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European Integration
Dr. Tatiana Romanova School of International
RelationsSt. Petersburg State
University Tallinn, March 2010
Stages of Economic Integration
Free Trade Area
Custom Union
InternalMarket
Economic and Monetary
Union
Even those of us who laboured to complement the Single Market with a monetary union and to embody this transformation in a treaty held only that such a transformation was desirable and feasible, not that it was probable or much less inevitable.
How did the EMU Come About
1988 – Hanover – Delors Committee to study the prospects of EMU
Bicycle theory 1989 – plan:
clarity: To compete single market and economic union first (clear
priority over monetary union) Creation of the monetary union Common tax policy in the future Budgetary discipline3 stages
1989 – European council in Madrid: endorsed Delors report + start of the first stage as of 1.07.1990
Strasbourg December 1989 – IGC on II and III EMU stages
Maastricht and Convergence
Convergence Criteria (=conditions to get into the euro-zone) – German priority:
High level of price stability (inflation < 1,5% average inflation of the three most stable EMU economies)
Financial stability of the government: Budget deficit < 3% GNP Public debt < 60% GNP
Normal participation in the ERM for at least 2 years(no devaluation, fluctuation of 2,25%)
Approximation of long-term interest rates (< 2% average interest rate of 3 euro MS with the lowest inflation)
Independence of ECB Dates of stages – French priority Federal ECB system, charged with price stability +
independent CB minimised the loss of sovereignty
Rather politically
than economica
lly reasoned
Stages
1. Preparatory 01.07.1990-31.12.1993consolidation and eradication of all the barriers to the movement
of capital
2. Organisational - until 31.12.1998 Currency crisis but EMS survived because of the political
determination of the EU governments Creation of the EMI – Frankfurt Setting guidelines for economic policy Establishing single monetary policy IGC - Amsterdam
Stability and Growth Pact New Mechanism of ER Banknotes and coins as of 1 January 2002
25 03 1998 –analysis of the convergence criteria – 11 MS
Stages
2. Organisational - until 31.12.1998 (contd) 2.05.1998 – European Council
Irreversible fixation of the exchange rates exposed to speculative attacks + interest rates parity
Approval of the head of the ECB Fixation of euro MS:
timing is crucial (in 1992 it would have been only France and Luxembourg)
11+ Martinique, Guadalupe, Reunion, St. Pierre and Michelon
+ Monaco, Andorra, San-Marion and Vatican 2000 - Greece
Stages
1992 –1993 – serious financial crisis:Devaluation of Sp, Port, Irish currencies; UK and It left
the ERM3. Final:А: establishment of the Monetary Union
with critical mass of operations in euroNational currencies
В: as of 1 January 2002 Banknotes and coins are released to free circulation National currencies are withdrawn from the circulation All banks and enterprises use euro Euro is the only means of payment
Institutional Aspects Features of the Monetary Union
Explicit harmonisation of monetary policies Common pool of foreign exchange reserves A single central bank and monetary authority
12 MS Referendum in Sweden 5 tests of the UK (economic convergence, ability to withstand
the shock, influence on the city, influence on the enlargement) Denmark
+ Slovenia, Malta, Cyprus, Slovakia Council of Ministers:
Ecofin – general guidelines, international negotiations, exchange rate
Euro Council 16 – consultations + external representation together with the ECB
Mr. Euro
Stages of Economic Integration
Free Trade Area
Custom Union
Common Market
Economic and Monetary
UnionECONOMIC
COMPONENT
MONETARYCOMPONENT?
Economic and monetary union
Economic component Monetary component
InternalMarket
Coordination of economic policies
Economicpolicy
guidelines
Ban on certain operation
Budget deficitcontrol
Singlecurrency
Common monetary
policy
ESCB
ERM
SOFT RIGID
Necessity of economic coordination
National actions or policies may spill over directly into neighbouring countries (i.e. state aid)
Coordination should prevent or reduce the likelihood of free-rider behaviour by member states.
