European Union
Dr Khalil Hussein
Professor at faculty of law at Lebanese university
Director of studies at Lebanese Parliament
European Union (EU), organization of European countries dedicated to increasing economic integration and strengthening cooperation among its members. The European Union headquarters is in Brussels, Belgium.
The European Union was formally established on November 1, 1993. It is the most recent in a series of European cooperative organizations that originated with the European Coal and Steel Community (ECSC) of 1951, which became the European Community (EC) in 1967. The members of the EC were Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, the United Kingdom, and Spain. In 1991 the governments of the 12 member states signed the Treaty on European Union (commonly called the Maastricht Treaty), which was then ratified by the national legislatures of all the member countries. The Maastricht Treaty transformed the EC into the EU. In 1994 Austria, Finland, and Sweden joined the EU, bringing the total membership to 15 nations.
The EU has a number of objectives. Primarily, it works to promote and expand cooperation among its members in several areas, including economics and trade, social issues, foreign policy, security, and judicial matters. Another major goal has been to implement Economic and Monetary Union (EMU), which established a single currency for EU members. With the exception of EMU, which went into effect in 1999, progress toward these goals has been erratic. The EU’s ability to achieve its goals has been limited by disagreements among member states, external political and economic problems, and pressure for membership from the new democracies of Eastern Europe.
History of the European Union
The dream of a united Europe is almost as old as Europe itself. The early 9th-century empire of Charlemagne covered much of western Europe. In the early 1800s the French empire of Napoleon I encompassed almost all of the European continent. During World War II (1939-1945), Adolf Hitler nearly succeeded in uniting Europe under Nazi domination. All these efforts failed because they relied on forcibly subjugating other nations rather than cooperating with them.
Attempts to create cooperative organizations fared little better until after World War II. Until that time, nations had strongly opposed all attempts to infringe on their powers and were unwilling to give up any control over their policies. These early organizations were international or intergovernmental organizations that depended on the voluntary cooperation of their members; consequently, they had no direct powers of coercion to enforce their laws or regulations. Supranational organizations, on the other hand, require their members to surrender at least a portion of their control over policy areas and can compel compliance with their mandates. After World War II, proposals for some kind of supranational organization in Europe became increasingly frequent.
A Early Cooperation
Postwar proposals for a European supranational organization had both political and economic motives. The political motive was based on the belief that only a supranational organization could eliminate the threat of war between European countries. Some supporters of European political unity, such as the French statesman Jean Monnet, further believed that if the nations of Europe were to resume their dominant role in world affairs, they had to speak with one voice and have at their command resources comparable to those of the United States.
The economic motive rested on the argument that larger markets would promote increased competition and thus lead to higher productivity and standards of living. Economic and political viewpoints merged in the assumptions that economic strength was the basis of political and military power, and that a fully integrated European economy would make conflicts between European nations less likely. Because many countries were concerned about giving up any control over national affairs, most of the practical proposals for supranational organizations assumed that economic integration would precede political unification.
B Benelux Customs Union
An early example of a supranational economic organization was the Benelux Customs Union (now the Benelux Economic Union), which provided for a free trade area within Belgium, The Netherlands, and Luxembourg, and for a common tariff imposed on goods from outside the Union. Formed in 1948, the union grew from the realization that the economies of the separate states were individually too small to allow them to be competitive in the global market. Belgium and Luxembourg had, in fact, joined in an economic union as early as 1921, and the governments of Belgium and The Netherlands had agreed in principle on a customs union during World War II. Political leaders of these countries have been the warmest advocates of European cooperation and have continued to work for closer economic integration of their own countries independently of broader European developments.
C European Coal and Steel Community (ECSC)
The first major step toward European integration took place in 1950. At that time French foreign minister Robert Schuman, advised by Jean Monnet, proposed the integration of the French and German coal and steel industries and invited other nations to participate. Schuman’s motives were as much political as economic. Many Europeans felt that German industry, which was reviving rapidly, needed to be monitored in some way. The ECSC provided an appropriate mechanism since coal and steel are very important to many modern industries, especially the armaments industry.
The Schuman Plan, as it was called, created a supranational agency to oversee aspects of national coal and steel policy such as levels of production and prices. Not coincidentally, this mandate allowed the agency to keep German industry under surveillance and control. Determined to allay fears of German militancy, West Germany immediately signed on and was soon joined by the Benelux nations and Italy. The United Kingdom, concerned about a potential loss of control over its industry, declined to join.
The treaty establishing the ECSC was signed in 1951 and took effect early the following year. It provided for the elimination of tariffs and quotas on trade within the community in iron ore, coal, coke, and steel; a common external tariff on imports relating to the coal and steel industries from other nations; and controls on production and sales. To supervise the operations of the ECSC, the treaty established several supranational bodies: a high authority with executive powers, a council of ministers to safeguard the interests of the member states, a common assembly with advisory authority only, and a court of justice to settle disputes.
D European Economic Community (EEC)
In 1957 the participants in the ECSC signed two more treaties in Rome. These treaties created the European Atomic Energy Community (Euratom) for the development of peaceful uses of atomic energy and, most important, the European Economic Community (EEC, often referred to as the Common Market).
The EEC treaty provided for the gradual elimination of import duties and quotas on all trade between member nations and for the institution of a common external tariff. Member nations agreed to implement common policies regarding transportation, agriculture, and social insurance, and to permit the free movement of people and funds within the boundaries of the community. One of the most important provisions of the treaty was that it could not be renounced by just one of the members and that, after a certain amount of time, further community decisions would be made by a majority vote of the member states rather than by unanimous action.
Both the EEC and the Euratom treaties created separate high commissions to oversee their operations. However, it was agreed that the ECSC, EEC, and Euratom would be served by a single council of ministers, representative assembly, and court of justice.
In the preliminaries to the 1957 treaties of Rome, other nations were invited to join the EEC. The United Kingdom objected to the loss of control over national policies implied in European integration and attempted to persuade European nations to create a free trade area instead. After the EEC treaty was ratified, the United Kingdom, Norway, Sweden, Denmark, Switzerland, Austria, and Portugal created the European Free Trade Association (EFTA). The EFTA treaty provided only for the elimination of tariffs on industrial products among the member nations. It did not extend to agricultural products, nor did it provide a common external tariff, and members could withdraw at any time. Thus the EFTA was a much weaker union than the Common Market.
In 1961, with the EEC’s apparent economic success, the United Kingdom changed its mind and began negotiations toward EEC membership. In January 1963, however, French president Charles de Gaulle vetoed British membership, primarily because of the United Kingdom’s close ties to the United States. De Gaulle vetoed British admittance a second time in 1967.
E European Community (EC)
In July 1967 the three organizations (the EEC, the ECSC, and Euratom) fully merged as the European Community (EC). The basic economic features of the EEC treaty were gradually implemented, and in 1968 all tariffs between member states were eliminated. No progress was made on enlargement of the EC or on any other new proposals, however, until after De Gaulle resigned as president of France in May 1969. The next French president, Georges Pompidou, was more open to new initiatives within the EC.
At Pompidou’s suggestion, a meeting of the leaders of the member states was held in The Hague, The Netherlands, in December 1969. This meeting paved the way for the creation of a permanent financing arrangement for the EC based on contributions from the member states; the development of a framework for foreign policy cooperation among the member nations; and the opening of membership negotiations with the United Kingdom, Ireland, Denmark, and Norway.
F Expansion of the EC
In 1972, after nearly two years of negotiations, it was agreed that the four applicant countries would be admitted on January 1, 1973. The United Kingdom, Ireland, and Denmark joined as scheduled; however, in a national referendum, the people of Norway voted against membership.
In the United Kingdom, however, popular opposition to EC membership remained. This opposition was based primarily on the amount of British contributions to the EC budget, which many Britons felt was too high. After the Labour Party regained power in the United Kingdom in 1974, it carried out its election promise to renegotiate British membership conditions in the EC, particularly the financial ones. The renegotiation resulted in only marginal changes. However, the question of whether the United Kingdom would withdraw from the EC and doubts in other countries about the United Kingdom’s commitment to Europe added to the existing uncertainty within the community generated by the economic problems of the 1970s. The Labour government endorsed continued EC membership and called a national referendum on the issue for June 1975. Despite strong opposition from some groups, the British people voted for continued membership.
G Single European Act (SEA)
By the 1980s, even though it had existed for more than 30 years, the EC still had not realized the hopes of the most ardent supporters of European unity: a United States of Europe. In fact, despite the removal of internal tariffs, it had not even succeeded in ending all restrictions on trade within the EC, nor in eliminating internal customs frontiers. The admission of the less-developed Mediterranean countries—Greece in 1981, then Spain and Portugal in 1986—introduced a host of new problems. These related primarily to the weaker economies and lower levels of economic development of these states. In particular, the greater reliance of the Mediterranean countries on agriculture meant that a large percentage of funds the EU earmarked to support agriculture within the community would have to be redirected to the new members. This alarmed countries like Ireland, who feared that their own share of these funds would be reduced.
In 1985 the European Council, composed of the heads of state of the EC members, decided to take the next step toward greater integration. In February 1986 they signed the Single European Act (SEA), a package of amendments and additions to the existing EC treaties. The SEA required that the EC adopt more than 300 measures to remove physical, technical, and fiscal barriers in order to establish a single market, where the economies of the member states would be completely integrated. In addition to this, member states agreed to adopt common policies and standards on matters ranging from taxes and employment to health and the environment. Each member state also resolved to bring its economic and monetary policies in line with those of its neighbors.
H Creation of the European Union
In the late 1980s, sweeping political changes led the EC once again to increase cooperation and integration. As Communism crumbled in Eastern Europe, many formerly Communist countries looked to the EC for political and economic assistance. The EC agreed to give aid to many of these countries, but decided not to allow them to join the EC immediately. An exception was made for East Germany, which was automatically incorporated into the EC after German reunification.
In the wake of the rapid political upheaval, West Germany and France proposed an intergovernmental conference (IGC) to pursue closer European unity. An IGC is a meeting between members that begins the formal process of changing or amending EC treaties. Another IGC had been established earlier, in 1989, to prepare a timetable and structure for monetary union, in which members of the community would adopt a single currency. British prime minister Margaret Thatcher opposed calls for increased unity, but in 1990 John Major became prime minister and adopted a more conciliatory approach toward the idea of European unity. The IGCs began work on a series of agreements that became the Treaty on European Union.
I Treaty on European Union
The Treaty on European Union (often called the Maastricht Treaty) founded the EU and was intended to expand political, economic, and social integration among the member states. After lengthy discussions, it was accepted by the European Council at Maastricht, The Netherlands, in December 1991. It committed the EU to Economic and Monetary Union (EMU). Under EMU the member nations would unify their economies and adopt a single currency by 1999. The Maastricht Treaty also set strict criteria that the member states had to meet before they could join EMU. In addition, the treaty created new structures designed to develop a more integrated foreign and security policy and to encourage greater governmental cooperation on judicial and police matters. The member states granted the EU governing bodies more authority in several areas, including the environment, education, health, and consumer protection.
