The Economics of European Integration

Theory, Practice, Policy

Willem Molle

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351765749
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This title was first published in 2001. As economic integration touches ever more areas of society, more and more people are confronted by the bewildering complexity of the functioning of the European Union. Rather than merely focusing on the description of EU policies, this study of the economics of European integration seeks to: select the most relevant aspects and developments; place the wide variety of issues in a robust conceptual structure; integrate theoretical developments with the results of empirical research and of policy analysis; explain the logic of the dynamic processes; describe the structural features of the European economy; highlight the response of private companies to changes in the regulatory environment; depict the historical developments so as to give a sound basis for the understanding of the present situation and the likely future development; and set the European developments in the light of global developments. In practice Western Europe is the focus of major parts of this book.

PART I
GENERAL ISSUES

1 Introduction

Objectives

Progressive integration has been one of the most characteristic aspects of economic development in the last few decades, worldwide and in Europe, where it has found expression notably in the European Union (EU). The EU has had a direct and profound influence on the economy of member states and third countries.

Much has been written about European economic integration. In the 1950s and 1960s, the discussion on economic integration was concentrated on international economic relations, as witness the specialised books on the subject from that period. In the 1970s and 1980s, the idea of economic integration quickly spread to the economics of the sectors of economic activity (agriculture, energy, manufacturing, services, transport) and to such aspects as market regulation, macro-economic equilibrium, monetary control, regional equilibrium or social welfare. At the end of the 1980s and during the 1990s, the issue of monetary integration was central to the discussion on European economic integration. In this field and in all the other fields mentioned, the body of specialised literature has grown very rapidly to become a real avalanche in recent years.

To students of the economic integration process per se this abundant specialist literature is inconvenient. Indeed, as economic integration touches ever more areas of society, more and more people are confronted by the bewildering complexity of the functioning of the EU. The past decades have witnessed the publication of a fairly large number of books that try to help readers by offering a systematic analysis. Many of them focus merely on the description of EU policies, often without a critical analysis of their economic rationale and effects. Others are merely theoretical in nature, favouring a mathematical treatment of the material. The present book differentiates itself from the other titles in that it aims to:

• select the most relevant aspects and developments;

• place the wide variety of issues in a robust conceptual structure;

• integrate theoretical developments with the results of empirical research and of policy analysis;

• explain the logic of the dynamic processes;

• describe the structural features of the European economy;

• highlight the response of private companies to changes in the regulatory environment;

• depict the ‘historical’ developments so as to give a sound basis for the understanding of the present situation and the likely future development;

• set the European developments in the light of global developments.

Three fundamental concepts

Integration

The expression ‘economic integration’ covers a variety of notions.¹ It may refer to the absorption of a company in a larger concern. It may have a spatial aspect, for instance if it refers to the integration of regional economies in a national one. In this book, the expression is always used with respect to international economic relations. The definition of integration that is used here is the gradual elimination of economic frontiers between independent states; as a result the economies of these states end up functioning as one entity.

Economic integration is not an objective in itself, but serves higher objectives, both of an economic and of a political nature.

• Economic welfare. The prosperity of all participating countries is enhanced by overcoming the inefficiencies of nationally segmented economies through specialisation of production and through cooperation in policy making, the two basic elements of economic integration.

• Peace. When countries become dependent upon each other as a result of economic integration this reduces the chance of armed conflicts between them.²

• Democracy. If participation in a group that brings benefits through integration is made conditional on the existence of a parliamentary form of democracy, it is less likely that attempts to overthrow this system of government in a member country will stand much chance of success.

• Human rights. In much the same way, the respect for human rights may be safeguarded if this is set as a precondition for participation in a scheme for economic integration.

In this book we will not go further into the last three objectives, which are of a political nature; we will henceforth concentrate on the economic objective.³

The term ‘economic integration’ can be interpreted in two senses. In a dynamic sense, it is the process whereby economic frontiers between member states are gradually eliminated (that is to say, whereby national discrimination is abolished), with the formerly separate national economic entities gradually merging into a larger whole. In a static sense, it is the situation in which national components of a larger economic zone function together as one entity. The dynamic interpretation is the more usual, and the one to be used in this book. Of course, the static meaning of the expression will apply in full once the integration process has passed through its stages and reached its object.

