Transcript European Integration

European Integration
Dr. Tatiana Romanova
School of International Relations
St. Petersburg State University
Tallinn, March 2010
Day 4
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Economic and Monetary Integration

Energy Policy of the EU

Justice and Home Affairs
Stages of Economic Integration
Even those of us who laboured to
complement the Single Market
with a monetary union and to
embody this transformation in a
treaty held only that such a
transformation was desirable and
feasible, not that it was probable
or much less inevitable.
Custom
Union
Free Trade
Area
Economic and
Monetary
Union
Internal
Market
How did the EMU Come About
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1988 – Hanover – Delors Committee to study the prospects
of EMU
Bicycle theory
1989 – plan:
clarity:
 To compete single market and economic union first (clear priority
over monetary union)
 Creation of the monetary union
 Common tax policy in the future
 Budgetary discipline
3 stages
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1989 – European council in Madrid: endorsed Delors report
+ start of the first stage as of 1.07.1990
Strasbourg December 1989 – IGC on II and III EMU stages
Maastricht and Convergence
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Convergence Criteria (=conditions to get into the euro-zone)
– German priority:
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High level of price stability (inflation < 1,5% average
inflation of the three most stable EMU economies)
Rather
Financial stability of the government:
politically
 Budget deficit < 3% GNP
than
 Public debt < 60% GNP
economicall
Normal participation in the ERM for at least 2 years y reasoned
(no devaluation, fluctuation of 2,25%)
Approximation of long-term interest rates (< 2%
average interest rate of 3 euro MS with the lowest inflation)
Independence of ECB
Dates of stages – French priority
Federal ECB system, charged with price stability +
independent CB  minimised the loss of sovereignty
Stages
1. Preparatory 01.07.1990-31.12.1993
consolidation and eradication of all the barriers to the movement of capital
2. Organisational - until 31.12.1998
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Currency crisis but EMS survived because of the political
determination of the EU governments
Creation of the EMI – Frankfurt
Setting guidelines for economic policy
Establishing single monetary policy
IGC - Amsterdam
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Stability and Growth Pact
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New Mechanism of ER
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Banknotes and coins as of 1 January 2002
25 03 1998 –analysis of the convergence criteria – 11 MS
Stages
2. Organisational - until 31.12.1998 (contd)
 2.05.1998 – European Council
 Irreversible fixation of the exchange rates  exposed to
speculative attacks + interest rates parity
 Approval of the head of the ECB
 Fixation of euro MS:
timing is crucial (in 1992 it would have been only France
and Luxembourg)
11+ Martinique, Guadalupe, Reunion, St. Pierre and
Michelon
+ Monaco, Andorra, San-Marion and Vatican
 2000 - Greece
Stages
1992 –1993 – serious financial crisis:
Devaluation of Sp, Port, Irish currencies; UK and It left the
ERM
3. Final:
А: establishment of the Monetary Union
with critical mass of operations in euro
National currencies
В: as of 1 January 2002
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Banknotes and coins are released to free circulation
National currencies are withdrawn from the circulation
All banks and enterprises use euro
Euro is the only means of payment
Institutional Aspects
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Features of the Monetary Union
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12 MS
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Referendum in Sweden
5 tests of the UK (economic convergence, ability to withstand the
shock, influence on the city, influence on the enlargement)
Denmark
+ Slovenia, Malta, Cyprus, Slovakia
Council of Ministers:
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Explicit harmonisation of monetary policies
Common pool of foreign exchange reserves
A single central bank and monetary authority
Ecofin – general guidelines, international negotiations, exchange rate
Euro Council 16 – consultations + external representation together
with the ECB
Mr. Euro
Stages of Economic Integration
?
MONETARY
COMPONENT
ECONOMIC
COMPONENT
Free Trade
Area
Custom
Union
Common
Market
Economic and
Monetary
Union
Economic and monetary union
Economic component
Internal
Market
Coordination of
economic
policies
Ban on certain
operation
Monetary component
Economic
policy
guidelines
Single
currency
Common
monetary
policy
Budget deficit
control
ESCB
SOFT
RIGID
ERM
Necessity of economic
coordination
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National actions or policies may spill over directly
into neighbouring countries (i.e. state aid)
Coordination should prevent or reduce the
likelihood of free-rider behaviour by member
states.
