European Economic policy
How everything started
In 1957, six founding members signed the Treaty of Rome, leading to the creation of the European
Economic Community (EEC).
The Six were: Belgium, France, Italy, Luxembourg, Netherlands, and West Germany.
The Treaty of Rome was a far-reaching document: it laid out virtually every aspect of economic
integration implemented up to the 1992 Maastricht Treaty.
EU goals and objectives nowadays
TEU =fundamental treaty of European Union
1. The union’s aim s to promote peace, its values and the reel-being of its peoples.
2. The Union shall offer its citizens an area of freedom, security and justice without internal
frontiers.
3. The union shall establish an internal market and shall work for a balanced economic growth
and price stability.
It shall combat social exclusion and discrimination, and shall promote social justice and
protection, equality between women and men, solidarity between generations and protection
of the rights of the child.
4. The union shall establish an economic and monetary union whose currency is Euro.
5. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and
mutual respect among peoples, free and fair trade, eradication of poverty and the protection
of human rights.
6. The Union shall pursue its objectives by appropriate means commensurate with the
competences which are conferred upon it in the Treaties.
EU is based on the principle of CONFERRAL.
The founding principles
The treaty’s first intention was to create a unified economic area: An area where firms and
consumers located anywhere in the area would have equal opportunities to sell or buy goos and
services thorough the area, and where owners of labour and capital should be free to employ their
resources in any economic activity in the area.
This entails:
–“4 fundamental freedoms”: free flow of goods, services, workers and capital;
–Common policies where necessary;
–Community ‘acquis’: the development of a body of law harmonising rules and procedures
throughout the area.
Main elements
Free trade in goods internally => then gradually extended to services:
–eliminate tariffs, quotas and all other trade barriers;
–implementation still ongoing for services.
Common trade policy with the rest of the world:
–Customs Union as a resulting model (vs. Free Trade Areas)
Ensuring undistorted competition (to avoid “deals” that offset trade barrier removal):
–state aids are mostly prohibited;
–anti-competitive behaviours monitored by Commission;
approximation of laws (mutual recognition / harmonization).
Labour and capital market integration:
–free movement of workers (later people => ‘Schengen’ agreement);
–free movement of capital in principle but many loopholes; very little capital-market liberalization
until the 1980s, then liberalized by 1992.
,Exchange rate and macroeconomic coordination (started only after the demise of Bretton-Woods
and the establishment of the European Monetary System in 1978) => then leading to an Economic
and Monetary Union (EMU) for a subset of countries with the Maastricht Treaty.
Common set of policies (agriculture, regional spending, trade, competition, environment, energy,
etc.) progressively expanded with the various Treaties building on the Treaty of Rome.
Omitted elements
Social policy: social harmonization very difficult politically
–nations have very different sensitivities on what types of social policies should be dictated by the
government;
–the EU political process is a very peculiar one.
Also, not clear that European economic integration demands harmonization of social policies:
–national wage would adjust to offset any unfair advantage (if lower social standards meant lower
production costs, long term result would be higher wages that offset the advantage, i.e. if workers
have to pay for private health insurance/education).
Tax policy: like social policies, tax policy directly touches the lives of most citizens and it is the
outcome of a national political compromise. Thus, EU leaders have always found it difficult to
harmonize taxes, beyond VAT (indirect). This is a hot issue now!
Eu laws
One of the most unusual and important things about the EU is its supranational legal system. By
the standards of every other International organisation in the world, the European legal system is
extremely supranational .
–direct effect: EU law can create rights which EU citizens can rely upon when they go before their
domestic courts;
–primacy: Community law has the final say (e.g., highest German court can be overruled) so that it
cannot be altered by national, regional or local laws in any member state;
–autonomy: system is independent of members’ legal orders.
Nowadays on average some 70 per cent of all the laws in place in a given Member State derive
directly or indirectly from the EU.
When it comes to business law the figure is even higher.
