Macroeconomic Policy in the EU
History of the European Union:
Chronological history of Europe:
Early post-war years (1945-1959): A climate for radical change.
WW2 left two world powers.
Cold War begins. USSR pushes communism in the East
Germany is divided into zones: Morgenthau plan – plan that
would take Germany back to pre-industrialisation, no factories,
no military. Was abandoned in favour of a strong Germany and European integration
Movement towards the creation of a West German government: Federal Republic of
Germany (West Germany) formed in 1949 (after merging bizone (UK + US) and French zone),
with Bonn as capital
Soviet section of Germany becomes German Democratic Republick, or East Germany, with
East Berlin as capital
Berlin Blockade; Berlin Airlift
Events in the East:
Polish Workers’ Party awards itself 80.1% of the vote in an election marked by ballot-
stuffing and violent repression. Poland is set on a path of enforced Sovietisation
The Communist Party takes control in the Czechoslovak coup d’etat of 1948
In a referendum, Bulgaria votes for the establishment of a People’s Republic,
deposing King Simeon II. Western countries dismiss the vote as fundamentally
flawed
End of armed uprising of Greek communists in 1949 brings Greek Civil War to an
end: the first successful containment of communism
Protests in Hungary against communism is put down by Soviet tanks in 1956
The Soviet Union takes lead in space race – launches Sputnik 1 in 1957
Franco-German reconciliation begins with the Schuman Declaration in 1950.
The European Coal and Steel Community formed by the Treaty of Paris in 1952 –
promotes greater trade
European Economic Community (EEC) created by the Treaty of Rome in 1958
o Free movement of people (four freedoms), end of tariffs, common transport
policy, Common Agricultural Policy (CAP)
Euratom
Berlin Wall (constructed in 1961)
The ‘Swinging Sixties’ (1960-1969)
UK applies to join the EEC in 1961 and 1967, vetoed by France
Merger treaty in 1965 – merging treaties of ECSC, EEC and Euratom
Introduction of CAP in 1962 eventually ensures surplus of food production
Economies experience high levels of growth, helped by an end to intra-European
customs duties
1961 sees the construction of the Berlin Wall
, o In practise the wall is set up to prevent migration and defection from the
Communist Eastern Bloc
o With the GDR authorities, the Wall was officially referred to as the “Anti-
fascist Protection Rampart”
The Prague Spring in 1968 sees significant push for
liberal reforms but the Soviet Union suppress reforms
1960s sees emergence of ‘Youth Culture’ with groups
such as The Beatles attracting huge crowds
May 1968 becomes famous for youth riots in Paris,
changes in society and behaviour become associated
with ‘Generation 68’
Individual trade agreements with EEC and each EFTA county,
at the time, not an agreement with the EEC and EFTA as a
while
The community grows (1970-79)
Denmark, Ireland and the UK join the EEC on 1st January 1973 (raising number of
member states to 9).
Norway rejects membership in a referendum in 1971
Establishment of the European Council (most powerful establishment in the EU)
where Heads of State met three times a year to define broad guidelines of policy
Last right-wing dictatorships in Europe come to an end with overthrow of the Salazar
regime in Portugal and the death of General Franco of Spain in 1975
European regional policy begins to transfer funds to poorer areas
In 1979, the citizens of Europe can elect members of the European parliament
directly
Short but brutal Arab-Israeli war of October 1973 results in energy crisis and
economic problems in Europe
Fall of the Berlin Wall - a changing Europe (1980-89)
Greece becomes the 10th member state in 1981
Five years later in 1986, Spain and Portugal follow
Greenland exits the EEC following a referendum
Margaret Thatcher negotiates a discount in the UK’s membership fee
In 1986, the Single European Act is signed to be completed by 1993
On 9th of November 1989, the Berlin Wall is pulled down
A borderless Europe (1990-99)
USSR can no longer contain revolts and collapses in 1990
In 1990, East and West Germany reunite
1993 see the completion of the Single Market with the four freedoms of movement
of: 1) goods, 2) services, 3) people, and 4) money
Maastricht Treaty, creating the EU, comes into force on 1 st of November 1993
The Maastricht Treaty on EU is rejected by the Danes in 1992. Denmark ratifies
Maastricht Treaty with opt-outs
In 1995, three more members join the union – Austria, Finland and Sweden
, Norway and Switzerland reject membership following referendums
Amsterdam Treaty entered into force on 1st May 1999
Greater emphasis on citizenship
More democracy by granting more powers to EP
The beginnings of common foreign and security policy
Shenghen area which gradually allow people to travel within the EU without
passports
Many students study in other countries with EU support
The Euro is intended in its non-physical form on 1st of January 1999
Further expansion of EU (2000-2009):
11th of September 2001 becomes synonymous with the ‘War on Terror’ and the EU
countries begin to work closer together
Nice Treaty comes into force on 1st of February 2003
o This treaty reforms EU’s institutions to prepare it for enlargement. Something
the Amsterdam treaty was meant to accomplish
Enlargement of the EU with 10 new Eastern European countries in 2004 and Bulgaria
and Romania join in 2007
Nice treaty was a failure and it was agreed to set up a “European Convention” to
outline a new treaty.
