European societies – L2
1 The European project as an economic project:
fundamental flaws?
Our guiding question: is there a fundamental design error in the EU?
• We have free movement of people, goods, services, capital, ardently
guarded by the European Commission & European Court of Justice
o You can work in Italy and invest in Germany, …
o There are no barriers
• Euro countries have common currency, and common interest rates
• BUT still *very* diverse fiscal & social systems, labour market regulation
and wage setting, on top of immense variation in economic and social
circumstances
o Still a lot of differences country by country
• And no structural solidarity mechanisms to match, low redistribution
o If something happens in a country, it’s still up to that country to
solve the problems
o No one else comes to rescue
How long can we maintain this fundamental tension?
EU emerged as “peace through economic cooperation” project
• 1952: European Coal and Steel Community
• 1957: The European Economic Community
• 1979: European Monetary System
• 1987: the Single European Act (SEA): Single Market
• 1997 Stability and Growth Pact
• 1999: Introduction of the Euro
• 2004: Enlargement
Single European Market
• The European Single Market, Internal Market or Common Market is a single
market
o Which seeks to guarantee the free movement of goods, capital,
services, and labour– the ‘four freedoms’
o Within the European Union (EU)
• Half the trade in goods within the EU is covered by legislation harmonised
by the EU.
o EU makes trading agreements
• It also has an increasing international element, with the Single Market
represented as one in international trade negotiations.
SLIDE 7
- It is bigger than the US
- 50 thousand billion market/business
1
, European societies – L2
Potential benefits of a single European market
Benefits of comparative advantage and specialization
• If growing international division of labour follows logic of comparative
advantage, then every country wins (Hechser-Ohlin theorem)
• According to the principle of comparative advantage, the gains from trade
follow from allowing an economy to specialize in products or services in
which it does better than other countries, and usually at a lower cost
• Countries will specialize in services and products where they are good at
Tongue in cheek illustration of comparative advantage in national
stereotypes
A little joke
Heaven in Europe is where
• the English are the policemen
• the French are the cooks
• the German are the mechanics
• the Italians are the lovers
• and the Swiss organize everything
Hell in Europe is where
• the German are the policemen
• the English are the cooks
• the French are the mechanics
• the Swiss are the lovers
• and the Italians organize everything
1.1 Potential benefits of a single European market
Fenne samenvatting p.2
• Economies of scale bring lower production costs and thus lower prices
• Increased competition bring more stimulus to innovate and cut costs,
leading to lower consumer prices and higher quality products
• Larger markets increase pay-off to investments, especially for niche
players
• Common production standards, which reduces information failure allowing
consumers to make more rational choices
o DIA 11 – 16 examples
o Bv. auto’s vroeger moesten in elk Europees land aan verschillende
standaarden voldoen geen competitie mogelijk tussen de
verschillende landen
• Technology transfer as a result of increased investment flows between
members.
• Transfer of skills across the single market.
2
1 The European project as an economic project:
fundamental flaws?
Our guiding question: is there a fundamental design error in the EU?
• We have free movement of people, goods, services, capital, ardently
guarded by the European Commission & European Court of Justice
o You can work in Italy and invest in Germany, …
o There are no barriers
• Euro countries have common currency, and common interest rates
• BUT still *very* diverse fiscal & social systems, labour market regulation
and wage setting, on top of immense variation in economic and social
circumstances
o Still a lot of differences country by country
• And no structural solidarity mechanisms to match, low redistribution
o If something happens in a country, it’s still up to that country to
solve the problems
o No one else comes to rescue
How long can we maintain this fundamental tension?
EU emerged as “peace through economic cooperation” project
• 1952: European Coal and Steel Community
• 1957: The European Economic Community
• 1979: European Monetary System
• 1987: the Single European Act (SEA): Single Market
• 1997 Stability and Growth Pact
• 1999: Introduction of the Euro
• 2004: Enlargement
Single European Market
• The European Single Market, Internal Market or Common Market is a single
market
o Which seeks to guarantee the free movement of goods, capital,
services, and labour– the ‘four freedoms’
o Within the European Union (EU)
• Half the trade in goods within the EU is covered by legislation harmonised
by the EU.
o EU makes trading agreements
• It also has an increasing international element, with the Single Market
represented as one in international trade negotiations.
SLIDE 7
- It is bigger than the US
- 50 thousand billion market/business
1
, European societies – L2
Potential benefits of a single European market
Benefits of comparative advantage and specialization
• If growing international division of labour follows logic of comparative
advantage, then every country wins (Hechser-Ohlin theorem)
• According to the principle of comparative advantage, the gains from trade
follow from allowing an economy to specialize in products or services in
which it does better than other countries, and usually at a lower cost
• Countries will specialize in services and products where they are good at
Tongue in cheek illustration of comparative advantage in national
stereotypes
A little joke
Heaven in Europe is where
• the English are the policemen
• the French are the cooks
• the German are the mechanics
• the Italians are the lovers
• and the Swiss organize everything
Hell in Europe is where
• the German are the policemen
• the English are the cooks
• the French are the mechanics
• the Swiss are the lovers
• and the Italians organize everything
1.1 Potential benefits of a single European market
Fenne samenvatting p.2
• Economies of scale bring lower production costs and thus lower prices
• Increased competition bring more stimulus to innovate and cut costs,
leading to lower consumer prices and higher quality products
• Larger markets increase pay-off to investments, especially for niche
players
• Common production standards, which reduces information failure allowing
consumers to make more rational choices
o DIA 11 – 16 examples
o Bv. auto’s vroeger moesten in elk Europees land aan verschillende
standaarden voldoen geen competitie mogelijk tussen de
verschillende landen
• Technology transfer as a result of increased investment flows between
members.
• Transfer of skills across the single market.
2
