Slide1: Chapter 1 History


Early Post War Period: Early Post War Period A Climate for Radical Change: Facts:


Slide3: Images A Climate for Radical Change:


Slide4: Images A Climate for Radical Change:


Slide5: Images A Climate for Radical Change:


Slide6: Images A Climate for Radical Change:


Slide7: Images A Climate for Radical Change:


The prime question in 1945: The prime question in 1945 “How can Europe avoid another war?” What caused the war? 3 answers Blame the loser (as after WWI) Blame capitalism Blame destructive nationalism These implied 3 post-war solutions ‘Neuter’ (rural) Germany, Morgenthau Plan 1944 Adopt communism Pursue European integration European integration ultimately prevailed, but this was far from clear in the late 1940s.


The origins of 3rd solution: The origins of 3rd solution “The natural effect of trade is to bring about peace. Two nations which trade together, render themselves reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and all unions are based upon mutual needs.” Montesquieu, 1758. “There will be no peace in Europe, if the states are reconstituted on a basis of national sovereignty, with all the prestige policies and economic protection involved”, Jean Monnet, 1943. Preamble to the Paris Treaty of 1951 establishing the ECSC: “resolved to substitute for age-old rivalries the merging of their essential interest; to create, by establishing an economic community, the basis for a broader and deeper community among peoples long divided by bloody conflicts.”


The War – Trade relationship: The War – Trade relationship Is it true that more trade lead to less wars? Very debated issue in Pol. Sci. Economists: trade increases the opportunity costs of conflicts RTAs offer a forum for resolving disputes BUT, decreases the opportunity costs of conflicts with 3rd countries. In the European (and other RTAs) case, the two first effects have largely dominated.


Military Conflicts in Europe: Military Conflicts in Europe


The Greece-Turkey case: The Greece-Turkey case


Determinants of wars: Determinants of wars


What next? Simulations for Turkey: What next? Simulations for Turkey


Emergence of a divided Europe: Emergence of a divided Europe Cold War begins on a clash between 2nd and 3rd solutions. USSR pushes communism in the East. UK, French and US zones merged by 1948 Moves towards creation of West German government. Berlin blockade, 1948. “Neuter Germany” solution abandoned for strong West Germany + European integration.


First Steps: First Steps First Steps: the OEEC and EPU OEEC and EPU set up in conjunction with Marshall Plan, 1948. OEEC coordinated aid distribution and prompted trade liberalisation, became OECD in 1961. EPU facilitated payments and fostered trade liberalisation. Note that it is the USA that insisted on a permanent centralized organization and internal trade liberalization.


Slide19: In first post-WWI years, EU nations were bankrupt, and trade often took the form of bilateral barter. EPU ended the need to have bilateral balanced trade + strong pressure to end quantitative restrictions. Intra-OEEC trade boomed + very rapid growth, which showed policy makers that trade and growth were not ennemies. Important trade surplus with USA which stabilized financial situation: possible to restore convertibility of currencies, and thus more private trade.


Need for deeper European integration: Need for deeper European integration As Cold War got more war-like, West Germany rearmament became necessary. 1949, Fed’l Rep. of Germany established. But strong and independent Germany was a scary thought to many, including many Germans. Wide-spread feeling: best to embed an economically and militarily strong W. Germany in European superstructure. Problem: OEEC was too loose to avoid future war among Western European powers.


Two strands of European integration: Two strands of European integration Federalism and intergovernmentalism Disagreement about depth of European integration / role of nation-states in wars. Federalism – supranational institutions (favoured by most hit nations) Intergovernmentalism – nations retain all sovereignty (favoured by relatively spared / neutral countries) Intergovernmental initiatives OEEC (1948), Council of Europe (1949), EFTA (1960) Federal initiative ECSC (1951), EEC (1958)


ECSC’s radical federalist move: ECSC’s radical federalist move Two industries were viewed as the key inputs for economic growth and military capacity. Schuman Plan proposed that France and Germany place their coal and steel under the control of a supranational « High Authority », ancester of today’s European Commission. Designed to make war between the two materially impossible. Other European nations invited to join: Belgium, Luxemburg, Netherlands and Italy did. Group of the 6 that will remain the core of integration in Europe.


The road to EC: The road to EC Encouraged by the ECSC, Monnet pushed for two even more ambitious plans: European Defence Community (EDC) European Political Community (EPC) French Parliament rejected EDC in 1954 (Gaullist opposition), EPC abandoned. The natural way forward was therefore to pursue economic integration.