Policy coordination may be useful in deflecting criticism of unpopular but necessary policy action at the national level
Broad Economic Policy Guidelines – soft economic coordination
Framework for the definition of the overall policy objectives
Art 99 Are the framework that brings together:
The orientation of general fiscal policy (Excessive Deficit Procedure, SGP, multilateral surveillance)
The European Employment Strategy (the Luxembourg process)
The actions on structural reform (the Cardiff process) Monitors the reforms in the MSs to improve the functioning of
product and capital market Peer review exercise in itself
BEPG are fixed annually, builds on an annual cycle of policy discussion
Controlled through annual report on the implementation of the BEGP
Broad Economic Policy Guidelines – soft economic coordination
Involve: Monitoring policy process and outcome Providing general policy orientations,
benchmarking Publication of best practices Recommendations of the Council to a deviating
MS (can be made public on certain occasions) Soft because they
Do not have any direct legal impact on MS Do not involve any sanctions
Fiscal Policy Associated with sovereignty EU:
Did not initially addressed fiscal policy in the EU Treaty Painful because of the difference between MSs Later harmonised indirect taxation (VAT and specific duties) and
energy taxes In theory no fiscal harmonisation is needed for a
monetary union BUT Achieving the appropriate degree of and balance among the goals
for price stability, employment and growth is made more likely if there is a policy mix of fiscal and monetary measures
Cross-subsidisation Fiscal policy should be credible EMU with no fiscal unification creates the situation of fiscal
irresponsibility: Fiscal expansion inflationary pressure but low interest rates
profiting from free riding
Stability and Growth Pact
Excessive Deficit Procedure and Stability and Growth Pact have 2 features: A general orientation to ensure a policy that
is sustainable over the longer term Public debt
A constraint on short-term actions – the excessive deficits – to ensure that the process is not derailed on the way
each MS needs to be far enough from the 3% deficit ration limit that the normal sorts of adverse economic shocks will not drive them over that limit
Otherwise – contradictory fiscal steps
First Crisis of SGP 2003 - France – received an early warning 2003 - Port, It, Germany – went through initial early warnings but
finance minister rejected the Commission’s recommendations to sanction them
Court 2004: condemned finance ministers for not fulfilling obligations but used technical reading to uphold the rights of the national governments to ignore these recommendations
Prodi: SGP is stupid March 2005 – modification of SGP rules:
“costs of the reunification of Europe” special consideration will also be given to "policies to foster R&D and
innovation", "financial contributions to fostering international solidarity" and the rather vague "achieving European policy goals".
Countries are now given 2 years to correct the situation, it can be extended in case of unpredictable circumstances + 1 year to initiate = 5 year total
3% can be broken (temporarily if the deficit is close to 3%) Result: loosening the policy, departure from rules-based system
Second SGP Crisis 2008-2009 – financial and economic crisis
countries exceed the limits 20 out of 27 !!
April 2009: FR, ES, GR, IE, UK June 2009 – HU, LV, LI, MA, PL, RO October 2009 – DE, IT, AU, BE, CZ, NL, PT, SL, SV
Commission: measures, which take into account situation in the
country longer adjustment periods Temporary postponement to allow for some state
intervention to prevent the crisis, ended in 2009 Greece: specific situation (but also ES, IT, IE, PT)
PIIGS group of MSs Currently: ideas of a European Monetary Fund
Lisbon Agenda Lisbon 2000 goal:
to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion by 2010 to achieve a growth rate of 3%
Current reform: plans to 2020 Green growth Science and research Information technologies Fight against exclusion
Lisbon Process – OMC Peer group review under EU institutions
surveillance, including Fixing the guidelines with timetable Establishing quantitative and qualitative
indicators Translating these European guidelines into
national and regional policies Periodic monitoring, evaluation and peer review
Current reform:
No binding targets Same old instruments without any possibility to
sanctions MSs Loose implementation
EMU
Monetary union
Maastricht criteria
B F PE L OP A LG N I K Ca I Ys N a G
F PS L OG A LP N I K Ca I Ys N a G
EMPLOYMENT POLICYCOORDINATION
as aFLANKING MEASURE
Summary of the economic integration
No internal barriers for each other’s goods
Common external tariff and policy
No internal barriers and factor mobility
Common currency
Common economic policy
FTA +CU + +CM + + +MU + + + +EU + + + + +
Stages of Economic Integration
Free Trade Area
Custom Union
Common Market
Economic and Monetary
Union
