Current Economic Issues in EU Integration

The main impetus for the formation of a co-operative movement amongst countries in Western Europe, was the experience of the Second World War. Indeed, the need to avert further conflicts and consolidate peace is a goal that the process of European integration has certainly helped to achieve.’ The first initiative, drawn up by Jean Monnet, the head of the French Commission for Economic Planning, was to ensure that reconstruction in the heavy industries of (West) Germany should not endanger peace. The result was the European Coal and Steel Treaty (ECST) in 1951 which had three key objectives. First, to ensure integration through the removal of customs duties and quotas over a five-year transition period, modernisation and expansion of these industries through investment, the restriction of protectionist state aids and the provision of a common external commercial policy. Second, such detailed agreements were subservient to the political goal of achieving stability between France and Germany. Finally, the Treaty was instrumental in setting up supra-national institutions (e.g. the Council of Ministers, European Court of Justice) which would begin the process of closer co-operation between European partners.

The inception of the common market was catalysed by a nucleus of western European countries’ wishing to create a political and economic union following the resolution of the Second World War. From this ideology, the Common Agricultural Policy (CAP) was born, targeted at curing balance of payments and food shortage problems from the war effort and offering the benefits of further political integration. However, in laying these foundations, there was a failure to recognise potential improvements in supply responsiveness and efficiency in agriculture. Moreover, in seeking to cement the European Economic Community (EEC) by striking a deal in agriculture, farm ministers took the decision to set agricultural prices for cereals some 50 percent in excess of what was then a stable world price. As Hubbard and Ritson (1997) observe, ‘because most other agricultural products are related to cereals, either as competitive arable crops or as users of cereal based feeding stuffs, most other agricultural product prices had similarly to be set at relatively high levels’ (p. 81).

This chapter examines different aspects of EU Competition Policy and begins by analysing the economic debate and case for pro-competition policy setting this within the context of the Single European Market (SEM). The development of EU policy is outlined in relation to restrictive practices and monopolies, with particular emphasis on the recent development of stronger powers relating to mergers and state aids. Also, there is a case study focus on the undesirable impact of the block exemption of motor vehicle distribution and servicing agreement and its recent expiry which should result in more effective choice for consumers. It will be shown that a pro-competition policy is most efficient in relation to eradicating restrictive practices and that in the case of monopoly, mergers and state aids the balance of policy is also tilted against these practices.

Whilst industrial policy may be considered to include all aspects of governmental policy which affect microeconomic activity, this chapter is using the term specifically in relation to its positive aspects. This is partly because the more negative elements of creating conditions in which the private sector can flourish through the Single European Market (SEM) and competition policy have been covered already in the previous chapter. Whilst the European Union (EU) has generally favoured a free market philosophy, policy increasingly has incorporated elements of more positive intervention to deal with problems of both declining industries and high technology sectors. The changing agenda involves not just reactive but also proactive policies to deal with the pattem of industrial change from older industries towards sunrise industries and services. It is insufficient to rely on the different policies of member states alone and it is recognised increasingly that the EU needs to develop new approaches to deal with greater international competition in both downmarket and upmarket economic sectors.

The European Central Bank (ECB) is a creation of the Treaty on European Union (TEU), which designed it to be the most independent monetary authority in the world. The ECB’s architects sought to insulate it completely from political pressures, both at the national government and at the Economic and Monetary Union (EMU)-zone level. The position of the ECB under the TEU permits no clear accountability to national nor federal European institutions. It stipulates that the ECB Council’s deliberations remain confidential, whilst the only method of questioning the ECB’s policies is through periodic reports to the European Parliament.

Most academic social science literature either accepts that closer European Union (EU) integration is desirable, or more usually, given the political will of EU leaders that it is inevitable. Therefore economists, political scientists and sociologists frequently devote their research to the dynamics of Economic and Monetary Union (EMU), the political institutions fostering ‘ever closer union’ and the social implications of these momentous changes. However, whilst such detailed analyses generate important policy proposals, they tend by their weight to smother the crucial strategic issue: is EMU beneficial or not, for the EU as a whole? The purpose of this chapter is to analyse this issue. More specifically, it seeks to evaluate the criteria which have been advanced by different authorities to assess whether or not membership of the single currency would prove beneficial.

It will be argued in this chapter that a key current issue is the role not just of the EU in relation to the nation state, but also of the region in relation to both. It will be shown that the EU has become an independent actor of economic and political stature which has also provided an enhanced role for regions. The chapter begins by examining the reasons for the divide between the core and peripheral regions. It then looks at the case for an EU regional policy which is justified from competing perspectives of the integration process. The effects are discussed within the two analytical approaches of regional divergence and convergence. The main indicators referred to are those of GDP and unemployment. Emphasis is given to the operation of the Structural Funds (SFs) and the continued attempts to re-prioritise the different Objectives to achieve a policy of convergence. The economic effects of the SFs are emphasised and also the involvement of regions through different links and networks. The factors underlying this resurgence of the regions are explained particularly in terms of the growth of the SFs and the new institutional framework, such as the Committee of the Regions. The enlargement of the Union is covered, especially in terms of its growing membership involving poorer countries with more severe regional problems.

A significant transformation has taken place in Europe since the late 1980s when the EU was still emerging from its internal difficulties of eurosclerosis and the ‘iron curtain’ was firmly in place across the Continent. However, with the EU pursuing the single internal market programme and monetary union, together with the collapse of Communism both an economic and political transformation swept across Central and Eastern European countries (CEECs) which ultimately led to the clamour for EU membership. At the commencement of this process, Redmond (1994) forwarded three reasons regarding the transformation of the EU into the leading economic and political force within Europe. First, the EU’s position as the major player in Europe was firmly established following the resolution of the internal budgetary and agricultural disputes with non-EU countries having to re-evaluate their relationship to ensure market access such that the costs of non-membership were raised to unacceptable levels. Hence, the long-term option to resolve this dilemma became the seeking of EU membership as it appeared the only viable ‘club’ in Europe with the European Free Trade Association (EFTA) reduced to a rump of Iceland, Liechtenstein, Norway and Switzerland.

The EU was designed by the founding members to accommodate their perceived commonly shared objectives, whilst further measures of integration, including the abolition of exchange controls, the design of the single market, and the forfeiture of economic sovereignty through entering EMU, may be rational consequences for those EU nations which are locked closely through trade, but could be viewed debateable for the UK which conducts a large proportion of its trade outside the EU and possesses closer cultural ties with the USA and Commonwealth countries. However, the question that demands an answer is ‘What is the alternative?’ Given that the political and economic elite in most EU countries have consistently supported further integration, alternatives have rarely been discussed. In the countries which allowed referendums over the Treaty on European Union (TEU) and in the new 2004 EU entrants, almost without exception all major political parties, business and trade union leaders joined together in an alliance to persuade voters to back the integrationist project. However, public opinion and polls often appear to be questioning of EU political and economic integration, but the UK seems to be anxious of the consequences of lessening its membership.

Since the Second World War, the UK has benefited greatly from transAtlantic economic relations, although this has come at a price. For example, prior to the 2003 Iraqi conflict, the UK found itself embroiled in eleventh hour arbitrage to foster diplomatic reconciliations between the USA and the remaining members of the United Nations (UN) Security Council (including France and Germany).’ The failure of these negotiations and ensuing ‘unilateral’ action spearheaded by US and UK forces further entrenched political division across the Atlantic, whilst damaging Prime Minister Blair’s efforts to present himself as pro-European.