30. European Economic Integration

  (Originally written in 2005, this section has been undergoing review and revision in regard to developments in Europe over the years since. At best it is a simple overview as the process whereby the European Union came into existence and the means by which it functions are highly complex.  For a more inclusive examination of the history and operation of the EU, readers might go to Kristin Archik's "The European Union: Questions and Answers." published by the Congressional Research Service in January 2016. The Web location for this publication is in the Sources section below.)

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      Today (2023) some 27 European nations are joined together in a common economic union known as the European Union (EU).  Within the EU there is free trade among its members, open boundaries, and general subscription to overall regulations guidelines as to product quality, tariffs, labor standards, banking and currency, immigration, legal and civil rights, intellectual property,  justice and law enforcement, environment, and social and cultural development. Member states send representatives to a European Parliament (headquartered in Strasbourg, France), and a European Commission (headquartered in Brussels, Belgium) acts as the EU's administrative body. Member states still retain their sovereignty and there have been times when the bonds have been strained, but, overall, the EU has successfully demonstrated that international cooperation means prosperity.  The World Bank reports that at the end of 2015 the EU Gross Domestic Product was some $16.2 trillion representing 26% of the world economy, making the EU the world's second largest market, surpassed only by the United States.  What follows is an overview of Europe's economic integration.

        At the end of the Second World War the concept of European economic unity was unimaginable. Industrial Europe was in ruins. Most countries lacked the financial resources to move their recovery forward. Demobilized soldiers and displaced persons saw little hope of security of employment and stability.  The postwar division of Europe along political and ideological lines (East v. West, Democracy v. Dictatorship; Capitalism v. Communism) seemingly assured a return to the pre-war Great Depression and perhaps even another more deadly conflict.  The Allied war-time planning for the peace had created the United Nations, an international body committed to cooperation in preserving peace. but the UN was only in its infancy and the hopes that created it now faced the realities of a troubled future.  However, there was one country that emerged from the war relatively unscathed, and its economy needed markets.  That was the United States. It would be the US that would begin the movement to an integrated Europe. It would do so through the Marshall Plan

        The 1947 Marshall Plan was devised by the US State Department under Secretary of State George Marshall.  Instrumental in drafting the Plan was George F. Kennan (See Section 25.4). The underlying aims of the Plan were both economic and political: economic in that a prosperous Europe was necessary for American economic well-being, political in that a prosperous Europe would not be attracted to Communism.  Humanitarian and nonpolitical in its purpose, the European Recovery Program (ERP) - as the Marshall Plan was formally known - was opened to all European nations, including the Soviet Union and its Eastern European satellites. 

        Condemning the Marshall Plan as “American imperialism,” the Soviets, as expected, refused to join the Plan and ordered their satellites not to cooperate.  In 1949 Moscow established the Council for Mutual Economic Aid (Comecon), a cooperative economic organization for the Communist states.  By compelling the Eastern European economies to integrate with the Soviet economy, Comecon became another means whereby the Soviets further consolidated control over their satellites.  The Marshall Plan, however, revitalized Western Europe.

         The Marshall Plan worked in two ways.  1) The ERP member nations would consult with each other through a Paris-based Office for European Economic Cooperation and provide for their mutual recovery with whatever resources they had. What they could not get from each other, they could get from the US.  2) The US would provide outright financial grants for items of immediate consumption such as food and fuel and provide loans for the purchase of machinery and equipment.  The Marshall Plan, consequently, enabled the European states to provide for their own economic development without becoming dependent upon the United States.  By 1952 when the Plan ended, Western European productivity was 200 % above that of 1938 – an astonishing success that would have significant long range implications.

          The next step was a plan created by France’s Jean Monnet and Robert Schuman to integrate Western European coal and steel production.  The Monnet-Schuman Plan proved attractive to the West German Chancellor Konrad Adenauer, whose enlightened approach to foreign policy put aside old antagonisms and brought the two countries into economic partnership.  In 1952 France, West Germany, Italy, Belgium, Netherlands, and Luxembourg formed the European Coal and Steel Community (ECSC).  The six ECSC states agreed to eliminate import duties and quotas on shipments of coal and steel.  They also agreed to cooperate on coal and steel production by creating an ECSC High Authority centered in Luxembourg to oversee and administer that production.  