A sum of A sum of economic economic
andandpolitical factorspolitical factors
as drivers of as drivers of integrationintegration
Energy Production EU-25, EU-30 (mln toe)
2005 2020
EU 25 EU 30 EU 25 EU 30
Hard fuel 203.1 226.8 124.1 147
Oil 164.1 338.3 102 233.2
Natural gas
196.7 254 147.6 255.2
Nuclear 237.8 250.9 213.7 226.4
Renewables
97.2 130.2 151.5 191.4
TOTAL 898.9 1200.1 738.9 1053.2
Energy Consumption EU-25, EU-30 (mln toe)
2005 2020
EU 25 EU 30 EU 25 EU 30
Hard fuel 302,7 341,8 252,3 294,6
Oil 634,3 701,0 677,7 769,9
Natural gas
376,2 411,5 598,0 673,7
Nuclear 237,8 250,9 213,7 226,4
Renewables
97 130 151,5 191,4
TOTAL 1650,2 1834,9 1895,0 2155,5Net importer of oil, natural gas and coal
Major Oil Suppliers to the EU: 2007
Net import: 577,7 Mtoe Russia – 32,6% Norway – 14,8% Libya – 9,8 % Saudi Arabia – 6,9% Others:
Iran Kazakhstan Iraq Nigeria
Much more diversified compared to natural gas supply ++ flexibility of supply
Oil import intensity
Channels of Gas Transportation25,3% (2007) from Norway
38,7% (2007) from Russia
16% (2007) from Algeria
Today’s EU Energy Policy
Competitiveness
Environment Security of Supply
Internal market, competition, networks,
investments, research and innovation (including clean
coal and nuclear energy)
RES, energy efficiency, nuclear energy,
innovations, climate change and emission
trading
International dialogues, EU resource management, reprocessing and storage, protection against natural and man-made disasters,
including terrorism
Competitiveness: Liberalisation of the EU’s markets
1980s: Oil and coal – ok Nuclear energy – specificity in every country Natural gas and electricity – need additional measures
Natural gas and electricity: 3 waves of liberalisation 1990s 2003 2008
Driving ideas:•Create an internal EU energy market instead of national markets•Put energy consumer in the centre of all the relations•Enable competition among various energy companies, which should bring more efficiency and decrease prices
Competitiveness: Liberalisation of the EU’s markets
Liberalisation unbundling
Liberalisation vs. external energy dependence in natural gas
an effort to externalise it by imposing similar demands on Russian energy sector
Gazprom clause Reciprocity claims
Did not lead to price decrease monopolization of external supply was blamed
upstream
transportation downstream
Market-Making Liberalisation do away with regulation
distortion Leveling the regulatory playing field
Infrastructure? As of early 1990s Trans-European Networks (TEN) in
natural gas and electricity Why these sectors? Three levels of actions: isolated regions, EU MSs, EU
MSs and third countries Reforms: 1996, 2001-2003 – further liberalisation,
2007- further liberalisation + oil + enlargement + renewables
Competitiveness: Research and Innovation
New sources of energy (renewables) 20% by 2020, 10% for biofuel Absolute vs. relative increase
Nuclear energy Growing popularity
Clean use of coal Including technologies of CO2 capture
CO2 storage technologies
Innovative ways for energy transportation (LNG, flexible tariffs)
Environment Climate change
EU’s environmental leadership
Energy is one of the key contributors
Currently – EU-15 collective obligation to decrease by 8% by 2012
Emission trading within the EU
Future: 20% by 2020 (30% if there is a global agreement to further advance)
RES Absolute vs. relative
achievements Varying ways of stimulation
(feed-in tariff, direct support, green certificates)
20% by 2020 10% of biofuel by 2020
Energy efficiency Non-binding targets 20% by 2020
•Importance of research to support policies in energy •Important to involve third parties
- Global competitiveness of the EU- Export of new technologies
•Important to reduce EU’s external dependence
Security of Supply
Growing external dependence Oil – relatively flexible Natural gas – “over-dependence on Russia” in the situation when
natural gas is of key importance to fulfill climate-related obligations Russia’s assertiveness is on the rise
Ways to Deal with Energy Dependence
French vs. American models Match supply and demand VS. provide for stable legal
conditions and market opening Shift from the French to the American model creates s
window of opportunity for the EU Problem: EU does not have competences Member-states have the right
to determine their energy mix to ensure their energy security
EU can use soft instruments (monitoring, recommendations,
exchange of best practices) Can use the principle of parallelism (impose liberalisation
and other aspects of its legislation on its partners) Growing securitisation of energy supply increased role of
the EU’s institutions Lisbon Treaty: minor change
Ways to Deal with Energy Dependence
Ways to guarantee energy security: On the supply side:
RES, nuclear, clean use of coal, Dialogues with producing countries Support of specific legal regime Support for national companies national
champions On the demand side:
Energy efficiency Energy saving 1970s crisis – tremendous impact on Europe
How Did it Start Why Cooperation?