Economics

As to economics,⁴ three elements will recur throughout the book. We will analyse and describe:

• theoretical principles: we will present a selection of theory most relevant to explaining the dynamics of economic processes associated with the integration of (segments of) the economy;

• empirical facts: we will describe how the various segments of the European economy have evolved under conditions of integration, using selected long-term statistical series, on the one hand,⁵ and using case studies of the behaviour of the business sector, on the other;

• public policy: we will discuss why and how the EU and national governments influence the economic process with policy measures; and what effect these interventions have on wealth.

We will not deal with these elements separately. On the contrary, while dealing with different aspects of integration we will combine a brief theoretical treatment with an analytical description and with the relevant elements of policy of the subject at hand.

In all parts of the book we will finally evaluate the results of the integration processes in economic terms. To measure advantages and disadvantages of integration, use will be made of the well-known concepts of welfare economics (see, among others, Mishan, 1982).

Europe

The word ‘European’ refers in principle to the whole geographical entity of Europe. In practice Western Europe will be the focus of major parts of this book. Indeed, in the past, the dynamism of the integration processes there has been much greater than in the centrally planned economic systems of Central and Eastern Europe. The European Union (EU), extended since its foundation from six to nine, then to 10, 12 and 15 member states, and open for further enlargement, constitutes the core of the European integration process. For reasons of simplicity we will henceforth use the term ‘European Union (EU)’ to indicate for the whole period of analysis and irrespective of the prevailing precise legal situation both the group of member states and the policy system drawn up on the basis of the various treaties.⁶

During the 1990s most of the Central and Eastern European Countries (CEEC) went through a transition from a centrally planned economy to a market economy. At the same time they became increasingly involved in the process of economic integration first by participating in the Central European Free Trade Area (CEPTA), but mostly by preparing themselves for membership of the European Union. So, in many chapters, reference will be made to the situation in the CEEC.

European integration is not an isolated process: it takes place in a world in which national systems become more and more interwoven. Therefore we must keep an eye on external aspects. Speaking of labour market integration, for instance, we will discuss not only internal migration within the EU, but also migration from and to third countries, distinguishing between different groups of countries. We will give an overview of these aspects in Chapter 17 on external relations.

Organisation of the material

Part I lays the foundations for the rest of the analysis. First it gives the fundamental concepts that will be used in this book, such as the definition of integration. Next it gives a theoretical treatment of the dynamics of the integration process. Third, it presents an historical overview of the process of integration, which makes it easier to understand the present dynamics. Fourth, it exposes the objective, the institutional set-up and the regulating capacity of the European Union.

Part II is devoted entirely to market integration. It starts with separate chapters on goods and services. The chapter on goods is fairly elaborate as a vast literature makes it possible to draw up a very detailed picture. The opposite situation prevails for services; here a lack of relevant data and operational concepts preclude an analysis of the same depth and detail. The next two chapters deal with the liberalisation of the markets for production factors. In each of the chapters on labour and capital, the results of empirical studies are set on a solid theoretical basis and in the framework of the dynamic development of the European policy regimes for both production factors.

Part III is devoted to business. The integration of markets of products and of production factors permits entrepreneurs to make their operations more efficient. The way enterprise responds to the opportunities created by integration is analysed for five sectors of economic activity.⁷ For each of them we will follow the same process. We describe first the EU regulatory framework.⁸ Next we depict the sectors’ development under conditions of integration, referring, wherever useful, to theoretical notions specific to the sector concerned. For each sector we will single out two branches for which detailed case studies will be presented. In these case studies we follow the same logic: description of the evolution of the regulatory framework; sketch of the development of the industry in terms of production, trade, etc; and, finally, the response of companies to their changing environment.

Part IV deals with the different socio-economic policies that create the conditions for a balanced growth of the EU economy. For the discussion of these policies a division into chapters has been made (inspired by Musgrave and Musgrave, 1989) into the f...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• List of Figures
• Acknowledgements
• Part I General Issues
• Part II Common Market
• Part III Sectors of Activity
• Part IV Conditions for Balanced Growth
• Part V Conclusion
• List of Abbreviations
• Bibliography
• Index