GLOBAL SGH European Economics. European Economic Issues

GLOBAL SGHEuropean Economics

European Economics

European Economic Issues

European Economics – European Economic Issues

• Institutional economics – what does it mean?Institutional economics – what does it mean?

• Introduction to the EU: Some descriptive data and first Introduction to the EU: Some descriptive data and first impressionsimpressions– PopulationPopulation– Income and Income per capitaIncome and Income per capita– GDP vs. GNP – does it matterGDP vs. GNP – does it matter– Size of the economicsSize of the economics– EU’s global trade patternEU’s global trade pattern

• European Union budget – expenditure and revenuesEuropean Union budget – expenditure and revenues– The idea of net contribution – does it make any sense?The idea of net contribution – does it make any sense?

• Stages of economic integrationStages of economic integration

• The European economic integrationThe European economic integration


Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behavior.

Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions (e.g. individuals, firms, states, social norms).

Institutional economics focuses on learning, bounded rationality, and evolution (rather than assume stable preferences, rationality and equilibrium – like it is in classical and neo-classical models).


European Payment UnionEuropean Payment Union (EPU) (EPU) as a key factor in as a key factor in helping European governments solve the problems with:helping European governments solve the problems with:

– establishing their political legitimacy, establishing their political legitimacy,

– maintaining full employment maintaining full employment

– achieving sustained economic recovery and growthachieving sustained economic recovery and growth

HHoow to do thatw to do that??

Maintaining overvalued currenciesMaintaining overvalued currencies!!!!!!


The graphics are in turn drawn from the Eurostat data bases The graphics are in turn drawn from the Eurostat data bases and up-to-date data can be accessed atand up-to-date data can be accessed at http://epp.eurostat.ec.europa.eu/portal/page?http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1090,30070682,1090_33076576&_dad=portal&_schema_pageid=1090,30070682,1090_33076576&_dad=portal&_schema=PORTAL=PORTAL


Data showing the population of European countries (members of the EU)


• 6 big nations:6 big nations:– > 35 million (Germany, the UK, France, Italy, Spain and Poland).> 35 million (Germany, the UK, France, Italy, Spain and Poland).

• 2 2 mmid id ssized: ized: – Romania 22 & Netherlands 16 million people.Romania 22 & Netherlands 16 million people.

• 88 small nations (size of a big city): small nations (size of a big city): – 8 to 11 million: (Greece, Belgium, Portugal, Sweden, Austria, Czech 8 to 11 million: (Greece, Belgium, Portugal, Sweden, Austria, Czech

Republic, Bulgaria and Hungary).Republic, Bulgaria and Hungary).

• 11 tiny nations: 11 tiny nations: – (size of a moderate to small city)(size of a moderate to small city)– together make up less than 5 per cent of EU2together make up less than 5 per cent of EU277 population population– (Slovak Republic, Denmark, Finland, Ireland, Lithuania, Latvia, Slovenia, (Slovak Republic, Denmark, Finland, Ireland, Lithuania, Latvia, Slovenia,

Estonia, Cyprus, Luxembourg and Malta.) Estonia, Cyprus, Luxembourg and Malta.)


Data showing the GDP per capita of European countries

(members of the EU)


• 11 high income – over €20,000 11 high income – over €20,000 – Denmark, Ireland, Austria, Netherlands, Belgium, Finland, Italy, Denmark, Ireland, Austria, Netherlands, Belgium, Finland, Italy,

Germany, France, UK and Sweden.Germany, France, UK and Sweden.

• 9 medium income category – from €10,000 to €20,0009 medium income category – from €10,000 to €20,000– Spain, Greece, Portugal, Cyprus, Hungary, Slovenia, the Czech Spain, Greece, Portugal, Cyprus, Hungary, Slovenia, the Czech

Republic, Malta and the Slovak Republic.Republic, Malta and the Slovak Republic.

• 6 low income nations, less than €10,0006 low income nations, less than €10,000– Estonia, Poland, Lithuania, Latvia, Bulgaria, RomaniaEstonia, Poland, Lithuania, Latvia, Bulgaria, Romania..

NB: Turkey’s income is half that of the richest-of-the-poor, NB: Turkey’s income is half that of the richest-of-the-poor, Estonia.Estonia.

• Luxembourg is in the super-high income category by itself. Luxembourg is in the super-high income category by itself. – per capita income is almost twice that of Franceper capita income is almost twice that of France– about 40% of Luxembourgers work so the about 40% of Luxembourgers work so the averageaverage worker earns over worker earns over

€100,000 a year!€100,000 a year!


GDP vGDP vs.s. GNP: Does it matter GNP: Does it matter

For small countries it can: e.g. Ireland GDP>GNP

IrelandIreland 19951995 20042004 20072007

Gross National Product (nominal) Gross National Product (nominal) 46,99446,994 124,250124,250 161208161208

Gross Domestic Product (nominal) Gross Domestic Product (nominal) 5314753147 148556148556 190601190601

Nominal GNP per capitaNominal GNP per capita 1304913049 3072630726 3715337153

Nominal GDP per capitaNominal GDP per capita 1475814758 3673736737 4392743927

GDP is more than GNP by:GDP is more than GNP by: 13%13% 20%20% 18%18%

Matters when have many migrant workers (sending money back) or foreign investors sending profits away.