Transnational markets Free movement of people free
movement for criminal activities Growing immigration need to divide the
burden Transnational marriages, divorces,
adoptions Intensified cooperation need to
approximate civil legislation “Laboratories” of cooperation
Council of Europe 1949 – TREVI Group 1975 – Police cooperation 1984 – Schengen 1985, 1995
Defined thekey areas ofcooperation
Maastricht
III Pillar – JHA Asylum External border control Immigration and policy towards third country
nationals Fight against drug-addicts, inetrnational forgery Cooperation in civil and criminal law and in custom
affairs Intergovernmental!
No Court of Justice, EP limited Conventions but no way to guarantee national
ratification Many recommendations, not binding
Member-States and Citizens
Three European
Communities
Common Foreign and
Security Policy and Common Defence
Cooperationin the field of Justice and Home
Affairs
Common institutes
(EU institutions), divergent competences of the EC, member-states
and institutions and interrelations between them, procedures
European Union as of 1992
Member-States and Citizens
Three European
Communities
Common Foreign and
Security Policy and Common Defence
Cooperationin the field of Justice and Home
Affairs
Common institutes
(EU institutions), divergent competences of the EC, member-states
and institutions and interrelations between them, procedures
Amsterdam Increased efficiency and transparency!
Immigration and Cooperation in Civil Law
Schengen
Free movement of people effort to eliminate internal boundaries
BeNeLux – 1960 – first effort: No control inside Common visa policy
5 MSs decide to go further announce in Fontainebleau Schengen 1 (1985)
Schengen Convention – 1990 Essence: simplify and harmonise visa procedures Intergovernmental BUT should not contradict obligations
under the EC Schengen information system Gradual enlargement 26 March 1995 – entered into force for 7 MSs
Member-States and Citizens
Three European
Communities
Common Foreign and
Security Policy and Common Defence
Cooperationin the field of Justice and Home
Affairs
Common institutes
(EU institutions), divergent competences of the EC, member-states
and institutions and interrelations between them, procedures
Amsterdam Schengen Acquis
Specific Cases
UK: island mentality + fear to surrender its borders’ control
Ireland
Denmark
Iceland and Norway
Cyprus
Amsterdam
Also changed procedures in the third pillar Framework directives and decisions Conventions enter into force when approved
by ½ of the MSs Commission – right to propose legislation
Why did it succeeded? Growth of criminal activities Coming enlargement Flexibility of the British government
Problem: split between two pillars Lack of clarity Tampere Milestones
1999
Area of Freedom, Security and Justice
Freedom Free movement and basic rights Third country nationals Security Enhanced access to courts and
justice Mutual recognition Legal approximation Justice Crime prevention Еuropol Eurojust European Police College Common definitions
Scoreboard (1999-2004)
The Hague Plan (2004-2009)
Emphasis on immigration
Stockholm Agenda
More on internal security special strategy
A NEW INTEGRATIONI PROGECT??
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