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Economics of the Single Market:Summary
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- Katholieke Universiteit Leuven (KU Leuven)
Excellent summary.Includes everything mentioned in class.
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Chapter 1:75 years of European Integration and the main events and lessonsPolitical factors behind European integration
Integration in Europe has always been driven by political factors
Like we know, there was a desire to prevent another war between France and Germany and to prevent
Germany from becoming revitalised and rearmed
Furthermore, measurements were being taken to prevent the spread of communism to the West Europe,
and European integration was needed to guard against military threats from the soviet union
Only later in the integration process there was also a desire to share the fruits of integration with newly
democratic nations
Means were always economic
The idea was that European economic integration would lead to political integration and it would solve
Europe problems
There were large phases to deeper European Integration
1. ECSC and the EEC: this was a customs union ( a free trade area with a common external tariff). It
eliminated tariffs and quotas on the trade of goods within the region(first within the ECSC and later
on within the EEC).
2. The Single Market Program(1986-1993): it eliminated many non-tariff barriers and harmonised
regulations and liberalised the movement of services, persons and capital within the EU.
3. The Economic and Monetary Union: introduced a single currency for many EU members and the
necessary institutions, rules and practices to run a monetary union were set up.
All three steps were always accompanied with significant increases in political integration. EU members
face increasingly large shares of their national sovereignty over the relevant economic policies to EU.
However, these also lead to discriminatory effects and reactions in non-member nations. This caused the
EU widening and deepening over the next 70 years.
Trends of increasing euroskepticism
There were parties which calling for a break up of the EU and they won large vote shares. Is the EU really
good for us?
The most extreme version of this was Brexit. The problems that the UK encountered to get out of the EU
show how right the founders were because:
1. Economic integration is a powerful force driving political integration.
2. It proved exceptionally difficult for the UL to undo its political integration without doing massive
harm to its own economy.
This proves to us that EU integration is extremely complex and many parts of the integration are deeply
intertwined. Politics and economics make it very hard to separate.
The re-emergence of Populism
The core of populism: the people are pure and the elite are corrupt. Most of populism is driven by an urge
to vote against something, not for something.
The solutions that populists promote can be either left, right and anything except mainstream. In many
European nations, the share of “far left” and especially “far right” has increased since 2002.
The early post war period: the axis powers vs the allies
The axis powers: a military coalition that initiated WW2 and fought against the allies.Germany(Hitler),
Japan(emperor Hirohito) and Italy(Benito Mussolini).
September 1940 and the Tripartite Pact(three power pact): to establish and maintain a new order of things
and to promote the mutual prosperity and welfare of the peoples concerned. They supported each other’s
goal for territorial expansion. These goals went back to the 1930s and they all acknowledged each other’s
supremacy in their respective geographic areas.
The allies: US, Great Britain, Soviet Union, France(the main ones). They formed an alliance as a means to
control German, Japanese and Italian aggression.
,A climate for radical change
Europe was experiencing many things: during WW2 most nations had been ruled by a fascist dictator or
had been occupied by a foreign army. During the war millions of people had died, and the war also caused
enormous economic damage( food was even rationed. For example, in Germany it was 900 cal/person per
day).
Politically, western Europe suffered many governmental and constitutional crises.
1. In France, Charles de Gaulle resigned as president in 1946 due to a disagreement about France’s
new constitution.
2. Belgium also saw bitter internal conflicts about its monarchy or the Royal Question.
3. Communism was also still present.
1945:How can Europe avoid another war? What did the Allies think?
1. Churchill(UK) wanted to create a post war Europe that would prevent Germany from rising again.
2. Roosevelt(US) wanted a permanent end to the fascist regimes of Germany,Italy and Japan and to foster
democracy throughout the world.
3. Stalin(SU) wanted to both crush Germany and gain influence over Europe.
• During the war, these views were not very important, but after the war these divergent views became a
problem. Germany had been divided into the British,French,American and Russian zone to illustrate.
Three different schools of thought and three different solutions:
1. Blame Germany: Morgenthau Plan of 1944.
• Neuter Germany to avoid any future aggression. By turning Germany into a backward country whose
economy was based on agriculture, by eliminating any industry that could make them militarily strong
again.As an idea it was launched by the American Secretary of the Treasury.
• For Stalin, this was a very good idea. They would not suffer German invasions anymore and they could
also serve as a buffer zone against the western powers.
• According to Western Allies it was a bad idea. The Treaty of Versailles in 1919 proved that punishing
Germany the first time eventually led to WWII, and an economically strong Germany was important to
stop communism in the West.
2. Blame capitalism: Adopt communism instead
• Stalin’s idea. Communism was defined as common ownership of the means of production and with
public institutions, with everyone producing according to ability and taking according to need.
• At this moment, SU occupied nearly all of Central and Eastern Europe countries.
3. Blame nationalism: Pursue European Integration
• How the western allies saw the future.
• Economic and political factors were severe.
• Through European Integration or the recognition that integrated/trading countries are less likely to start
another war. Through this they solve their problems in peaceful ways.
• They need to get rid of protectionist behaviour.
Churchill’s speech in 1946: The love between the former allies cooled down.
He stated in this speech that there were two very giant problems:
1. War: the establishment of the United Nations in 1945 was seen as a solution, but don’t give immediately
all knowledge to all.
2. Tyrany(communism): the principles of freedom and the rights of man are holy. People of all country
should be able to choose or change the character or form of government under which they dwell.
3. Also mentioned that tighter integration of English speaking peoples were important, and if possible also
other nations.
However, he said that he had strong admiration for Stalin and wanted him to be involved in UN, but he
also warned for Russian communism. According to him, it was his duty to inform the US of certain facts
about the present position in Europe.