UK GDP is less than GNP by: 2% - so goes opposite way


Data showing the relative size of GDP of European countries

(members of the EU)


• Economic size distribution is VERY uneven.Economic size distribution is VERY uneven.

• Six nations (Germany, the UK, France, Italy, Spain and Six nations (Germany, the UK, France, Italy, Spain and the Netherlands) account for more than 80% of EU25’s the Netherlands) account for more than 80% of EU25’s economy. economy.

• Other nations are small, tiny or miniscule. Other nations are small, tiny or miniscule.

• ‘‘Small’ is an economy that accounts for between 1% and Small’ is an economy that accounts for between 1% and 3% of the EU25’s output:3% of the EU25’s output:– Sweden, Belgium, Austria, Denmark, Poland, Finland, Greece, Sweden, Belgium, Austria, Denmark, Poland, Finland, Greece,

Portugal and Ireland.Portugal and Ireland.

• ‘‘Tiny’ is one that accounts for less than 1% of the total: Tiny’ is one that accounts for less than 1% of the total: – Czech Republic, Hungary, Slovak Republic, Bulgaria, Romania, Czech Republic, Hungary, Slovak Republic, Bulgaria, Romania,

Luxembourg, Slovenia, Lithuania, and Cyprus.Luxembourg, Slovenia, Lithuania, and Cyprus.

• Miniscule is one that accounts for less than one-tenth of Miniscule is one that accounts for less than one-tenth of 1%: 1%: – Latvia, Estonia and Malta.Latvia, Estonia and Malta.


Data showing the EU global trade pattern


• The EU trades mainly with Europe, especially The EU trades mainly with Europe, especially with itself:with itself:

– about two-thirds of EU exports and imports are to or from about two-thirds of EU exports and imports are to or from other Western European nations other Western European nations

– the EU’s exports to North America amount to only 10the EU’s exports to North America amount to only 10%% of of its exports its exports

– Asia’s share is only 8Asia’s share is only 8%%. .

• About 80About 80%% of EU exports consist of industrial of EU exports consist of industrial goods (‘intragoods (‘intra--industry’ trade). industry’ trade).


Data showing the openness ratio of EU countries


• EU2EU277 members are all comparatively open economies members are all comparatively open economies when it comes to trade in goods: when it comes to trade in goods:

– openness ratio for the EU15 ranges from 17openness ratio for the EU15 ranges from 17%% for Greece up to for Greece up to 7575%% for the Belgium-Luxembourg for the Belgium-Luxembourg

– figures for the 10 newcomers are higher than Greece’sfigures for the 10 newcomers are higher than Greece’s figures for Japan and the US are 10figures for Japan and the US are 10%% and 8 and 8%% respectively. respectively.

• EU15 market is very important for all EU2EU15 market is very important for all EU277: : – share of exports going to the EU15 ranges between 50share of exports going to the EU15 ranges between 50%% to to

8080%%..


Data showing EUData showing EU Budget Expenditure


Data showing evolution of Spending Priorities of EU budget


Data showing Evolution of EU budget Spending, LevelData showing Evolution of EU budget Spending, Levelpart 1


Data showing Evolution of EU budget Spending, LevelData showing Evolution of EU budget Spending, Levelpart 2


• EU’s budget must balance every year.

• Financing sources: four main types:

– Tariff revenue

– ‘Agricultural levies’ (tariffs on agricultural goods)

– ‘VAT resource’ (like a 1 per cent value added tax – reality is complex)

– GNP based (tax paid by members based on their GNP).

– new instrument from the 2014 („Tobin tax”?)


Data showing Evolution of EU budget Founding Sources


Data showing net contribution to EU budget by member


Net Contribution by Member

Percentage of GDP per member is approximately 1Percentage of GDP per member is approximately 1%% regardless regardless of per-capita income.of per-capita income.

EU contributions are not ‘progressive’, e.g. richest nation, (e.g. EU contributions are not ‘progressive’, e.g. richest nation, (e.g. Luxembourg) pays less of its GDP than the poorest nation (e.g. Luxembourg) pays less of its GDP than the poorest nation (e.g. Romania).Romania).


Defining economic integration

One aspect of international economics

A state of affairs or a process which involves the amalgamation of separate economies into larger free trading regions.

Non-economic definition: increasing interdependence of nations


Characteristic of an economic bloc

• Discriminatory removal of trade barriers

• The establishment of some co-ordination

- between at least two nations


Types of integration

• Negative integration

• Positive integration

NOT sectorial co-operation, which can be WITHIN integration


Stages of economic integration

• Common Markets

– Monetary Union

• Economic Union

– Political Union

• Free Trade Areas

• Customs Unions

GLOBAL SGHEuropean Economics

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GLOBAL SGH European Economics. European Economic Issues