2 Lection - EU Institutions

Economics of European Integration
Lecture 2, 08.09.2021
Institutions & Decision Making in EU

(based on: Ch.1-3 in Baldwin & Wyplosz, 2019)
Timo Mitze
Department of Business and Economics
Email: tmitze@sam.sdu.dk
State-of-the-Union speech by EU Commission President von der Leyen:
“The pandemic reminded us of many things we may have forgotten or taken

for granted.
We were reminded how linked our economies are and how crucial a fully
functioning Single Market is to our prosperity and the way we do things.
The Single Market is all about opportunity - for a consumer to get value for
money, a company to sell anywhere in Europe and for industry to drive its
global competitiveness.
And for all of us, it is about the opportunity to make the most of the
freedoms we cherish as Europeans. It gives our companies the scale they need
to prosper and is a safe haven for them in times of trouble. We rely on it
every day to make our lives easier – and it is critical for managing the crisis
and recovering our strength.”
https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_1655
State-of-the-Union speech We
by EU Commission
must make President von der Leyen:
this Europe's
Digital
“The pandemic reminded us of many Decade
things we may have forgotten or taken
for granted.
We were reminded how linked our economies are and how crucial a fully
functioning Single Market is to our prosperity and the way we do things.
The Single Market is all about opportunity - for a consumer to get value for
money, a company to sell anywhere in Europe and for Theindustry to drive its
European
global competitiveness.
Infrastructure: Green Deal is
This
And for all of is
us,aithuge
is about the opportunity to makeourthe
blueprint
most oftothe
opportunity make that
freedoms we cherishand as Europeans. It gives our companies the scale they need
the and
prerequisite transformation
to prosper is a safe haven for them in times of trouble. We rely on it
every dayfortorevitalising
make our lives easier – and it is critical for managing the crisis
rural areas
and recovering our strength.”
https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_1655
https://ec.europa.eu/info/strategy/strategic-planning/state-union-addresses/state-union-2021_en
 Concepts of International Integration (≈ Globalization)
 Research on its logic, dynamics, impacts and governance
Global Global
Global Framework UN, G-7/8
Regional Integration Sectoral Integration

(Coverage: Specific geographical area) (Coverage: Specific functional issues)
Sectoral General Regional General

(EEC/EFTA) (CoE) (OAPEC) (IMF)
(NAFTA) (Nordic Council) (EURATOM) (GATT/WTO)
EU
Regional Functional/Sectoral
7
History
8
 Nowadays, advances in European integration are very much
promoted through advances in economic integration
 Nonetheless, European integration has started from a strong
political goal which is not solely focussed on improving
economic conditions (“United States of Europe”)
 In May 1945, Europe lay in ruins. How to go on?
 "Yet all the while there is a remedy . . . It is to re-create the
European Family, or as much of it as we can, and to provide it with
a structure under which it can dwell in peace, in safety and in
freedom.We must build a kind of United States of Europe.“
(Winston Churchill, 19 September 1946)
9
As historical experiments have shown, accomplishing this political
goal seems to be best done via economic integration
⇒ Failure of European Political Community (EPC), European Defence Community
(EDC) in 1950s
1. Locomotive theory
Economic and Monetary Union as strong driver of “finalité politiqué”
2. Coronation Theory
A common currency & complete economic integration only introduced at end of long
process of real economic & political convergence
⇒ Are economic integration forces strong enough to trigger political and social integration?
vs.
10
 Today’s shape of EU institutions can be characterized as the
result from a continuous struggle between
 Federalism (Supranationalism)
 Intergovernmentalism
 Federalist point of view: National sovereignty and nation-

state constitute fragile systems prone to warfare
 Nations should be embedded in a federalist structure with a supranational
organization, which is embodied with some of the power that has traditionally
been exercised by nations
 Intergovernmental point of view: Nation states as most
effective and stable form of government
 European integration should take the form of closer cooperation
 Power in the hand of nations, cooperation to be agreed unanimously
11
 Struggle led to an “dual” approach to integration
 By the 1960s, both political lines were operating
 Intergovernmental: OEEC (1948), Council of Europe (1949), Court of
Human Rights (1950) and EFTA (1960)
 Federalist: ECSC (1951): Belgium, France, Germany, Italy, Netherlands and
Luxembourg (the ‘Six’) place their coal and steel sectors under the control of
a supranational authority, EEC (1957): riding on the success of the ECSC, based
on the Treaty of Rome, ‘Six’ committed to form a customs union, promise free
labour mobility, capital market integration, free trade in services and a range of
common policies
 Which political line will eventually succeed?