The new treaty aroused a good deal of popular opposition and concern among EU citizens. Many people were worried about EMU, which would replace national currencies with a single European currency. The United Kingdom refused to endorse some elements of the treaty and gained exemptions, called opt-outs, from those elements. These included not joining EMU and not participating in the Social Chapter, a section of the Maastricht Treaty outlining goals in social and employment policy, including a common code of workers’ rights. Danish voters turned down ratification in a referendum, while French voters favored the treaty by only a slim majority. In Germany a challenge to the treaty was lodged with the country’s supreme court, saying that membership in the EU violated Germany’s constitution. In an emergency meeting of the European Council, Denmark gained substantial concessions and exemptions, including the right to opt out of both EMU and any future common defense policy. Danish voters then approved the treaty in a subsequent referendum. Because of these problems, the EU was not formally inaugurated until November 1993.
J Amsterdam Treaty
Popular reactions against some aspects and consequences of the Maastricht Treaty led to another intergovernmental conference among EU leaders that began in March 1996. This IGC produced the Amsterdam Treaty, which revised the Maastricht Treaty and other founding EU documents. These changes were intended to make the EU more attractive and relevant to ordinary people.
The Amsterdam Treaty called on member nations to cooperate in creating jobs throughout Europe, protecting the environment, improving public health, and safeguarding consumer rights. Additionally, the treaty provided for the removal of barriers to travel and immigration among the EU member states except for the United Kingdom, Ireland, and Denmark, all of which retained their original border controls. The treaty included the potential for cooperation and integration with the Western European Union (WEU), an organization of Western European powers focused on defense. It also allowed the possibility of admitting Eastern European countries to the EU. The Amsterdam Treaty was signed by EU members on October 2, 1997.
K Monetary Union
The EU’s attempts to establish a single European currency, as set out in the Maastricht Treaty, were controversial from the start. For instance, some EU countries, including the United Kingdom, worried that a shared European currency would threaten their national identity and governmental authority. Despite their concerns, many of the EU’s member countries struggled to meet the economic requirements for participating in a shared currency.
These requirements were stringent: (1) a country’s rate of inflation could not be more than 1.5 percent higher than an average of the rate in the three countries with the lowest inflation; (2) a country’s budget deficit could not exceed 3 percent of gross domestic product (GDP), and its government debt could not exceed 60 percent of GDP; (3) a country’s long-term interest rate could not be more than 2 percent higher than an average of the rate in the three countries with the lowest interest rates; (4) a country could not have devalued its currency against any other member nation’s for at least two years prior to EMU.
Most countries found it very difficult to meet all these criteria. Measures to reduce inflation and high interest rates contributed to increasing unemployment, while efforts to control government deficits often led to increased taxation. These consequences compounded the problems of economic recession that most countries were already experiencing.
As the deadline for EMU approached, misgivings arose from many quarters that the economic climate was not right, that levels of economic performance across the countries were still too disparate, and that several countries had not strictly met the Maastricht criteria. However, the EU officially agreed in May 1998 to adopt a single European currency—the euro—for 11 of the 15 member countries beginning on January 1, 1999. This agreement also created the European Central Bank (ECB) to oversee the new currency and to take charge of the monetary policies of the EU. The countries that adopted the euro were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and Spain.
The United Kingdom, Sweden, and Denmark met the economic criteria to join in the adoption of the euro but decided not to participate. Greece had hoped to be included in the first wave of countries to adopt the euro but did not meet the criteria. On January 1, 1999, the 11 nations began to use the euro for accounting purposes and electronic money transfers, while continuing to use their national currencies for other uses. Greece adopted the euro in January 2001, becoming the 12th member of the euro zone. In 2002 the ECB began issuing euro-denominated coins and banknotes, and the currency of countries that adopted the euro ceased to be legal tender.
L Growing Accountability
The adoption of the euro led to greater integration and cooperation among EU members. One result was a growing concern on the part of EU citizens and some members of the EU government that the major EU institutions were not sufficiently democratic or accountable. This was especially true of the European Commission. As the power of the EU grew, so did concerns that the commission exercised too much control with too little oversight. At the same time, there were also worries that the one democratically elected institution of the EU, the European Parliament, had very little power.
This issue came to a head in 1999, when a report prepared by independent auditors at the request of the European Parliament cited multiple examples of mismanagement on the part of the commission. The report accused several commissioners of corruption, cronyism, and poor oversight over programs under their control. After the report was released, the entire European Commission resigned, something that had never happened before. The sudden resignations caused a great deal of confusion in the short term, but experts generally considered the report and its consequences to be an important step by the European Parliament toward increasing the democratic accountability of the EU governing bodies.
STRUCTURE OF THE EU
A Pillar System
The members of the EU cooperate in three areas, often referred to as pillars. At the heart of this system is the EC pillar with its supranational functions and its governing institutions. The EC pillar is flanked by two pillars based on intergovernmental cooperation: Common Foreign and Security Policy (CFSP) and Justice and Home Affairs (JHA). These two pillars are a result of the Maastricht agreement to develop closer cooperation in these areas. However, because the members were unwilling to cede authority to supranational institutions, policy decisions in these pillars are made by unanimous cooperation between members and cannot be enforced. For the most part, the governing institutions of the EC pillar have little or no input in the other two.
The CFSP and JHA pillars are based entirely on intergovernmental cooperation, and decisions have to be made unanimously. CFSP is a forum for foreign policy discussions, common declarations, and common actions that work toward developing a security and defense policy. It has successfully developed positions on a range of issues and has established some common policy actions; however, the CFSP has failed to agree on a common security and defense. Some countries, led by France, want an integrated European military force, while others, especially the United Kingdom, insist that United States involvement via the North Atlantic Treaty Organization (NATO) is vital for European security.
This second argument was reinforced when the EU failed to resolve the Yugoslavian crisis that began in 1991. Between 1991 and 1992 the Yugoslav republics of Slovenia, Croatia, Bosnia and Herzegovina, and Macedonia declared independence, leaving a Yugoslavia that consisted only of the republics of Serbia and Montenegro. The Croatian and Bosnian secessions were strongly opposed by Serbia, and violent conflict resulted between ethnic Bosnian, Croat, and Serb populations. The EU attempted to find a settlement for these conflicts. However, these efforts were ineffective because EU members could not agree on how they should be involved, and they feared being dragged into military intervention. The Yugoslav crisis underlined the difficulties in achieving a common foreign policy for the EU. Effective international intervention in Yugoslavia ultimately came only with U.S. and NATO involvement, acting under the auspices of the United Nations.
The EU has been more successful in JHA, which formalized and extended earlier intergovernmental cooperation in combating crime, especially drug trafficking, and in setting immigration and asylum policies. The Amsterdam Treaty provided for some aspects of JHA to be moved to the supranational pillar of the EC. These related to asylum and visa issues, immigration policy, and external border controls.
Standing above the three pillars and in a position to coordinate activities across all of them is the European Council. The council is in strict legal terms not an EU institution. It is the meeting place of the leaders of the national governments. Its decisions are almost always unanimous but usually require intensive bargaining. The council shapes the integration process and has been responsible for almost all EU developments, including the SEA and the Maastricht and Amsterdam treaties. The European Council has provided the EU with initiatives for further development, agendas in various policy fields, and decisions that it expects the EU to accept. The council’s actions illustrate one of the major dilemmas within the EU: how to promote further unity and integration while permitting national governments to retain as much influence as possible over decisions.
B Major Bodies
The EC pillar contains all the governing institutions of the EU. The major ones are the European Commission, the Council of the European Union, the European Parliament, the European Court of Justice, and the Court of Auditors. In addition, there are many smaller bodies in the EU, such as the Economic and Social Committee, and the Committee of the Regions.
B1 European Commission
The European Commission is the highest administrative body in the EU. Unlike the European Council, which oversees all three pillars of the EU, the commission concentrates almost solely on the EC pillar. It initiates, implements, and supervises policy. It is also responsible for the general financial management of the EU and for ensuring that member states adhere to EU decisions. The commission is meant to be the engine of integration, and it spearheaded the preparations for the single market and the moves toward establishing the euro.
Currently there are 20 commissioners, who are appointed by the member governments and are supported by a large administrative staff. The United Kingdom, France, Germany, Italy, and Spain each appoint two commissioners; the other countries appoint one each. The policy of each member state selecting a commissioner has become an issue with the possibility that the EU will become larger during the next decade. If each country in an enlarged EU were allowed to appoint at least one commissioner, the commission would be much larger, making it too unwieldy to be an effective executive and decision-making authority. In addition, the fact that the commission is appointed by member governments and not elected by the people has raised questions about how much power it should be allowed to exercise. The lack of democratic accountability has become a more important issue with the expansion of EU control into different policy areas and the intention to admit more countries into the EU.
B2 Council of the European Union
The Council of the European Union (formerly called the Council of Ministers) represents national governments. It is the primary decision-making authority of the EU and is the most important and powerful EU body. Although its name is similar to that of the European Council, the Council of the European Union’s powers are essentially limited to the EC pillar, whereas the European Council oversees all three pillars of EU cooperation.
When the Council of the European Union meets, 15 government ministers, one from each member state, are present. However, the minister for each state is not the same for every meeting. Each member state sends its government minister who is most familiar with the topic at hand. For example, a council of 15 defense ministers might discuss foreign policy, whereas a council of 15 agriculture ministers would meet to discuss crop prices.
The Council of the European Union adopts proposals and issues instructions to the European Commission. Paradoxically, the council is expected to further EU integration while at the same time protecting the interests of the member states—two goals that are not always compatible. This contradiction will probably become more difficult to reconcile as the EU continues to expand.
Decision making in the council is complex. A few minor questions can be decided by a simple majority. Many issues, however, require what is called qualified majority voting, or QMV. In QMV each country has an indivisible bloc of votes roughly proportional to its population. It takes two-thirds of the total number of votes to make a qualified majority. QMV was introduced in some areas to replace the need for a unanimous vote. This has made the decision-making process faster and easier as it prevents any one state from exercising a veto. QMV was extended to more areas by the Single European Act. Many important decisions, however, still require unanimous support.
B3 European Parliament (EP)
The European Parliament (EP) is made up of 626 members who are directly elected by the citizens of the EU. Direct elections to the EP were implemented in 1979. Before that time, members were appointed by the legislatures of the member governments. The European Parliament was originally designed merely as an advisory body; however, its right to participate in EU decision making was extended by the later treaties. It must be consulted about matters relating to the EU budget, which it can reject; it can remove the European Commission as a body through a vote of no confidence; and it can veto the accession of member states.