Supranational vs. Intergovernmental
, Policy tools
• Treaties are the primary source of the European Union law: a sort of “mobile” construction.
• “Secondary” sources of EU law are:
• Regulations: the most powerful form of EU law, immediately binding for every member state
as literally published in the Official Journal of the European Union
• Directives: define mandatory goals, but the legislative actions for implementing these goals
are left to the member states (normally with a time deadline and the obligation to report to the
Commission).
• Decisions: also binding, but very specific in their application, normally referring to single
member states, institutions or companies.
• Recommendations and opinions: have no binding force, usually they provide interpretations
for the application of regulations, directives and decisions.
Big 5 institutions:
• European Commission
• Council of the European Union
• European Parliament
• European council
• Court of justice
Another very important EU institution (responsible for the common monetary policy) is the
European Central Bank (ECB). The crisis saw the birth of another EU institution, the European
Stability Mechanism (ESM).
The EU Court of Auditors oversees the correct execution of the EU budget. The Economic and
Social Committee (CES) and the Committee of Regions (CoR) are consultative bodies.
European Commission
• Can be seen as the executive-bureaucratic arm of the EU.
• Promotes the general interest of European integration, in light of the Treaties.
• Develops proposals for new laws and policies: “powers of initiation”.
• Oversees the execution of adopted laws and policies: “powers of implementation” .
• (e.g. the Commission can take to the Court of Justice any member state, corporation or
individual that acts against the EU law)
• Has a key role in managing EU finances: collection of revenues, proposal of yearly EU budget
and administration.
• Represents the EU in international organizations like the World Trade Organization.
• Oversees the accession process for new members.
Headed by a college of commissioners, with 27 members (one for each country). The college
serves a five year term.
Each commissioner Is responsible for a different area of policy.
The college is headed by a president:
• Distributes portfolios among Commissioners
• Sets the agenda of the Commission and chairs the meetings
• Can launch major new policies
• Represents the Commission when dealing with other EU institutions or national governments
How everything started
In 1957, six founding members signed the Treaty of Rome, leading to the creation of the European
Economic Community (EEC).
The Six were: Belgium, France, Italy, Luxembourg, Netherlands, and West Germany.
The Treaty of Rome was a far-reaching document: it laid out virtually every aspect of economic
integration implemented up to the 1992 Maastricht Treaty.
EU goals and objectives nowadays
TEU =fundamental treaty of European Union
1. The union’s aim s to promote peace, its values and the reel-being of its peoples.
2. The Union shall offer its citizens an area of freedom, security and justice without internal
frontiers.
3. The union shall establish an internal market and shall work for a balanced economic growth
and price stability.
It shall combat social exclusion and discrimination, and shall promote social justice and
protection, equality between women and men, solidarity between generations and protection
of the rights of the child.
4. The union shall establish an economic and monetary union whose currency is Euro.
5. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and
mutual respect among peoples, free and fair trade, eradication of poverty and the protection
of human rights.
6. The Union shall pursue its objectives by appropriate means commensurate with the
competences which are conferred upon it in the Treaties.
EU is based on the principle of CONFERRAL.
The founding principles
The treaty’s first intention was to create a unified economic area: An area where firms and
consumers located anywhere in the area would have equal opportunities to sell or buy goos and
services thorough the area, and where owners of labour and capital should be free to employ their
resources in any economic activity in the area.
This entails:
–“4 fundamental freedoms”: free flow of goods, services, workers and capital;
–Common policies where necessary;
–Community ‘acquis’: the development of a body of law harmonising rules and procedures
throughout the area.
Main elements
Free trade in goods internally => then gradually extended to services:
–eliminate tariffs, quotas and all other trade barriers;
–implementation still ongoing for services.
Common trade policy with the rest of the world:
–Customs Union as a resulting model (vs. Free Trade Areas)
Ensuring undistorted competition (to avoid “deals” that offset trade barrier removal):
–state aids are mostly prohibited;
–anti-competitive behaviours monitored by Commission;
approximation of laws (mutual recognition / harmonization).
