Economic Integration: European Union at Crossroads Part 1

In a globalised world where each nation has a set of challenges to face on account of interconnectedness especially in trade domain and security issues. The European Union has been holding fort by itself as a sign of Unity amongst its members  for the last 60+ years. What started as European economic community in 1958 between, France, Germany, Netherlands, Luxembourg,  Italy  and Belgium has turned out to be todays  Monetary and Political Union encompassing 27 Countries + UK (Breaking off Dec20). 

It hasn’t been smooth sailing though and many a challenges have come up in the past and the current one seems to have come up at a time when Solidarity is needed more than any other time now considering the Covid19 pandemic.

In my 2 art series, Part 1 throws light on the makeup of EU; Part 2 will explore the challenges which if unchecked may lead to unraveling of the union itself

Before we delve into what an Economic union is? Let us relook at the concepts of Economic Integration

Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. See pic below

1)  Preferential trade  agreement: Two countries agree to reduce tariff barriers between them but charge differential tariff towards other countries. Eg India and Malaysia

2)  Free trade agreement:  Two or more countries decide to abolish both tariff and non tariff practices amongst themselves but are free to charge any tariff to non member countries. The most famous FTA across the globe is in the form of NAFTA ( North Atlantic free trade agreement) between the US, Canada and Mexico.

3) Customs Union
Customs Union is a group of countries coming together whereby trade and tariff barriers no longer exist between the member countries but they in turn charge a common tariff to Non Members.
In the above picture apart from 28 European Union countries (UK included till Dec 31 2020) four other countries Andorra, Monaco, San Marino and Turkey all form part of the customs union.
Example:  If Banana is imported by any country in the customs union they would charge a uniform customs duty of 10.9 % to the exporting country.

4)  Common Market /European Economic Area
Common market area which is a level above the customs union whereby no customs duty is payable within the market area by members plus there is free trade of goods, services and labor and capital.

Example The  28 European Union countries have additionally signed a common market agreement with Lichtenstein, Norway and Iceland to form the biggest common area in the world for free flow of goods, services, labour and capital without barriers.

5)  Monetary Union and Political Union : A monetary and political union is a level above common market but have unique trait that the member countries adopt a common currency and have a common political discourse towards non members. Depicted in the diagram as European Union

Example In 1999 under the Maastricht treaty 28 countries agreed to have common monetary and political policy giving up some part of their sovereignty and use a common currency Euro depicted in the diagram by Euro Area
Though countries like Bulgaria, Romania, Croatia, UK, Sweden, Czech Republic, Hungary, and Poland were part of European Union or EU but they decided to still use their national currency

6)  Fiscal Union
A fiscal union entails harmonizing the taxation across countries. EU members have not moved in that direction as yet

Schengen area, signifies a zone where 26 European countries, abolished their internal borders, for the free and unrestricted movement of people, in harmony with common rules for controlling external borders and fighting criminality by strengthening the common judicial system and police cooperation

EU Governance Model

Member nation citizens elect members to the European parliament who in consultation with the heads of state agree and enact common legislation which supersedes those of their individual country. Germany has 99 representatives in the parliament more than any compared to Finland which has 4.

Institutions under the EU include

European court of Justice: This is responsible for interpreting lawsuits for or against member nations according to EU constitution

European Central Bank, ECB: ECB acts a central bank to all member nations and as a central bank it is the lender of last resort. It can bailout out member banks and countries or events of crisis.

European Court of Auditors plus other agencies

Finally the Values guiding the EU
The European Union’s fundamental values are respect for human dignity and human rights, freedom, democracy, equality and the rule of law. These values unite all the member states – no country that does not recognize these values can belong to the Union.


White paper on the future of Europe

Articles by Adam tooze, historian on The Guardian , UK



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