The European Parliament’s influence is essentially negative: It can block but rarely initiate legislation, its consultative opinions can be ignored, and it has no power over the Council of the European Union. Its effectiveness is limited by two structural problems: It conducts its business in 11 official languages, with consequent huge translation costs, and it is nomadic, using three sites in different countries for its meetings. Unless changes are made, these weaknesses will most likely intensify as the union grows larger. At the same time, there have been frequent calls for expanding the power of the European Parliament, which would increase the democratic accountability of the EU. The weaknesses of the European Parliament can be remedied, however, only by the national governments.
B4 European Court of Justice (ECJ)
The European Court of Justice (ECJ) is the judicial arm of the EU. Each member country appoints one judge to the court. The ECJ is responsible for the law that the EU establishes for itself and its member states. It also ensures that other EU institutions and the member states conform with the provisions of EU treaties and legislation. The court has no direct links with national courts and no control over how they apply and interpret national law, but it has established that EU law supersedes national law.
Historically, the ECJ has declared both for and against EU institutions and member states. Its assertion that EU law takes precedence over national law, and the fact that there is no appeal against it, have given the ECJ a powerful role in the EU and have on occasion drawn criticism from both national governments and national courts.
Historically the ECJ had a very high caseload, but this was eased in 1989 when the Court of First Instance was created. This court hears certain categories of cases, including those brought by EU officials and cases seeking damages. Rulings by the Court of First Instance may be appealed to the ECJ, but only on points of law.
B5 Court of Auditors
The Court of Auditors is made up of 15 members, one from each EU member state. The court oversees the finances of the EU and ensures that all financial transactions are carried out according to the EU budget and laws. The court issues a yearly report to the Council of the European Union and the European Parliament detailing its findings.
B6 European Central Bank (ECB)
The European Central Bank (ECB) began operations in 1998. It is overseen by a six-member executive board that is chosen by agreement of the EU member governments and includes the ECB president and vice president. The ECB has exclusive authority for EU monetary policy, including such things as setting interest rates and regulating the money supply. In addition, the ECB played and continues to play a major role in overseeing the inauguration and consolidation of the euro as the single EU currency. Its authority over monetary policy and its independence from other EU institutions make the ECB a very powerful body. There are misgivings that the ECB has been given too much independence, leading to a debate over whether it should be subject to political direction.
B7 Other Bodies
Other important bodies in the EU include the Economic and Social Committee and the Committee of the Regions. The Economic and Social Committee is a 222-member advisory body drawn from national interest groups of employers, trade unions, and other occupational groups. It must be consulted by the European Commission and the Council of the European Union on issues dealing with economic and social welfare. The Committee of the Regions, also with 222 members, was formed in 1994 as a forum for representatives of regional and local governments. It was intended to strengthen the democratic credentials of the EU, but it has only a consultative and advisory role.
IMPORTANT FEATURES AND POLICIES OF THE EU
One of the major goals of the EU has been to establish a single market in which the economies of all the EU members are unified. The EU has sought to meet this objective in three ways: by defining a common commercial policy, by reducing economic differences among its richer and poorer members, and by stabilizing the currencies of its members.
The 1957 Rome treaties obliged the EU to adopt a common commercial policy. The EU adopted several common policies, the main ones being the Common Agricultural Policy (CAP) and the Common Fisheries Policy (CFP). By 1968 the EU had also created a customs union in which all tariffs and duties among members were eliminated. Finally, members had defined uniform commercial practices for trade with nonmember states.
The EU has attempted to address regional economic differences through agencies such as the European Social Fund, the European Regional Development Fund, the Cohesion Fund, and the European Investment Bank (EIB). These agencies provide money through loans or grants to further economic development in the poorer areas of the EU.
Finally, the EU attempted to stabilize the currencies of its members with the European Monetary System (EMS). The EMS was prompted not only by the desire for a single market, but also by international economic problems and fluctuations in exchange rates. These problems also convinced the EU of the importance of Economic and Monetary Union (EMU), in which both the economies and the currencies of the members would be unified.
A Common Policies
A1 Common Agricultural Policy (CAP)
The Common Agricultural Policy (CAP) was established by the 1957 Rome treaty that created the European Economic Community. The policy reflected the contemporary belief in the economic importance of agriculture. Memories of the economic hardships that followed the two world wars led the EEC founders to believe that member states should be able to feed their populations from their own resources.
The CAP was intended to stabilize agricultural markets, improve productivity, and ensure a fair deal for both farmers and consumers. It has three major elements: a single market for agricultural products with a system of common prices to producers across the EU; preference for EU producers through a common levy on all agricultural imports from abroad; and shared financial responsibility for guaranteeing prices.
From the beginning, the common prices set were based on political pressure from farmers and governments rather than market considerations. This created massive overproduction. Prices remained artificially high, and any surpluses were bought by the EU and either stored, destroyed, or sold at very low prices on international markets. The costs became a huge burden. Even so, there were few internal critics, although the CAP consumed two-thirds of the EU budget in the early 1980s. The CAP was, however, very unpopular overseas. Developing countries believed it hurt their own export agriculture, while the United States and other major food producers attacked the CAP’s protectionism, distortion of prices, and dumping of surplus produce on world markets.
Despite complaints, the EU countries with strong farming interests were initially unwilling to accept the need for reform. The CAP was almost the only major common policy possessed by the EU, and consequently it was an important symbol of integration. Nonetheless, the EU did agree to reforms to the CAP in 1984 and 1988. These agreements, which imposed production quotas on some types of agriculture and reduced the amount of agricultural spending, were driven by a combination of external pressure and the projection that CAP costs would soon outstrip EU resources. A more radical revision was finalized in 1992. This revision switched EU spending from supporting artificially high agricultural prices to directly supporting farmers’ incomes. This involved cutting guaranteed prices to farmers, and the effect was a severe reduction in both CAP costs and the level of support given to farmers.
Even so, the CAP remained the largest item in the EU budget in the late 1990s and continued to be unpopular both with many EU citizens and other world producers. The commitment to CAP as a symbol of integration may not guarantee its future, however, especially if the EU accepts members from Eastern Europe. The economies of these countries are more agriculturally based and more economically inefficient than EU states. Without major reform, almost all the CAP would have to be redirected to these states, which would be politically and economically impossible.
A2 Common Fisheries Policy (CFP)
The other major common policy is the Common Fisheries Policy (CFP) of 1982. It imposed controls on access to fish stocks and attempted to preserve the fisheries. CFP set up a structure of price and compensation systems modeled on the CAP. The CFP has successfully limited overfishing in EU waters, but national fishing industries have objected to its system of fixing prices and allocating to each country strict quotas on the amount of each fish species that can be caught.
B Reducing Economic Differences
Under the 1957 Rome treaty that created the EEC, the signatories pledged to standardize policies regarding working conditions, social insurance, and similar matters. However, little progress was made until an increase in oil prices brought about the worldwide economic depression of the 1970s. At that time, the European Regional Development Fund was created and the moribund European Social Fund, which had originally been established by the Rome treaty, was reactivated.
B1 European Regional Development Fund and European Social Fund
The European Regional Development Fund is concerned with infrastructure developments proposed by member governments. Since 1989 it has focused on regions with weak economies, severe industrial decline, or problems of rural development. Each member country is eligible to receive a percentage of the fund’s budget, determined roughly by its population size and economic wealth. The fund normally covers only 50 percent of the proposed costs; the remainder has to come from national sources. The European Social Fund is organized in much the same way, but it focuses mainly on the training and retraining of workers. Since 1988 it has concentrated more on long-term and youth unemployment, especially in the poorer regions of the EU. All countries have benefited from the funds, but the vast bulk of grants have gone to poorer areas.
B2 Cohesion Fund
Another instrument for reducing economic differences between the richer and poorer member states is the Cohesion Fund. The fund was established in 1994 to transfer money to the poorer EU states in order to assist them in meeting the criteria for economic and monetary union. As with the Regional Development Fund and the Social Fund, the majority of grants from the Cohesion Fund have gone to the poorer member states. The ability of these funds to survive EU expansion into Eastern Europe, without the latter receiving everything, is in doubt.
B3 European Investment Bank (EIB)
The European Investment Bank (EIB) was established in 1957 under the Rome treaty that created the EEC. Its primary focus is on regional development, employment, and environmental modernization. The member states contribute to its capital, but it raises most of its funds on international markets. Some 8 percent of its budget goes to projects outside the EU. The bank only offers loans, not grants, and its contribution must be matched by an equivalent outlay from other sources. The EIB is an autonomous body able to make its own operational decisions free of political direction, within the general legal framework of the EU. It has been one of the most successful EU bodies. Since 1993 its annual lending volume has been greater than that of the International Bank for Reconstruction and Development (the World Bank).
C Stabilizing Currencies: The European Monetary System (EMS)
The European Monetary System (EMS) is the exchange rate structure of the EU. It was established in 1979 to stabilize exchange rates among members at a time when currencies were fluctuating strongly because of the economic recession of the 1970s. Stabler currencies, it was hoped, would provide the foundations for a future monetary union and a single currency among member states.
The core of the EMS and the engine of stabilization is the Exchange Rate Mechanism (ERM). This system was designed to reduce the amount that the currencies of member states could fluctuate against each other. By evening out exchange rate fluctuations and stabilizing currencies, the ERM was intended to stimulate trade and investment among EU members, and to help prevent inflation by linking weaker national currencies to the strong and stable German deutsche mark.
In addition to the ERM, the EMS introduced the European Currency Unit (ECU), which was used for accounting and for administrative purposes. The ECU was replaced by the euro when EMU went into effect on January 1, 1999.
The EMS was highly successful in the 1980s. It helped develop a sense of collective responsibility and discipline that contributed greatly to a reduction of inflation and, after 1987, to a period of exchange rate stability. Its success led to the further push in the Maastricht Treaty toward full economic and monetary integration. However, once currency realignments under the ERM had been largely completed, the EMS became more rigid, and currencies were allowed to fluctuate against each other only by very small amounts. This rigidity prevented countries experiencing economic difficulties from simply adjusting their exchange rates as they might have done otherwise.
This rigidity coupled with differing economic and monetary conditions in the member states made it difficult for the EMS to hold stronger and weaker currencies together when currency traders began to have doubts about the value of certain members’ currencies. Doubts resulted from German reunification in 1990 and the difficulties in ratifying the Maastricht Treaty. Waves of currency speculation in 1992 and 1993 forced several countries to devalue their currencies, and the United Kingdom and Italy had to leave the ERM. The EMS survived by increasing the amount that currencies could fluctuate against one another, but the increase was so great that members’ currencies could fluctuate almost at will. The EMS was held together only by the EU’s political will to create monetary union and a single currency.
