With its clear and accessible style and its combination of theory and applications, European 4 Economic Integrationprovides a comprehensive introduction to EU economic theory and th policies. The book focuses principally on the economic dimension of the EU, but places this firmly within the context of the surrounding political debates. Edition Much has changed in the European Union since the publication of the 3rd edition with the successful launch of the Euro and the accession of ten new member states. The 4th edition has been comprehensively revised to reflect these changes, providing up-to-date-coverage of the most important issues facing European economies in the 21st Century. E E d u i t e r KEY FEATURES d o • Comprehensive coverage of economic theory and b p policy. Assuming only an introductory y e knowledge of economics and with M a • Boxes within the text summarise complicated n its comprehensive coverage of EU institutional detail making the material more c accessible. economic policies, European D E Economic Integrationis ideally • Non-mathematical explanation of economic theory. o c suited to all students taking n o • Detailed captions accompany the graphs, ensuring courses on the economics of the a n students understand the economics discussed. EU as part of an economics, ld o • Full list of references and guides to further business studies or inter-disciplinary m reading at the end of each chapter. European studies degree. & i c D NEW TO THIS EDITION e I • Comprehensively revised and updated to reflect a n recent changes in the EU. r t d e • Up-to-date assessments of the impact of the e g single market and European monetary union. Frank McDonaldis Professor of n r • The chapter on the budget has been substantially International Business at Hull a revised. University Business School. t i • The environmental policy chapter has been o Stephen Deardenis Senior updated to trace the development and impact of n Lecturer in Economics, Department environmental Directives. of Economics, Manchester • The Common Agricultural Policy chapter has been Metropolitan University. rewritten to include greater analysis of the political debates surrounding this subject. • The political and economic debates within the EU have been updated to cover the expansion of the Community into Central and Eastern Europe and the strains this has put upon the institutional frameworks and decision making processes of the EU. www.pearson-books.com An imprint of European Economic Integration EEI_A01.pm5 1 3/11/04, 8:49 AM We work with leading authors to develop the strongest educational materials in economics, bringing cutting-edge thinking and best learning practice to a global market. Under a range of well-known imprints, including Financial Times Prentice Hall, we craft high quality print and electronic publications which help readers to understand and apply their content, whether studying or at work. To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk EEI_A01.pm5 2 3/11/04, 8:49 AM Fourth Edition European Economic Integration Edited by Frank McDonald Stephen Dearden EEI_A01.pm5 3 3/11/04, 8:49 AM Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk First published 1992 Second edition 1994 Third edition 1999 Fourth edition published 2005 First edition © Longman Group UK Limited 1992 Second edition © Longman Group Limited 1994 Third edition © Addison Wesley Longman Limited 1999 Fourth edition © Pearson Education Limited 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP. ISBN 0 273 67908 2 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data European economic integration / [edited by] Frank McDonald, Stephen Dearden.—4th ed. p. cm. Includes bibliographical references and index. ISBN 0-273-67908-2 (alk. paper) 1. Europe—Economic integration. 