Breinlich, University of Essex, EC329

35. An Overview of EU Institutions H. Breinlich, University of Essex, EC329

36. An Overview of EU Institutions • This section looks at the most important EU Institutions and the EU’s legislative process. • The Lisbon Treaty brought important changes but not all are in effect yet. • First describe situation prior to 2009. • Then discuss changes brought about by the Lisbon Treaty H. Breinlich, University of Essex, EC329

37. 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) H. Breinlich, University of Essex, EC329

38. 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 nations. • Provides broad guidelines for EU policy and thrashes out compromises on sensitive issues: • reforms of the major EU policies • the EU’s multiyear budget plan • Treaty changes • final terms of enlargements, etc. H. Breinlich, University of Essex, EC329

39. Institutions: European Council • Meets at least twice a year (June and December) • Determines all of the EU’s 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. H. Breinlich, University of Essex, EC329

40. 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 issues) • 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 issues). H. Breinlich, University of Essex, EC329

41. Institutions: Council of Ministers • The Council is the EU’s main decision-making body (almost every EU legislation must be approved by it). • 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. the 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).

42. 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 nations • 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 Germany’s population 160 times that of Luxembourg) H. Breinlich, University of Essex, EC329

43. Institutions: European Parliament • MEPs supposed to represent local constituencies, but • 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 EU’s activities • Indirect control through Council of Ministers (whose members represent democratically elected governments) • 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 H. Breinlich, University of Essex, EC329

44. Institutions: The Commission • European Commission is at the heart of the EU’s institutional structure. • Traditionally a driving force behind deeper and wider European integration (e.g. Delors commission) • 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 negotiations H. Breinlich, University of Essex, EC329

45. 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 member. • Commissioners are chosen by their own national governments • 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. H. Breinlich, University of Essex, EC329

46. 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 EU’s endeavours • Power most obvious in competition policy and trade policy • Manage the EU budget, subject to EU Court of Auditors • Decision making • Decides on basis of a simple majority • In practice, almost all decisions on consensus basis H. Breinlich, University of Essex, EC329

47. Institutions: European Court of Justice • EU laws and decisions open to interpretation that lead to disputes that cannot be settled by negotiation • 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 H. Breinlich, University of Essex, EC329

48. 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. H. Breinlich, University of Essex, EC329

49. Legislative Process: Structure H. Breinlich, University of Essex, EC329

50. 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 treaties. • Commission also consults widely before proposing legislation H. Breinlich, University of Essex, EC329