The EEC: The EEC Foreign ministers of the Six started in 1955 a process that ended with the signing of the Treaty of Rome in March 1957 (implemented January 1958). Customs Union (removing all trade barriers + common external tariff, ahead of schedule), Free labour and capital mobility, Range of common policies implemented by a supranational European Commission, Several other supranational institutions, such as European Parliament and Court of Justice.


The EFTA: The EFTA Formation of EEC changed trade liberalization conditions in Europe: OEEC was non-discriminatory EEC would go much further, but discriminatory Other OEEC members, led by UK had fear of dealing with the new block on their own: 7 (out of 11) form their own block (EFTA) in 1960. Finland joined EFTA in 1961, Iceland in 1970 Greece and Turkey applied for associate EEC membership in the late 50’s Spain signed a preferential trade agreement with EEC in 1970 and EFTA in 1979.


1960-1973, two non-overlapping circles: 1960-1973, two non-overlapping circles E GR IRL FIN IS EFTA-7 EEC-6 West European Trade Arrangements in 1960s : The EFTA-7 and the EEC-6 form two non-overlapping circles. N S P CH A UK I D F B L NL DK


Two unequal circles: Two unequal circles In 1958, Intra-EEC trade was 30% of EEC total trade, this share went to 45% in 1968. Meanwhile, EFTA countries’ share in EEC countries’ trade remained flat. A UK exporter on the French market suffers a relative disadvantage compared to German exporter. Converse is true, BUT EEC >> EFTA, in 1972: ECC = 727 bn USD EFTA = 306 bn USD


Evolution to Two Concentric Circles: Evolution to Two Concentric Circles Preferential liberalisation in EEC and EFTA proceeded (EEC’s customs union and EFTA’s FTAs completed by 1968) Discriminatory effects emerge, leading to new political pressures for EFTAs to join EEC Trade diversion creates force for inclusion As EEC enlarges, force for inclusion strengthens When UK decides to apply for EEC (1961), 3 other EFTAns also change their minds. De Gaulle’s ‘non’ (twice)


Evolution to Two Concentric Circles: Evolution to Two Concentric Circles First enlargement, 1973 UK, Denmark, Ireland & Norway admitted (Norwegians say no in referendum) Enlargement of EEC reinforces ‘force for inclusion’ on remaining EFTAs Remaining EFTAs sign FTA agreements with EEC-9 Why weren’t the FTAs signed before? Domino-like affect of lowering barriers 1st within EEC6 → enlargement → EEC-EFTA FTAs


Two concentric circles: Two concentric circles


Euro-pessimism, 1975-1986: Euro-pessimism, 1975-1986 Political shocks: ‘Luxembourg Compromise’ (1966, after crisis of the empty chair) + enlargement leads to decision-making jam (more unanimity needed). Economic shocks: Bretton Woods falls apart, 1971-1973. Failed monetary integration schemes (except within DM bloc). 1973 and 1979 oil shocks with stagflation. Failure of deeper trade integration: TBT rose much faster than standards’ harmonization using “old approach” Growing cost of Common Agricultural Policy creates frictions over budget.


Bright spots : Bright spots Democracy in Spain, Portugal and Greece Greece joins in 1981 Spain and Portugal join in 1986 after long a difficult accession talks EMS set up in 1979 works well Budget Treaties 1979 Cassis de Dijon decision built on 1974 Dassonville ruling Challenged validity of national rules that introduce non-tariff barriers to trade. Mutual Recognition Principle introduced.


Deeper circles: single market programme : Deeper circles: single market programme Mutual recognition as threat to national regulatory control; race to bottom? How to put member gov’t back in charge? Delors launches completion of the internal market with Single European Act create "an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured". Important institutional changes, especially move to majority voting on Single Market issues. Mutual recognition is disciplined by minimum harmonisation More efficient decision making procedures allow agreement on min. standards “New Approach” Directives.


Single Market Programme, EC92: Single Market Programme, EC92 Basic elements Goods Trade Liberalisation Streamlining or elimination of border formalities, Harmonisation of VAT rates within wide bands Liberalisation of government procurement Harmonisation and mutual recognition of technical standards in production, packaging and marketing Factor Trade Liberalisation Removal of all capital controls (!!!), and deeper capital market integration Liberalisation of cross-border market-entry policies,


Domino effect, part II: Domino effect, part II Deeper integration in EC-12 strengthened the ‘force for inclusion’ in remaining EFTAns. End of Cold War loosened EFTAns’ resistance to EC membership. Result of ‘force for inclusion’ EEA – initiative to extend single market to EFTAs. Membership applications by all EFTAns except Iceland. Concentric circles, but both deeper.


