On January 1, 1995, the European Union (EU) opened a new chapter in its history. Austria, Sweden and Finland joined the EU. The initial European Economic Community, which started in the 50's with only six member countries, is now composed of 15 states as of 2003..
EU 25 has a population of 456 million people and its territory stretches from Crete to the arctic circle. GDP of EU is about 10 trillion euro and is slightly less than that of the US. Eventually, the EU could grow to include some Islamic countries such as Turkey.
The drive for a common market and economic union faltered badly in the 1970s and the first half of 1980s because of two oil crises. High unemployment caused member countries to institute policies that would prevent or postpone further progress toward economic integration. By May 2004, EU will be enlarged to include 10 central and eastern european countries.
Tamzine, the smallest boat used in Dunkirk evacuation in June 1940. |
 Montgomery's Tank |
 Sherman Tank |
 Russian Tank |
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Graffiti left by Soviet soldiers after they destroyed Berlin. These stones are now used by Reichstag, which houses the German parliament. (Undoubtedly, a gesture to indicate that Germany has no more territorial ambition, necessary for unification of East and West Germany.) |
 On August 2, 1945, President Truman explained to Josef Stalin that the US had two atomic bombs, but Stalin did not believe him. On that day, President Truman ordered the bombing of Hiroshima at this Cecilienhof Palace. Despite the opposition of young officers, a few days later the Japanese emperor announces the defeat and saves countless lives on both sides that would have been lost had the invasion of Japan taken place.. |
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OECD - Organization for Economic Cooperation and Development
To learn more about it, click OECD
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, U.K., U.S.
= DCs = West = North
Economic integration cannot occur unless transportation and communication systems are well developed. In the East, the Chinese established the Han Empire 2 centuries before Christ (206 BC). In the West, King Philip II started from Macedonia and began to conquer the neighboring city states, uniting Greece in 358 BC . Alexander the Great finished the work, conquering most states in the Mediterranean world before his death in 323 BC. However, because of his premature death, actual integration of the Meditrannean world had to wait until the Romans reconquered the Mediterranean world. The Romans built roads and knew how to govern the people, but the Europeans spoke Greek throughout the Roman Empire.
King Philips' tomb in Vergina, near Thessaloniki, Greece. The second most important archaeological discovery during the 20th century.
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Statue of King Philip II, Hellenic Ministry of Culture This photo does not really do justice to the real statue. You really have to see it to appreciate its grace. National Geographic also has a great picture of this statue. |
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Gold larnax (sepulchral chest) from the tomb of Philip II at Vergina. (350-336 BC) |
 37: Philip II 38: Ptolemy II. Remember that after the death of Alexander the Great, his empire was divided by four generals, and Ptolemy took Egypt. This gold coin shows a Greek woman, in all likelhood, a descendant of Ptolemy (the General), rather than an Egyptian woman. |
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 Counterfeit monies were made even during the times of Philip II. |
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Alexander's coin in Egypt. |
Hitler's idea of integration
Frank Haushofer (1869 - 1946) advances the theory of geopolitics, "Lebensraum," (living space) that a race has the right conquer neighboring regions. His student Rudolf Hess introduces him to Adolf Hitler while he was serving in Landsberg prison. Haushofer later becomes Hitler's adviser. Haushofer goes to Japan and learns about a secret society of warriors called Black Dragon, and creates a secret, copycat society "Thule Society," which uses swastica and later creates German Workers Party. Hitler joins it and later changes its name to "National Socialist German Workers Party (NSDAP), known later as the Nazi party. Kindergarteners are taught to sing "Adolf Hitler ist unser Retter, unser Held. Er ist das ...(?) in der ganzen, ganzen Welt. Für Füher leben wir, und für Füher sterben wir" (Adolf Hitler is our Savior, our hero. He is the most excellent being in the whole wide world. For Hitler we live, and For Hitler we die. Source: Why We Fight.)
