European Union Politics

Palgrave Foundations Series

by John McCormick

Chapter 19: Economic Policy

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European integration has long focused on economic matters. The core goal of the Treaty of Rome was the construction of a single market, the Single European Act and the Maastricht treaty were attempts to complete the single market and to prepare for a single currency, and many of the most taxing European political struggles have been about subsidies to agriculture, building common trade and competition policies, dealing with unemployment and labour immobility, and (more recently) how to respond to the global economic crisis and pressures on the euro.

Economic integration was intended to generate wealth and opportunity in order to help Europe recover from the ravages of war, while also building enough ties of mutual interest and dependence to make future war unthinkable. In this sense, it succeeded: Europe today is more peaceful and prosperous than at any time in its history, and the EU is the world’s biggest and wealthiest capitalist marketplace, its biggest trading power, its biggest market for corporate mergers and acquisitions, and its biggest source of foreign direct investment. Meanwhile, the euro has become one of the world’s three leading international currencies, leading to speculation about what it might mean for the balance of global monetary power.

But many problems remain. These include persistent unemployment, slow economic growth, too little progress on the liberalization of labour markets, the impact of a declining and aging population, EU dependence on imported oil and natural gas, and claims that Europe’s economic possibilities have sometimes been more rhetorical than real. An attempt under the 2000 Lisbon Strategy to make the EU the world’s most competitive and dynamic economy within ten years fell flat, forcing an extension to 2020, with critics charging that too few EU governments were prepared to make the necessary reforms.
  • Economic cooperation has long been at the heart of the process of European integration.
  • The key elements of economic policy are fiscal and monetary policy, but while member states control the former, they have mainly transferred control of the latter to EU institutions.
  • Early progress on the building of the single market was hampered by the persistence of non-tariff barriers, mainly of a physical, technical, or fiscal nature.
  • While there has been progress since the Single European Act, economic liberalization remains patchy, and the EU was embarrassed by its failure to achieve the goals of the Lisbon Strategy.
  • The long-term effects of the EU response to the 2007–10 global economic crisis remain unknowable.
  • One of the effects of the single market has been an acceleration of corporate mergers and acquisitions across European borders, which has helped European corporations regain some of their pre-war global dominance.
  • In order to guard against abuse of dominant position, the EU has long had a competition policy focused on the reduction of restrictive practices, the control of mergers, and monitoring the effects of state aid.
  • EU competition policy is among the most visible, effective, and respected of all policies pursued by the European Commission, and has had implications far beyond the borders of the EU, most notably in the United States, where mergers have been blocked and corporations punished for restrictive practices.