The role of the EMS has remained essentially unchanged with the introduction of the euro. It regulates exchange rates between the euro and those EU states that did not join the single currency.
D Economic and Monetary Union (EMU)
Economic and Monetary Union (EMU) is a step beyond a single market toward further integration. EMU requires an intense degree of economic coordination among its members. They must integrate their budgetary policies, establish common interest rates, and use a single currency. It is a logical step forward from the EC’s customs union of 1968 and the decision in the 1987 Single European Act to move to a single market.
EMU first appeared on the EC agenda in the late 1960s, following the community’s economic success. At that time, concerns were growing that the post-World War II fixed exchange rate system was beginning to crumble. This system tied the major world currencies to the U.S. dollar, which was tied to the price of gold. However, in the mid-1960s the dollar began to weaken, and people began to lose confidence in the system. What the EC wanted was a fixed exchange rate system that was less susceptible to the influence of the dollar. In 1969 EU leaders asked Pierre Werner, the premier of Luxembourg, to head a committee to devise a new system for the EC. In 1970 they accepted Werner’s recommendation for a movement to full EMU by 1980.
Poor economic conditions in the 1970s, however, forced postponement of the Werner Plan. In 1971 the United States uncoupled the U.S. dollar from gold, and subsequently, currencies that had been tied to the dollar became floating currencies with no fixed exchange rates. Then in 1973 oil prices quadrupled, producing a tumultuous economic climate in which governments were faced with both rising inflation and rising unemployment. EMU was more or less forgotten as the EU instead concentrated on trying to achieve a more modest structure of currency stability. After some initial difficulties, the result was the successful European Monetary System of 1979.
The seemingly positive effects of the EMS and the 1987 decision to form a single market led to a resurrection of the Werner Plan, with EMU to be implemented in three stages after 1990. In Madrid in June 1989 the European Council set up an intergovernmental conference (IGC) to flesh out the proposal. The IGC report was incorporated into the Maastricht Treaty in 1991. It was accepted that the first stage of EMU, the elimination of exchange controls and restrictions on the flow of capital, had already begun. The second stage was set for 1994, when member states would begin to coordinate their economies to reduce inflation and budget deficits. Full EMU, with the inauguration of a single currency under the direction of an EU central bank, would begin in 1999 at the latest. After pressure from Germany, which wanted the single currency to be as strong as the deutsche mark, the EU decided that countries entering the third stage would have to meet strict economic criteria on the size of government deficit, interest rate levels, inflation, and currency stability.
However, the currency speculation problems in 1992 and 1993 that caused Italy and the United Kingdom to leave the ERM, along with a general slide into economic recession, raised doubts about how many countries would meet the EMU criteria. Many governments struggled to control inflation and budget deficits through cuts in government spending and other austerity measures, but their efforts often led to higher unemployment and popular discontent. By 1998 many people within the EU believed that the qualification criteria would have to be relaxed for EMU to occur. Despite these worries, only Greece failed to meet the criteria, and on January 1, 1999, the single currency, the euro, went into use. Greece was permitted to adopt the euro two years later, on January 1, 2001, after the Greek government succeeded in lowering inflation and budget deficits.
The economic success of EMU depends on whether the euro is accepted in the international markets as a stable and strong currency and the extent to which it leads to a greater convergence of national economies and greater mobility of production, goods, and services within the EU. It is not clear whether EMU has a sufficiently firm foundation for these goals to be achieved. However, many EMU supporters find the debates about the economic costs and benefits less important than the belief that EMU, even if economically flawed, is a big step toward political integration.
EMU therefore supports the ideas of Robert Schuman and Jean Monnet that the way to political union is through economics. It has also reinforced the central role of France and Germany in the EU. The reunified Germany was much larger, reawakening French concerns and their desire to influence German economic policy. At the same time, Germany wanted to allay fears of a militaristic German nationalism. Much the same as in 1950, when the European Coal and Steel Community was created, both governments believed that these political problems could be resolved through economic integration. These concerns underpinned a more widespread belief that economic and political benefits will quickly outweigh the initial costs of switching to a single currency whose stability has still to be proven.
RELATIONS WITH THE REST OF THE WORLD
One of the major objectives of the European Union is to speak with one voice and to have a single policy position on world issues. This has been easier to achieve in economics and trade than on political problems. Bilateral and multilateral trade agreements have been signed between the EU and most developing countries. Common political positions, however, have been hindered by conflicts between national interests. EU ambassadors in foreign capitals and at the United Nations collaborate closely, and EU member states develop common foreign policy statements.
However, this collaboration has not always resulted in common action. EU countries were divided over the 1991 Persian Gulf War, the post-1991 crises in the former Yugoslavia, and future relations with Russia and Eastern Europe. In each instance, differences arose between members over how and to what extent the EU should become involved in foreign policy problems, and what the results of any EU action would be for members’ economies and political relationships.
A EU Expansion
By 1995 all the former Communist countries of Eastern Europe had applied for EU membership. The EU, however, was concerned about the stability of democratic institutions in these countries and their transition to market economies. The countries of Eastern Europe had less developed economies than those of Western Europe, which would make the incorporation of the former into the EU difficult. Expansion would require a significant reevaluation of EU programs—especially the CAP—and distribution of EU resources. The richer member states worried that they would have to pay more into EU funds, while the poorer member states feared that their share of EU funding for agriculture and regional development would be drastically reduced.
Despite these worries, in 1997 the EU agreed that the political and economic situations in the Czech Republic, Estonia, Hungary, Poland, and Slovenia were such that negotiations on membership could begin, with EU membership coming sometime after 2000. The other Eastern European applications were put on indefinite hold. However, trade between East and West picked up substantially after 1990, as Western nations began to invest in Eastern Europe and the EU provided aid to these countries. The EU and individual countries formed joint ventures and signed formal agreements calling for political and cultural cooperation. The EU also agreed in 1998 to begin membership negotiations with Cyprus; at the same time it suspended the application from Turkey due to concerns over the country’s human rights record and strong opposition from Greece.
B The EU and Non-European Nations
Relations between the EU and the non-European industrialized countries, especially the United States and Japan, have been both rewarding and frustrating. The EU follows a protectionist policy, especially with respect to agriculture, which on occasion has led the United States in particular to adopt retaliatory measures. In general, however, relations have been positive. The United States and Japan are the largest markets outside Europe for EU products and are also the largest non-European suppliers.
The EU has been less protectionist when dealing with developing countries, which receive more than one-third of its exports. By the mid-1990s all underdeveloped countries could export industrial products to EU nations duty free; many agricultural products that competed directly with those of the EU could also enter duty free. In addition, the EU has reached special agreements with many countries in Africa, the Caribbean, and the Pacific (the so-called ACP countries). In 1963 it signed a convention in Yaoundé, Cameroon, offering commercial, technical, and financial cooperation to 18 African countries, mostly former French and Belgian colonies. In 1975 it signed a convention in Lomé, Togo, with 46 ACP countries, granting them free access to the EU for virtually all of their products, as well as providing industrial and financial aid. The Lomé convention was renewed and extended to a total of 58 countries in 1979; to 65 in 1984; and to 69 in 1989. The EU has also concluded similar agreements with all the Mediterranean states except Libya, as well as other countries in Latin America and Asia.
THE FUTURE OF THE EUROPEAN UNION
The EU has come a long way since 1951. Its membership has grown to 15 countries, and may increase to 21 or more by 2010. It has developed a common body of law, common policies and practices, and a great deal of cooperation among its members. Its progress, however, has not been consistent, with spurts of activity separated by more-dormant periods. After initial activity in the 1960s, it was not until the mid-1980s that the EU moved decisively to greater integration. In the 1990s a more gloomy economic climate and evidence of popular disenchantment about the EU led to a slowdown in innovation. The 1997 Amsterdam Treaty emphasized consolidation rather than addressing outstanding issues.
This uneven progress is in part due to two unresolved debates that potential enlargement into Eastern Europe has brought closer together. The first is whether to give priority to “deepening” or “widening,” that is, whether to concentrate upon integrating the existing members further, or to welcome new members so that all can have an input into the kind of Europe they want. In addition to the six countries with whom the EU has agreed to negotiate, a further seven have also applied for membership. The second issue is supranationalism versus intergovernmentalism. Despite acceptance of the supranational principle, national governments have been reluctant to cede all control over policy areas to EU institutions. The result was the three EU pillars, since countries did not wish to give up control in politically sensitive areas such as foreign policy and judicial affairs.
The most immediate challenge the EU faces is to make a success of the euro, but the future of the single currency rests in part upon how acceptable it proves to world financial institutions and markets. In the long term, enlarging the EU by including Eastern Europe should improve economic prospects by extending the single market and stimulating economic growth and trade. The EU hopes that enlargement will raise the EU’s standing as the major European voice in world affairs and contribute to security and stability on the Continent.
The EU has, however, been reluctant to address the dramatic effects enlargement could have upon EU structures and finances. Under existing criteria, the bulk of CAP and structural fund resources—by far the largest elements of EU spending—will have to be transferred to the new members. This has alarmed the poorer member states that now receive these funds, while the richer ones are reluctant to provide more funding for the EU.
The budget issue and enlargement also present problems for the structure of the EU. They raise questions about the nature of the European Commission, how nations should be represented on the commission, and the extent of the commission’s authority and responsibility. As the power of the EU has grown, the organization has often been criticized for not being truly democratic, since the European Parliament has no real powers or control over decisions. Furthermore, the decision-making bodies, especially the commission, are not subject to any democratic check.
By the late 1990s the members seemed more reluctant to address institutional reform, fearing perhaps the loss of their ability to act independently. This reluctance has been most pronounced in security policy. The EU failed to present a coherent front in either the Persian Gulf War or the former Yugoslavia when required to move from a common policy position to a common action. The desire of some countries to build a common defense policy is resisted by others that insist that at best a European defense force can only be supportive of and subordinated to NATO.
All this raises further questions about what the EU is and what it wants to achieve. For almost all its life span, European integration has been the result of elite initiatives and agreements that did not involve national electorates. In the 1990s, however, the picture changed because of the single market, demands for more harmonization, and the Maastricht Treaty. Popular discontent with elite decisions increased, indicating that electorates could no longer be taken for granted. Almost all EU activity has been devoted to building the equivalent of a state. Little effort has been focused on how to create a European nation with a strong bond of identity across national electorates, making them feel they have much, including a future, in common. The issue of a European identity will be a major challenge in the next century.
Despite these challenges, the EU is unlikely to disappear. It has become a fact of life, with the countries enmeshed together in a host of cooperative practices. The EU has had great success in developing a culture of collaboration, and it occupies a place at the center of Europe. What is at issue is not its survival, but what kind of EU will lead Europe in the 21st century.