Some historians say Hausehofer might have edited Hitler's Mein Kampf heavily. Haushofer introduces the idea of axis, and persuades Hitler to form the axis with Japan. Hitler quietly observes that Japan swallows Manchuria in 1931 without a burp. Hitler gets the idea: Conquer the neighboring region, and use its capital and labor to conquer other neighbors. Hitler succeds in invading Chechoslovakia, Poland, Denmark, Norway, Holland, Belgium and France, but his effort to conquer England botches up. So Hitler turns its attention to the East and invades Russia. Hitler suicides in April 1945. Haushofer also commits suicide in 1946.
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Portrait of Mussolini, a man who tried to revive the Roman Empire in the 20th century. |
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Japanese propaganda flyer during WWII. |
e.g. British Commonwealth established tariff preference scheme in 1932.
First Stage: FTA (Free Trade Area): is a group of countries without any trade restrictions within the area, but each member country retains its own tariff and quota system on trade with third countries (EFTA).
Industrial FTA: EFTA (exclude agriculture)
Full FTA
Second Stage: CU (Customs Union): is created when a group of countries removes all restrictions on mutual trade and also adopt a common system of tariffs and quotas with respect to trade with third countries (EEC became one in 1968).
Third Stage: Common Market: A CU becomes a common market with the removal of all restrictions on the movement of factors. (EEC became a common market in 1992).
3' Monetary Union: harmonize monetary and fiscal policy, exchange rate policy.
Fourth Stage: Economic Union: supernational authorities coordinate economic policies. It requires a single monetary system, a central bank, a unified fiscal system, and a common economic policy. e.g., US, Belgium + Luxembourg, 1921.
Remark: At any point in these stages, an FTA or a CU could expand its membership. It remains to be seen if two FTAs or CUs will form one large group. If the current continues, the world will consist of several large FTAs or CUs. Given enough time, however, they will further integrate to form large FTAs or CUs, until they form one world FTA.
FTA →CU: inevitable (otherwise, nonmembers take advantage of differing tarffs among member countries)
CU →Common Market (slow. Common heritage, language and culture will expedite this process. FPE also facilitates the formation of a common market)
CM → Economic Union (relatively easy, because of economic gains from a single currency)
Figure 1. Stages of economic integration
Free Trade and One World.
Click the globe to see the transformation of the world from autarky to global free trade.
US government consists of three branches: legistilative, executive and judicial branches. In principle, they share equal power and provide checks and balance. In contrast, EU has four branches. The legislative and executive powers are split among three branches of EU, excluding the European Court. As more members join, institutions of EC will inevitably evolve. We learned democracy from the Greeks, who invented it around 500 BC, but Amerian women gained voting right only 1920.. Governing institutions were modeled after the Roman model, although Roman's Republic was replaced by an empire subsequently.
Number of members = 20 (This may have increased to 30 or less in 2004 due to accession of 10 central and easter Europen countries.)
Rule (2000): Each nation should have a commissioner until the 27th member joins, in which case the numer of commissionsers will be less than that of member states.
F, G, I, Sp, UK = 2
others = 1
terms = 5 years
its staff = 15,000
Must be independent of their national governments.
must reach all of the citizens of the union in their own languages. 1/5 of the work is in the translation and interpretation services.
The Commission's Role initiates proposals for legislation--3 objectives European interest = what is best for the Union as a whole, rather than for individual sectors or countries.
Consultation = consult as widely as is necessary
Subsidiarity = the Union takes action only if it becomes more effective than if left to individual member states.
Guardian of the Treaty of Rome
insure that Union legislation is correctly applied by member states.
The commission can fine individuals, firms, and organizations for infringing the Treaty law. One group of firms was fined ECU 248 million.
Manager and Negotiator of Union policies
manages EC's finances and budgets (ECU 80 billion)
negotiate trade and cooperation agreements with other countries or group of countries.
2. Council of Ministers Each minister represents his/her own national government. In this sense,
United Nations, as currently organized, is like EU's council of ministers.
(In the future, if it is to be properly run, United Nations should be supported
by World Court and World Parliament. Without these two organizations, there
are no checks and balance in the Untied Nations, which was established as
the political complement to GATT and IMF after WWII.) Presidency:
from July 1, 1995, rotates every six months in a sequence (not alphabetically).
arrange and preside over all meetings.