 “Domino Effect” in favour of federalist approach (EEC grew constantly), but
 Struggle is still reflected in current multi-pillar structure of EU decision making
12
 Two non-overlapping circles in the late 1960s
Source:
Baldwin & Wyplosz
(2015), chapter 1.
13
 “Domino Effect” of Integration: UK joins in 1973
Source:
Baldwin & Wyplosz
(2012, 2915),
chapter 1.
14
 Time line of (E)EC enlargement by new member states
Hungary, Poland,
Czech Republic,
UK, Ireland, East Germany Slovenia, Slovakia,
Denmark
Estonia, Lithuania,
Greece Latvia, Malta, Cyprus
1957 1973 1981 1986 1990 1995 2004 2007 2013
Portugal, Austria, Romania,

France, West Germany,
Spain Sweden, Bulgaria
Italy, Netherlands,
Finland
Belgium, Luxembourg
Croatia
Candidates: Iceland, Macedonia, Montenegro, Serbia, Turkey
15
 “Reverse Domino Effect” of Dis-Integration? (Wall Street J)
 UK triggered Article 50 of Lisbon Treaty in March 2017
 Article 50 governs how a member leaves the EU:
1. Any Member State may decide to withdraw from the Union
in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify
the European Council of its intention. (…) the Union shall
negotiate and conclude an agreement with that State, setting out the
arrangements for its withdrawal, taking account of the framework for its
future relationship with the Union…
3. The Treaties shall cease to apply (…) from the date of entry into force of the
withdrawal agreement or, failing that, two years after the notification referred
to in paragraph 2, unless the European Council, in agreement with the
Member State concerned, unanimously decides to extend this period…
16
 What is the current EU-UK situation?
 Brexit happened on 31 January 2020
 EU-UK Trade & Cooperation Agreement
in force since May 1, 2021 set out
preferential arrangements in areas:
 trade in goods and in services,
 digital trade,
 intellectual property, Free Trade Agreement:
 public procurement, zero tariffs and zero quotas
 aviation and road transport, (but market access falls below what
 energy, fisheries, the Single Market offers)
 social security coordination,
 law enforcement and judicial cooperation in criminal matters,
 thematic cooperation and participation in Union programmes
17
Institutions
18
Steps in Economic Integration
Sorry, but… I shacked it like a Polaroid picture…
Customs
Union Common
Market
Free
Trade
Area
Complete
Economic & Economic
Monetary Integration
Union
19
No visible Common Common
Complete Common
internal external monetary policy,
factor economic
trade tariff/trade harmonized
mobility policy
barriers barriers economic policy
Free Trade
Area
Customs
Union
Common
Market
Economic
and Mone-
tary Union
Complete
Economic
Integration
Source:
Robson (1987), Hansen et al. (1992).
22
Back to Prezi: https://prezi.com/view/GZ6e6KlTlvD3VpMAOZKa/
27
 Single Market / Single European Act (1987) aims 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 promised by the Treaty of Rome)
 Established by end of December 1992
 Key elements:
 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; liberalization of cross-border market-entry policies, including
mutual recognition of approval by national regulatory agencies
 European Political Cooperation (later: Common Foreign and Security Policy)

28
 1992 was not only important because of the Single Market
 Maastricht Treaty paved the way for next level of integration:
 Monetary union and single currency (€)
 European Central Bank (ECB)
 EU-citizenship = Right to move, live and vote in any EU state
 Social Chapter
⇒ Maastricht Treaty drew a clear line between supranational and

intergovernmental policy areas: 3-pillar structure
⇒ Lisbon Treaty has a roof and only 2 pillars: one for
supranational issues and one for intergovernmental
issues
29
Pre-Lisbon
TEC = Treaty of Rome
TEU = Maastricht Treaty
Post-Lisbon
TEU = Maastricht Treaty Source:

Baldwin & Wyplosz
TFEU is an amended and (2012), chapter 1.
renamed version of the TEC
30
 Supranationality in the EU arises in three main ways:
1. Commission can propose new laws that are the voted on by Member States
(the Council) and EU Parliament
2. Commission has direct executive authority in a limited number of areas – the
most prominent being competition policy
3. Rulings of the European Court of Justice can alter laws, rules and practices in
Member states, at least in limited areas
 Which level of government is responsible for policies in EU?

