Weniger ist mehr – die EU in der Sackgasse eines zentralistischen Integrationsverständnisses

Current European integration very much focusses on harmonisation and convergence. This streamlining goes far beyond what is demanded by economic reasoning and turns out–as the euro crisis has demonstrated–to foster tensions among EU member states instead of promoting a flourishing common market. The authors outline an alternative approach which fosters a sense of political responsibility and is anchored in democratic rather than bureaucratic decision-making.     

Real and nominal convergence in the central and east European accession countries

Following their accession to the EU, which is planned for May 2004, eight central and east European countries will subsequently strive for integration into the Eurosystem. The Eurosystem underlines the need for simultaneous real and nominal convergence as a prerequisite for integration into the euro area. But some of the acceding countries argue that, at least in the short to medium term, a strengthening of nominal convergence makes real economic convergence more difficult. The following paper investigates this issue by means of an empirical study and attempts to establish to what extent real and nominal convergence are compatible.     

The Dilemma of Enlargement for the European Union's Regional Policy

The integration of the former communist countries of central and eastern Europe into the European Union creates a dilemma for the EU's regional policy. The EU's expenditure on regional policy (its ‘active’ regional policy) has been guided by political reactions to deepening or enlarging the EU, not by a rational strategy for regional policy. In contrast, the strong EU instrument of state aid control, developed for competition policy (its ‘reactive’ regional policy) has been relatively successful in avoiding a national race of regional subsidies among the member states. We show that a shift from active regional policy to reactive, competition‐oriented, regional policies is the preferred way for the established member states to handle the challenge of enlargement. At the same time, however, this shift is politically difficult for the accession countries to accept, despite the fact that this shift might prove better for them economically. This regional policy dilemma is one of the major obstacles for the full integration of the accession countries into the EU.     

How far away is Europe?

Institutional development in new and potential member countries determines the success of deepening European integration. This papers argues that the timing of future enlargement should depend on institutional convergence between the EU and potential accession candidates. It therefore looks at institutional quality in the EU, in the EU's neighbouring Balkan and Black Sea regions, and especially in Bulgaria, Romania, Croatia, and Turkey, i.e. the next countries in the queue for entry. Three dimensions of institutional quality—legislative, administrative and judicial institutions—are analysed on the basis of the World Bank Governance Indicators using institutional quality in EU member states as a benchmark in order to reveal institutional deficits.     

The Motor Industry in an Enlarged EU

The motor industry in the ‘First Fifteen’ EU makes an enormous contribution to its economic prosperity. This is manifest in the scale of employment, output, investment, international trade and technological change. The enlargement of the EU will see the full integration of the auto sector in the accession countries with the activities in the West to reinforce its already massive scale. The nature of optimum size and the importance of economies of scale creates a bias to bigness in vehicle manufacture. Hence, the auto industry in the accession countries consists largely of the local operations of transnational companies. As car demand is income elastic the level of sales in the accession countries is relatively small but as the economies expand the potential is enormous. This, together with non‐scaler advantages such as low wage rates, has attracted considerable investment by vehicle firms in the last fifteen years into the accession countries. Various tariff reduction agreements have meant that integration of the East Central European motor industry with Western operations has pre‐dated the current formal enlargement of the EU. The countries that have done particularly well in attracting automotive investment have been Poland, the Czech Republic and, particularly, Slovakia. The recent history of the auto sector in the accession countries has not been without its problems. The collapse of the command economies saw disruption in the market and the decline of the local indigenous car makers. Subsequently this was more than offset by new inward investment. There has been no revival of the local commercial vehicle industry and further restructuring can be expected. The long‐term survival of the auto component sector in the accession countries will depend on how the sector responds to the competitive challenges of free trade and enlargement. However, there are signs that significant high value‐added activities such as vehicle design and development, will be sustainable in East Central Europe. The motor industry in the accession countries will face its own challenges, not least the tendency of the industry to anticipate formal integration. This time it will mean expansion into Eastern Europe. Hence, whilst the location of vehicle plants in the accession countries challenges the traditional centres of manufacture in the West, including ‘the periphery’, in turn they must be alert to even newer competition elsewhere.     