Council has the legislative power
Council makes final decisions, but can do so only on proposals made by Commission.
Decisions are made by unanimous vote for some, and others by a qualified
majority vote rule.
Pillar One covers a wide range of Community policies (such
as agriculture, transport, environment, energy, R&D) which begin with a Commission
proposal.
Messy voting: 62 votes must be cast in favor to pass a proposal, subject
to other rules. This is called a qualified majority voting. In recent years,
some decisions are decided by a simple majority. Again, the voting procedure
was probably revised in 2004.
Pillar Two - Common Foreign and Security Policy: unanimity
Pillar Three - Justice and Home Affairs: unanimity
Meeting places = meeting alternates in three cities (Strassbourg, Luxembourg,
Brussels)
Legislative Power
Originally, the Treaty of Rome of 1957 gave the Parliament only a consulting
role. But its role has gradually expanded. consultation procedure: requires
an opinion from the Parliament before a proposal can be adopted.
cooperation procedure: allows Parliament to
improve a proposed legislation by amendment.
co-decision procedure: shares decision making
power equally between the Parliament and the Council.
Budgetary Power
The European Parliament approvess the Union's budget each year. It sometimes
rejects a budget, when its wishes are not adequately respected. It also monitors
spending.
draws members from individual countries.
Parliament has the right to remove the Commission, (which requires 2/3 majority).
The judges elect the President of the Court (3 years).
Court of Justice worked alone until 1988, now focuses on the task of interpreting
Community law.
preliminary rulings by courts in the member states. Court of Justice is
not a court of appeal. National courts decide the case while observing the
principles of Community law.
After the hearing, the advocate general delivers an independent opinion
in open court. But it is not binding, and is not always followed by the Court.
The judges arrive at their view in closed discussion, and then delivers
their judgment in open court.
The Court has the sole power to decide whether the actions of the Commissions
and Council are constitutional. The court's judgments are binding throughout
the community, including all individuals, business firms, national governments
and other Community institutions.
For more information, see Europa document on Institutions
of the European Union.This page provides direct links to various institutions
of the European Union.
(1) Free Trade in Industrial Products: there are no longer tariffs or quotas
on trade of industrial goods. Still there are some NTBs such as state monopolies,
different tax systems, different customs classifications.
(2) Free Trade in Agricultural Products: Each country came into EEC with
its own domestic farm program. The Rome Treaty does not spell out Common Agricultural
Policy. By 1964 they adopted Common Grain Policy (at least for grains).
The EC is still the largest importer of farm products in the world and the
US is the largest exporter. US agricultural policy is aimed at opening up
foreign markets except in dairy products. The single most important element
of Europe's trade policy, from America's viewpoint, is the Common Agricultural
Policy (CAP). It is a price stabilization policy for agricultural commodity
markets. Price stabilization program was adopted in the United States when
the Commodity Credit Corporation was established in 1933.
Genesis 41:28-29 describes two common dreams of Joseph
and Pharaoh. Joseph advises the Pharaoh to adopt a price stabilization
program: Store grains when the harvest is plenty and price is low and
sell them during famine. This Joseph was "Father to Pharaoh"
(Genesis 45:8), meaning one of his daughters may have married the Phraoh,
but his name is not mentioned in Genesis. Joseph may have served under
Senusret I (1917 - 1872 BC) and there was a famine during this period.
A nomarch (governor) named Amenemhat had a tomb depicting migrant Jews
to Egypt. Alternatively, Joseph may have served under Amenemhet III
(1841 - 1797). During his regin there was a famine in Egypt lasing nine
long years. Ptahwer (Potiphar?) even left records of conquering the
Sinai during his reign. (Immanuel Velikovsky) Also, a large dam and
a lake were constructed and the canal was called Bar Yusuf (Joseph's). In China, Emperor Wudi (141 - 87 BC) had state monopolies of minting,
salt, iron and liquor. In addition, he also adopted price stabilization
policy, buying and storing grains when prices were low and selling them
when high.