Policy coordination may be useful in deflecting
criticism of unpopular but necessary policy action
at the national level
Broad Economic Policy Guidelines
– soft economic coordination
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Framework for the definition of the overall policy
objectives
Art 99
Are the framework that brings together:
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The orientation of general fiscal policy (Excessive Deficit
Procedure, SGP, multilateral surveillance)
The European Employment Strategy (the Luxembourg process)
The actions on structural reform (the Cardiff process)
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Monitors the reforms in the MSs to improve the functioning of product
and capital market
Peer review exercise in itself
BEPG are fixed annually, builds on an annual cycle of
policy discussion
Controlled through annual report on the implementation
of the BEGP
Broad Economic Policy Guidelines
– soft economic coordination
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Involve:
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Monitoring policy process and outcome
Providing general policy orientations, benchmarking
Publication of best practices
Recommendations of the Council to a deviating MS
(can be made public on certain occasions)
Soft because they
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Do not have any direct legal impact on MS
Do not involve any sanctions
Fiscal Policy
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Associated with sovereignty
EU:
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Did not initially addressed fiscal policy in the EU Treaty
Painful because of the difference between MSs
Later harmonised indirect taxation (VAT and specific duties) and energy
taxes
In theory no fiscal harmonisation is needed for a monetary
union BUT
Achieving the appropriate degree of and balance among the goals for
price stability, employment and growth is made more likely if there is a
policy mix of fiscal and monetary measures
Cross-subsidisation
 Fiscal policy should be credible
 EMU with no fiscal unification creates the situation of fiscal
irresponsibility:
 Fiscal expansion  inflationary pressure but low interest rates
profiting from free riding
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Stability and Growth Pact
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Excessive Deficit Procedure and Stability and
Growth Pact have 2 features:
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A general orientation to ensure a policy that is
sustainable over the longer term
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Public debt
A constraint on short-term actions – the excessive
deficits – to ensure that the process is not derailed
on the way
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 each MS needs to be far enough from the 3% deficit
ration limit that the normal sorts of adverse economic
shocks will not drive them over that limit
Otherwise – contradictory fiscal steps
First Crisis of SGP
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2003 - France – received an early warning
2003 - Port, It, Germany – went through initial early warnings but finance
minister rejected the Commission’s recommendations to sanction them
Court 2004: condemned finance ministers for not fulfilling obligations but
used technical reading to uphold the rights of the national governments to
ignore these recommendations
Prodi: SGP is stupid
March 2005 – modification of SGP rules:
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“costs of the reunification of Europe”
special consideration will also be given to "policies to foster R&D and
innovation", "financial contributions to fostering international solidarity" and
the rather vague "achieving European policy goals".
Countries are now given 2 years to correct the situation, it can be extended in
case of unpredictable circumstances + 1 year to initiate = 5 year total
3% can be broken (temporarily if the deficit is close to 3%)
Result: loosening the policy, departure from rules-based system
Second SGP Crisis
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2008-2009 – financial and economic crisis  countries
exceed the limits
20 out of 27 !!
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Commission:
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April 2009: FR, ES, GR, IE, UK
June 2009 – HU, LV, LI, MA, PL, RO
October 2009 – DE, IT, AU, BE, CZ, NL, PT, SL, SV
measures, which take into account situation in the country 
longer adjustment periods
Temporary postponement to allow for some state intervention to
prevent the crisis, ended in 2009
Greece: specific situation (but also ES, IT, IE, PT) 
PIIGS group of MSs
Currently: ideas of a European Monetary Fund