State Aid Policy, Territoriality and Federalism: EU Scrutiny and Control of Regional Aid and the Supranationalisation of Subnational Autonomy in Federal Member States

Whilst its impact on national industrial policy has attracted considerable attention in the scholarly literature, the implications of EU state aid policy on regional development policy and its effects on territorial relations inside EU member states have been largely neglected. Drawing on the experience of Bavaria, Flanders and Upper Austria, this article shows how EU action has imposed increasingly wide reaching and detailed constraints on subnational authorities, undermining and eroding their capacity to define and implement regional policy. It thereby also challenges the widely held presumption in the EU literature, as for example by proponents of multi-level governance, that European integration works invariably to empower and strengthen regions in Europe. To the contrary, the case studies show that the autonomy of subnational states in EU member countries with federal systems has been eroded as they have been forced to abandon traditional policies and practices. More generally, the article invites reconsideration of the relationship between European integration and subnational authorities.     

German Investment in Ireland and in the Central and East European Countries

The accession of Central and Eastern European countries (CEECs) to the EU is expected by many to lead to the diversion of foreign direct investment towards the CEECs and away from other EU countries. The following paper focuses on the investigation of the internationalisation strategies and location choices of German multinational corporations (MNCs) in manufacturing against the background of growing regional economic integration, and particularly the fifth EU enlargement. It draws on the findings of a case study and interview results covering three German MNCs and their location choices for investment in both Ireland and the new EU member countries from Eastern Europe. This research project has been co-funded by the RIA in Dublin and DAAD. A first version of this work was presented at the September 2005 Irish Academy of Management Annual Conference in Galway.     

The new EU countries and euro adoption

In the new member states of the EU which have not yet adopted the euro, previous adoption strategies have come under scrutiny. The spillovers and contagion from the global financial crisis revealed a new threat to the countries’ real convergence goal, namely considerable vulnerability to the transmission of financial instability to the real economy. This paper demonstrates the existence of extreme risks for real convergence and argues in favour of a new adoption strategy which does not announce a target date for the currency changeover and which allows for more flexible and countercyclical monetary, fiscal and wage policies.     

欧债危机对我国对欧出口贸易的影响与因应措施

欧盟是中国最大的贸易伙伴。随着欧债危机逐渐从欧元区外围国家向核心国家蔓延,欧债危机引起的整个欧洲经济增长乏力、欧元贬值等问题势必会使中国对欧出口贸易受到影响。随着欧债危机的深化,相关成员国势必实施严格的紧缩政策,从而将使中国对欧出口遭遇更严峻的形势。鉴于欧元区在中国外贸出口中的重要地位,我们必须尽早设定应对措施,以期减缓欧债危机可能对我国经济造成的冲击。     

A Gravity Model Forecast of the Potential Trade Effects of EU Enlargement: Lessons from 2004 and Path‐dependency in Integration

This paper uses a gravity model to forecast the potential impact on trade balances and trade patterns of the 2004 EU enlargement. The results suggest that gross trade creation for the accession economies is about 25 per cent of their 2003 trade. Although membership of the EU creates trade it also results in trade diversion; that is, a declining share of accession country exports and imports with non‐EU15 countries. Overall, the trade balances of the accession countries suffer larger trade deficits after accession due to import growth surpassing export growth. The extent of increase in the trade deficit due to accession is inversely related to the level of integration and income of the new members. Hence integration is path‐dependent and the EU should take this into account when preparing for further enlargements to the Balkans and Southeast Europe.     

Who Can Adjust to the Euro?

This study estimates potential exchange rate variation among 26 European countries during 1992–1998, as a proxy for the potential magnitude of adjustment they face to euro‐block membership, using the instrumental variable (IV) method, applying least squares cross‐section regression analysis based on optimal currency area theory. A currency union among Belgium, Denmark, France, Germany, Ireland, Malta, the Netherlands and Slovenia is found to entail a relatively light burden of adjustment for its members. The current membership of other countries in the euro‐block is potentially very demanding on their societies in the long term. This study also compares currency boards and independent central banks as alternative monetary frameworks for disinflation policies. Based on a pooled time‐series, cross‐section dataset of the same countries and years currency boards are found to be more effective in reducing inflation in all countries except Belgium. Balancing EMU's credibility gains against its adjustment costs, Finland, Greece, Italy, Portugal and Spain seem like unstable members of the euro‐block. For all new EU member states except the Czech Republic, Malta, Slovenia and Slovakia the advice is to stay out of the euro‐block until their economies are liberalised and flexible enough to withstand major adjustments, and their societal interest groups supportive enough of these adjustments.     

The EU’s migration and development policy: New approaches in economics for more effective public aid

Among the EU member states, increasing immigration has led to a recent debate over changes to European refugee and migration policies. The desire among the poor to escape from a hopeless economic and social situation in their home countries is the most common impetus for their migration. As the EU is the world’s biggest donor of public development aid, new approaches in European development politics are much needed to increase the effectiveness of this aid and to create a sustainable improvement of the economic situation among the poor. This article focuses on a new approach to implement more efficient and cost-effective development strategies that include individual time preference as well as insights from behavioural and experimental economics.     

