Question #6: Discuss the difficulties the EU has faced in integrating

their economies.
Saturday, January 15, 2011
11:29 PM

Hitiris, Chapter 1
• As integration proceeds and openness increases, the interdependence between the member states
increases, and therefore the need for cooperation is intensified.
○ Beginning with a customs union (CU): abolition of restrictions on intra-union trade and the
adoption of a common external tariff (CET) replaces the national foreign trade policies of the
member states by an integrated common trade policy of the union
○ Transition from CU to a common market (CM) includes the free mobility of factors of production,
which alters their supply and prices in each member state and, thus, changes the pattern, the pace
and the limits of each country's production and economic growth
○ Member states voluntarily choose to restrict their national objectives and policies or even to
replace them completely by targets and policies undertaken in common at the level of the union
○ Progress towards integration depends on the willingness of the member states to transfer real
power from themselves to the supranational authority
○ Integration = process during which the sovereign power of the member states to exercise
independent national economic policy is progressively diminished
○ The surrender of power and the loss of sovereignty of the national authorities is often strongly
resisted.
 In practice and during a long period of transition, an evolving economic union may appear to
sway from crisis to crisis.
□ Willingness among the members to accept compromise and to reach consensus leads
to the survival of the association, but at a higher level of integration and
interdependence
• Objective of the union cannot be reached efficiently if alone
○ Need close cooperation of the other members of the union
○ Participation in the union and the sacrifice of national sovereignty might be justified on the
grounds of attempting to achieve a collective goal
 Costs and benefits of reaching this common objective would not be shared equally between
the participating countries without the introduction of appropriate allocation rules and
policies, which advance further economic integration

Kerr and Perdikis, Chapter 5

• Economic union
○ Incorporates all the aspects of a customs union but also includes the total harmonization of
government spending/taxation policies and the operation of central banks
○ Does not require the adoption of a single currency
 May be desirable for a number of reasons such as the elimination of currency conversion
costs but most of the benefits of a common currency can be achieved by fixing the rate of
exchange of one currency against another
○ Requires the elimination of national preference in the purchasing — or procurement — policies of
member governments
○ Countries give up some of their economic sovereignty
 Sometimes argued that the eventual outcome of economic union is political union because
governments have ceded most of their powers to a central authority or supernational body
□ This issue has led to major difficulties and conflicts for some governments in the EU.
 Despite the decline in national economic sovereignty, the economic power or sovereignty of

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 Despite the decline in national economic sovereignty, the economic power or sovereignty of
the economic union will increase
 Trade off between national sovereignty and that of the union

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