Convention decides to write a European Constitution run by former French president
Valery Giscard
Constitutional treaty:
o Expanded majority voting into areas which has previously been decided by
unanimity
o Gave legal force to a charter of fundamental rights
o Referendums endorsed it in Spain and Luxembourg but the French and Dutch
voters voted no
Constitutional treaty was replaced by Lisbon treaty
Lisbon Treaty also known as the reform treaty
o Much of the Constitutional treaty was preserved
o Framed as reform of the Rome and Maastricht treaties
o Goal was to avoid referendums without changing the substance
Financial crisis hits Europe in September 2008
Lisbon treaty enters into force on 1st of December 2009
Eurozone and many other countries enter a deep recession following the financial
crisis of 2007-08
The EU in crisis (2010-20)
Deepening sovereign debt crises especially in Southern Europe
In 2010, Greece is forced to ask for bailout from the Eurozone and IMF in exchange
for implementing harsh austerity measures
Ireland, Portugal, Spain and Cyprus also ask for bailouts
Austerity plans put into place across the EU
Croatia joins the EU in 2013
Arab Spring leads to civil wars in Libyra, Syria and Iraq
o This creates large migrant flows into the Schengen area in 2015
, o Many EU countries temporarily introduce border controls
o Migration crisis divides Europe and fuels rise of nationalist and Eurosceptic
political parties
In June 2016, the UK votes to leave the EU
o Evidence to suggest austerity a driver of Eurosceptic views
Withdrawal agreement reached at the end of 2019, and a trade agreement with the
EU agreed in the final days of 2020 to enter into
force on 1st January 2021
Many loose ends in trade agreement such as
financial services
France vetos EU accession of Albania and North
Macedonia
What does the EU do?
The Treaty of Rome, 1957:
The Treaty of Rome (ToR) was signed in 1957 and entered into force on 1 st of January 1958.
The ToR founded the European Economic Community (EEC)
Most economic integration up to the 1992 Maastricht Treaty was already agreed in
the ToR: Subsequent treaties fostered the implementation of policies already agreed
in principle in the ToR
With the Lisbon Treaty, the ToR has become the “Treaty on the functioning of the
EU”
The ToR was a plan for a ‘unified’ economic area:
It set out a vision for the four freedoms: goods, services, workers and capital
1950s perspective on common policies
Main elements of the ToR:
Free movement of goods: Eliminate barriers to the free movement of goods such as quotas
and import tariffs
Common trade policy with the rest of the world (Customs Union): Custom Union (CU) avoids
unnecessary controls inside the union (Rules of Origin). CU imposes supranationality
Ensuring fair and undistorted competition: Unfair state aids regulated by the Commission;
Anti-competitive behaviour regulated by the commission; Harmonisation of laws necessary
to ensure free movement of goods; taxes (in the form of weak restrictions ensuring no tax
discrimination but no explicit harmonisation)
Unrestricted trade in services: This has been hard; Barriers are mainly domestic (for
example, domestic banking regulation may raise barriers to foreign banks); EU does not
have the mandate to demand liberalisation at the national level; Single European Act made
progress, and the 2006 Services Directive (or the Bolkestein Directive) took this further
Free movement of factors of production: ToR specified free movement of workers rather
than people; Most countries retained capital controls until Single European Act
Exchange rate (ER) and macroeconomic coordination: ToR include elements of ER and
macro coordination but it remains informal until 1979. In 1979, the European Exchange Rate
