Economic Integration: Stages & Single Market

• Economic integration evolves over time through increased cooperation.

Stages of Economic Integration

• Free Trade Area (FTA) eliminates tariffs between members, but each country maintains its own tariffs for non-members.
• Customs Union eliminates internal tariffs and establishes a common external tariff.
• Single Market allows free movement of goods, services, capital, and labor.
• Economic and Monetary Union (EMU) harmonizes economic and monetary policies among members.
• Political Union entails a common government with integrated economic and political decision-making.

The Single Market

• Treaty of Rome (1957): Initiated to seek closer European union, targeting a customs union and eventually a single market.
• Single European Act (1986): Aimed to establish the single market by 1992.
• Four Freedoms: Encompass the free movement of goods, services, capital, and people.
• 1985 Delors Commission: oversaw the creation of the internal market.
• 1988 Cecchini Report: Assessed the costs and benefits of the EU common market.

Integration Measures

• Negative integration: Aims at eliminating physical, fiscal, and technical trade barriers.
• Positive integration: Establishes common standards, like social and environmental norms.
• Brussels Effect: EU regulations often become global standards due to the EU's market size.

Key Rulings for EU Law

• Van Gend en Loos (1963): Established the principle of direct effect, allowing individuals to enforce EU law in national courts.
• Costa v. ENEL (1964): Introduced the principle of supremacy, prioritizing EU law over national law.
• Cassis de Dijon (1979): Introduced the principle of mutual recognition, mandating that products legally sold in one member state must be accepted in others, barring certain exceptions.

The Eurosystem

• Path to the euro: Began with fixing exchange rates.
• Bretton Woods system: Maintained fixed exchange rates until 1973.
• Snake in the tunnel: Currencies were pegged to each other and the dollar.
• Snake outside the tunnel: Currencies were pegged to each other with fluctuation margin of Å}2.25%.
• European Currency Unit (ECU): Introduced as a banking currency.

Three Stages of EMU

• 1990-1993: Ensured free capital movement, economic policy coordination, and cooperation between central banks.
• 1994-1998: Convergence occurs with Maastricht criteria compliance (inflation, public debt, budget deficit, interest rates, exchange rate stability).
• Since 1999: Establishment of the European Central Bank (ECB), fixed exchange rates, and the introduction of the Euro.
• Maastricht plan: Used to contain Germany after the Cold War and German reunification.

Maastricht Convergence Criteria

• To join the EMU member states, strict economic criteria had to be met.
• Stability and Growth Pact (SGP) of 1997: Designed to ensure members maintain fiscal discipline post-Euro adoption.
• SGP involves multilateral budgetary surveillance and a deficit limit through the excessive deficit procedure (EDP).
• There were financial penalties for countries with excessive deficits.
• Each government is responsible for its own debt (no bailout clause)

Theory: Optimum Currency Area (OCA)

• Optimum Currency Area (OCA): An area economically linked by trade in goods, services and factor mobility (capital/labour)
• Member States should only share a single currency if they can assist each other during economic hardship.
• In a currency union, devaluing the currency is impossible, so MS need other ways to handle economic differences.
• An OCA requires high factor mobility
• Similar Economic structure required
• OCA requires Fiscal federalism

Banking Union

• Unified banking system where bank regulation and supervision are centralized at a eurozone level.

EU's Economic Leverages

• Regulatory Powers: Establishing market standards, antitrust regulations, merger controls etc.
• Redistributive powers: Through cohesion, agricultural, and structural funds.
• Expenditure Powers: EU budget funded by VAT, customs duties, and national contributions.
• Eurozone Crisis: Started in Greece (2009)
• New Institutions Created: European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM) Changes made to rules of Stability and Growth Pact (Fiscal Compact)

Stricter rules in the SGP

• Deficit and Debt was important.
• Enhanced role was given to the Commission in monitoring public finances.
• Banking Union: Strengthened regulation of the banking sector by placing Eurozone banks under ECB supervision.

Corona Rescue Package (Next Generation EU)

• Stimulus package of €750 billion, divided between loans and grants to recover the economy post-COVID-19
• Joint borrowing by the EU member states through issued bonds.
• Money used to focus on digitalization and green innovations.

The Next Turn in the Single Market

• EU will become the first climate-neutral continent by 2050.
• 2030 target: Reduce greenhouse gas emissions by at least 55% compared to 1990 levels.
• Political opposition has lead to rebranding the effort
• Digital Single Market: Focus on digitalization of the single market to maintain global competitiveness.
• Post-COVID rescue fund supports digital, innovative, and green businesses.

Explore economic integration stages: Free Trade Area, Customs Union, Single Market, EMU, and Political Union. Focus on the Single Market's establishment through the Treaty of Rome and the Single European Act. Learn about the four freedoms.