Labour and capital market integration:
–free movement of workers (later people => ‘Schengen’ agreement);
–free movement of capital in principle but many loopholes; very little capital-market liberalization
until the 1980s, then liberalized by 1992.
,Exchange rate and macroeconomic coordination (started only after the demise of Bretton-Woods
and the establishment of the European Monetary System in 1978) => then leading to an Economic
and Monetary Union (EMU) for a subset of countries with the Maastricht Treaty.
Common set of policies (agriculture, regional spending, trade, competition, environment, energy,
etc.) progressively expanded with the various Treaties building on the Treaty of Rome.
Omitted elements
Social policy: social harmonization very difficult politically
–nations have very different sensitivities on what types of social policies should be dictated by the
government;
–the EU political process is a very peculiar one.
Also, not clear that European economic integration demands harmonization of social policies:
–national wage would adjust to offset any unfair advantage (if lower social standards meant lower
production costs, long term result would be higher wages that offset the advantage, i.e. if workers
have to pay for private health insurance/education).
Tax policy: like social policies, tax policy directly touches the lives of most citizens and it is the
outcome of a national political compromise. Thus, EU leaders have always found it difficult to
harmonize taxes, beyond VAT (indirect). This is a hot issue now!
Eu laws
One of the most unusual and important things about the EU is its supranational legal system. By
the standards of every other International organisation in the world, the European legal system is
extremely supranational .
–direct effect: EU law can create rights which EU citizens can rely upon when they go before their
domestic courts;
–primacy: Community law has the final say (e.g., highest German court can be overruled) so that it
cannot be altered by national, regional or local laws in any member state;
–autonomy: system is independent of members’ legal orders.
Nowadays on average some 70 per cent of all the laws in place in a given Member State derive
directly or indirectly from the EU.
When it comes to business law the figure is even higher.
Supranational vs. Intergovernmental
, Policy tools
• Treaties are the primary source of the European Union law: a sort of “mobile” construction.
• “Secondary” sources of EU law are:
• Regulations: the most powerful form of EU law, immediately binding for every member state
as literally published in the Official Journal of the European Union
• Directives: define mandatory goals, but the legislative actions for implementing these goals
are left to the member states (normally with a time deadline and the obligation to report to the
Commission).
• Decisions: also binding, but very specific in their application, normally referring to single
member states, institutions or companies.
• Recommendations and opinions: have no binding force, usually they provide interpretations
for the application of regulations, directives and decisions.
Big 5 institutions:
• European Commission
• Council of the European Union
• European Parliament
• European council
• Court of justice
Another very important EU institution (responsible for the common monetary policy) is the
European Central Bank (ECB). The crisis saw the birth of another EU institution, the European
Stability Mechanism (ESM).
The EU Court of Auditors oversees the correct execution of the EU budget. The Economic and
Social Committee (CES) and the Committee of Regions (CoR) are consultative bodies.
European Commission
• Can be seen as the executive-bureaucratic arm of the EU.
• Promotes the general interest of European integration, in light of the Treaties.
• Develops proposals for new laws and policies: “powers of initiation”.
• Oversees the execution of adopted laws and policies: “powers of implementation” .
• (e.g. the Commission can take to the Court of Justice any member state, corporation or
individual that acts against the EU law)
• Has a key role in managing EU finances: collection of revenues, proposal of yearly EU budget
and administration.
• Represents the EU in international organizations like the World Trade Organization.
• Oversees the accession process for new members.
Headed by a college of commissioners, with 27 members (one for each country). The college
serves a five year term.
Each commissioner Is responsible for a different area of policy.
The college is headed by a president:
• Distributes portfolios among Commissioners
• Sets the agenda of the Commission and chairs the meetings
• Can launch major new policies
• Represents the Commission when dealing with other EU institutions or national governments