Dr Khalil Hussein
Professor at faculty of law at Lebanese university
Director of studies at Lebanese Parliament
European Union (EU), organization of European countries dedicated to increasing economic integration and strengthening cooperation among its members. The European Union headquarters is in Brussels, Belgium.
The European Union was formally established on November 1, 1993. It is the most recent in a series of European cooperative organizations that originated with the European Coal and Steel Community (ECSC) of 1951, which became the European Community (EC) in 1967. The members of the EC were Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, the United Kingdom, and Spain. In 1991 the governments of the 12 member states signed the Treaty on European Union (commonly called the Maastricht Treaty), which was then ratified by the national legislatures of all the member countries. The Maastricht Treaty transformed the EC into the EU. In 1994 Austria, Finland, and Sweden joined the EU, bringing the total membership to 15 nations.
The EU has a number of objectives. Primarily, it works to promote and expand cooperation among its members in several areas, including economics and trade, social issues, foreign policy, security, and judicial matters. Another major goal has been to implement Economic and Monetary Union (EMU), which established a single currency for EU members. With the exception of EMU, which went into effect in 1999, progress toward these goals has been erratic. The EU’s ability to achieve its goals has been limited by disagreements among member states, external political and economic problems, and pressure for membership from the new democracies of Eastern Europe.
History of the European Union
The dream of a united Europe is almost as old as Europe itself. The early 9th-century empire of Charlemagne covered much of western Europe. In the early 1800s the French empire of Napoleon I encompassed almost all of the European continent. During World War II (1939-1945), Adolf Hitler nearly succeeded in uniting Europe under Nazi domination. All these efforts failed because they relied on forcibly subjugating other nations rather than cooperating with them.
Attempts to create cooperative organizations fared little better until after World War II. Until that time, nations had strongly opposed all attempts to infringe on their powers and were unwilling to give up any control over their policies. These early organizations were international or intergovernmental organizations that depended on the voluntary cooperation of their members; consequently, they had no direct powers of coercion to enforce their laws or regulations. Supranational organizations, on the other hand, require their members to surrender at least a portion of their control over policy areas and can compel compliance with their mandates. After World War II, proposals for some kind of supranational organization in Europe became increasingly frequent.
A Early Cooperation
Postwar proposals for a European supranational organization had both political and economic motives. The political motive was based on the belief that only a supranational organization could eliminate the threat of war between European countries. Some supporters of European political unity, such as the French statesman Jean Monnet, further believed that if the nations of Europe were to resume their dominant role in world affairs, they had to speak with one voice and have at their command resources comparable to those of the United States.
The economic motive rested on the argument that larger markets would promote increased competition and thus lead to higher productivity and standards of living. Economic and political viewpoints merged in the assumptions that economic strength was the basis of political and military power, and that a fully integrated European economy would make conflicts between European nations less likely. Because many countries were concerned about giving up any control over national affairs, most of the practical proposals for supranational organizations assumed that economic integration would precede political unification.
B Benelux Customs Union
An early example of a supranational economic organization was the Benelux Customs Union (now the Benelux Economic Union), which provided for a free trade area within Belgium, The Netherlands, and Luxembourg, and for a common tariff imposed on goods from outside the Union. Formed in 1948, the union grew from the realization that the economies of the separate states were individually too small to allow them to be competitive in the global market. Belgium and Luxembourg had, in fact, joined in an economic union as early as 1921, and the governments of Belgium and The Netherlands had agreed in principle on a customs union during World War II. Political leaders of these countries have been the warmest advocates of European cooperation and have continued to work for closer economic integration of their own countries independently of broader European developments.
C European Coal and Steel Community (ECSC)
The first major step toward European integration took place in 1950. At that time French foreign minister Robert Schuman, advised by Jean Monnet, proposed the integration of the French and German coal and steel industries and invited other nations to participate. Schuman’s motives were as much political as economic. Many Europeans felt that German industry, which was reviving rapidly, needed to be monitored in some way. The ECSC provided an appropriate mechanism since coal and steel are very important to many modern industries, especially the armaments industry.
The Schuman Plan, as it was called, created a supranational agency to oversee aspects of national coal and steel policy such as levels of production and prices. Not coincidentally, this mandate allowed the agency to keep German industry under surveillance and control. Determined to allay fears of German militancy, West Germany immediately signed on and was soon joined by the Benelux nations and Italy. The United Kingdom, concerned about a potential loss of control over its industry, declined to join.
The treaty establishing the ECSC was signed in 1951 and took effect early the following year. It provided for the elimination of tariffs and quotas on trade within the community in iron ore, coal, coke, and steel; a common external tariff on imports relating to the coal and steel industries from other nations; and controls on production and sales. To supervise the operations of the ECSC, the treaty established several supranational bodies: a high authority with executive powers, a council of ministers to safeguard the interests of the member states, a common assembly with advisory authority only, and a court of justice to settle disputes.
D European Economic Community (EEC)
In 1957 the participants in the ECSC signed two more treaties in Rome. These treaties created the European Atomic Energy Community (Euratom) for the development of peaceful uses of atomic energy and, most important, the European Economic Community (EEC, often referred to as the Common Market).
The EEC treaty provided for the gradual elimination of import duties and quotas on all trade between member nations and for the institution of a common external tariff. Member nations agreed to implement common policies regarding transportation, agriculture, and social insurance, and to permit the free movement of people and funds within the boundaries of the community. One of the most important provisions of the treaty was that it could not be renounced by just one of the members and that, after a certain amount of time, further community decisions would be made by a majority vote of the member states rather than by unanimous action.
Both the EEC and the Euratom treaties created separate high commissions to oversee their operations. However, it was agreed that the ECSC, EEC, and Euratom would be served by a single council of ministers, representative assembly, and court of justice.
In the preliminaries to the 1957 treaties of Rome, other nations were invited to join the EEC. The United Kingdom objected to the loss of control over national policies implied in European integration and attempted to persuade European nations to create a free trade area instead. After the EEC treaty was ratified, the United Kingdom, Norway, Sweden, Denmark, Switzerland, Austria, and Portugal created the European Free Trade Association (EFTA). The EFTA treaty provided only for the elimination of tariffs on industrial products among the member nations. It did not extend to agricultural products, nor did it provide a common external tariff, and members could withdraw at any time. Thus the EFTA was a much weaker union than the Common Market.
In 1961, with the EEC’s apparent economic success, the United Kingdom changed its mind and began negotiations toward EEC membership. In January 1963, however, French president Charles de Gaulle vetoed British membership, primarily because of the United Kingdom’s close ties to the United States. De Gaulle vetoed British admittance a second time in 1967.
E European Community (EC)
In July 1967 the three organizations (the EEC, the ECSC, and Euratom) fully merged as the European Community (EC). The basic economic features of the EEC treaty were gradually implemented, and in 1968 all tariffs between member states were eliminated. No progress was made on enlargement of the EC or on any other new proposals, however, until after De Gaulle resigned as president of France in May 1969. The next French president, Georges Pompidou, was more open to new initiatives within the EC.
At Pompidou’s suggestion, a meeting of the leaders of the member states was held in The Hague, The Netherlands, in December 1969. This meeting paved the way for the creation of a permanent financing arrangement for the EC based on contributions from the member states; the development of a framework for foreign policy cooperation among the member nations; and the opening of membership negotiations with the United Kingdom, Ireland, Denmark, and Norway.
F Expansion of the EC
In 1972, after nearly two years of negotiations, it was agreed that the four applicant countries would be admitted on January 1, 1973. The United Kingdom, Ireland, and Denmark joined as scheduled; however, in a national referendum, the people of Norway voted against membership.
In the United Kingdom, however, popular opposition to EC membership remained. This opposition was based primarily on the amount of British contributions to the EC budget, which many Britons felt was too high. After the Labour Party regained power in the United Kingdom in 1974, it carried out its election promise to renegotiate British membership conditions in the EC, particularly the financial ones. The renegotiation resulted in only marginal changes. However, the question of whether the United Kingdom would withdraw from the EC and doubts in other countries about the United Kingdom’s commitment to Europe added to the existing uncertainty within the community generated by the economic problems of the 1970s. The Labour government endorsed continued EC membership and called a national referendum on the issue for June 1975. Despite strong opposition from some groups, the British people voted for continued membership.
G Single European Act (SEA)
By the 1980s, even though it had existed for more than 30 years, the EC still had not realized the hopes of the most ardent supporters of European unity: a United States of Europe. In fact, despite the removal of internal tariffs, it had not even succeeded in ending all restrictions on trade within the EC, nor in eliminating internal customs frontiers. The admission of the less-developed Mediterranean countries—Greece in 1981, then Spain and Portugal in 1986—introduced a host of new problems. These related primarily to the weaker economies and lower levels of economic development of these states. In particular, the greater reliance of the Mediterranean countries on agriculture meant that a large percentage of funds the EU earmarked to support agriculture within the community would have to be redirected to the new members. This alarmed countries like Ireland, who feared that their own share of these funds would be reduced.
In 1985 the European Council, composed of the heads of state of the EC members, decided to take the next step toward greater integration. In February 1986 they signed the Single European Act (SEA), a package of amendments and additions to the existing EC treaties. The SEA required that the EC adopt more than 300 measures to remove physical, technical, and fiscal barriers in order to establish a single market, where the economies of the member states would be completely integrated. In addition to this, member states agreed to adopt common policies and standards on matters ranging from taxes and employment to health and the environment. Each member state also resolved to bring its economic and monetary policies in line with those of its neighbors.
H Creation of the European Union
In the late 1980s, sweeping political changes led the EC once again to increase cooperation and integration. As Communism crumbled in Eastern Europe, many formerly Communist countries looked to the EC for political and economic assistance. The EC agreed to give aid to many of these countries, but decided not to allow them to join the EC immediately. An exception was made for East Germany, which was automatically incorporated into the EC after German reunification.
In the wake of the rapid political upheaval, West Germany and France proposed an intergovernmental conference (IGC) to pursue closer European unity. An IGC is a meeting between members that begins the formal process of changing or amending EC treaties. Another IGC had been established earlier, in 1989, to prepare a timetable and structure for monetary union, in which members of the community would adopt a single currency. British prime minister Margaret Thatcher opposed calls for increased unity, but in 1990 John Major became prime minister and adopted a more conciliatory approach toward the idea of European unity. The IGCs began work on a series of agreements that became the Treaty on European Union.
I Treaty on European Union
The Treaty on European Union (often called the Maastricht Treaty) founded the EU and was intended to expand political, economic, and social integration among the member states. After lengthy discussions, it was accepted by the European Council at Maastricht, The Netherlands, in December 1991. It committed the EU to Economic and Monetary Union (EMU). Under EMU the member nations would unify their economies and adopt a single currency by 1999. The Maastricht Treaty also set strict criteria that the member states had to meet before they could join EMU. In addition, the treaty created new structures designed to develop a more integrated foreign and security policy and to encourage greater governmental cooperation on judicial and police matters. The member states granted the EU governing bodies more authority in several areas, including the environment, education, health, and consumer protection.