         In 1957 through the Treaty of Rome, the six ECSC members expanded their economic relationship by creating the European Economic Community (EEC), more commonly known as the Common Market.  The Common Market's members pledged themselves to the elimination of all trade barriers between them and the development of a common tariff for goods imported into the EEC from other states.  Its members agreed to the free movement of capital and labor between them, the latter enabling easy movement of migrant or “guest” workers between member countries.  They also agreed to seek a common approach in other areas of economic and social policy-making.  The Common Market headquarters were established in Brussels.   That same year the six EEC members formed the European Atomic Community (Euratom) to coordinate nonmilitary nuclear research and technological development.

           Britain at first resisted European integration and was instrumental in forming another international trade organization called the European Free Trade Association (EFTA) in 1960.  Joining Britain in the EFTA were Norway, Sweden, Denmark, Austria, Switzerland, and Portugal.  The EFTA members sought mutual reduction of tariffs but no further economic integration. 

        In 1963 Britain sought Common Market membership but was vetoed by French President de Gaulle, who saw Britain as too close to the US in its interests.  De Gaulle saw Britain’s economic ties with the Commonwealth of Nations, its former empire, as making Britain a threat to France’s leadership of the EEC.

        In 1967 the EEC, ECSC, and Euratom joined together as the European Community.  The high commissions of each of the three “communities” were joined as the European Commission and their assemblies were merged in a European Parliament, headquartered in Strasbourg, France.

       In 1973 Britain, as well as Denmark and Ireland, were admitted to the European Community.  Later entrants were Greece (1981), Spain and Portugal (1986).

       In 1987 the European Community adopted the Single European Act wherein the members agreed to work for further integration to be completed by the end of 1992.   Continued negotiations led to the Treaty of European Union signed in Maastricht in the Netherlands in 1991.

         The Maastricht Treaty restructured the European Community as the European Union (EU) and its conditions would become binding on all members once all 12 had ratified the agreement.  The Maastricht Treaty established common production standards, called for a central banking system and a common currency (the “euro”), establishment of uniform tax rates, mutual acceptance of each member’s professional and commercial licensing, and a common charter of labor rights.  The Treaty was unanimously ratified, albeit not without controversy, by the parliaments of its members by the end of 1993.  It was agreed that the new central bank and currency would be in place by 1999. The “euro” would circulate as legal tender with the currencies of the member states until January 1, 2002 when it would replace all of the national currencies.  Three EU members, Britain, Denmark, and Sweden, chose to retain their own currencies and are not part of the "Eurozone."  [1] 

          A further agreement, signed in Lisbon in 2000, made amendments to the treaties of Rome and Maastricht and is known collectively as the Treaty of Lisbon. The Lisbon agreement dealt with elections to and administration of the European Commission and Parliament, the Charter of Fundamental Rights, and creating a means (Article 50) whereby a member state might withdraw from the Union. 

         In 1995 Austria, Sweden, and Finland were admitted to the EU membership.  In 2004 ten new member states were admitted.  They are Cyprus (the Greek zone), the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia.  Bulgaria and Romania were admitted in 2007, Croatia in 2013, making 28 members until 2019 when Britain withdrew.  Today (2023) Iceland, Turkey, Serbia, Albania, Montenegro, and Macedonia are seeking membership. Bosnia-Herzegovina and Kosovo are recognized as eligible to apply for membership. Georgia is considering applying for membership in 2024.  The Russian invasion of Ukraine in early 2022 has prompted Ukraine to apply for membership. 

While the EU has had remarkable success in the integration of economies and other social and political areas, it is not without problems.

        In 2009 a debt crisis in Greece and elsewhere threatened to undermine the Eurozone.  As mentioned above, all EU members retained their sovereignty and, thus, their own fiscal policy. The government of Greece for years had been borrowing from the EU central bank and other foreign banks in order to fund its trade deficits and social security expenses such as pensions. Of course, this meant that Greece would have to repay the loans with interest with financial resources that it just did not have. As this was happening on the background of the wider global Great Recession, (2006 - 2009) international finance was already shrinking. Were Greece to default on its debts, the ripple effect could undermine confidence in the lending banks leading to further financial distress and greater recession throughout the Eurozone.  In addition to Greece, several other EU members, namely Portugal, Ireland, Italy, and Spain, had also overextended their credit and were facing possible financial collapse. To save the "PIIGS" (a derogatory acronym for Portugal, Ireland, Italy, Greece, Spain), the EU joined with the International Monetary Fund (IMF) to grant them substantial loans, provided they enacted severe austerity programs, cutting both government spending and services.  Needless to say, such measures proved highly unpopular with the affected populations, but a slow recovery did begin. To avert future such crises, the EU created the European Stability Mechanism which would provide emergency funds to failing banks.  Spain, Ireland, Italy, and Portugal all managed to restore confidence in their banking systems and by 2014 had returned to some degree of fiscal stability.  Greece, however, did not. In 2015 a new left-wing Greek government demanded that the EU increase its loans and ended its austerity program. Several EU members, France in particular, urged the Union to extend further credit.  Other members, including Germany (Europe's strongest economy), demanded that Greece adhere to the EU fiscal policy without conditions.  When Greece missed an IMF payment, the government shut down all banks within the country, causing great anxiety across the  Greek population. The government's strategy was to create a crisis that the EU could not ignore. If Greece's finances were to collapse, Greece would withdraw from the Union and all of Europe would suffer; the EU would have to act.  Through a popular referendum, the Greek voters rejected a return to austerity.  Despite its popular support, the government ultimately realized the economy would collapse were there no additional loans.  Greece again accepted EU conditions for further credit. Austerity was restored and the crisis passed.   The circumstances for future financial crises have not faded away. Fiscal policy will always be subject to the political ambitions of those in power and those who seek power. 