Europe's CAP in EC is best illustrated in the following diagram.
Target Price = base price for grains to be established annually to protect
European farmers.
(Intervention Price = the price at which the Community will buy from domestic
producers.)
Threshold price = target price less transportation and marketing costs of
imported grains.
Variable Import Levy = Threshold price - world price.
These programs produce huge surpluses such as "milk lakes" and "butter mountains"
costing $14 Billion a year.
Figure 2.
originally signed in 1985 "Schengenland" is an area of free circulation of citizens of
seven Member States signatories to the Schengen Agreement: Belgium, the
Netherlands, Luxembourg, France, Germany, Portugal and Spain. No need to
show passports. (France still continues temporary passport control) Read more about Shengen
Agreement. The Green Paper contains three important messages (a discussion document) Europe now has a single currency (Euro Because of a single market, all disruptions to trade and investment by
exchange rate adjustments are eliminated. A change in foreign market signal
will be directly transmitted to each member country, necessitating adjustments
in real variables (such as unemployment and output). A member country
no longer retains the ability to neutralize external disturbances.
Allow sufficient time to win acceptance Be flexible to allow different speeds of adjustment
Decision Making
based on three pillars
Countries
votes
G, F, I, UK, Spain
10
Austria, Sweden
5
Ireland, Denmark, Finland
3
Luxembourg
2
Total
87
Community Legislation
Community law may take the following forms:
3. European Parliament
Members = 626 elected every 5 years. Germany = 99, .... Luxembourg = 6.
4. Court of Justice
Court of Justice
15 judges and 9 advocates general appointed by member states (years). They are
independent of member states.
Court of First Instance (with 15 judges)
Its work is limited to the competition rules and to hearing cases brought by
Community officials. It also has its President. Procedure direct
actions are brought by the Commission, other Community institutions or by a
member state. Cases brought by individuals or companies challenging the legality
of a Community act are taken to the Court of First Instance.
IV. Customs Union Stage
EC became a full customs union in 1968, when tariffs and quotas were all removed
on trade among its original member countries, and a common tariff system was
adopted vis-a-vis non member countries.
Amenemhet
III
V. Common Market Stage
Although the EC has been successful in eliminating tariffs and other barriers
to trade among its members, a number of restrictions have remained. The Community
intended to remove many of these restrictions by 1992, but did not succeed.
The barriers to be removed include:
Schengen Treaty
fully implemented since July 1, 1995
Single Currency
).
| Timetable |
This page is copied from Europa (with permission)
| Timing | Actions | Responsibility | ||
|---|---|---|---|---|
| By 30 June 1997 |  |
legislation establishes the euro as a currency | |
Commission proposal for adoption by the Council |
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stability and growth pact | |
Commission proposal for adoption by the Council | |
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Exchange Rate Mechanism Mk II. | |
European Monetary Institute (EMI) proposal for adoption by European Council | |
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blueprint on future monetary policy instruments | |
EMI | |
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design of euro coins | |
Commission proposal for adoption by European Council | |
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| Spring 1998 | |
Decision on participating Member States | |
European Council [1] |
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decision adopted on the existence, or not, of an excessive public deficit in each of the Member States (Art. 104.C.12) and a recommendation adopted identifying those that have fulfilled the conditions for adopting the euro. | |
Economic and Finance Ministers Council (ECOFIN) | |
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Extraordinary session of the European Parliament on the ECOFIN recommendation. | |
European Parliament | |
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Decision on which Member States will participate in the euro from the
start.
