The European Union ECONOMICS TODAY Edited by Andrew Leake The Economics Today series surveys contemporary headline topics in applied economics. Each book in the series is written by an expert in the field in a style that is fluently readable. It serves the student of introductory economic principles while also making the subject accessible to a more general reader. The series embraces the problem-solving skills of the new generation of students and stresses the importance of real-world issues and the significance of economic ideas. Published Andrew Leake: The Economic Question Jean-Louis Barsoux and Peter Lawrence: The Cltallenge of British Management Andy Beharrell: Unemployment and Job Creation Frank Burchill: Labour Relations Mark Cook and Nigel M. Healey: Growth and Structural Change Kenneth Durham: The New City S. F. Goodman: The European Union (3rd edition) Ian Hodge: Environmental Economics Kent Matthews: Macroeconomics and tlte Market Charles Smith: Economic Development, Growth and Welfare Jenny Wales: Investigating Social Issues John Wigley and Carol Lipman: The Enterprise Economy Margaret Wilkinson: Taxation Series Standing Order If you would like to receive future titles in this series as they are published, you can make use of our standing order facility. To place a standing order please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address and the name of the series. Please state with which title you wish to begin your standing order. (If you live outside the United Kingdom we may not have the rights for your area, in which case we will forward your order to the publisher concerned.) Standing Order Service, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire, RG21 6XS, England. THE EUROPEAN UNION Third Edition S. F. Goodman MACMILLAN © S. F. Goodman 1990, 1993, 1996 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 W1P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First edition (The European Community) 1990 Reprinted 1991, 1992 Second edition 1993 Reprinted 1993 Third edition (The European Union) 1996 Published by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world ISBN 978-0-333-66266-3 ISBN 978-1-349-14094-7 (eBook) DOI 10.1007/978-1-349-14094-7 A catalogue record for this book is available from the British Library. 10 9 8 7 6 5 4 3 2 1 05 04 03 02 01 00 99 98 97 96 For Helen Contents List of Tables and Figures xiv Preface xvii List of Abbreviations xxi Acknowledgements xxiv 1 Contemporary Issues 1 Revision of the Treaty on Union 1 Economic Issues 3 Old Issues Persist 4 Deepening and Widening the Union 4 The Single European Act 6 The Pillars of the Treaty on Union 7 Decision-making in the European Union 9 The Commission 9 The Council 10 The European Parliament 11 The European Court of Justice 12 The European Court of Auditors 12 The Trialogue 13 European Union Legislation 13 Regulations 14 Directives 14 Decisions 14 Recommendations and opinions 14 Delegated legislation 15 How are Decisions Reached in the Council? 15 vii viii Contents What Sort of Union is Emerging? 17 A fortress Europe' 17 A free market for capitalists 21 A deregulated market 23 A multi-speed or variable-geometry Europe 24 Federalism and Subsidiarity 26 Conclusion 27 2 Ideas into Institutions - How the European Union Began 29 The United Kingdom and Early Ideas for European Unity 30 The New Ideas After 1945 31 The New Organisations 32 The Organisation for European Economic Cooperation 32 The North Atlantic Treaty Organisation 34 The Brussels Pact and Western European Union 36 The Council of Europe 38 The Economic Organisations 39 The first economic institution-the European Coal and Steel Community 41 Date Chart 43 3 Development and Change 46 The Six 46 What are the Economics of the European Union as a Customs Union? 47 Have the Hopes been Met? 49 Economies of Scale-the Great Sales Pitch? 52 Changing Political Attitudes in the United Kingdom 56 A Slow Change in the United Kingdom's Political Orientation 56 EFTA 59 The United Kingdom's Successful Application 60 The Entry Terms 62 Renegotiation and the Referendum 63 The Enlargement of the Community 66 The European Economic Area 68 Contents ix Flanking policies 70 The cost of the agreement 71 Implications of the creation of the EEA 72 The institutions of the EEA 72 Europe Agreements 73 Partnership and Cooperation Agreements 77 4 Governing the Union 79 How are Laws Made? 80 How are Legislative Measures Implemented? 83 Unanimous or Majority Decisions? 85 What is the Problem of National Sovereignty? 88 Will Sovereignty be an Issue in the Future? 93 Will the European Parliament be Adequate in the Future? 94 Is the Union Bureaucratic? 96 A Budget Problem -Where to Get the Money 98 How are the Budget and Exchange Rate Fluctuations Reconciled? 103 Another Budget Problem - the Winners and Losers 108 Fraud 111 Is the Community a Tower of Babel? 113 5 Agriculture- Successes, Failures, Reforms 115 Has the Common Agricultural Policy been Successful? 115 Why would Free Market Competition in Agriculture Cause Chaos? 116 Why have the Surpluses Occurred? 126 The EAGGF 131 Other Reasons for Oversupply 132 How have the Surpluses been Dealt With? 134 Reform Proposals 138 How Successful have the 1992 Reforms been? 142 Agrimonetary Compensation Mechanism 144 What of the Future? 146 x Contents 6 Economic Performance - Growth, Employment, Trade 148 Introduction 148 What Measures of Comparison are Useful? 149 How has the European Union Performed? 151 How do Working Hours Compare? 155 What have been the Longer-Term Trends? 157 Employment Comparisons 158 The White Paper on Growth, Competitiveness and Employment 161 The Service Sector 163 Trade Comparisons 164 How has intra-Community trade developed? 165 How has the European Union's external trade changed? 166 The changes in the European Union's current account balances 168 Visible trade 170 Invisible trade and current account balances 171 7 Money 174 What Determines the Value of the Various European Currencies? 174 How Well does the Purchasing Power Parity Theory Apply? 175 Where does the Non-Speculative Demand and Supply of a Currency Come From? 175 What is the Role of Speculation in the Fixing of Exchange Rates? 177 Are there any Controls in the Foreign Exchange Markets? 178 Do Governments Allow their Exchange Rates to Float Freely? 180 Floating Exchange Rates, Monetarism and the Evolution of the EMS 182 What is the European Monetary System? 186 The European Monetary Cooperation Fund and EMI 186 The European Currency Unit 187 How the ECU 'basket' is made up 189