           A wave of political unrest and violence, unleashed by the "Arab Spring" (beginning 2010 - 2012), has swept across parts of North Africa and the Middle East.  A brutal civil war in Syria and the spread of radical Jihadist militarism in Iraq, Libya, and Yemen has so destabilized those countries that other states, including the US, Britain, France, Turkey, Iran, and Russia have actively engaged in both diplomatic and military intervention with little sign of alleviating the problems.  This regional chaos has forced hundreds of thousands to flee their countries for safety in Europe.  EU countries along the Mediterranean have been flooded with refugees and their resources for processing and providing assistance have been strained if not overwhelmed.  Dramatic and devastating attacks by Jihadist terrorists in Paris (2015), Brussels (2016), and Nice (2016) have exacerbated fears that terrorists are among the refugees, causing a rise in political reaction throughout Europe. The EU's open boundaries policy is being challenged by nationalists in all countries. 

"Brexit:" Another problem area is a perceived threat to economic well-being. Free trade and open boundaries under regulations set by an international body has caused nationalist resentment in some countries, particularly Britain.  A movement to withdraw from the EU gained much popular support, and in June, 2016, a referendum calling for Britain's withdrawal won a slight popular majority (52%-48%).  This political "bombshell" totally surprised the Government and Prime Minister David Cameron (Conservative) announced his resignation.  He was replaced by the new Conservative Party leader Theresa May.  May announced that her government would begin the negotiations called for in Article 50 of the EU Treaty whereby a member state might exit the Union, a process that could take years. It is interesting to note that a majority of Scots voted for continued EU membership and that Scotland might try somehow to retain its EU membership. Debate in Parliament over a future Brexit agreement continued to frustrate May's government and in July, 2019 she resigned as Prime Minister.  Her replacement as Conservative Party leader and Prime Minister was Boris Johnson, the former Mayor of London and Foreign Minister (2016-2018). Flamboyant, outspoken, and controversial, Johnson promised but failed to secure a Brexit agreement by the end of October, 2019, still, the Conservatives won an overwhelming majority in the December 2019 elections. Britain withdrew from the EU at the end of December 2020, without having established an agreement whereby trade with the EU would continue. 

Sources for European Economic Integration                                                     

Ambrose, Stephen. Rise to Globalism. New York: Penguin Books, 1991.

Archik, Kristin. "The European Union: Questions and Answers." Washington: Congressional Research Service, January 2016. http://fas.org/sgp/crs/row/RS21372.pdf 

Gaddis, John Lewis, The Cold War. New York: Penguin, 2005.

Ganley, Albert et al. After Hiroshima: America since 1945. New York: Longman, 1985.

Merriman, John. A History of Modern Europe. New York: Norton, 1996.

Palmer, Robert R. et al. A History of the Modern World. Boston: McGraw Hill, 2002.

Paterson, Thomas et al. American Foreign Policy: A History since 1900. Boston: D. C. Heath, 1991.

The 2007 World Almanac and Book of Facts. New York: WRC Media, 2006.

[1] The European Union’s Economic and Monetary Union (EMU) is responsible for overseeing currency integration.  It establishes the “convergence criteria” upon which EU member states participate in the “euro.”  Britain, Denmark, and Sweden have not joined the EMU and retain their own currencies.   

The euro is measured in hundredths of “euro cents.”  Euro coins are in one, five, ten, twenty, and fifty cent denominations, and one and two euro denominations.