The new treaty aroused a good deal of popular opposition and concern among EU citizens. Many people were worried about EMU, which would replace national currencies with a single European currency. The United Kingdom refused to endorse some elements of the treaty and gained exemptions, called opt-outs, from those elements. These included not joining EMU and not participating in the Social Chapter, a section of the Maastricht Treaty outlining goals in social and employment policy, including a common code of workers’ rights. Danish voters turned down ratification in a referendum, while French voters favored the treaty by only a slim majority. In Germany a challenge to the treaty was lodged with the country’s supreme court, saying that membership in the EU violated Germany’s constitution. In an emergency meeting of the European Council, Denmark gained substantial concessions and exemptions, including the right to opt out of both EMU and any future common defense policy. Danish voters then approved the treaty in a subsequent referendum. Because of these problems, the EU was not formally inaugurated until November 1993.
J Amsterdam Treaty
Popular reactions against some aspects and consequences of the Maastricht Treaty led to another intergovernmental conference among EU leaders that began in March 1996. This IGC produced the Amsterdam Treaty, which revised the Maastricht Treaty and other founding EU documents. These changes were intended to make the EU more attractive and relevant to ordinary people.
The Amsterdam Treaty called on member nations to cooperate in creating jobs throughout Europe, protecting the environment, improving public health, and safeguarding consumer rights. Additionally, the treaty provided for the removal of barriers to travel and immigration among the EU member states except for the United Kingdom, Ireland, and Denmark, all of which retained their original border controls. The treaty included the potential for cooperation and integration with the Western European Union (WEU), an organization of Western European powers focused on defense. It also allowed the possibility of admitting Eastern European countries to the EU. The Amsterdam Treaty was signed by EU members on October 2, 1997.
K Monetary Union
The EU’s attempts to establish a single European currency, as set out in the Maastricht Treaty, were controversial from the start. For instance, some EU countries, including the United Kingdom, worried that a shared European currency would threaten their national identity and governmental authority. Despite their concerns, many of the EU’s member countries struggled to meet the economic requirements for participating in a shared currency.
These requirements were stringent: (1) a country’s rate of inflation could not be more than 1.5 percent higher than an average of the rate in the three countries with the lowest inflation; (2) a country’s budget deficit could not exceed 3 percent of gross domestic product (GDP), and its government debt could not exceed 60 percent of GDP; (3) a country’s long-term interest rate could not be more than 2 percent higher than an average of the rate in the three countries with the lowest interest rates; (4) a country could not have devalued its currency against any other member nation’s for at least two years prior to EMU.
Most countries found it very difficult to meet all these criteria. Measures to reduce inflation and high interest rates contributed to increasing unemployment, while efforts to control government deficits often led to increased taxation. These consequences compounded the problems of economic recession that most countries were already experiencing.
As the deadline for EMU approached, misgivings arose from many quarters that the economic climate was not right, that levels of economic performance across the countries were still too disparate, and that several countries had not strictly met the Maastricht criteria. However, the EU officially agreed in May 1998 to adopt a single European currency—the euro—for 11 of the 15 member countries beginning on January 1, 1999. This agreement also created the European Central Bank (ECB) to oversee the new currency and to take charge of the monetary policies of the EU. The countries that adopted the euro were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and Spain.
The United Kingdom, Sweden, and Denmark met the economic criteria to join in the adoption of the euro but decided not to participate. Greece had hoped to be included in the first wave of countries to adopt the euro but did not meet the criteria. On January 1, 1999, the 11 nations began to use the euro for accounting purposes and electronic money transfers, while continuing to use their national currencies for other uses. Greece adopted the euro in January 2001, becoming the 12th member of the euro zone. In 2002 the ECB began issuing euro-denominated coins and banknotes, and the currency of countries that adopted the euro ceased to be legal tender.
L Growing Accountability
The adoption of the euro led to greater integration and cooperation among EU members. One result was a growing concern on the part of EU citizens and some members of the EU government that the major EU institutions were not sufficiently democratic or accountable. This was especially true of the European Commission. As the power of the EU grew, so did concerns that the commission exercised too much control with too little oversight. At the same time, there were also worries that the one democratically elected institution of the EU, the European Parliament, had very little power.
This issue came to a head in 1999, when a report prepared by independent auditors at the request of the European Parliament cited multiple examples of mismanagement on the part of the commission. The report accused several commissioners of corruption, cronyism, and poor oversight over programs under their control. After the report was released, the entire European Commission resigned, something that had never happened before. The sudden resignations caused a great deal of confusion in the short term, but experts generally considered the report and its consequences to be an important step by the European Parliament toward increasing the democratic accountability of the EU governing bodies.
STRUCTURE OF THE EU
A Pillar System
The members of the EU cooperate in three areas, often referred to as pillars. At the heart of this system is the EC pillar with its supranational functions and its governing institutions. The EC pillar is flanked by two pillars based on intergovernmental cooperation: Common Foreign and Security Policy (CFSP) and Justice and Home Affairs (JHA). These two pillars are a result of the Maastricht agreement to develop closer cooperation in these areas. However, because the members were unwilling to cede authority to supranational institutions, policy decisions in these pillars are made by unanimous cooperation between members and cannot be enforced. For the most part, the governing institutions of the EC pillar have little or no input in the other two.
The CFSP and JHA pillars are based entirely on intergovernmental cooperation, and decisions have to be made unanimously. CFSP is a forum for foreign policy discussions, common declarations, and common actions that work toward developing a security and defense policy. It has successfully developed positions on a range of issues and has established some common policy actions; however, the CFSP has failed to agree on a common security and defense. Some countries, led by France, want an integrated European military force, while others, especially the United Kingdom, insist that United States involvement via the North Atlantic Treaty Organization (NATO) is vital for European security.
This second argument was reinforced when the EU failed to resolve the Yugoslavian crisis that began in 1991. Between 1991 and 1992 the Yugoslav republics of Slovenia, Croatia, Bosnia and Herzegovina, and Macedonia declared independence, leaving a Yugoslavia that consisted only of the republics of Serbia and Montenegro. The Croatian and Bosnian secessions were strongly opposed by Serbia, and violent conflict resulted between ethnic Bosnian, Croat, and Serb populations. The EU attempted to find a settlement for these conflicts. However, these efforts were ineffective because EU members could not agree on how they should be involved, and they feared being dragged into military intervention. The Yugoslav crisis underlined the difficulties in achieving a common foreign policy for the EU. Effective international intervention in Yugoslavia ultimately came only with U.S. and NATO involvement, acting under the auspices of the United Nations.
The EU has been more successful in JHA, which formalized and extended earlier intergovernmental cooperation in combating crime, especially drug trafficking, and in setting immigration and asylum policies. The Amsterdam Treaty provided for some aspects of JHA to be moved to the supranational pillar of the EC. These related to asylum and visa issues, immigration policy, and external border controls.
Standing above the three pillars and in a position to coordinate activities across all of them is the European Council. The council is in strict legal terms not an EU institution. It is the meeting place of the leaders of the national governments. Its decisions are almost always unanimous but usually require intensive bargaining. The council shapes the integration process and has been responsible for almost all EU developments, including the SEA and the Maastricht and Amsterdam treaties. The European Council has provided the EU with initiatives for further development, agendas in various policy fields, and decisions that it expects the EU to accept. The council’s actions illustrate one of the major dilemmas within the EU: how to promote further unity and integration while permitting national governments to retain as much influence as possible over decisions.
B Major Bodies
The EC pillar contains all the governing institutions of the EU. The major ones are the European Commission, the Council of the European Union, the European Parliament, the European Court of Justice, and the Court of Auditors. In addition, there are many smaller bodies in the EU, such as the Economic and Social Committee, and the Committee of the Regions.
B1 European Commission
The European Commission is the highest administrative body in the EU. Unlike the European Council, which oversees all three pillars of the EU, the commission concentrates almost solely on the EC pillar. It initiates, implements, and supervises policy. It is also responsible for the general financial management of the EU and for ensuring that member states adhere to EU decisions. The commission is meant to be the engine of integration, and it spearheaded the preparations for the single market and the moves toward establishing the euro.
Currently there are 20 commissioners, who are appointed by the member governments and are supported by a large administrative staff. The United Kingdom, France, Germany, Italy, and Spain each appoint two commissioners; the other countries appoint one each. The policy of each member state selecting a commissioner has become an issue with the possibility that the EU will become larger during the next decade. If each country in an enlarged EU were allowed to appoint at least one commissioner, the commission would be much larger, making it too unwieldy to be an effective executive and decision-making authority. In addition, the fact that the commission is appointed by member governments and not elected by the people has raised questions about how much power it should be allowed to exercise. The lack of democratic accountability has become a more important issue with the expansion of EU control into different policy areas and the intention to admit more countries into the EU.
B2 Council of the European Union
The Council of the European Union (formerly called the Council of Ministers) represents national governments. It is the primary decision-making authority of the EU and is the most important and powerful EU body. Although its name is similar to that of the European Council, the Council of the European Union’s powers are essentially limited to the EC pillar, whereas the European Council oversees all three pillars of EU cooperation.
When the Council of the European Union meets, 15 government ministers, one from each member state, are present. However, the minister for each state is not the same for every meeting. Each member state sends its government minister who is most familiar with the topic at hand. For example, a council of 15 defense ministers might discuss foreign policy, whereas a council of 15 agriculture ministers would meet to discuss crop prices.
The Council of the European Union adopts proposals and issues instructions to the European Commission. Paradoxically, the council is expected to further EU integration while at the same time protecting the interests of the member states—two goals that are not always compatible. This contradiction will probably become more difficult to reconcile as the EU continues to expand.
Decision making in the council is complex. A few minor questions can be decided by a simple majority. Many issues, however, require what is called qualified majority voting, or QMV. In QMV each country has an indivisible bloc of votes roughly proportional to its population. It takes two-thirds of the total number of votes to make a qualified majority. QMV was introduced in some areas to replace the need for a unanimous vote. This has made the decision-making process faster and easier as it prevents any one state from exercising a veto. QMV was extended to more areas by the Single European Act. Many important decisions, however, still require unanimous support.
B3 European Parliament (EP)
The European Parliament (EP) is made up of 626 members who are directly elected by the citizens of the EU. Direct elections to the EP were implemented in 1979. Before that time, members were appointed by the legislatures of the member governments. The European Parliament was originally designed merely as an advisory body; however, its right to participate in EU decision making was extended by the later treaties. It must be consulted about matters relating to the EU budget, which it can reject; it can remove the European Commission as a body through a vote of no confidence; and it can veto the accession of member states.