Fourth enlargement: Fourth enlargement 1995, Austria, Finland, Norway and Sweden admitted (Norwegians again vote no). Cyprus Malta 1958 1973 1995 2004 1986 1981


Communism’s creeping failure and spectacular collapse : Communism’s creeping failure and spectacular collapse By the 1980s, Western European system clearly superior due to the creeping failure of planned economies. Up to 1980s, Soviets thwarted reform efforts (economic & military pressure). Changes in USSR due to inadequacy economic system. timid pro-market reforms (perestroika). openness (glasnost).


Velvet revolutions in CEECs : Velvet revolutions in CEECs June 1989 Polish labour movement ‘Solidarity’ forced free parliamentary elections & communists lost Moscow accepted new Polish government. Moscow’s hands-off approach to the Polish election triggered a chain of events. Reformist in Hungarian communist party pressed for democracy & Hungary opened its border with Austria, 1000s East Germans moved to West Germany via Hungary and Austria. Mass protests in East Germany; Wall falls 9th November 1989. End of 1989: democracy in Poland, Hungary, Czechoslovakia and East Germany (unification in 1990).


USSR collapses: USSR collapses 1990, Estonia, Latvia and Lithuania – declared their independence from the USSR. End of 1991, the Soviet Union itself breaks up. Cold War ends without a shot. Military division of Europe ended.


EU reacts: EU reacts The European Union reacted swiftly to this geopolitical earthquake by providing emergency aid and loans to the fledgling democracies. After initial hesitations, signing of ‘Europe Agreements’ with newly free nations in Central and Eastern Europe These are free trade agreements with promises of deeper integration and some aid


From Copenhagen to Copenhagen: From Copenhagen to Copenhagen EU says CEECs can join the EU (June 1993). Set out famous Copenhagen criteria for membership. stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and, protection of minorities, the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union. Copenhagen summit December 2002 says 10 CEECs can join in 2004. 5th enlargement in May 2004


German unification and Maastricht: German unification and Maastricht Pending 1990 unification of Germany opens door to a ‘grand bargain’ (Mitterrand, Kohl). Germany gives up DM for European Monetary Union & East Germany joins the EU without negotiation. Jacques Delors proposes 2nd radical increase in European economic integration. the formation of a monetary union. Idea championed by French President Francois Mitterrand and German Chancellor Helmut Kohl. Maastricht Treaty, signed 1992 a monetary union by 1999, single currency by 2002. Also, sets up EU’s ‘three pillar’ structure to reduce EU’s ‘competency creep;’ Extremely difficult ratification process: Short French Yes / Danish No then Yes / UK opt-out / German constitutionality challenge.


Preparing for Eastern Enlargement : Preparing for Eastern Enlargement Impending enlargement required EU to reform its institutions Four tries: Amsterdam Treaty, 1997 Nice treaty, 2000 draft Constitutional Treaty, 2003 Reconsidered by IGC 2003 Constitutional Treaty, June 2004.


Amsterdam Treaty: Amsterdam Treaty Failed to reform main institutions Tidied up of the Maastricht Treaty More social policy, Parliament powers modestly boosted, flexible integration, ‘closer cooperation introduced Amsterdam leftovers voting rules in the Council of Ministers, number of Commissioners, Extension of issue covered by majority voting


Nice Treaty: Nice Treaty Reforms of main institutions agreed, but poorly done Council voting rules highly complex and reduce EU’s ability to act with more members No important extension of majority voting Make shift solution for Commissioners No reform of decision making in ECB Generally viewed as a failure Main changes re-visited in draft Constitutional Treaty, 2003


Constitutional Treaty: Constitutional Treaty New procedure: Instead of having talks begin at the IGC… …“European Convention” designed to prepare the IGC More representation (national gvt + national and European parliaments + Commission representatives…) Dec. 15th 2001: Laeken Declaration Contains list of questions to be treated Focused on reforming Nice decision rules Term constitution introduced


Constitutional Treaty: Constitutional Treaty Improved decision-making rules for Council of Ministers and slightly more majority voting. Inclusion of Charter of Fundamental Rights. Other things where CT not strictly required: Many ‘gestures’ and tidying up. Moves towards more coherent foreign policy decision making. Many de facto points turned into de jure.


Constitutional Treaty’s Problems: Constitutional Treaty’s Problems First draft rejected by dec. 2003 IGC out of Spanish opposition to fall in voting power. Finally accepted in June 2004. France and Netherlands reject the Constitutional Treaty in referendums in Summer 2005. EU leaders suspend the ratification deadline. Next steps uncertain as of late 2006.