 Exclusive competences: EU decides alone
 Shared competences: Responsibility shared between EU and Member states
 Supporting, coordinating or complementary competence, where the EU can pass
laws that support action by members
 National competences: National or sub-national governments alone decide
31
Support, coordinate
Exclusive Shared
or supplement
Customs union Certain health policies

Exclusive if EU has policy:
Competition  Cohesion policy
 Agriculture and fiseries Industry
Policy  Environment
Eurozone  Consumer protection Culture & Tourism
Monetary  Transport & Energy
 Certain social policies Education & Training
Policy  Certain public health policies
Conservation Civil Protection

of marine Non-exclusive:
 R&D policies Common Foreign, Security
resources  Outer space policies
 Development cooperation
and Defense Policies
Common  Humanitarian aid
Commercial Source:
Policy Baldwin & Wyplosz (2012),
chapter 3.
32
Decision Making
33
 The allocation of tasks shall be guided by two principles:
 Subsidiarity: Keep decisions as close to the citizen as possible without
jeopardizing win–win cooperation at the EU level (i.e., EU action only if it is
more effective than action at national, regional or local level)
 Example: Local provision of basic education, social transfers etc.
 Proportionality: EU should undertake only the minimum necessary actions

 Example: Very tight VAT harmonization to reduce cross-border shopping
 ‘Burden of proof’ lies on the instigators of EU legislation

 They must make the case that there is a real need for common rules and
common action
 National parliaments serve as ‘subsidiarity watchdogs’
34
 Theory of Fiscal Federalism

 Understanding the allocation of tasks in a systematic way
 Optimal allocation of tasks depends on trade-offs:

 Diversity and local informational advantages: If people have different
preferences, centralized decisions create inefficiencies
 Scale economies: cost savings from centralization
 Spillovers: negative and positive externalities of local decisions argue for
centralization (or, at least, cooperation)
 Democracy: control mechanism that favours decentralization
35
Price (€)
 Diversity and local A: Supply overhang
(times price)
information advantage
B: Demand overhang
 One-size-fits-all policies may lead (times price)
to suboptimal results when
people have diverse preferences
 Central government could set
MVc,2
different local policies but local
B
government likely to have an MC
A
information advantage
 Instrument for analysis: Demand
MVc,1 D2
curves and marginal utility
 MV = Marginal Utility Davg
 MC = Marginal Costs
 Law of diminishing marginal D1
utility (Gossen’s first law)
QD1 Qc,1&2 QD2
Quantity
36
Price (€)
 Scale Economies
 Producing public goods at higher
scale reduces average costs
 This leads to centralization:
transport, medical services, etc.
 Size of shift in MC curve versus
MC
turning of demand curve
(decentralized)
determines whether gain from
scale economies outweighs the C MC
loss from a “one-size-fits-all” (centralized)
decision making D
Davg
D1
QD1 Q’D1 Qc,1&2

Quantity
37
 How does the EU makes decision today?
 EU has several different decision-making procedures
 80% of EU legislation passed under ordinary legislative
procedure = Equal power executed by Council and EU Parliament
 Council adopts legislation by a qualified majority voting (QMV)
and the European Parliament adopts it by a simple majority
 QMV rules from Nice Treaty were applied until November 2014
 Lisbon Treaty simplifies rules but member states can invoke Nice Treaty rules for
particular vote up to 2017)
 Each Member state’s minister casts a certain number of votes (increasing in
population but less than proportional);
 Example QMV: Council requires the approval of 55% of EU
Member States, which must represent at least 65% of the EU's
population (Lisbon treaty voting rules)
38
 New voting rules introduced by Lisbon Treaty (came into effect in 2014)
Population (in total) 2015 Percent

Germany 82,562,004 16.3%
France 64,982,894 12.8%
UK 63,843,856 12.6%
Italy 61,142,221 12.0%
Spain 47,199,069 9.3%
Poland 38,221,584 7.5%
Source: European Commission.
39
 How efficient is EU decision-making?
 In EU decision-making, efficiency means ‘ability to act’
 A perfect measure of efficiency would predict all possible issues to be
voted, decide how members would form coalitions, and use this to develop
an average measure of how easy it is to get things done in the EU
 Such predictions, of course, are impossible
 Passage probability measures how easy it is to find a majority under a given
voting scheme (for a given issue)
 Passage probability = number of possible winning coalitions

number of possible coalitions
 Let’s do a little example on this…
40
 Passage probability in a simple example
A B C Total Votes for yes Qualified majority at
1 1 1 30 15 1
0 1 1 20 15 1
1 0 1 20 15 1
1 1 0 20 15 1
0 0 1 10 15 0
1 0 0 10 15 0
0 1 0 10 15 0
0 0 0 0 15 0
1=yes Votes A 10 Majority threshold Passage probability 0.5