Labour demand in the EU and returns to scale: A production function approach

The paper tests the hypothesis that small member states of the European Union (EU) experience economies of scale constraints. This study adopts a production function approach, utilising data from the 27 differently sized EU member countries. The results confirm the hypothesis and indicate that larger EU member countries incur lower costs per unit of output produced when compared to the smaller ones. This finding has important implications for small EU member states, including that smaller countries have to overcome their economies of scale constraint in order to attain and maintain international competitiveness. This disadvantage is particularly relevant for small states, because these states tend to be highly dependent on international trade, in which case international competitiveness is a major issue.     

A minimum corporate tax rate would be harmful for both high and low tax countries

Conclusion  The corporate tax policy of the new EU member states does create pressures for some of the old member states to reduce their corporate taxes, in particular statutory corporate tax rates. But reacting to this pressure by enforcing mimimum tax rates in the EU would be counterproductive. It would slow down the economic catching up process in eastern Europe and question the competitiveness of the entire EU as a location for investment compared to other countries and regions in the world economy. There are potential benefits from more coordination in the field of corporate taxation, but this coordination should aim at removing tax obstacles to border-crossing investment and at reducing the compliance costs of the tax system. This requires targeted measures in the area of tax base coordination. Introducing minimum corporate tax rates, in contrast, would be harmful for both high and low tax countries in the EU.     

The Future of European Growth Policies: Resetting Integration

This note argues that one should lay the focus of future European growth policy on integration and technology. This focus should be on maximising the growth effects of their interaction, with an emphasis on the importance of deep integration. The note provides three examples that show how deep integration has contributed to stop the relative economic decline in the UK vis-à-vis the EU founding members; how deep integration increased productivity in Sweden, Austria, and Finland compared to that in Norway; and how a key mechanism to advancements in the new EU member states has been the capacity of deep integration to generate institutional change.     

Capital Cities in the New EU States—Economic Status Quo and Current Trends

In the course of the economic catching-up process of the new EU states, the capital cities of the countries in central and eastern Europe were the economically most successful regions in their countries. How distinct are economic disparities between the capitals and the rest of the countries today? What were the determinants of the related economic developments? And do current economic trends support the leading position of the capital cities in the new member states?      

The economics of enlarging the European Union: Policy reform versus transfers

While the European Union will hardly be in a position to receive new members without extensive policy and financial reform, the discussion so far has exaggerated the link between reform and enlargement. It has also tended to neglect the economic benefits to be expected from integrating the CEECs into the EU and has been dominated by concerns about intra-EU transfers. In an attempt to placate those member states which have complained that they pay too much, recent proposals could give rise to more inefficiencies and disparities within the Union. The author is grateful to Beuter, Frank Bollen, Veerle Deekmyn and Les Metealfe for their comments on a previous draft. The author alone is responsible for the views expressed in this paper.     

Why price‐level dispersion went up in Europe after the financial crisis

Persistent price differences across euro area countries are an indication of incomplete economic integration. We analyse long‐ and short‐run developments of price‐level dispersion in the euro area and compare the results with price dispersion across US cities. We find that monetary and economic integration in Europe has been successful in establishing a major downward trend in price‐level differences across countries since 1960. After the Global Financial Crisis and the European Sovereign Debt Crisis, diverging economic conditions across euro area countries led to higher income dispersion, which contributed to a widening of price‐level differences again.     

Expensive Living: The Greek Experience under the Euro

Apart from its widely accepted direct advantages, the introduction of the euro has been widely perceived as causing a surge of inflation in most of the EU member states. Particularly in Greece there has been a decided shift in sentiment concerning EMU membership. Is the common perception among Greeks that the euro has been the primary cause of recent price hikes correct? The authors wish to thank Y. Stournaras and P. Kazakos for their helpful comments and suggestions. The usual disclaimer applies.     

Financing EU cohesion policy in Central and Eastern Europe

Following publication of Agenda 2000 the EU Commission has been criticised as overly optimistic on the budgetary consequences of the envisaged accession of a number of Central and East European Countries. This article briefly reviews the evolution of regional disparities within the EU and the impact of the Structural and Cohesion Funds on the present recipient regions. It then investigates whether it is financially feasible to extend EU regional policy to the five likely new CEEC member states without a major reform of the present system.