Adoption of all the remaining practical steps for introducing the euro. |
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Heads of State and Government | |
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bilateral rates between participating currencies announced; President and Executive Board of the European Central Bank (ECB) recommended. Nominated in late May by Heads of State and Government after consultations with Parliament and EMI. | |||
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legal texts adopted; establishing the euro as the single currency for participating Member States (Regulation 109.L.4); for the coins' technical specifications and for ECB legislation foreseen in Art.106.6. | |
Economic and Finance Ministers Council (ECOFIN) | |
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| During 1998 | |
European Central Bank created and its executive board appointed | |
Council (Member States participating in EMU only) |
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start production of euro banknotes and coins | |
Council and Member States | |
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adoption of necessary secondary legislation | |
Commission proposes, Council decides | |
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| January 1, 1999 | |
conversion rates are irrevocably fixed and various legislations come into force, notably on the legal status of the euro | ||
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definition and execution of the single monetary policy in euro | |
European System of Central Banks (ESCB) | |
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foreign exchange operations start in euro | |
European System of Central Banks (ESCB) | |
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new public debt issued in euro | |
Member States, European Investment Bank, Commission | |
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| January 1, 1999 to January 1, 2002 | |
changeover to the euro by the banking and finance industry | ||
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assist the whole economy in an orderly changeover | |
Commission and Member States | |
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| January 1, 2002 | |
start circulation of euro banknotes | |
European System of Central Banks (ESCB) |
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start circulation of euro coins | |
Member States | |
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complete changeover to the euro in public administration | |
Member States | |
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| July 1, 2002 | |
cancel the legal tender status of national banknotes and coins | |
Member States, European System of Central Banks (ESCB) |
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[1] on a recommendation from the Council of Ministers on the basis of reports and recommendations from the Commissionand the EMI
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There are other denominations: 20, 50, and 200.
EFTA members signed an agreement with the EU in 1992 to create European Economic Area. EEA guarantees four freedoms of traffic of the EU (of products, services, persons and capital). The European Economic Area include 19 countries and 380 million people.
Switzerland rejected the EEA.
Barcelona Conference (Nov 27-28, 1995)
to promote peace and stability, and to establish a Euro-Mediterranean Partnership between 15 Member States of the European Union and 12 Mediterranean countries. The Med 12 are:
Algeria, Morocco, Tunisia, Egypt, Israel, Jordan, Lebanon, Palestinian autonomous territories, Syria, Turkey, Cyprus, and Malta. (The last three will join EU in May 2004)
(i) achieve the status Eastern and Central Europe now enjoys with Europe. (ii) establish an FTA by 2010 + Central and Eastern Europe.
Asia Europe Meeting (ASEM)
ASEM = cooperation to bring together the 15 EU Member States + 10 Asian nations (Brunei, China, Indonesia, Japan, South Korea, Malaysia, the Phillipines, Singapore, Thailand, and Vietnam) created in 1996 (Bangkok).
1st meeting = Bangkok, 1996,
2nd meeting = London, 1998
3rd meeting = Seoul, 2000
4th meeting = Kopenhagen, 2002
ASEM Foreign Miniters, ASEM Finance Ministers, ASEM Economic Ministers.
3 main pillars:
Political field: discussions on human rights, protection of children, globalization, etc.
Economic and Financial field: reduce barriers to trade and investment.
Cultural and Intellectual Field: protection of cultural heritage
Regional structure of ASEM (this document is from Europa homepage)
dealing with snapshots immediately after integration.
Tariff preferences have trade creation effect and trade diversion effect.
Figure 3.
Trade Creation Effect
The two red traingles represent the positive welfare gains from the trade creation effect.
Three countries:
(i) A, B are members of a CU
(ii) C is not
Trade Diversion Effect
Assume (i) horizontal foreign supply curve
(ii) C (nonmember) is more efficient than B (member)
Figure 4, Trade Diversion
Under the free trade situation, the England imports the product from Australia.
After joining the customs union, the tariff inclusive price of imports from Australia rises, but the price of imports from France remains the same. Accordingly,
England now imports from France, rather than from Australia.
Viner's analysis of CU focuses on static gains: the abolition of tariffs among members has the trade creation and diversion effects. However, the static theory ignores the dynamic effects of CU on economic growth.
(i) the most obvious dynamic consequence of a CU is market extension. Efficient producers enjoy free access to national markets of all member countries. Obviously, inefficient producers lose even the national market and are forced to exit from the market.