0=no Votes B 10 0.5
Votes C 10
To modify example click here
41
 How has EU’s efficiency changed over time as a result of
reforms and enlargements?
Source: Baldwin & Wyplosz (2012), chapter 3.
42
Trust
43
 Have institutional reforms, policy actions, crises etc. have
influenced the citizens’ trust in the EU?
 How do citizens (in member states) evaluate the Future of
the EU?
Eurobarometer
The Special EB500 “Future of Europe” (FoE) was conducted
between 22 October and the 20 November 2020 in the 27 EU
Member States, as a Joint survey by the European Commission
and the European Parliament. This is the ninth report in the
Future of Europe (FoE) series, initiated by the European
Commission in 2006.
Get the data: https://op.europa.eu/en/publication-detail/-/publication/d3e77637-a963-11eb-9585-01aa75ed71a1/language-en
44
Eurobarometer – first results
Source: https://europa.eu/eurobarometer/surveys/detail/2256
45
EU Budget
46
 Annual EU spending about MULTIANNUAL FINANCIAL
≈ 1% EU27 GDP FRAMEWORK (MFF) 2014-2020
 Main expenditure items:
1. Farming (about half of the budget)
2. Poor regions (about a third of the
budget)
3. Internal and external policies
4. Administration
 EU’s budget must be
balanced every year (by law)
 Main revenue items:
1. Tariff revenues
2. ‘Agricultural levies’ (tariffs on
agricultural goods)
3. ‘VAT resource’: like a 1% value
added tax (reality is complex)
4. GNP based: tax paid by members
based on their GNP
47
 MFF for 2021-2027:
1.211 trillion EURO
(plus: ≈ 800 billion EURO
temporary instrument to
power the recovery)
Details:
https://op.europa.eu/en/p
ublication-detail/-
/publication/d3e77637-
a963-11eb-9585-
01aa75ed71a1/language-en
48
Appendix
49
European Commission
 Executive branch of the EU (≈ Government of EU)
 Enforces Treaties and is driving forward European integration:
1. it proposes legislation to the Council and Parliament
2. it administers and implements EU policies
3. it provides surveillance and enforcement of EU law in
coordination with the EU Court
 Commission is made up of one Commissioner from each EU
member (including the President and two Vice-Presidents).
 Commissioners are appointed and serve for five years
Back
50
Council of the EU (of Ministers)
 EU’s main decision-making body
 One representative from each EU member authorized to
commit its government to Council decisions = members are
government ministers responsible for relevant area
 Council has responsibilities in all first-pillar areas
European Parliament
 Lisbon Treaty boosted power of Parliament making it equal to
the Council on most types of EU legislation (e.g. EU budget)
 About 750 members (MEPs) directly elected
Back
51
European Council
 European Council is highest political-level body in EU
 it provides political guidance at the highest level (i.e., initiates
most important EU initiatives and policies)
 Consists of leaders of each Member State, President of the
European Council and President of the European Commission
 Lisbon Treaty created the ‘President of the European Council’
who chairs the European Council for two and a half years and
is selected by qualified-majority voting in European Council
 One peculiarity is that European Council has no formal role in
EU law-making: its political decisions are translated into law
following the standard legislative procedures
Back
52
 Many EU institutions but the core ones are the “Big-5”
Source:
Baldwin & Wyplosz (2015),
chapter 2.
53
Source:
Baldwin & Wyplosz
(2015), chapter 2.
54

2 Lection - EU Institutions

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2 Lection - EU Institutions

Uploaded by

Copyright:

Available Formats

Economics of European Integration

Institutions & Decision Making in EU

“The pandemic reminded us of many things we may have forgotten or taken

Regional Integration Sectoral Integration

Sectoral General Regional General

 Federalist point of view: National sovereignty and nation-

 Which political line will eventually succeed?

1957 1973 1981 1986 1990 1995 2004 2007 2013

Portugal, Austria, Romania,

 Factor trade liberalization

 European Political Cooperation (later: Common Foreign and Security Policy)

⇒ Maastricht Treaty drew a clear line between supranational and

TEC = Treaty of Rome

TEU = Maastricht Treaty

TEU = Maastricht Treaty Source:

 Which level of government is responsible for policies in EU?

Customs union Certain health policies

Conservation Civil Protection

 Proportionality: EU should undertake only the minimum necessary actions

 ‘Burden of proof’ lies on the instigators of EU legislation

 Theory of Fiscal Federalism

 Optimal allocation of tasks depends on trade-offs:

QD1 Q’D1 Qc,1&2

Population (in total) 2015 Percent

Source: European Commission.

 Passage probability = number of possible winning coalitions

 Let’s do a little example on this…

1=yes Votes A 10 Majority threshold Passage probability 0.5

To modify example click here

Source: Baldwin & Wyplosz (2012), chapter 3.

Get the data: https://op.europa.eu/en/publication-detail/-/publication/d3e77637-a963-11eb-9585-01aa75ed71a1/language-en

You might also like