He also stated the problem of an iron curtain in Europe, separating the two worlds. He stated the the
USSR was gaining influence of more and more Eastern European countries and in its zone of Germany.
The safety of the world required a new unity in Europe.
Russian historians later dated the beginning of the Cold War to this speech.
He also warned against the mistake of 1919, by comparing the years before the rise of Hitler to the present
Soviet threat. They claimed they had to be careful and the western democracies had to be strong together.
,What were Churchill’s aims?
1. He wanted to secure the role of the UK as a major player on the side of the US in the coming struggle
against Russians.
2. Wanted to warn against communist activities in Western and Southern Europe.
3. Wanted to forge a special relationship between the US and the UK which he underlined in terms of
culture.
Reactions to the speech:
1. It was effective. But once brave and useful allies was transformed into mortal enemies.
2. Stalin’s response was to accuse Churchill of war mongering and racism. Soviet propaganda subsequently
turned against the US and its allies.
Why was European integration still far from clear in the 1940s?
The key players that had won the war were the only nations that still had the strength to guide events
internationally after WWII as most other nations were in ruin. So, USA, UK and USSR.
However, the way forward for them was all very different ( 3 different schools of thought).
The Allies versus Axis confrontation became the east-west confrontation that would become known as the
cold war. This conflict would dominate Europe for 50 upcoming years.
Steps that lead to a clearer cut between Western and Eastern Europe:
1. SU started the communist propagating model in Eastern Europe.
2. The US and UK rejected the soviet vision ( communism and a weak Germany).
3. An answer to stop the spread of Communism was to build a stronger nation in the western part of
Germany, and so the US and UK occupation zones of Germany merged in 1947, and later they created
the trizone along with the French in 1948.
What did the trizone cause?The Reichmark crisis.
The original belief was that the west could follow its own ideology in the parts under their authority and
the SU could do the same in the eastern part. However, this was geographically very difficult. Part of the
western possession was literally lying in the Eastern part of Germany because the city of Berlin was also
divided into two zones.
Prior to the trizone, there was never a formal agreement guaranteeing rail and road access to Berlin
through the soviet zone. Berlin was located 160km inside Soviet controlled eastern Germany. Now that the
division between ideologies became clear, it was surrounded by the Enemy.
The soviet union was mad at the creating of the trizone and a new Reichmark(western Germany currency)
into West Germany, and later into their Berlin territory, without discussing this first with Soviets.
24 June 1948:The Berlin Blockade:The soviet union responded by cutting all land links between West
Berlin and West Germany. The SU started to block transport from the western part of gemerany to the
trizone territories.
Response of the Berlin Blockade by the West:
The answer was the Berlin air bridge of 1948
The US started to fly in food and other goods into their zones. The soviet union could not do anything
against this. If it would start shooting the planes down, this would be seen as an act of war.
The blockade was originally meant as lasting for a few weeks, but the blockade lasted for 10 months.
An enormous amount of food and other goods were delivered daily to western part of Berlin.
The Berlin Airlift officially ended on 30 September 1949(15 months later) and it was considered a great
victory over Stalin.
The creation of an actual iron curtain:
Establishment of NATO, BRD and DDR.
NATO was seen as a lock of the security between North America and Europe.
The BRD(Federal Republic of Germany) was also created in 1949.
They decided to give Germany a chance because:( with the help of the Marshall Plan)
1. It is a very important geographic entity and a trading center since the Middle Ages.
2. An important decision to let Germany survive as a capitalist entity.
3. The BRD was a temporary state awaiting unification.
4. Its sovereignty remained limited and it was not allowed to have its own army or even a ministry of
foreign affairs.
, The communists responded with the DDR(German Democratic Republic) in 1949. So the German
division was a division between Western and Eastern Europe.
First steps in European Integration:Marshall Plan
US offered financial assistance to all western countries. This plan helped many European countries to
pursue their own national interests.
1. France: Franco-German integration was a nice way to counterbalance the US-UK influence on the
continent.
2. UK and US: a way to counter the spread o f communism in Europe
3. Germany: happy that it was seen as a normal nation just as all the rest.
However, the fact that economies were growing very fast led to economy growth. If before growth was
viewed as competitive and there were protectionist behaviour, now they realised that trade liberalisation
fostered growth more.
We also have the OEEC(Organisation for European Economic Cooperation) in which Europeans
would cooperate in their mutual economic recovery. They reduced intra-European trade barriers and they
established a European Payment Union (EPU). IN 1961, the OEEC was replaced by the OECD(global).
Two views on economic integration:
The question: could the Marshall plan, OEEC and the EPU prevent another war between France and
Germany or was more needed to be done?
There were fundamental disagreements about the depth of European Integration.
1. Intergovernmentalism: nations retain all sovereignty with only international cooperation in certain
areas that would have to be agreed on unanimously by all participants. Mainly this was seen in nations
that had been able to avoid foreign occupation or catastrophic loss: UK, Denmark, Norway and Iceland.
The first three organisations that were established after WWII were intergovernmental organisations.
2. Federalism: nations should be embedded in a federalist structure with supranational institutions that
received some of the powers that traditionally had been exercised exclusively by nations. Mainly this
was seen in countries which had felt destruction the most, such as:Belgium, Netherlands, France,
Germany, Luxembourg and Italy. ECSC and EEC.
However, we had discrimination in European Economic Integration
Happened with the formation of the European Economic Community. The customs union meant that tariffs
within the EEC would be lower than those charged to third countries.
In 1960s, seven OEEC countries formed their own block called the European Free Trade
Association(EFTA). By the late 1960s,European countries joined either the EEC or the EFTA with
economic discrimination between the two.
Created two non overlapping circles.
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