Before forming a CU, however, access to foreign markets was hindered or blocked by trade restrictions. CU enables firms to achieve economies of scale.
An efficient firm not only survives but also has access to all markets within a customs union, but inefficient firms lose even the little markets they had before. (The Parable of Talents: For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him, Matthew 25:29)
Figure 4.
(ii) Increased Competition
Domestic firms are no longer protected from high tariffs. Increased competition implies the survival of low cost firms and lower prices. Increased competition also encourages product innovation.
1. Krenin
industrial products: generally trade creation among EEC members
Agricultural products: trade diversion
2. EFTA bulletin (1972): for the period 1965-67,
trade creation = $6.2 billion
trade diversion = $2.2 billion
3. Dynamic Effects on growth
1958: GNP of the original six = 1/3 that of US
1983: GNP of the original six = 4/5 "
1987: GNP of 10 countries was greater than that of the US
International integration is a means, not an end.
SR objective: market extension - replace small national markets with a large supernational market
LT goal: economic growth through increased international specialization, economies of scale and expanded trade
These goals are sought by many LDCs. The Treaty of Rome has become the model for a global movement toward economic integration.
Only four countries: Iceland, Lichtenstein, Norway, and Switzerland.
Current members include Iceland, Lichtenstein, Norway and Switzerland. Largest partner in trade in services of EU.
Read "What is EFTA?" and European Economic Area. (Not copied here).
Asociation Latinoamericana di Integracion (ALADI)
Initially, integration in Latin America took two parallel forms. (1) Latin American Integration Association, and (2) Central American Common Market. Subsequently, the Andean Common Market has been added.
The motivation for closer integration among these countries: (a) the success of EC, and (b) slow economic growth and social modernization in this continent.
| Groups | growth rates |
| Low income countries (34 countries) | 3% |
| Low Middle Income countries (40) (S America + others) | 2.5% |
| High Middle Income countries (21) | 2% |
| Industrial Economies (18) | 0.7% |
| Oil Exporters | 3.4% |
| EEC (8) | 0.7% |
Integration Efforts in Asia
Despite recent setbacks by French rejection of the European constitution, integration efforts in Europe has been largely successful. This success is largely due to (a) common racial stock (Caucasian), (b) common cultural heritage of Western Europeans, and (c) similarity of European languages which are derivatives of Germanic language with common Latin roots.
Efforts to integrate Asian economists have been hampered by three obstacles:
(a) Racial and language diversity of Asian countries. Asian races are more populous and diverse than European races. Diverse languages: tonal Chinese language, Ural-Altai language group (Manchu, Mongolian, Japanese, Korean, etc.),
(b) Japanese occupation of Asian countries in World War II, and
(c) Two large economies, China and India, have no urgent need to intergrate with other economies.
Despite these obstacles, bilateral FTA fervor is sweeping Asia.
(i) established in 1967
(ii) 6 countries: Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. + New Zealand
then Vietnam, Laos, and Miyamar joined.
(iii) currently transforming into AFTA (ASEAN Free Trade Area)
(iv) GNP= $300 billion, intra-ASEAN trade rose to $68 billion in 1995.
(v) plans to expand. two proposals, Tokyo centered Asian trade alliance, and Asia-Pacific economic zone, excluding US and Japan.
Jerry Junkins, Chairman of Texas Instruments "We must get actively involved in Asia. We really have no choice. If we don't, we will lose competitive position to those countries that do."
APEC = China, Japan, 4 tigers (SK, Taiwan, HK, Singapore) + ASEAN + US + Canada
GDP APEC = $15 trillion
Group of Seven = US, UK, G, F, I, Canada + Japan = $15.7 trillion
By 2000, APEC will be larger.
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Emperor
Marcus Aurelius (160-180 AD), Archeological Museum of Athens. He was one
of five wise emperors and after his reign, the Roman Empire, which started
in 27 BC with Augustus, began its gradual decline until its final collapse
in 476 AD. Had the Roman empire lasted five more centuries, Latin could
have become the universal langauge now, at least in the Western world.
