Economic Integration Stages and Models
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Which of the following is the most complete stage of economic integration?

  • Customs Union
  • Free Trade Area
  • Single Market
  • Economic Union (correct)

    • The Single European Act of 1986 sought to establish a single market by 1992, focusing on what primary objective?

  • Ensuring the free circulation of goods, services, labour, and capital. (correct)
  • Establishing a common currency across all member states.
  • Creating a common government structure.
  • Harmonising taxation policies across the European Union.

    • Which report examined the costs and benefits of an EU common market?

  • The Delors Report
  • The Cecchini Report (correct)
  • The Maastricht Treaty
  • The Treaty of Rome

    • What does 'negative integration' primarily aim to achieve within the context of the European Single Market?

    <p>Eradicating physical, fiscal, and technical barriers to trade. (A)</p> Signup and view all the answers

    The Cassis de Dijon ruling established which key principle for the European Single Market?

    <p>The principle of mutual recognition, allowing goods legally sold in one member state to be sold in another. (D)</p> Signup and view all the answers

    In the context of EU law, what does the principle of 'direct effect' primarily ensure, as established in the Van Gend en Loos case?

    <p>Individuals can invoke provisions of EU law directly in national courts. (B)</p> Signup and view all the answers

    What was the primary focus of the Flaminio Costa v ENEL case ruling regarding EU law?

    <p>The supremacy of EU law over national law. (A)</p> Signup and view all the answers

    Which of the following describes 'positive integration' measures?

    <p>Harmonizing standards for basic social and environmental rights. (A)</p> Signup and view all the answers

    What fundamental principle was established regarding the relationship between EU law and Member State law?

    <p>EU law prevails over Member State law in cases of conflict. (D)</p> Signup and view all the answers

    Within the context of European monetary integration prior to the Euro, what characterized the 'Snake inside the tunnel' arrangement?

    <p>EC currencies were pegged against each other and the USD. (A)</p> Signup and view all the answers

    Which of the following best describes the state of exchange rates after the establishment of the European Central Bank (ECB) in 1999?

    <p>Exchange rates were fixed, marking the introduction of a single currency. (C)</p> Signup and view all the answers

    Which political consideration significantly influenced the Maastricht plan?

    <p>Containing Germany after the Cold War and reunification. (D)</p> Signup and view all the answers

    According to the Maastricht Convergence Criteria, what is the reference value for public debt as a percentage of GDP that Member States should not exceed?

    <p>60% (D)</p> Signup and view all the answers

    Which of the following is NOT a Maastricht convergence criterion?

    <p>Trade surplus (B)</p> Signup and view all the answers

    What is the primary aim of the Stability and Growth Pact (SGP), agreed upon in 1997?

    <p>To ensure member states maintain budgetary discipline after introducing the Euro. (A)</p> Signup and view all the answers

    What is the tolerance of deviation from a central rate for long-term interest rates as part of the Maastricht Convergence Criteria?

    <p>Not more than 2 percentage points above the rate of the three best performing Member States in terms of price stability. (B)</p> Signup and view all the answers

    Which of the following was NOT a primary response to the Eurozone crisis?

    <p>Establishment of the European Central Bank (ECB). (A)</p> Signup and view all the answers

    What is the primary mechanism through which the 'Next Generation EU' corona rescue package aims to support member states?

    <p>Through joint indebtedness on global financial markets, issuing bonds via the European Commission, ECB, and EIB. (B)</p> Signup and view all the answers

    What is the intended balance between loans and grants within the 750 billion euro 'Next Generation EU' corona rescue package?

    <p>An equal split between loans and grants. (C)</p> Signup and view all the answers

    What is the updated greenhouse gas emission reduction target by 2030 within the European Green Deal?

    <p>At least 55% compared to 1990 levels. (B)</p> Signup and view all the answers

    Which of the following best describes the current approach to achieving climate neutrality in the EU?

    <p>A combination of regulatory tools (EU law) and financial instruments (incentives or taxation). (D)</p> Signup and view all the answers

    How has the 'European Green Deal' been integrated into the broader economic strategy of the EU?

    <p>Its climate targets have been merged into the single market framework. (B)</p> Signup and view all the answers

    How does the 'Next Generation EU' package ensure responsible spending of funds by member states?

    <p>The European Commission controls spending plans and there is peer control among member states. (A)</p> Signup and view all the answers

    Why is the 2040 target of 90% emissions reduction now being referred to as a ‘clean, just and competitive transition’?

    <p>Due to strong political opposition and challenges in preserving the environment while pursuing such aggressive targets. (B)</p> Signup and view all the answers

    Which of the following best describes the primary concern driving Germany's stance on Eurozone fiscal policy?

    <p>Preventing the European Central Bank (ECB) from being compelled to purchase sovereign debt, thereby compromising its independence. (B)</p> Signup and view all the answers

    According to the theory of Optimum Currency Areas (OCA), what is the most critical requirement for a group of countries to successfully adopt a single currency?