2. European Union countries—Economic policy. I. McDonald, Frank, 1951– II. Dearden, Stephen, 1950– HC241.E7853 2005 337.1′42—dc22 2004051222 10 9 8 7 6 5 4 3 2 1 08 07 06 05 Typeset in 10/12.5pt Sabon by 35 Printed and bound by Bell & Bain, Glasgow The publisher’s policy is to use paper manufactured from sustainable forests. EEI_A01.pm5 4 3/11/04, 8:49 AM Brief contents Contributors xiii Preface to the fourth edition xv Acknowledgements xvi Abbreviations xviii Introduction The origins and development of the European Union 1 Part 1 THE FOUNDATIONS OF THE EUROPEAN UNION 37 Chapter 1 Market integration in the European Union 39 Chapter 2 Macroeconomic policy coordination 75 Chapter 3 Economic and monetary union 99 Chapter 4 The budget of the European Union 125 Part 2 THE INTERNAL POLICIES OF THE EUROPEAN UNION 145 Chapter 5 Competition policy in the European Union 147 Chapter 6 Industrial policy in the European Union 174 Chapter 7 Social policy 193 Chapter 8 Regional policy 227 Chapter 9 Environmental policy 254 Chapter 10 Transport policy 269 Chapter 11 The Common Agricultural Policy 302 Part 3 THE EXTERNAL POLICIES OF THE EUROPEAN UNION 325 Chapter 12 External trade policy 327 Chapter 13 The European Union and Central and Eastern Europe 337 Chapter 14 The European Union and the Developing World 353 Chapter 15 Economic relations with the Triad and emerging economies 381 Index 404 EEI_A01.pm5 5 3/11/04, 8:49 AM EEI_A01.pm5 6 3/11/04, 8:49 AM Detailed contents Contributors xiii Preface to the fourth edition xv Acknowledgements xvi Abbreviations xviii Introduction The origins and development of the European Union 1 Frank McDonald and Stephen Dearden Introduction 1 What is the European Union? 2 The European Unity movement 3 The origins of the European Union 5 The development of the European Union 8 The institutional structure of the European Union 15 The main challenges facing the European Union 23 Democratic deficit 29 Political union 30 Conclusion 35 References 35 Further reading 36 Part 1 THE FOUNDATIONS OF THE EUROPEAN UNION 37 Chapter 1 Market integration in the European Union 39 Frank McDonald Introduction 39 Defining economic integration 39 Types of single markets 41 Transaction costs and single markets 43 Customs union 47 The Single European Market 48 The economic effects of establishing free movement 50 EEI_A01.pm5 7 3/11/04, 8:49 AM viii Detailed contents Problems with empirical studies 60 Empirical studies 62 The 1996 Review of the Single European Market programme 65 Evidence on the effects of the SEM since the 1996 Review 68 Plans to improve the effectiveness of the SEM 70 Conclusion 71 References 71 Chapter 2 Macroeconomic policy coordination 75 Nigel Healey Introduction 75 Policy interdependence between member states 76 The case for policy coordination 78 Monetary policy coordination through managed exchange rates 81 EU macroeconomic policy coordination since 1979 84 Conclusion 96 References 96 Chapter 3 Economic and monetary union 99 Nigel Healey Introduction 99 What is EMU? 99 The Maastricht Treaty and the road to EMU 100 The theoretical benefits and costs of EMU 105 The performance of the euro since 1999 113 Conclusion 121 References 122 Chapter 4 The budget of the European Union 125 Clara Mira Salama Introduction 125 The budget: main concepts, structure and principles 127 The revenue side: where the money comes from 130 The expenditure side: how the money is spent 132 Budgetary imbalances: the UK rebate 134 The budgetary procedure: budget implementation and control 136 The budget and enlargement 139 Conclusion 141 References 142 EEI_A01.pm5 8 3/11/04, 8:49 AM Detailed contents ix Further reading 143 End notes 143 Part 2 THE INTERNAL POLICIES OF THE EUROPEAN UNION 145 Chapter 5 Competition policy in the European Union 147 John Kemp Introduction 147 An economic rationale for intervention 147 Alternative policy approaches 154 European Union competition policy 156 The relationship between EU and UK competition policy 170 Conclusion 171 References 171 Chapter 6 Industrial policy in the European Union 174 Frank McDonald and Margaret Potton Introduction 174 Rationale for industrial policy 174 Types of industrial policy 179 Industrial policy in the treaties 179 Competitiveness and EU industrial policy 183 Policies to promote favoured sectors 188 Policies to promote innovation 189 Conclusion 190 References 191 Chapter 7 Social policy 193 Stephen Dearden Introduction 193 The European labour market 193 The Treaty of Rome 196 The Single European Market 199 Social cohesion 203 Community policy 211 EEI_A01.pm5 9 3/11/04, 8:49 AM