Brief Table of Contents

About the Authors xiiiPreface xivAcknowledgements xviiiGuided Tour xixOnline Learning Centre xxiStudy Skills xxiii

Part IHistory , Facts and Institutions 1

1 History 32 Facts , law, institutions and the budget 393 Decision making 71

Part IIThe Microeconomics of European Integration 95

4 Essential microeconomic tools and tariff analysis 975 The essential economics of preferential liberalization 1196 Market size and scale effects 1437 Growth effects and factor market integration 1598 Economic integration , labour markets and migration 177

Part IIIEU Micro Policies 203

9 The common agricultural policy 20510 Location effects , economic geography and regional policy 23111 EU competition and state aid policy 255

12 EU trade policy 275

Part IVThe Macroeconomics of Monetary Integration 287

13 Essential macroeconomic tools 28914 The history of European monetary integration 32315 Optimum currency areas 347

Part VEU Monetary and Fiscal Policies 379

16 The European monetary union 38117 Fiscal policy and the Stability Pact 41318 The financial markets and the euro 44319 The Eurozone in crisis 475

Index 511

About the Authors xiiiPreface xivAcknowledgements xviiiGuided Tour xixOnline Learning Centre xxiStudy Skills xxiii

Part I History , Facts and Institutions 1

Chapter 1 History 31.1 Early post -war period 41.2 Two strands of European integration : federalism and intergovernmental ism 91.3 Evolution to two concentric circles : the domino effect part I 151.4 Euro -pessimism 171.5 Deeper circles and the domino effect part II: the Single Market

Programme and the EEA 181.6 Communism ’s creeping failure and spectacular collapse 211.7 Reuniting East and West Europe 231.8 Preparing for eastern enlargement : a string of new treaties 231.9 Global and Eurozone crises and institutional responses 261.10 The rise of Euroscepticism 291.11 Summary 35Self -assessment questions 36References and further reading 37

Chapter 2 Facts , law, institutions and the budget 392 .1 Economic integration in the EU 402 .2 EU structure pre - and post -Lisbon 462 .3 EU law 492 .4 The ‘Big-5 ’ institutions 522 .5 Legislative processes 582 .6 Some important facts 612 .7 The budget 632 .8 Summary 67Self -assessment questions 68References and further reading 69

Detailed Table of ContentsVIII

Chapter 3 Decision making 713 .1 Task allocation and subsidiarity : ELI practice and principles 723 .2 Understanding the task allocation : the theory of fiscal federalism 753 .3 Economic view of decision making 823 .4 The distribution of power among EU members 863 .5 Legitimacy in EU decision making 903 .6 Summary 90Self -assessment questions 91References and further reading 92

Part II The Microeconomics of European Integration 95

Chapter 4 Essential microeconomic tools and tariff analysis 974 .1 Preliminaries I: supply and demand diagrams 984 .2 Preliminaries II: introduction to open -economy supply and demand analysis 1014 .3 MFN tariff analysis 1054 .4 GVC analysis 1094 .5 Types of protection : an economic classification 1104 .6 Sources of competitiveness differences 1134 .7 Summary 116Self -assessment questions 116References and further reading 117

Chapter 5 The essential economics of preferential liberalization 1195 .1 Analysis of unilateral discriminatory liberalization 1205 .2 Analysis of a customs union 1275 .3 Frictional barriers : the 1992 Programme 1315 .4 Deep regionalism , the Eurozone and ‘soft preferences ’ 1335 .5 WTO rules 134

5 .6 Summary 135Self -assessment questions 135References and further reading 136Annex : Discriminatory liberalization : small country case 139A5 .1 Price and quantity analysis , liberalization with low-cost country 140A5 .2 Welfare analysis : liberalization with low-cost country 140A5 .3 Liberalization with high -cost country : supply switching 141A5 .4 Welfare analysis : liberalization with high -cost country 141

Chapter 6 Market size and scale effects 1436 .1 Liberalization , defragmentation and industrial restructuring : logic and facts 1446 .2 The BE- COMP diagram in a closed economy 1466 .3 The impact of European liberalization 1496 .4 Summary 152Self -assessment questions 152Essay questions 153References and further reading 153

Detailed Table of Contents IX

Annex : Details on the COMP and BE curves 155A6 .1 COMP curve in detail 155A6 .2 BE curve in detail 157

Chapter 7 Growth effects and factor market integration 1597.1 The logic of growth and the facts 1607.2 Medium -term growth effects : induced capital formation 1647.3 Long-term growth effects : faster knowledge creation and absorption 1737.4 Summary 174Self -assessment questions 175Essay questions 175References and further reading 175