Lisbon Agenda
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Lisbon 2000 goal:
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to become the most competitive and dynamic
knowledge-based economy in the world, capable
of sustainable economic growth with more and
better jobs and greater social cohesion  by 2010
 to achieve a growth rate of 3%
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Current reform: plans to 2020
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Green growth
Science and research
Information technologies
Fight against exclusion
Lisbon Process – OMC
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Peer group review under EU institutions
surveillance, including
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Fixing the guidelines with timetable
Establishing quantitative and qualitative indicators
Translating these European guidelines into
national and regional policies
Periodic monitoring, evaluation and peer review
Current reform:
No binding targets
 Same old instruments without any possibility to
sanctions MSs
 Loose implementation
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EMU
EMPLOYMENT POLICY
COORDINATION
as a
FLANKING MEASURE
B
E
P
G
F P
L O
A L
N I
K C
a I Y
s N
a G
Monetary union
S
G
P
a
s
a
Maastricht criteria
F
L
A
N
K
I
N
G
P
O
L
I
C
Y
Summary of the economic
integration
No internal
barriers for
each
other’s
goods
FTA
CU
CM
MU
EU
+
+
+
+
+
Common
external
tariff and
policy
+
+
+
+
No internal
barriers
and factor
mobility
+
+
+
Common
currency
+
+
Common
economic
policy
+
Stages of Economic Integration
Economic and
Monetary
Union
Common
Market
Custom
Union
Free Trade
Area
A sum of
economic
and
political factors
as drivers of
integration
Energy Production EU-25, EU-30
(mln toe)
2005
2020
EU 25
EU 30
EU 25
EU 30
Hard fuel
203.1
226.8
124.1
147
Oil
164.1
338.3
102
233.2
Natural gas
196.7
254
147.6
255.2
Nuclear
237.8
250.9
213.7
226.4
Renewables
97.2
130.2
151.5
191.4
898.9
1200.1
738.9
1053.2
TOTAL
Energy Consumption EU-25, EU30 (mln toe)
2005
2020
Hard fuel
EU 25
302,7
EU 30
341,8
EU 25
252,3
EU 30
294,6
Oil
634,3
701,0
677,7
769,9
Natural gas
Nuclear
376,2
237,8
411,5
250,9
598,0
213,7
673,7
226,4
Renewables
97
130
151,5
191,4
1650,2
1834,9
1895,0
2155,5
TOTAL
Net importer of oil, natural gas and coal
Major Oil Suppliers to the EU:
2007
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Net import: 577,7 Mtoe
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Russia – 32,6%
Norway – 14,8%
Libya – 9,8 %
Saudi Arabia – 6,9%
Others:
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Iran
Kazakhstan
Iraq
Nigeria
Oil import intensity
Much more diversified compared to natural gas
supply ++ flexibility of supply
Channels of Gas
25,3% (2007) from Norway
Transportation
38,7% (2007) from Russ
16% (2007) from Algeria
Today’s EU Energy Policy
Internal market, competition,
networks, investments,
research and innovation
(including clean coal and
nuclear energy)
RES, energy efficiency,
nuclear energy, innovations,
climate change and emission
trading
Environment
Competitiveness
International dialogues,
EU resource management,
reprocessing and storage,
protection against natural
and man-made disasters,
including terrorism
Security of Supply
Competitiveness: Liberalisation of
the EU’s markets
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1980s:
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Oil and coal – ok
Nuclear energy – specificity in every country
Natural gas and electricity – need additional measures
Natural gas and electricity: 3 waves of liberalisation
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1990s
2003
2008
Driving ideas:
•Create an internal EU energy market
instead of national markets
•Put energy consumer in the centre of all
the relations
•Enable competition among various energy
companies, which should bring more
efficiency and decrease prices
Competitiveness: Liberalisation of
the EU’s markets
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Liberalisation  unbundling
transportation
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Liberalisation vs. external energy dependence in natural gas
  an effort to externalise it by imposing similar demands on
Russian energy sector
 Gazprom clause
 Reciprocity claims
Did not lead to price decrease  monopolization of external
supply was blamed
Share of Three Big Companies
Market-Making
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Liberalisation  do away with regulation distortion
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Leveling the regulatory playing field
Infrastructure?
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As of early 1990s Trans-European Networks (TEN) in natural
gas and electricity
Why these sectors?