The European Parliament’s influence is essentially negative: It can block but rarely initiate legislation, its consultative opinions can be ignored, and it has no power over the Council of the European Union. Its effectiveness is limited by two structural problems: It conducts its business in 11 official languages, with consequent huge translation costs, and it is nomadic, using three sites in different countries for its meetings. Unless changes are made, these weaknesses will most likely intensify as the union grows larger. At the same time, there have been frequent calls for expanding the power of the European Parliament, which would increase the democratic accountability of the EU. The weaknesses of the European Parliament can be remedied, however, only by the national governments.
B4 European Court of Justice (ECJ)
The European Court of Justice (ECJ) is the judicial arm of the EU. Each member country appoints one judge to the court. The ECJ is responsible for the law that the EU establishes for itself and its member states. It also ensures that other EU institutions and the member states conform with the provisions of EU treaties and legislation. The court has no direct links with national courts and no control over how they apply and interpret national law, but it has established that EU law supersedes national law.
Historically, the ECJ has declared both for and against EU institutions and member states. Its assertion that EU law takes precedence over national law, and the fact that there is no appeal against it, have given the ECJ a powerful role in the EU and have on occasion drawn criticism from both national governments and national courts.
Historically the ECJ had a very high caseload, but this was eased in 1989 when the Court of First Instance was created. This court hears certain categories of cases, including those brought by EU officials and cases seeking damages. Rulings by the Court of First Instance may be appealed to the ECJ, but only on points of law.
B5 Court of Auditors
The Court of Auditors is made up of 15 members, one from each EU member state. The court oversees the finances of the EU and ensures that all financial transactions are carried out according to the EU budget and laws. The court issues a yearly report to the Council of the European Union and the European Parliament detailing its findings.
B6 European Central Bank (ECB)
The European Central Bank (ECB) began operations in 1998. It is overseen by a six-member executive board that is chosen by agreement of the EU member governments and includes the ECB president and vice president. The ECB has exclusive authority for EU monetary policy, including such things as setting interest rates and regulating the money supply. In addition, the ECB played and continues to play a major role in overseeing the inauguration and consolidation of the euro as the single EU currency. Its authority over monetary policy and its independence from other EU institutions make the ECB a very powerful body. There are misgivings that the ECB has been given too much independence, leading to a debate over whether it should be subject to political direction.
B7 Other Bodies
Other important bodies in the EU include the Economic and Social Committee and the Committee of the Regions. The Economic and Social Committee is a 222-member advisory body drawn from national interest groups of employers, trade unions, and other occupational groups. It must be consulted by the European Commission and the Council of the European Union on issues dealing with economic and social welfare. The Committee of the Regions, also with 222 members, was formed in 1994 as a forum for representatives of regional and local governments. It was intended to strengthen the democratic credentials of the EU, but it has only a consultative and advisory role.
IMPORTANT FEATURES AND POLICIES OF THE EU
One of the major goals of the EU has been to establish a single market in which the economies of all the EU members are unified. The EU has sought to meet this objective in three ways: by defining a common commercial policy, by reducing economic differences among its richer and poorer members, and by stabilizing the currencies of its members.
The 1957 Rome treaties obliged the EU to adopt a common commercial policy. The EU adopted several common policies, the main ones being the Common Agricultural Policy (CAP) and the Common Fisheries Policy (CFP). By 1968 the EU had also created a customs union in which all tariffs and duties among members were eliminated. Finally, members had defined uniform commercial practices for trade with nonmember states.
The EU has attempted to address regional economic differences through agencies such as the European Social Fund, the European Regional Development Fund, the Cohesion Fund, and the European Investment Bank (EIB). These agencies provide money through loans or grants to further economic development in the poorer areas of the EU.
Finally, the EU attempted to stabilize the currencies of its members with the European Monetary System (EMS). The EMS was prompted not only by the desire for a single market, but also by international economic problems and fluctuations in exchange rates. These problems also convinced the EU of the importance of Economic and Monetary Union (EMU), in which both the economies and the currencies of the members would be unified.
A Common Policies
A1 Common Agricultural Policy (CAP)
The Common Agricultural Policy (CAP) was established by the 1957 Rome treaty that created the European Economic Community. The policy reflected the contemporary belief in the economic importance of agriculture. Memories of the economic hardships that followed the two world wars led the EEC founders to believe that member states should be able to feed their populations from their own resources.
The CAP was intended to stabilize agricultural markets, improve productivity, and ensure a fair deal for both farmers and consumers. It has three major elements: a single market for agricultural products with a system of common prices to producers across the EU; preference for EU producers through a common levy on all agricultural imports from abroad; and shared financial responsibility for guaranteeing prices.
From the beginning, the common prices set were based on political pressure from farmers and governments rather than market considerations. This created massive overproduction. Prices remained artificially high, and any surpluses were bought by the EU and either stored, destroyed, or sold at very low prices on international markets. The costs became a huge burden. Even so, there were few internal critics, although the CAP consumed two-thirds of the EU budget in the early 1980s. The CAP was, however, very unpopular overseas. Developing countries believed it hurt their own export agriculture, while the United States and other major food producers attacked the CAP’s protectionism, distortion of prices, and dumping of surplus produce on world markets.
Despite complaints, the EU countries with strong farming interests were initially unwilling to accept the need for reform. The CAP was almost the only major common policy possessed by the EU, and consequently it was an important symbol of integration. Nonetheless, the EU did agree to reforms to the CAP in 1984 and 1988. These agreements, which imposed production quotas on some types of agriculture and reduced the amount of agricultural spending, were driven by a combination of external pressure and the projection that CAP costs would soon outstrip EU resources. A more radical revision was finalized in 1992. This revision switched EU spending from supporting artificially high agricultural prices to directly supporting farmers’ incomes. This involved cutting guaranteed prices to farmers, and the effect was a severe reduction in both CAP costs and the level of support given to farmers.
Even so, the CAP remained the largest item in the EU budget in the late 1990s and continued to be unpopular both with many EU citizens and other world producers. The commitment to CAP as a symbol of integration may not guarantee its future, however, especially if the EU accepts members from Eastern Europe. The economies of these countries are more agriculturally based and more economically inefficient than EU states. Without major reform, almost all the CAP would have to be redirected to these states, which would be politically and economically impossible.
A2 Common Fisheries Policy (CFP)
The other major common policy is the Common Fisheries Policy (CFP) of 1982. It imposed controls on access to fish stocks and attempted to preserve the fisheries. CFP set up a structure of price and compensation systems modeled on the CAP. The CFP has successfully limited overfishing in EU waters, but national fishing industries have objected to its system of fixing prices and allocating to each country strict quotas on the amount of each fish species that can be caught.
B Reducing Economic Differences
Under the 1957 Rome treaty that created the EEC, the signatories pledged to standardize policies regarding working conditions, social insurance, and similar matters. However, little progress was made until an increase in oil prices brought about the worldwide economic depression of the 1970s. At that time, the European Regional Development Fund was created and the moribund European Social Fund, which had originally been established by the Rome treaty, was reactivated.
B1 European Regional Development Fund and European Social Fund
The European Regional Development Fund is concerned with infrastructure developments proposed by member governments. Since 1989 it has focused on regions with weak economies, severe industrial decline, or problems of rural development. Each member country is eligible to receive a percentage of the fund’s budget, determined roughly by its population size and economic wealth. The fund normally covers only 50 percent of the proposed costs; the remainder has to come from national sources. The European Social Fund is organized in much the same way, but it focuses mainly on the training and retraining of workers. Since 1988 it has concentrated more on long-term and youth unemployment, especially in the poorer regions of the EU. All countries have benefited from the funds, but the vast bulk of grants have gone to poorer areas.
B2 Cohesion Fund
Another instrument for reducing economic differences between the richer and poorer member states is the Cohesion Fund. The fund was established in 1994 to transfer money to the poorer EU states in order to assist them in meeting the criteria for economic and monetary union. As with the Regional Development Fund and the Social Fund, the majority of grants from the Cohesion Fund have gone to the poorer member states. The ability of these funds to survive EU expansion into Eastern Europe, without the latter receiving everything, is in doubt.
B3 European Investment Bank (EIB)
The European Investment Bank (EIB) was established in 1957 under the Rome treaty that created the EEC. Its primary focus is on regional development, employment, and environmental modernization. The member states contribute to its capital, but it raises most of its funds on international markets. Some 8 percent of its budget goes to projects outside the EU. The bank only offers loans, not grants, and its contribution must be matched by an equivalent outlay from other sources. The EIB is an autonomous body able to make its own operational decisions free of political direction, within the general legal framework of the EU. It has been one of the most successful EU bodies. Since 1993 its annual lending volume has been greater than that of the International Bank for Reconstruction and Development (the World Bank).
C Stabilizing Currencies: The European Monetary System (EMS)
The European Monetary System (EMS) is the exchange rate structure of the EU. It was established in 1979 to stabilize exchange rates among members at a time when currencies were fluctuating strongly because of the economic recession of the 1970s. Stabler currencies, it was hoped, would provide the foundations for a future monetary union and a single currency among member states.
The core of the EMS and the engine of stabilization is the Exchange Rate Mechanism (ERM). This system was designed to reduce the amount that the currencies of member states could fluctuate against each other. By evening out exchange rate fluctuations and stabilizing currencies, the ERM was intended to stimulate trade and investment among EU members, and to help prevent inflation by linking weaker national currencies to the strong and stable German deutsche mark.
In addition to the ERM, the EMS introduced the European Currency Unit (ECU), which was used for accounting and for administrative purposes. The ECU was replaced by the euro when EMU went into effect on January 1, 1999.
The EMS was highly successful in the 1980s. It helped develop a sense of collective responsibility and discipline that contributed greatly to a reduction of inflation and, after 1987, to a period of exchange rate stability. Its success led to the further push in the Maastricht Treaty toward full economic and monetary integration. However, once currency realignments under the ERM had been largely completed, the EMS became more rigid, and currencies were allowed to fluctuate against each other only by very small amounts. This rigidity prevented countries experiencing economic difficulties from simply adjusting their exchange rates as they might have done otherwise.
This rigidity coupled with differing economic and monetary conditions in the member states made it difficult for the EMS to hold stronger and weaker currencies together when currency traders began to have doubts about the value of certain members’ currencies. Doubts resulted from German reunification in 1990 and the difficulties in ratifying the Maastricht Treaty. Waves of currency speculation in 1992 and 1993 forced several countries to devalue their currencies, and the United Kingdom and Italy had to leave the ERM. The EMS survived by increasing the amount that currencies could fluctuate against one another, but the increase was so great that members’ currencies could fluctuate almost at will. The EMS was held together only by the EU’s political will to create monetary union and a single currency.
