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 rejection of
  the Constitutional Treaty
• Important economic facts on the EU member states
• EU institutions and decision-making procedures
• The EU budget

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).

4
An Overview of EU Economic History
5
A Climate for Radical Change
6
A Climate for Radical Change
7
A Climate for Radical Change
8
Early Post War Period

• A Climate for Radical Change

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.

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

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

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 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
  Italy
• Treaty considered too federalist by other OEEC
  members, seven of these formed the European Free
  Trade Area (EFTA)

13
1960-1973, two non-overlapping circles
14
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)

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 werent the FTAs signed before?
• Domino-like affect of lowering barriers
• EEC6 ? enlargement ? EEC-EFTA FTAs

16
Two concentric circles
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

18
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
  etc.)
• 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

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

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 Norways voters rejected
  membership in a referendum)
• Concentric circles, but both deeper

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.

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

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

25
Preparing for Eastern Enlargement

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

26
Amsterdam Treaty

• Failed to reform main institutions
• Tidied up of the Maastricht Treaty
• More social policy, Parliaments 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

27
Nice Treaty

• Reforms of main institutions agreed, but poorly
  done
• 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,
  2003-2005

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 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

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.
• But ratification again difficult
• Irish voters initially reject treaty in 2008
  (rerun in 2009 successful)
• Ratification by Poland and the Czech Republic
  still outstanding

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Important Facts on the EU
31
Facts Population (2008)
32
Facts Income per capita (2008)
33
Facts Size of Economies (2008)
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 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
  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!

35
An Overview of EU Institutions
36
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)

37
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 EUs multiyear budget plan
• Treaty changes
• final terms of enlargements, etc.

38
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.

39
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).

40
Institutions Council of Ministers

• The Council is the EUs 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. 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).

41
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)

42
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 EUs 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

43
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
  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

44
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.

45
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
  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

46
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

47
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.

48
Legislative Process Structure
49
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

50
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
  opinion.
• 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.

51
The EU Budget
52
The EU Budget

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

53
The Budget Expenditures (2009)
54
Evolution of Spending Priorities
55
Evolution of Spending, Level
56
Evolution of Funding Sources
57
Contribution vs. GDP
58
Net Contribution by Member
59
The Budget Summary

• Overall EU expenditure relatively small (about 1
  of total EU27 GDP, much smaller than national
  budgets)
• 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
  tax)
• GNP based (tax paid by members based on their
  GNP).
• 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.

60
Concluding Wrap-Up
61
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