Current Economic Issues in EU Integration Mark Baimbridge, Jeffrey Harrop and George Philippidis Current Economic Issues in EU Integration Also by Mark Baimbridge FISCAL FEDERALISM AND EUROPEAN ECONOMIC INTEGRATION (co-editor) ECONOMIC AND MONETARY UNION IN EUROPE: Theory, Evidence and Practice (co-editor) THE IMPACT OF THE EURO: Debating Britain’s Future (co-editor) Also by Jeffrey Harrop THE POLITICAL ECONOMY OF INTEGRATION IN THE EUROPEAN UNION STRUCTURAL FUNDING AND EMPLOYMENT IN THE EUROPEAN UNION THE POLITICAL ECONOMY OF INTEGRATION IN THE EUROPEAN COMMUNITY Current Economic Issues in EU Integration Mark Baimbridge Bradford Centre for International Development University of Bradford, UK Jeffrey Harrop Bradford Centre for International Development University of Bradford, UK and George Philippidis Bradford Centre for International Development University of Bradford, UK and Unidad de Economia Agroalimentaria y de los Recursos Naturales Centro de Investigacion y Tecnologia Agroalimentaria de Aragon (CITA) Zaragoza, Spain © Mark Baimbridge,Jeffrey Harrop and George Philippidis 2004 Softcover reprint of the hardcover 1st edition 2004 978-1-4039-1796-6 All rights reserved.No reproduction,copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced,copied or transmitted save with written permission or in accordance with the provisions of the Copyright,Designs and Patents Act 1988,or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency,90 Tottenham Court Road,London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2004 by PALGRAVE MACMILLAN Houndmills,Basingstoke,Hampshire RG21 6XS and 175 Fifth Avenue,New York,N.Y.10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St.Martin’s Press,LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States,United Kingdom and other countries.Palgrave is registered trademark in the European Union and other countries. ISBN 978-1-4039-1805-5 ISBN 978-0-230-59816-4 (eBook) DOI 10.1057/9780230598164 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 13 12 11 10 09 08 07 06 05 04 Contents List of Tables vi List of Figures and Boxes vii Acknowledgements viii Preface ix 1 Current Issues in EU Integration 1 Part I Agriculture, Competition and Industry 15 2 Common Agricultural Policy: Evolution and Economic Costs 17 3 Competition Policy in the Single European Market 35 4 Industrial Policy: The Changing Agenda 57 Part II Economic and Monetary Union 77 5 Central Bank Independence and Monetary Policy 79 6 EMU Convergence and Fiscal Policy 99 Part III Regional Convergence and Enlargement 119 7 The New Role and Resurgence of Regions in the EU 121 8 EU Enlargement: EMU and Agriculture 142 Part IV Alternative Futures for the UK 167 9 Alternatives to Further Integration 169 10 Is NAFTA Membership Really a ‘Barmy’ Idea? 183 Notes 200 References 209 Index 225 v List of Tables 2.1 Transfers in a two-country community 26 2.2 Estimates throughout the 1980s of the deadweight costs of the CAP 29 2.3 Recent estimates of the deadweight costs of CAP reform 31 4.1 R&D spending and patent grants 66 5.1 Summary of political independence of EU central banks and ECB 82 5.2 Political independence of central banks 85 5.3 Economic independence of central banks 86 5.4 Comparison of central bank independence of EU member states and the ECB 86 5.5 Correlation between central bank independence and macroeconomic variables for EU member states 94 6.1 The number of MCC achieved by EU member states (1992–2002) 104 8.1 Summary of EU accessions 144 8.2 EMU convergence criteria and CEECs (2002) 150 8.3 Annual pre-accessional budget allocations for the CEECs 157 8.4 Financial framework for enlargement 2004–06 (€million) 162 10.1 UK trade with North America and the EU(14), 1994–2001 (%) 186 10.2 Total inward and outward FDI for the UK (% of total investment) 187 10.3 The structure of UK trade and protection (% of market prices) 191 10.4 Changes in UK exports and imports under scenario (a) 192 10.5 Changes in UK exports and imports under scenario (b) USITC estimates 192 10.6 Cumulative changes in UK exports and imports in 2008 under scenario (a) compared with the baseline 194 10.7 Cumulative changes in UK exports and imports in 2008 under scenario (b) compared with the baseline 194 10.8 Changes in GDP by region (% real growth) 195 10.9 Changes in US–UK FDI relationships under NAFTA accession 196 vi List of Figures and Boxes 2.1 CAP expenditure 20 2.2 A simple partial equilibrium (PE) model of CAP transfers 25 Boxes 8.1 The relative role of agriculture in the EU(15) and the candidate countries 153 8.2 Agricultural trade statistics between the EU(15) and the CEECs in 2001 (€ million) 155 8.3 Development indicators for the CEECs 159 vii Acknowledgements There are many people to thank for their input into making of this book possible. Most obviously, we must thank our Commissioning Editor at Palgrave/Macmillan, Amanda Watkins, for her immediate support for this project and patience over the duration of its writing. Second, we would like to thank our colleagues at the University of Bradford for their comradeship and general support for our research on European eco- nomic integration. Finally, we owe a deep sense of gratitude to our fam- ilies and partners for their forbearance during the preparation of this book. It is to them that this book is dedicated: MB: Mary, Ken and Beibei; JH: Kandy and Graeme; GP: my late mother, Margaret. viii Preface The number of books available to analyse contemporary European economic integration have multiplied over recent years to the point where the ‘wood’ and ‘trees’ frequently become inseparable. However, despite this extensive choice of texts, a number of weaknesses remain. First, many of the leading texts have sought to maximise their marketability by attempting to cover the entire spectrum of EU related topics, but ulti- mately only do so at a superficial level. Whilst certain areas may lend themselves to a brief examination presented in a single chapter, many others are too complex to summarise in such a manner and require a more sophisticated approach if all the principal issues are to be analysed. In this book we have sought to address this dilemma through examin- ing selected topics pertinent to the current and future development of the European Union (EU). It focuses upon a variety of microeconomic and macroeconomic issues, together with considering ‘blue sky’ scenarios of the future direction of Britain’s relationship with the EU. Our principal aim is to introduce readers to a variety of topics covering a broad range of issues relating to the process of European integration – agriculture, competition, industry, enlargement, regional and national convergence, central banking – and not merely focusing upon a single topic or seek- ing to be all-encompassing. The second problem for those seeking a greater understanding of European economic integration is that many books are ‘positioned’ and adopt a far from neutral stance when explaining the relevant arguments. It is, of course, natural that academics who have self-selected European integration as their speciality, are likely to possess strong opinions regarding this process. However, too frequently value judgements are permitted to influence the treatment given to the pertinent issues and arguments. We hope that this book succeeds in portraying a selection of the principal themes of the EU’s ongoing development with a balanced series of view across the spectrum. A third problem is that the fast-moving events of European integra- tion can result in books becoming outdated soon after, or even before, their publication! Readers should always be aware of the time lag it takes for the latest ideas to be included in texts following their initial publi- cation as working papers, conference contributions and journal articles. This process can often take several years, which when added to the time ix