Oefenvragen HC6

• Economic integration occurs step-by-step, involving increased cooperation between countries.

Stages of Economic Integration

• Free Trade Area (FTA): Member countries eliminate tariffs between themselves, but each retains individual tariffs for non-members.
• Customs Union: Internal tariffs are removed, and a common external tariff is established.
• Single Market: Allows the free movement of goods, services, capital, and labor among member states.
• Economic and Monetary Union (EMU): Member states coordinate economic and monetary policies, including adopting a common currency like the euro.
• Political Union: Characterized by a common government with integrated economic and political decision-making.

The Single Market

• Began with the Treaty of Rome (1957), with the goal of closer integration among European nations.
• The initial objective was a customs union, with the single market to follow.
• The Single European Act (1986) targeted the creation of the single market by 1992.
• Four Freedoms: The single market ensures the free flow of goods, services, capital, and people.
• 1985 Delors Commission resulted in the completion of the internal market, alongside the Schengen Area.
• 1988 Cecchini Report assessed the costs and benefits of the EU common market.

Integration Measures

• Negative integration: Involves removing physical, fiscal, and technical barriers to trade
• Mutual recognition principle: An example of negative integration, came from the Cassis de Dijon case
• Positive integration: Involves establishing common standards for 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): A Dutch company claimed the Netherlands had violated EU law by imposing tariffs on imported goods.
• Established the principle of direct effect so individuals can enforce EU law in national courts.
• Costa v. ENEL (1964): Mr. Costa challenged Italy's electricity sector as conflicting with EU law.
• Established the principle of supremacy, meaning EU law overrides national law
• Cassis de Dijon (1979): A German importer was denied the ability to seel French liquor.
• Introduced mutual recognition: a product legally sold in one member state must be accepted in others

The Eurosystem

• The path to the euro began with the fixation of exchange rates:
• Bretton Woods system: A fixed exchange rate system until 1973, where currencies were linked to the US dollar.
• Snake in the tunnel: European currencies were pegged to each other and the dollar.
• Snake outside the tunnel: Currencies were only pegged to each other with a Å}2.25% fluctuation margin.
• The European Currency Unit (ECU) was introduced as banking currency.

Three Stages of EMU

• 1990-1993: Free movement of capital, closer economic policy coordination, and cooperation between central banks.
• 1994-1998: Convergence with Maastricht criteria compliance.
• Since 1999: Establishment of the European Central Bank (ECB), fixed exchange rates, and the introduction of the Euro.
• The Maastricht plan contained Germany after the end of the Cold War and German reunification

Maastricht Convergence Criteria

• To join the EMU, member states needed to meet strict economic criteria.
• Stability and Growth Pact 1997 was agreed upon ains to ensure ongoing fiscal discipline after euro adoption including: medium-term budgetary objective, and a limit through the excessive deficit procedure (EDP).
• Financial penalties in countries with excessive deficits
• There was fear of high public debt, as well as German fear that the Euro would be a weak currency.
• No bailout clause: governments would not assume each other's debts.

Theory: Optimum Currency Area (OCA)

• An optimum currency area (OCA) is an area closely linked by trade in goods, services, and factor mobility.
• Member states should only share a single currency if they can support each other economically during crises.
• In a currency union, devaluing the currency is not possible; member states need alternative ways to manage economic differences.

OCA Requirements

• High factor mobility: Production factors can easily move between countries or regions.
• Similar economic structure
• Fiscal federalism: Wealthier members support struggling members through financial transfers to maintain stability.

Banking Union

• Unified banking system where regulation and supervision occur at the currency union level
• If national banks are at risk the banking union would allow for coordinated oversight.

EU's Economic Leverages

• Regulatory Powers: Setting market standards, antitrust regulations, and merger controls.
• Redistributive Powers: Cohesion, agricultural, and structural funds.
• Expenditure Powers: EU budget funded by VAT, customs duties, and national contributions.

Eurozone Crisis

• The financial crisis began in Greece (2009) and spread.
• The European Financial Stability Facility (EFSF) was introduced, and European Stability Mechanism (ESM) was introduced.
• Changes to rules of Stability and Growth Pact were introduced to keep EU countries budgets in check

SGP Rules

• importance of deficit and debt was reinforced
• The role of the European Commission in monitoring public finances was enhanced The Banking Union: Strengthened regulation of the banking sector.
• Corona Rescue Package (Next Generation EU), divided into loans and grants, to recover the post COVID-19 economy
• Joint borrowing by the EU Spending is controlled by peer monitoring.
• Money will be used to focus on digitalization and green innovations.

The Next Turn in the Single Market

• European Green Deal: Launched in 2019 to make Europe climate-neutral by 2050.
• Updated 2030 target: Reduce greenhouse gas emissions by at least 55% compared to 1990 levels.
• Rebranding as a 'clean, just, and competitive transition', because of the political opposition
• Digital Single Market
• Focus on digitalization of the single market.
• Post-COVID rescue fund supports digital, innovative, and green businesses.