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Early Post War Period, 1945-50: death, destruction and upheavalEurope has experienced horrifying wars and was in ruins after WWII:
Millions of people died, enormous damage to infrastructure and economic capacity
Early Post War Period, 1945-50: A climate for radical change and the prime question
Prime concern: ‘How can Europe avoid another war?’
• What caused the war? - Three schools of thought, implying three different solutions
• blame Germany → ‘Neuter’ Germany to avoid any future aggression;
• blame capitalism → adopt communism;
• blame nationalism → pursue European integration.
→ European integration ultimately prevailed, but this was far from clear in the late
1940s.
Early Post War Period, 1945-50: The beginning of the cold war
• Wartime alliance among the US, UK and USSR rapidly unravelled.
• Germany was divided into the US, UK, French, and Soviet zones in 1945.
• Communism spread in Eastern Europa: in Estonia, Latvia, Lithunia during the war, in
Albania, East Germany and Romania in 1945, Bulgaria in 1946, Poland in 1947, and
Hungary and Czechoslovakia in 1948.
• America and Britain rejected the Soviet vision and this confrontation lead to the
‘Cold War’. The division ruled European realities for a half century.
• US suggests Marshall plan for economic recovery.
• 1948: US, UK and France merged its zones, plans for a new nation – West Germany –
began to take shape.
• Moscow reacted by blocking land traffic to Berlin in June 1948, countered by the
airbridge known as the Berlin Airlift.
• The Federal Republic of Germany and the German Democratic Republic were
established in 1949.
Early Post War Period, 1945-50: Marshall Plan
Marshall Plan (1948)
• The USA offered financial assistance if countries agreed on a joint
programme for economic reconstruction.
• Marshall Plan aid amounted to $12 billion, with half of this going to the UK,
France and West Germany.
• The Organisation for European Economic Cooperation (OEEC) administered
this aid and prompted trade liberalization:
• The OEEC (which in 1961 became the OECD) started in 1948 with 13 western
members of today’s EU plus Norway, Iceland, Switzerland and Turkey.
• It advanced European integration, i.e. by removing quotas on intra-OEEC
trade and establishing the European Payments Union.
,Make Europe not war: ECSC, EEC and EFTA, 1951-60
• The German Question: The formation of West Germany was hoped to help with an
economic recovery of post-war Europe ...
• ... but need to embed Germany in a European supranational structure
• European Coal and Steel Community (ECSC, 1951): Belgium, France, Germany, Italy,
Netherlands, and Luxembourg (the ‘Six’) place their coal and steel sectors under the
control of a supranational authority (Schuman Plan)
• Failed attempts to create the European Defence Community (EDC) and the
European Political Community (EPC)
• European Economic Community (EEC, 1957): riding on the success of the ECSC, the
‘Six’ committed to form a customs union, promise free labour mobility, capital
market integration, free trade in services, and a range of common policies
• EEC meant discrimination against non-EEC Europeans, including OEEC members like
Britain
Make Europe not war: ECSC, EEC and EFTA, 1951-60
• European Free Trade Association (EFTA, 1960): tariff reduction without harmonizing
external tariffs – a free trade area (FTA) as opposed to EEC, a customs union (CU)
• Two non-overlapping circles by the late 1960s:
The Federalism vs intergovernmentalism schism
• EEC vs. EFTA - two concepts about the depth of European integration
• Intergovernmentalism: nations retain all sovereignty, (economic) cooperation only
when necessary and agreed upon
• OEEC and EFTA, but also the Council of Europe (1949) and the Court of Human
Rights (1950), unrelated to the European Union
, • Federalism: embed nations in a supranational structure (EEC, EDC, EPC), embodied
with some of the powers that had traditionally been exercised exclusively by nations
European integration gains economic motivations
• New view: (trade) liberalization is pro-growth , pro-industrialization
• Confirmed by spectacular growth in manufacturing, exports and incomes, beginning
in the 1950s („Wirtschaftswunder“, „Les Trente Glorieuses“)
Evolution to two concentric circles
• While the first years of European Integration had a lot to do with geo-strategic
thinking after WWII, this changed with the formation of EEC and EFTA.
• Falling trade barriers within the EEC and within EFTA (but not between) led to
discrimination.
• The GDP (i.e., potential market size) of the EEC was much larger than that of EFTA
(and EEC incomes were growing twice as fast).
• Thus, the EEC club was far more attractive to exporters and this led to new political
pressure for EFTA nations to join the EEC.
• The UK applied for membership in 1961 and Denmark, Ireland, and Norway also
followed.
• Charles De Gaulle stopped UK membership twice. Denmark, Ireland, and the UK
joined in 1973 while Norwegians said no in a referendum.
Evolution to two concentric circles: First enlargement, EEC–EFTA FTAs and the domino
effect I
• Firms based in the remaining EFTA states would suffer a disadvantage
• EFTA industries pushed their governments to address this situation;
• Resulted in a set of bilateral free trade agreements (FTAs) between each remaining
EFTA nation and the EEC.
, Delayed trade integration, accelerated monetary integration: the 1970s
Euro-pessimism 1.0: the 1970s
• Political shocks:
• ‘Luxembourg Compromise’ + enlargement = decision-making jam;
• unanimity was the typical rule in EEC decision-making procedures: the insistence on
consensus radically reduced the EEC’s ability to make decisions.
• Economic shocks:
• Bretton Woods falls apart, 1971-1973; EEC failed to establish monetary union
(Werner Plan was put on hold);
• 1973 and 1979 oil price shocks with stagflation;
• New trade frictions: ‘technical barriers to trade’
• However, also some bright spots:
• democracy in Spain, Portugal and Greece lead to their accession;
• EMS set up in 1978 works well. Special role for the Bundesbank.
• Budget Treaties (1970 and 1975) and direct election of EU Parliament (1979).
Deeper circles and the domino effect part II: the Single Market Programme
The Single European Market (SMP) was a powerful boost to European economic integration:
• Jacques Delors launched completion of the internal market;
• The Single European Act (SEA, 1987) aimed to create ‘an area without internal
frontiers in which the free movement of goods, persons, services, and capital is
ensured’ (i.e., the four freedoms already promised by the Treaty of Rome);
• It also implemented important institutional changes: EEC was renamed the
European Community (EC) and European Union (EU) after monetary union was
agreed upon in the 1990s
• majority voting instead on unanimity on issues related to the Single European
Market;
• This change in voting procedures unleashed a massive wave of TBT liberalization and
gave a big boost to further trade integration;
Basic elements of the Single Market Programme (SMP):
• Goods trade liberalization
• streamlining or elimination of border formalities;
• harmonization of VAT rates within wide bands;
• liberalization of government procurement;
• harmonization and mutual recognition of technical standards in production,
packaging, and marketing.
• Factor trade liberalization
• removal of all capital controls (which ultimately led to the euro);
• liberalization of cross-border market-entry policies, including mutual recognition of
approval by national regulatory agencies.
Dominos again: the EEA and the fourth enlargement
• ‘Investment diversion’ effect (on top ‘trade diversion’ effect already by customs
union).
• Non-EU governments under pressure to react.
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