Chapter 8 Economic integration , labour markets and migration 1778 .1 European labour markets : a brief characterization 1788 .2 Labour markets : the principles 1818 .3 Effects of trade integration 1878 .4 Migration 1908 .5 Summary 199Self -assessment questions 200Essay questions 201References and further reading 201

Part III EU Micro Policies 203

Chapter 9 The common agricultural policy 2059 .1 The old simple logic : price supports 2079 .2 Changed circumstances and CAP problems 2129 .3 The simple economic logic of the new CAP 2199 .4 CAP reform 2229 .5 Today ’s CAP 2249 .6 Remaining problems 2269 .7 Summary 227Self -assessment questions 228References and further reading 229

Chapter 10 Location effects , economic geography and regional policy 23110.1 Europe ’s economic geography : the facts 23210.2 Theory part I: comparative advantage 23710.3 Theory part II: agglomeration and the new economic geography 23910.4 Theory part III: putting it all together 24710.5 EU regional policy 24910.6 Empirical evidence 25210 .7 Summary 253Self -assessment questions 253References and further reading 253

X Detailed Table of Contents

Chapter 11 EU competition and state aid policy 25511.1 The economics of anti -competitive behaviour and state aid 25611.2 EU competition policy 26911.3 Summary 273Self -assessment questions 274References and further reading 274

Chapter 12 EU trade policy 27512 .1 Pattern of trade and tariffs : facts 27612 .2 EU institutions for trade policy 28012.3 EU trade policy : broad goals and means 28312 .4 EU trade policy : existing arrangements 28312.5 Summary 284Self -assessment questions 285References and further reading 285

Part IV The Macroeconomics of Monetary Integration 287

Chapter 13 Essential macroeconomic tools 28913.1 The closed economy : a refresher 29013.2 The open economy 29613.3 The impossible trinity principle 30113.4 The real exchange rate and the purchasing power parity principle 30713.5 Applications : macroeconomic policies and the exchange rate 31113.6 Summary 316Self -assessment questions 317Essay questions 318References and further reading 318Annex : Various exchange rate regimes 320

Chapter 14 The history of European monetary integration 32314.1 Back to the future : before paper money 32414.2 Bretton Woods as an antidote to the inter -war debacle 33114.3 After Bretton Woods : Europe ’s snake in the tunnel 33214.4 The European monetary system 33414.5 The Maastricht Treaty 33914.6 The crisis 34114.7 Summary 341Self -assessment questions 342Essay questions 342References and further reading 343Annex : Hume ’s mechanism 344

Chapter 15 Optimum currency areas 34715 .1 The question , the problem and the short answer 34815.2 Benefits of a currency area 350

Detailed Table of Contents XI

15 .3 Costs of a currency area 35415.4 The optimum currency area criteria 35815.5 Is Europe an optimum currency area ? 36415.6 Is Europe becoming an optimum currency area ? 37115 .7 Summary 373Self -assessment questions 375Essay questions 375References and further reading 376

Part V EU Monetary and Fiscal Policies 379

Chapter 16 The European monetary union 38116.1 Principles 38216.2 The five entry conditions 38316.3 The Eurosystem 38816.4 The monetary policy strategy 39216.5 Independence and accountability 39616.6 Instruments 39916.7 The first years , until the Great Crisis 40116.8 Summary 408Self -assessment questions 410Essay questions 410References and further reading 411

Chapter 17 Fiscal policy and the Stability Pact 41317.1 Fiscal policy in the monetary union 41417.2 Fiscal policy externalities 41817.3 Principles 42117.4 The stability and growth pact 42717.5 The macroeconomic imbalance procedure 43817.6 Summary 439Self -assessment questions 440Essay questions 440References and further reading 440

Chapter 18 The financial markets and the euro 44318.1 Essentials of financial markets 44418.2 Effects of a monetary union 45018.3 Fragmentation during the crisis 45718.4 The Eurozone and its banks 46018.5 The international role of the euro 46818.6 Summary 472Self -assessment questions 473Essay questions 473References and further reading 473

XII Detailed Table of Contents

Chapter 19 The Eurozone in crisis 47519.1 Stage one : the global financial crisis 47619.2 Stage two : the public debt crisis in the Eurozone 48019.3 Policy responses 49019.4 Banks and public debt 49719.5 What have we learned from the crisis ? 50119.6 Summary 507Self -assessment questions 508Essay questions 508References and further reading 508

Index 511