EU economic challenges/opportunities

Transcription

1 EU economic challenges/opportunities

2 Economic Integration Definition (negative, positive) Why is economic integration important? Stages of integration Free trade agreement Custom union Common market Economic and monetary union Political union

3 Effects of integration are said to include: Static effects: trade creation trade diversion Dynamic effects: specialisation, increased competition, economies of scale, technological progress, increased bargaining power at an international level, and more rapid growth.

4 The European Union before the Lisbon Treaty The Third Pillar Justice and Home Affairs, which became Police and Judicial Cooperation in Criminal Matters The First Pillar The European Community The Single Market The Common Agricultural Policy Economic and Monetary Union The Structural Funds The Common Commercial Policy Competition policy etc The Second Pillar The Common Foreign and Security Policy

5 Exclusive competence The Union has exclusive competence to make directives and conclude international agreements when provided for in a Union legislative act. the customs union the establishing of the competition rules necessary for the functioning of the internal market monetary policy for the Member States whose currency is the euro the conservation of marine biological resources under the common fisheries policy common commercial policy Shared competence Member States cannot exercise competence in areas where the Union has done so. the internal market social policy, for the aspects defined in this Treaty economic, social and territorial cohesion agriculture and fisheries, excluding the conservation of marine biological resources environment consumer protection Supporting competence The Union can carry out actions to support, coordinate or supplement Member States' actions. the protection and improvement of human health industry culture tourism education, youth, sport and vocational training civil protection (disaster prevention) administrative cooperation transport trans-european networks energy the area of freedom, security and justice common safety concerns in public health matters, for the aspects defined in this Treaty

6 Eight enlargements

7 Reuders The big enlargement: healing the division of Europe Fall of Berlin Wall end of Communism EU economic help begins: Phare programme Criteria set for a country to join the EU: democracy and rule of law functioning market economy ability to implement EU laws Formal negotiations on enlargement begin Copenhagen summit agrees enlargement 10 new EU members: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia Bulgaria and Romania join the EU Candidates Croatia, Former Yugoslav Republic of Macedonia, Turkey, Iceland

8 The acquis communautaire The acquis communautaire is literally what the Community has achieved. It consists of the body (sometimes called patrimony ) of EU legislation, practices, principles, and objectives accepted by the member states. The Treaties (the Treaties of Rome (1958), the Single European Act (1987), the Maastricht Treaty (1993), the Amsterdam Treaty (1999), the Treaty of Nice (2003) and Lisbon Treaty (2009) Legislation enacted at the EU level and judgements of the European Court of Justice; Foreign and Security Policy; Police and Justice Co-operation on Criminal Matters; and Treaties of the EU with third countries.

9 The treaties basis for democratic cooperation built on law 1952 The European Steel and Coal Community 1958 The treaties of Rome: The European Economic Community The European Atomic Energy Community (EURATOM) 2009 Treaty of Lisbon 1987 The European Single Act: the Single Market 2003 Treaty of Nice 1999 Treaty of Amsterdam 1993 Treaty of European Union Maastricht

10 Chapters of the acquis Criticisms?

11 Getty Images The single market: freedom of choice Since 1993: million new jobs 4 prices of phone calls and airfares halved Four freedoms of movement: 4 goods 4 services 4 people 4 capital

12 European Commission: the main non-tariff barriers to be eliminated were: frontier controls; differences in technical specifications and standards; restrictions on competition for public purchases; restrictions on providing certain services (in particular financial and transport services) in other EC countries; and differences in national tax systems.

13 Corbis Free to move Schengen : No police or customs checks at borders between most EU countries Controls strengthened at EU external borders More cooperation between police from different EU countries You can buy and bring back any goods for personal use when you travel between EU countries

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15 Labor mobility

16 Getty Images Going abroad to learn Over two million young people have studied or pursued personal development in other European countries with support from EU-programmes: Comenius: school education Erasmus: higher education Leonardo da Vinci: vocational training Grundtvig: adult education Youth in Action: voluntary work and non-formal education

17 The EU programs for lifelong learning: estimated figures for the period Area concerned Name of EU programme Aims School education Comenius 5 % of schoolchildren in the European Union will participate in joint educational activities. Higher education Erasmus Three million students will be able to study at universities abroad. Vocational training Leonardo da Vinci Every year people will be able to do traineeships in companies and training centres in another European country. Adult education Grundtvig people every year will be able to carry out educational activities abroad. European integration studies Jean Monnet Support for academic research and teaching in European integration.

18 Bologna Process European Higher Education Area: Named after Bologna Declaration signed in Bologna in June 1999 by ministers of higher education from 29 European countries; Today: 46 countries, part of the European Cultural Convention; It involves European Commission, Council of Europe and UNESCO-CEPES, as well as representatives of higher education institutions, students, staff, employers and quality assurance agencies.