    <p>The presence of mechanisms for fiscal transfers and high factor mobility to address economic shocks in specific regions. (C)</p> Signup and view all the answers

    What is the intended purpose of the EU's 'redistributive powers', such as agricultural, cohesion, and structural funds?

    <p>To transfer economic resources from wealthier regions to those experiencing economic challenges, thus reducing disparities. (C)</p> Signup and view all the answers

    Which of the following is NOT a stated objective or feature of the Stability and Growth Pact (SGP)?

    <p>Providing a bailout clause where member states cover each other’s debts. (D)</p> Signup and view all the answers

    Which of the following conditions would most strongly suggest that a group of countries is NOT an optimum currency area?

    <p>Significant economic disparities between regions and limited labor mobility. (C)</p> Signup and view all the answers

    What is the primary purpose of the EU's regulatory powers, such as anti-trust regulations and merger controls?

    <p>To facilitate market integration and set common standards while ensuring fair competition. (A)</p> Signup and view all the answers

    Why might a country within a currency union still desire the ability to adjust its exchange rate?

    <p>To manage asymmetric economic shocks and maintain competitiveness within the union. (C)</p> Signup and view all the answers

    Which of the following EU economic leverages is most directly aimed at promoting fair competition within the internal market?

    <p>Regulatory powers including anti-trust regulations. (A)</p> Signup and view all the answers

    Flashcards

    Primacy of EU Law

    EU law takes precedence over Member State law in case of conflict.

    Bretton Woods System

    A fixed exchange rate system in place until 1973 with currencies pegged against each other and the USD.

    Snake inside the tunnel

    EC currencies were pegged against each other and the USD within stipulated limits.

    Maastricht Convergence Criteria

    Economic guidelines for EU member states to meet for Euro adoption, including inflation and debt limits.

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    Stability and Growth Pact

    1997 agreement aimed at ensuring budgetary discipline among member states post-Euro introduction.

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    Currency Unit Role

    The European Currency Unit served as a banking currency prior to the introduction of the Euro.

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    Inflation Measurement

    Consumer price inflation rate as a percentage of GDP is used to evaluate convergence criteria.

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    Exchange Rate Stability

    Must maintain limited deviation from a central rate while participating in ERM II for at least 2 years.

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    Eurozone Crisis

    A financial crisis beginning in Greece in 2009 that affected several member states.

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    EFSF

    European Financial Stability Facility, created to provide financial assistance to Eurozone countries in crisis.

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    ESM

    European Stability Mechanism, a permanent rescue fund to safeguard the financial stability of the Eurozone.

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    Banking Union

    An initiative to centralize bank regulation and supervision in the Eurozone under the ECB.

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    Next Generation EU

    A recovery plan involving financial aid to support member states after the Corona crisis.

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    European Green Deal

    An initiative aimed at making Europe the first climate-neutral continent by 2050.

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    Fit for 55

    EU target to cut greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.

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    Medium-term budgetary objective

    A goal to achieve budget balance or surplus within a few years.

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    Free Trade Area (FTA)

    A region where tariffs are reduced to zero between member countries.

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    Excessive Deficit Procedure (EDP)

    A process of monitoring and imposing penalties on countries with high deficits.

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    Customs Union

    A group that eliminates tariffs among members and sets a common external tariff.

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    Optimum Currency Area (OCA)

    A region where countries benefit from sharing a single currency due to economic links and mobility.

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    Single Market

    Allows free movement of goods, services, labor, and capital among member states.

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    Factor mobility

    The ease with which labor and capital can move across regions or countries.

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    Fiscal federalism

    A financial system allowing resource transfer from wealthier to poorer regions within a currency area.

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    Economic and Monetary Union

    An agreement to harmonize economic policies among member countries.

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    Cassis de Dijon

    A court ruling establishing the principle of mutual recognition for products in the EU.

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    Regulatory powers of the EU

    EU ability to set rules for market integration and fair competition among producers.

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    Direct Effect

    A principle allowing EU laws to create rights enforceable in national courts.

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    Redistributive powers

    The capability of the EU to allocate funds for agriculture, cohesion, and structural projects.

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    Van Gend en Loos

    A case establishing the principle of direct effect in EU law.

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    Expenditure powers

    The EU's authority to budget using funds from VAT, levies, and customs duties.

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    Negative Integration Measures

    Actions aimed at removing barriers to trade among member states.

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    Study Notes

    Stages of Economic Integration

    • Free trade area (FTA): reduces tariffs to zero between members.
    • Customs union: reduces tariffs to zero between members and establishes a common external tariff.
    • Single market: establishes a free flow of factors of production (labor and capital, as well as goods and services).
    • Economic (and monetary) union: involves an agreement to harmonize economic policies.
    • Political union: involves a common government.

    Economic Integration: Basic Models

    • Common Government: Full free movement (including people); harmonized tax rates; common monetary/fiscal policy; free movement of goods, services, capital, and labor; common external tariff; removal of tariffs between members.
    • Political Union: Economic Union; Single Market; Customs Union; Free Trade Area.