The role of the EMS has remained essentially unchanged with the introduction of the euro. It regulates exchange rates between the euro and those EU states that did not join the single currency.
D Economic and Monetary Union (EMU)
Economic and Monetary Union (EMU) is a step beyond a single market toward further integration. EMU requires an intense degree of economic coordination among its members. They must integrate their budgetary policies, establish common interest rates, and use a single currency. It is a logical step forward from the EC’s customs union of 1968 and the decision in the 1987 Single European Act to move to a single market.
EMU first appeared on the EC agenda in the late 1960s, following the community’s economic success. At that time, concerns were growing that the post-World War II fixed exchange rate system was beginning to crumble. This system tied the major world currencies to the U.S. dollar, which was tied to the price of gold. However, in the mid-1960s the dollar began to weaken, and people began to lose confidence in the system. What the EC wanted was a fixed exchange rate system that was less susceptible to the influence of the dollar. In 1969 EU leaders asked Pierre Werner, the premier of Luxembourg, to head a committee to devise a new system for the EC. In 1970 they accepted Werner’s recommendation for a movement to full EMU by 1980.
Poor economic conditions in the 1970s, however, forced postponement of the Werner Plan. In 1971 the United States uncoupled the U.S. dollar from gold, and subsequently, currencies that had been tied to the dollar became floating currencies with no fixed exchange rates. Then in 1973 oil prices quadrupled, producing a tumultuous economic climate in which governments were faced with both rising inflation and rising unemployment. EMU was more or less forgotten as the EU instead concentrated on trying to achieve a more modest structure of currency stability. After some initial difficulties, the result was the successful European Monetary System of 1979.
The seemingly positive effects of the EMS and the 1987 decision to form a single market led to a resurrection of the Werner Plan, with EMU to be implemented in three stages after 1990. In Madrid in June 1989 the European Council set up an intergovernmental conference (IGC) to flesh out the proposal. The IGC report was incorporated into the Maastricht Treaty in 1991. It was accepted that the first stage of EMU, the elimination of exchange controls and restrictions on the flow of capital, had already begun. The second stage was set for 1994, when member states would begin to coordinate their economies to reduce inflation and budget deficits. Full EMU, with the inauguration of a single currency under the direction of an EU central bank, would begin in 1999 at the latest. After pressure from Germany, which wanted the single currency to be as strong as the deutsche mark, the EU decided that countries entering the third stage would have to meet strict economic criteria on the size of government deficit, interest rate levels, inflation, and currency stability.
However, the currency speculation problems in 1992 and 1993 that caused Italy and the United Kingdom to leave the ERM, along with a general slide into economic recession, raised doubts about how many countries would meet the EMU criteria. Many governments struggled to control inflation and budget deficits through cuts in government spending and other austerity measures, but their efforts often led to higher unemployment and popular discontent. By 1998 many people within the EU believed that the qualification criteria would have to be relaxed for EMU to occur. Despite these worries, only Greece failed to meet the criteria, and on January 1, 1999, the single currency, the euro, went into use. Greece was permitted to adopt the euro two years later, on January 1, 2001, after the Greek government succeeded in lowering inflation and budget deficits.
The economic success of EMU depends on whether the euro is accepted in the international markets as a stable and strong currency and the extent to which it leads to a greater convergence of national economies and greater mobility of production, goods, and services within the EU. It is not clear whether EMU has a sufficiently firm foundation for these goals to be achieved. However, many EMU supporters find the debates about the economic costs and benefits less important than the belief that EMU, even if economically flawed, is a big step toward political integration.
EMU therefore supports the ideas of Robert Schuman and Jean Monnet that the way to political union is through economics. It has also reinforced the central role of France and Germany in the EU. The reunified Germany was much larger, reawakening French concerns and their desire to influence German economic policy. At the same time, Germany wanted to allay fears of a militaristic German nationalism. Much the same as in 1950, when the European Coal and Steel Community was created, both governments believed that these political problems could be resolved through economic integration. These concerns underpinned a more widespread belief that economic and political benefits will quickly outweigh the initial costs of switching to a single currency whose stability has still to be proven.
RELATIONS WITH THE REST OF THE WORLD
One of the major objectives of the European Union is to speak with one voice and to have a single policy position on world issues. This has been easier to achieve in economics and trade than on political problems. Bilateral and multilateral trade agreements have been signed between the EU and most developing countries. Common political positions, however, have been hindered by conflicts between national interests. EU ambassadors in foreign capitals and at the United Nations collaborate closely, and EU member states develop common foreign policy statements.
However, this collaboration has not always resulted in common action. EU countries were divided over the 1991 Persian Gulf War, the post-1991 crises in the former Yugoslavia, and future relations with Russia and Eastern Europe. In each instance, differences arose between members over how and to what extent the EU should become involved in foreign policy problems, and what the results of any EU action would be for members’ economies and political relationships.
A EU Expansion
By 1995 all the former Communist countries of Eastern Europe had applied for EU membership. The EU, however, was concerned about the stability of democratic institutions in these countries and their transition to market economies. The countries of Eastern Europe had less developed economies than those of Western Europe, which would make the incorporation of the former into the EU difficult. Expansion would require a significant reevaluation of EU programs—especially the CAP—and distribution of EU resources. The richer member states worried that they would have to pay more into EU funds, while the poorer member states feared that their share of EU funding for agriculture and regional development would be drastically reduced.
Despite these worries, in 1997 the EU agreed that the political and economic situations in the Czech Republic, Estonia, Hungary, Poland, and Slovenia were such that negotiations on membership could begin, with EU membership coming sometime after 2000. The other Eastern European applications were put on indefinite hold. However, trade between East and West picked up substantially after 1990, as Western nations began to invest in Eastern Europe and the EU provided aid to these countries. The EU and individual countries formed joint ventures and signed formal agreements calling for political and cultural cooperation. The EU also agreed in 1998 to begin membership negotiations with Cyprus; at the same time it suspended the application from Turkey due to concerns over the country’s human rights record and strong opposition from Greece.
B The EU and Non-European Nations
Relations between the EU and the non-European industrialized countries, especially the United States and Japan, have been both rewarding and frustrating. The EU follows a protectionist policy, especially with respect to agriculture, which on occasion has led the United States in particular to adopt retaliatory measures. In general, however, relations have been positive. The United States and Japan are the largest markets outside Europe for EU products and are also the largest non-European suppliers.
The EU has been less protectionist when dealing with developing countries, which receive more than one-third of its exports. By the mid-1990s all underdeveloped countries could export industrial products to EU nations duty free; many agricultural products that competed directly with those of the EU could also enter duty free. In addition, the EU has reached special agreements with many countries in Africa, the Caribbean, and the Pacific (the so-called ACP countries). In 1963 it signed a convention in Yaoundé, Cameroon, offering commercial, technical, and financial cooperation to 18 African countries, mostly former French and Belgian colonies. In 1975 it signed a convention in Lomé, Togo, with 46 ACP countries, granting them free access to the EU for virtually all of their products, as well as providing industrial and financial aid. The Lomé convention was renewed and extended to a total of 58 countries in 1979; to 65 in 1984; and to 69 in 1989. The EU has also concluded similar agreements with all the Mediterranean states except Libya, as well as other countries in Latin America and Asia.
THE FUTURE OF THE EUROPEAN UNION
The EU has come a long way since 1951. Its membership has grown to 15 countries, and may increase to 21 or more by 2010. It has developed a common body of law, common policies and practices, and a great deal of cooperation among its members. Its progress, however, has not been consistent, with spurts of activity separated by more-dormant periods. After initial activity in the 1960s, it was not until the mid-1980s that the EU moved decisively to greater integration. In the 1990s a more gloomy economic climate and evidence of popular disenchantment about the EU led to a slowdown in innovation. The 1997 Amsterdam Treaty emphasized consolidation rather than addressing outstanding issues.
This uneven progress is in part due to two unresolved debates that potential enlargement into Eastern Europe has brought closer together. The first is whether to give priority to “deepening” or “widening,” that is, whether to concentrate upon integrating the existing members further, or to welcome new members so that all can have an input into the kind of Europe they want. In addition to the six countries with whom the EU has agreed to negotiate, a further seven have also applied for membership. The second issue is supranationalism versus intergovernmentalism. Despite acceptance of the supranational principle, national governments have been reluctant to cede all control over policy areas to EU institutions. The result was the three EU pillars, since countries did not wish to give up control in politically sensitive areas such as foreign policy and judicial affairs.
The most immediate challenge the EU faces is to make a success of the euro, but the future of the single currency rests in part upon how acceptable it proves to world financial institutions and markets. In the long term, enlarging the EU by including Eastern Europe should improve economic prospects by extending the single market and stimulating economic growth and trade. The EU hopes that enlargement will raise the EU’s standing as the major European voice in world affairs and contribute to security and stability on the Continent.
The EU has, however, been reluctant to address the dramatic effects enlargement could have upon EU structures and finances. Under existing criteria, the bulk of CAP and structural fund resources—by far the largest elements of EU spending—will have to be transferred to the new members. This has alarmed the poorer member states that now receive these funds, while the richer ones are reluctant to provide more funding for the EU.
The budget issue and enlargement also present problems for the structure of the EU. They raise questions about the nature of the European Commission, how nations should be represented on the commission, and the extent of the commission’s authority and responsibility. As the power of the EU has grown, the organization has often been criticized for not being truly democratic, since the European Parliament has no real powers or control over decisions. Furthermore, the decision-making bodies, especially the commission, are not subject to any democratic check.
By the late 1990s the members seemed more reluctant to address institutional reform, fearing perhaps the loss of their ability to act independently. This reluctance has been most pronounced in security policy. The EU failed to present a coherent front in either the Persian Gulf War or the former Yugoslavia when required to move from a common policy position to a common action. The desire of some countries to build a common defense policy is resisted by others that insist that at best a European defense force can only be supportive of and subordinated to NATO.
All this raises further questions about what the EU is and what it wants to achieve. For almost all its life span, European integration has been the result of elite initiatives and agreements that did not involve national electorates. In the 1990s, however, the picture changed because of the single market, demands for more harmonization, and the Maastricht Treaty. Popular discontent with elite decisions increased, indicating that electorates could no longer be taken for granted. Almost all EU activity has been devoted to building the equivalent of a state. Little effort has been focused on how to create a European nation with a strong bond of identity across national electorates, making them feel they have much, including a future, in common. The issue of a European identity will be a major challenge in the next century.
Despite these challenges, the EU is unlikely to disappear. It has become a fact of life, with the countries enmeshed together in a host of cooperative practices. The EU has had great success in developing a culture of collaboration, and it occupies a place at the center of Europe. What is at issue is not its survival, but what kind of EU will lead Europe in the 21st century.