19 Bologna Process Reforms: Easily readable and comparable degrees organised in a three-cycle structure (e.g. bachelor-master-doctorate); Quality assurance in accordance with the Standards and Guidelines for Quality Assurance in the European Higher Education Area (ESG); Fair recognition of foreign degrees and other higher education qualifications in accordance with the Council of Europe/UNESCO Recognition Convention.

20 How rich is the EU compared to the rest of the world? EU China Japan Russia United States EU China Japan Russia United States Size of economy: 2008 gross domestic product in billion of euros Wealth per person: 2008 gross domestic product per person

21 Luxembourg Ireland Netherlands Austria Sweden Denmark United Kingdom Germany Finland Belgium France Spain Italy EU-27 Cyprus Greece Slovenia Czech Republic Malta Portugal Slovakia Estonia Hungary Lithuania Poland Latvia Romania Bulgaria GDP per inhabitant: the spread of wealth 2008 GDP per inhabitant Index where the average of the 27 EU-countries is

22 EU budget Budget resources The traditional own resources, which are tariffs on imports from third countries and agricultural levies on products such as sugar;* A percentage of VAT, fixed at 0.5 per cent from 2004 The fourth resource. The fourth resource is based on the difference between VAT levies and the Gross National Income (GNI) of a member state and can be levied up to a maximum percentage of the GNI of the Community (1.27 per cent in 2006) if the budget financing from the other three resources proves inadequate. The concept of GNI replaced the concept of GNP in *minus a reimbursement to member states to cover the administrative costs of applying the levies.

23 Figure 11.5 Financing of the EU budget (2007) traditional own resources 14,9% VAT 15,4% GNI-based pay ments 68,6% Miscellaneous* 1% Source: Nello (2009)

24 How does the EU spend its money? 2010 EU budget: billion = 1.20% of gross national income The EU as a global player: including development aid 6% Citizens, freedom, security and justice 2% Other, administration 6% Natural resources: agriculture, environment 41% Sustainable growth: jobs, competitiveness, regional development 45%

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26 Factors influencing CAP reform Four developments influenced (and continue to influence) the pace and shape of CAP reform: the weight of agricultural spending in the Community budget enlargement GATT/WTO commitments the concern of the public for safer food and more environmentally favourable agriculture

27 Solidarity in practice: the EU cohesion policy : 347 billion euro invested for infrastructure, business, environment and training of workers for less well-off regions or citizens Regional fund Social fund Cohesion fund Convergence objective: regions with GDP per capita under 75% of the EU average. 81.5% of the funds are spent on this objective. Regional competitiveness and employment objective.

28 Europe s Economic Geography: Facts Europe highly centralised in terms of economic activity. western Germany, Benelux nations, N.E. France and S.E. England have 1/7 th land, but 1/3 rd of pop. & ½ GDP Periphery has lower standard of living More unemployment Especially among youth More poverty Centrality of EU25 Regions Periphery Intermediate Core Baldwin&Wyplosz The Economics of European 28

29 Geographic income inequality Very uneven income distribution, geographically 2002 income/pop by nation Luxembourg is 207% of EU average Bulgaria only 29% of EU average Lux. DK Ireland NL Austria Belgium German Sweden UK Finland Italy France Spain Cyprus Portugal Slovenia Greece Czechia Hungry Slovakia Poland Estonia Latvia Lithuania Romania Bulgaria EU26=100 Baldwin&Wyplosz The Economics of European 29

30 Geographic income inequality Income distribution even more uneven at regional level. Within nation economic activity is very unevenly distributed Index, EU-25 = 100 < >= 125 Canarias (E) Guadeloupe Martinique (F) (F) Guyane (F) AÁores (P) Madeira RÈunion (F) Income distribution has become: (P) More even in EU15 Less even within EU15 nations (by region) Kypros SIG16 GDP per head by region (PPS), 1998 Index, EUR-26 = 100 Baldwin&Wyplosz The Economics of European 30

31 The euro a single currency for Europeans Can be used everywhere in the euro area Coins: one side with national symbols, one side common Notes: no national side EU countries using the euro EU countries not using the euro

32 Maastricht Treaty model of EMU Monetary arrangement = full centralization of monetary policies represented by European Central Bank (established 1998) and the System of European Central Banks Fiscal arrangement = fiscal coordination, regulated by Stability and Growth Pact (adopted 1997 in Amsterdam, reformed in 2005)

33 Benefits of EMU Better condition for single market, integration of markets for goods, services and factors More transparent prices, prices in different countries directly comparable In situation of stable prices, interest rates and exchange rates, decrease of volatility in trade and investments, no exchange rate risk and uncertainty Lower transaction costs for citizens and businesses Euro as a world currency, saving on national reserves of foreign currencies

34 Costs of EMU No independent monetary policy; Ex: recession in Spain: high unemployment, falling output. If not part of EMU, what Spain could do? Size of the cost? Symmetry of shocks: Shocks tend to be more symmetric if national economies are more similar; Integrated factor markets. Fiscal federalism. Low costs and high benefits if economies are highly integrated: High level of trade in goods, flow of labour, integrated fiscal administration.