Three levels of actions: isolated regions, EU MSs, EU MSs
and third countries
Reforms: 1996, 2001-2003 – further liberalisation, 2007further liberalisation + oil + enlargement + renewables
Priority Projects Electricity
Priority Projects: Natural Gas
Competitiveness: Research and
Innovation
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New sources of energy (renewables)
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Nuclear energy
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Growing popularity
Clean use of coal
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20% by 2020, 10% for biofuel
Absolute vs. relative increase
Including technologies of CO2 capture
CO2 storage technologies
Innovative ways for energy transportation (LNG,
flexible tariffs)
Environment
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Climate change
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EU’s environmental leadership
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Energy is one of the key
contributors
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Currently – EU-15 collective
obligation to decrease by 8%
by 2012
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Emission trading within the EU
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Future: 20% by 2020 (30% if
there is a global agreement to
further advance)
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RES
Absolute vs. relative
achievements
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Varying ways of stimulation
(feed-in tariff, direct support,
green certificates)
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20% by 2020
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10% of biofuel by 2020
Energy efficiency
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Non-binding targets
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20% by 2020
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•Importance of research to support policies in energy
•Important to involve third parties
- Global competitiveness of the EU
- Export of new technologies
•Important to reduce EU’s external dependence
Security of Supply
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Growing external dependence
Oil – relatively flexible
Natural gas – “over-dependence on Russia” in the
situation when
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natural gas is of key importance to fulfill climate-related obligations
Russia’s assertiveness is on the rise
Ways to Deal with Energy
Dependence
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French vs. American models
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Problem: EU does not have competences
Member-states have the right
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EU
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Match supply and demand VS. provide for stable legal conditions and
market opening
Shift from the French to the American model creates s window of
opportunity for the EU
to determine their energy mix
to ensure their energy security
can use soft instruments (monitoring, recommendations, exchange of
best practices)
Can use the principle of parallelism (impose liberalisation and other
aspects of its legislation on its partners)
Growing securitisation of energy supply  increased role of the EU’s
institutions
Lisbon Treaty: minor change
Ways to Deal with Energy
Dependence
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Ways to guarantee energy security:
 On the supply side:
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RES, nuclear, clean use of coal,
Dialogues with producing countries
Support of specific legal regime
Support for national companies  national champions
On the demand side:
Energy efficiency
 Energy saving
1970s crisis – tremendous impact on Europe
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How Did it Start
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Why Cooperation?
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Transnational markets
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Free movement of people  free
movement for criminal activities
Growing immigration  need to divide the
burden
Transnational marriages, divorces, adoptions
Intensified cooperation  need to approximate
civil legislation
“Laboratories” of cooperation
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Council of Europe 1949 –
TREVI Group 1975 –
Police cooperation 1984 –
Schengen 1985, 1995
Defined the
key areas of
cooperation
Maastricht
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III Pillar – JHA
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Asylum
External border control
Immigration and policy towards third country nationals
Fight against drug-addicts, inetrnational forgery
Cooperation in civil and criminal law and in custom affairs
Intergovernmental!
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No Court of Justice, EP limited
Conventions but no way to guarantee national ratification
Many recommendations, not binding
European Union as of 1992
Common
institutes
(EU institutions), divergent
competences of the EC, member-states
and institutions and interrelations between them, procedures
Common
Cooperation
Foreign
and
Three
in the field
Security
European
of Justice
Policy and
Communities
and Home
Common
Affairs
Defence
Member-States and Citizens
Amsterdam
Increased efficiency
and transparency!
Common
institutes
(EU institutions), divergent
competences of the EC, member-states
and institutions and interrelations between them, procedures
Common
Cooperation
Foreign
and
Three
in the field
Security
European
of Justice
and
and Cooperation
in Civil
Law
CommunitiesImmigrationPolicy
and Home
Common
Affairs
Defence
Member-States and Citizens
Schengen
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Free movement of people  effort to eliminate internal
boundaries
BeNeLux – 1960 – first effort:
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No control inside
Common visa policy
5 MSs decide to go further  announce in Fontainebleau 
Schengen 1 (1985)
Schengen Convention – 1990
Essence: simplify and harmonise visa procedures
Intergovernmental BUT should not contradict obligations
under the EC
Schengen information system
Gradual enlargement
26 March 1995 – entered into force for 7 MSs
Amsterdam
Schengen Acquis
Common
institutes
(EU institutions), divergent
competences of the EC, member-states
and institutions and interrelations between them, procedures
Common
Cooperation
Foreign
and
Three
in the field
Security
European
of Justice
Policy and
Communities
and Home
Common
Affairs
Defence
Member-States and Citizens
Specific Cases
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UK: island mentality + fear to surrender its borders’
control
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Ireland
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Denmark
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Iceland and Norway
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Cyprus
Amsterdam
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Also changed procedures in the third pillar
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Why did it succeeded?
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Framework directives and decisions
Conventions enter into force when approved by ½ of
the MSs
Commission – right to propose legislation
Growth of criminal activities
Coming enlargement
Flexibility of the British government
Problem: split between two pillars
Lack of clarity  Tampere Milestones 1999
Area of Freedom, Security and
Justice
Freedom
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Free movement and basic rights
Third country nationals
Security
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Enhanced access to courts and
justice
Mutual recognition
Legal approximation
Justice
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Crime prevention
Еuropol
Eurojust
European Police College
Common definitions
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Scoreboard (19992004)
The Hague Plan
(2004-2009)
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Emphasis on
immigration
Stockholm Agenda
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More on internal
security  special
strategy
A NEW INTEGRATIONI PROGECT??