    The Single Market

    • Treaty of Rome (1957): "ever closer union" among the peoples of Europe; aimed to establish a customs union, leading to a single market.

    • Single European Act (1986): sought to establish a single market by 1992, encompassing four freedoms (free circulation of goods, services, labor, and capital).

    • Delors Commission (1985): examined costs and benefits of an EU common market.

    • Cecchini report (1988): "The Cost of Non-Europe", examined costs and benefits of an EU common market.

    • Negative integration measures: eradicate all physical, fiscal and technical barriers to trade.

    • Positive integration measures: common standards (basic social, environmental, etc. rights and standards) to create a level playing field for economic factors.

    Cassis de Dijon

    • 1979 European Court of Justice ruling: Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein (Cassis de Dijon).
    • Landmark case for the European Single Market.
    • Mutual recognition principle: an economic product sold in one member state should not be prohibited from sale anywhere in the EU, with exceptions for public health and safety.

    Key Rulings for EU Law

    • Van Gend en Loos (1963): vital importance to the development of EU law; principle of direct effect—EU law enforceable in national courts.
    • Costa v ENEL (1964): crucial in EU law development; principle of primacy—EU law prevails over member state law in conflicts.

    The Eurosystem

    • Fixed exchange rate system until 1973 under the Bretton Woods system.
    • Snake inside the tunnel: each EC currency pegged against the other and the USD.
    • Snake outside the tunnel: USD is out of the picture, only pegged against each other.
    • Fluctuation rate +/-2.25.
    • European Currency Unit as a banking currency.

    Three Stages to the EMU

    • 1990-1993: free movement of capital among member states; closer cooperation of economic and central bank policies.
    • 1994-1998: compliance with Maastricht convergence criteria.
    • Since 1999: European Central Bank (ECB) established; exchange rates fixed; introduction of a single currency.

    Maastricht Convergence Criteria

    • Measured: Inflation, Budget deficit, Public debt, Interest rate, Exchange rate stability.
    • How measured: Consumer price inflation rate, budget deficit as % of GDP, public debt as % of GDP, long term interest rate, deviation from a central rate.
    • Convergence criteria: not more than 1.5 percentage points above the rate of the three best performing member states, reference value: not more than 3%, not more than 60%.
    • Participation in ERM II for at least 2 years without serious tensions.

    Stability and Growth Pact (1997)

    • Aims to ensure member states maintain budgetary discipline.
    • Medium-term budgetary objective: positions close to balance or surplus.
    • Excessive deficit procedure (EDP): financial penalties for excessive deficits.
    • Concerns include fear of high public debt, especially German fear of a weak currency. Fear of ECB having to purchase govt debt, no bailout clause.

    Theory: Optimum Currency Area (OCA)

    • OCA: economically closely linked by trade, goods, services, and factor mobility (capital, labor)—increases intra-EU trade.
    • Countries should only adopt a single currency when mechanisms are in place to deal with transfer payments if one part is affected.
    • OCA requires: high factor mobility and similar economic structure; fiscal federalism, ability to transfer resources.

    EU's Economic Leverages

    • Regulatory powers: market integration, setting common standards for health, environment, and workers' rights; ensuring a level playing field between producers.
    • Redistributive powers: agricultural funds, cohesion funds, structural funds.
    • Expenditure powers: own budget from VAT, agricultural levies, customs duties, and Gross National Product.

    Eurozone Crisis

    • Greece's financial crisis followed by other member states from 2009 onward.
    • New institutions: European Financial Stability Facility (EFSF), European Stability Mechanism (ESM).
    • Changes to Stability and Growth Pact: enhanced role for the European Commission to supervise governments, strengthened focus on deficits and debt.
    • Banking Union: strengthened regulation and centralised supervision of banks in the Eurozone via the ECB.

    Corona Rescue Package (Next Generation EU)

    • Europe must come out of the crisis stronger.
    • Stimulus package for the European economy.
    • No member states should be facing the crisis alone.
    • New solidarity mechanism and joint indebtedness on global financial markets.
    • European Union will go into depth in global markets with joint bonds by the Commission, the ECB, and EIB.
    • 750 billion euro in stimulus, including loans and grants.
    • Spending plans controlled by the European Commission.

    The Next Turn in the Single Market (European Green Deal)

    • Digitalisation of the single market to retain global competitiveness.
    • Corona impact: rescue funds for digital, innovative, and green businesses.
    • European Green Deal (2019): merging climate targets into single market.
    • 2050 target: first climate-neutral/net-zero emission continent, using regulatory tools and financial instruments (incentives or taxation) to achieve it.
    • Update by 2030 target: to raise greenhouse gas emission reduction targets to 55% by 2030 and 90% by 2040, compared to 1990 levels.

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    Description

    Explores the stages of economic integration, from free trade areas to political unions, detailing tariff reductions, common external tariffs, and the free flow of factors of production. It also references the Treaty of Rome and the goal of an "ever closer union" in Europe.

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