35 The EU a major trading power Share of world trade in goods (2007) Share of world trade in services (2007) EU 17% EU 28.5% Others 53.2% United States 14.5% Others 40.6% China 9.5% Japan 5.8% China 5.9% Japan 6.8% United States 18.2%

36 The EU is the biggest provider of development aid in the world The EU provides 60% of all development aid EU Japan United States Official development assistance per citizen, 2007

37 Financial and economic crisis Impacts and policy responses

38 Financial crisis Pre-crisis period: Economic growth, prosperity, globalization; Financial bubble burst: Collapse of US sub-prime mortgage market; Reversal of the housing boom in most developed countries; Weakness of global financial system. Results: Heavy losses for major financial institutions; Increased lenders risk; Constrained credit flows to businesses, consumers, banks; Reduced consumption and investment; Sharp contraction of world output and trade.

39 Banking and financial institutions support August 2007: German government bailed out IKB Deutsche Industriebank; BNP Paribas (France) suspended 3 investment funds; ECB: EUR 100 billion short-term financing to banks; September 2007: Northern Rock (UK mortgage provider) applied for emergency financial support to Bank of England; Nationalization of Northern Rock in February 2008; 2008: rescue banks in each MS: Germany: Hypo Real Estate; UK: nationalization of mortgage division of Bradford and Bingley, bail out Royal Bank of Scotland, Lloyds TSB, HBOS; Benelux: Fortis broken up; Iceland: Glitnir, Landsbanki and Kaupthing;

40 GDP and merchandise trade by region, Source: WTO, 2010

41 Country EU Latvia Lithuania Estonia Finland Slovenia Ireland Romania Hungary Sweden Italy Bulgaria Germany Great Brit Denmark Slovakia Czech Rep Netherlands Austria Spain Belgium France Greece Poland GDP growth in EU-27 and selected member countries (%) Source: Eurostat, IMF, OECD

42 The great trade collapse in historical perspective: Source: Baldwin, R. (2009)

43 Country EU Spain Latvia Estonia Lithuania Slovakia Ireland Hungary Portugal France Greece Sweden Finland Poland Belgium Italy Great Brit Germany Austria Netherlands Unemployment rate in selected EU-27 member countries Source: : Eurostat, OECD

44 Country EU Ireland Greece Great Brit Spain Portugal Latvia Lithuania Romania France Poland Slovakia Belgium Czech Rep Slovenia Italy Netherlands Hungary Austria Germany Denmark Finland Sweden Comparison: USA Japan Budget deficit of selected EU member countries (%GDP) Source: Eurostat, IMF, OECD

45 Country EU Eurozone Italy Greece Belgium Hungary France Portugal Germany Great Brit Austria Ireland Netherlands Latvia Slovenia Slovakia Czech Rep Lithuania Romania Bulgaria Estonia Comparison: USA Japan Public debt of selected EU member countries (%GDP) Source: Eurostat, IMF, OECD

46 Impact of the global crisis on direct capital inflows Target country 2007 USDbn 2008 USDbn 2009 USDbn Share 2008 Share 2009 World 2, , , EU France UK Germ Belg , Italy Nether (-0.4) 2.4 USA Canada Japan LDCs China Hong Kong Source: UNCTAD, 2010

47 Impact of the global crisis on direct capital outflows Capital exporting country 2007 USDbn 2008 USDbn 2009 USDbn Share 2008 Share 2009 World 2, , , EU-27 1, France German Italy UK Netherl Belgiu (-1.4) USA Canada Japan LDCs China Hong Kong Source: UNCTAD, 2010

48 Policy responses Banking support Macroeconomic policy: Monetary policy Fiscal policy Structural policies: Labour market policies; Business support and investment.

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50 Macroeconomic policies Monetary policy: Reduction of ECB benchmark policy rate at 1%; Liquidity enhancing measures; Unconventional policy measures to support financial markets: Purchase of euro-dominated bonds (EUR 60 billion) Fiscal policy: Fiscal stimulus packages; Balance of payments assistance (EU+IMF+World Bank): Hungary (EUR 6.5 billion); Latvia (EUR 3.1 billion); Romania (EUR 5 billion)

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53 Structural policies

54 Coordinated solution? December 2008: European Recovery Plan: budgetary stimulus ~ 1.5% of EU GDP; European Commission: EURO 200 billion: EURO 170 billion national rescue plans + EURO 15 billion EU budget + EURO 15 billion EIB; ECB: Base rate 1% + unconventional measures; Financial regulation: April 2009: credit rating agencies (CRAs); Revisions of Basel II accord; Financial supervision: De Larosier report: European Systemic Risk Council and European System of Financial Supervision. Rescue plan for Greece: ECB/EU + IMF: EURO 110 billion; Credits on a bilateral basis; Stability fund: EURO 750 billion: EURO 440 billion EMU + EURO 60 billion EU budget + EURO 250 billion IMF; Credits not provided on bilateral basis, but by the European Financial Stability Facility;