European Integration, Deepening and Widening Economic Analysis

The European Union can be said to be 52 years old, or 47 or 12. The seminal Paris treaty of 1951 establishing the European Coal and Steel Community has already expired in 2002 but is meanwhile incorporated into the EC treaty. The Rome treaty of 1957 is still alive and kicking after no less than four revisions. Legally, the EU was founded in Maastricht in 1991 and encompasses the other treaties. Soon , all this might be overtaken by what is called a “constitution”. In a nutshell this illustrates the seemingly incessant, inner dynamics of European integration. The EU has been deepening its integration in a regular though somewhat cyclical fashion. It has widened the scope of powers in the economic arena and beyond. And it has enlarged its membership already five times, not counting the inclusion of East Germany. Next year May the Union will count 25 members and three official candidates will remain deeply involved in so-called pre-accession reforms. Another group of countries is waiting in the wings and the first one – Croatia - has already officially applied for EU membership. However, the economic influence of the EU spreads beyond the club. Norway and Switzerland are de facto members of the internal market, with some firm exceptions, and even collaborate with the Schengen system of persons controls over frontiers. The MED agreements have begun to spread regulatory and competition elements to the southern neighbours. The Commission has just proposed a new , ambitious “near neighbours “ policy as a corollary of enlargement which might well have wide-ranging implications for countries such as Russia, Ukraine and Georgia. In a conference of eminent specialists on Global Economic Analysis it would seem to be appropriate to pause and reflect a little on this curious and ever changing creature called the European Union. I shall assume a broad economic perspective and raise a number of , what are in my view, critical analytical questions for further research on European integration. This approach does not mean to disregard a well-known premise that focus and well-formulated research questions are necessary conditions for good analysis and verifiable results. Indeed, the economic library of specific studies on all kinds of aspects of the EU has meanwhile reached an enormous size. Nonetheless, a collection of many too-partial approaches might not necessarily add up to a better understanding of the whole and the underlying processes. Already in 1970 Charles Pentland, trying to understand European integration as a political scientist, likened it to an elephant touched by many blindfolded analysts who each described the small part they scanned by hand. Perhaps there may be some benefit in getting a generalist to go beyond “pars-pro-toto” and attempt to think about a wider picture. I shall venture to do this today, with all the caveats you might imagine. I shall very briefly touch upon what is probably the starting point for you as applied trade analysts, the EU as a customs union with a centralized trade policy, only to switch quickly to the internal market. Yet, the internal market is so vast a subject area that there seems to be no practical way to address it in a single step , not even in the inevitably superficial and selective treatment for a speech. So, in section 2 there is a reminder of the stimulus the single market initiative has given to more advanced empirical analysis and a selection of wishes which are not yet fulfilled. Section 3 inspects a little closer the main ‘business’ of the Union today which is regulation, of course always in combination with liberalisation. The EU is essentially a regulator, only the CAP and ‘cohesion’ is about money. This implies that it is crucial for the EU to get it right in terms of liberalisation and regulation. Unfortunately, economists have done preciously little empirical analysis about this core ‘business’ of the Union. I hope to provide indications that the design of today’s EU regulatory regime helps to keep the costs in check and that further initiatives in this respect ought to be encouraged, including firm analytical economic underpinning. Section 4 addresses the macro-economic design of the Union, that is EMU and Euroland. This design combines federal and pre-federal properties and the queries are whether it is stable and whether or not it is costly and for whom. The final section will look at constitutional issues, in particular the economics of subsidiarity and a few institutional issues.