Traditional Own: 13%

VAT: 11%

GNI: 75%

Other: 1%

CAP: 40%

cohesion: 35%

internal: 10%

external: 5%

administration: 5%

Commission: Barroso

European Council: van Rompuy

C.o.Ministers/C.o.EU: pres rotates 6mos, unless FP / Ashton

Parliament: codecision

ECB: Draghi

Court of Justice

Court of Auditors

European Commission proposes

CoM & EP codecide

autonomy

direct applicability

primacy

primary/treaties

secondary/acquis communautaire:

*regulations

*directives

*decisions

*recommendations & opinions

Few people understood that it was about

*more majority voting

*more power for the EuroParl

van Rompuy (Council) vs. Barroso (Comm)

Commission has less authority in Brussels

Council has more bureaucracy, less eff.

[strengthening economic governance issue: van Rompuy asked to lead, but Barroso presides over Euro Finmins]

High Representative of the Union for Foreign Affairs & Security Policy

Europe is multipolar--how will it have one voice?  

As members of the EC, most people end up defending national interests. 

In 2014, to stop offering one seat per country. Problematic?

*why should visibility be so expensive?

*probably isn't working well if inequality is rising within countries

industry level

*static: based on amount being produced

*dynamic: based on cumulative knowledge

firm level

leads to imperfect competition

monopolistic competition model

C = F+cX, AC = C/X

X (demand) = S(sales) /n(# firms) = √SbF

P = c + √F/Sb

~16% of imports & exports, $2 bn

exports manufactures

trade policy is EU competency

EU + EFTA (Norway Switz Liech Ice)

was meant to eliminate fiscal (tax), physical (borders), and technical(harmzn, std libzn)

tariffs

import quotas

export subsidies

voluntary export restraints (agreed to phase out during Uruguay, but not illegal)

trade creation - replace hi-cost domestic with cheaper outside by cutting tariff

trade diversion - by cutting tariff selectively, trade with higher-cost now.

terms of trade effects - net welfare effects: creation is +, diversion is -

PTL

monopolistic competition

production-shifting, industrial restructuring

efficiency

integration

allocation effects

efficiency

investment

capital

output

medium: rise in per capita output stops

long-term: rate of accumulation changes

extensive - based on capital accumulation, catch-up/convergence

intensive - innovation based, more difficult

*core-periphery

*sectoral clustering (Krugman)

within-country divergence increased, international decreased

"Single Market Blues"/Single Market

steps to a fiscal union?

Recession is bringing new calls for protectionism

free trade agreement --> common market --> customs union --> fiscal union

FTA CM CU FU

*restrictions on new members

*public sector jobs

*pension

*unemployment benefits

*professional regulations

*language & culture

second largest exporter after US

largest importer of agricultural goods

7% own 50% of land

50% own 7% of land

increase agricultural productivity

fair standard of living for farmers

regular supplies

reasonable prices for consumers

Community Preference

market unity

joint financial responsibility (CAP<->EU)

producer co-responsibility

import regulation: levies, tariffs, import duties, quotas, VER's

internal support: production subsidies, production quotas, land set-asides, private storage aids

export regulation: variable export refunds

1980s - quotas & set-asides

1992 - MacSharry: coupled direct payments for farmers, necessary for GATT

2003: decoupling, price floor cuts + compensation, rural devt, cross-compliance

efficiency - remove bottlenecks, collective action;

equity

ERDF, ESF, Cohesion - convergence (81%)

ERDF, ESF - regional competitiveness/employment (16%)

Cohesion - transport/infrastructure (2%)

*EU puts up examples

*convergence internationally but not intra

*Midelfart-Knarvik: structural policies offset comparative adv

*good PR, modest redistribution

*prevent public/private distortions

*prevent agreements that would harm consumers, cause distortions

*run by the Commission

60% oil and 26% gas

Russia: 33% of oil, 40% of gas

Norway: 16% of oil, 23% of gas

UK, Germany, France Poland produce the most (21, 16, 16, 9%)

nuclear, coal and gas (29, 22, 20%)

climate change, energy security, competitiveness

20% greenhouse/20% renewable/by 2020

UK struggling, Poland worried about its coal

*diversified energy sources (Norway, Trinidad, Qatar)

*how to create internal market: interconnect, unbundle, compete

+ promotes price stability

+ decreases uncertainty

+ auto money market stabilizer

+ less risk of speculation

- governments may have to buy own bonds

- restricted monetary policy

+ automatic real shock stabilization (exporters?)

+ not politicized

+ symmetry: same rights as other countries to determine

- make investment less predictable

- destabilizing speculation

Monetary Autonomy / currency board

Free Capital Flows / capital controls

Exchange Rate Stability / flexible exch. rate

1971: Werner

1971: Nixon Shocks --> snake in tunnel

1979: European Monetary System (ecu)

79-99: ERM1

1987: Delors (euro)

1992: Soros; also, impossible trinity, lira & peseta

1999: ECB, EMU, ERM2

2001: SGP

2002: euro

asymmetric shocks

labor systems

legal systems

preferences

growth

fiscal systems

wage flexibility (AS <--)

labor mobility (AS -->)

fiscal transfer (ha!)

econ: labor mobility (n), product diversification (y), openness to trade (y)

pol: homogenous preferences (n), fiscal transfers (maybe), common destiny (?)

in monetary union: need wage flex (AS in) or labor mob (AS out), or F stuck & G inflates (AS in) --> AD shifts.

flexible: F depreciation (AD out), but long term neutrality (price of imports)

fixed: F devaluation, 

*transaction costs eliminated; price convergence

*exch rate certain (+/-), nbd for growth

*reducing inflation in inflation prone

*financial market integration (allocation fx); banking sector merges; association benefits

ECB: Executive Board

NCB's: National Central Banks of Euro Area and EU

ESCB: ECB + 27 / General Council

Eurosystem: ECB + 17 / Governing Council

Price Stability

2%

not supposed to be lender of last resort

currently doesn't centralize, supervise

democratic deficit, needs accountability

why inflation? fiscal policy

had to act entirely unconventionally

bought bonds through secondary market

LOLR? Already; Security Markets Program

many say yes, Germany says no

automatic: tax receipts

discretionary: tax-raising, deficit spending

+ inflationary: AD grow>AS grow

- recessionary: vice versa

cyclically adjusted budget balance is higher than budget balance if output gap -

business cycle spillovers (have to act in concert or problems)

borrowing cost spillovers (being in the EU, also affects exch rate & competitiveness)

excessive deficits (EU crisis!)

restraint: micro or macro? coordination or rules?

to prevent inflationary bailouts, keep deficits under 3%

encourage policy coordination & low deficits

2003-05: sanctions not imposed on Fr, Ge

if GDP declines 1%, deficits will autorise .5%

allocation effects (trade creation/diversion/tot); internal eos, production shifting, industry restructuring

growth (med/long)

location (th.1 or th.2)

CAP complications for Eastern Europe

perform poorly because of social institutions that prevent AS curve from moving

institutions: unions, min wage, taxes, employment protection, benefits

political economy, ideology/beliefs, agency are barriers to labor reform

2 speed Europe: growth/lowunY vs no growth, highunY

low inflation

comparable long term interest rate

2 years in ERM II narrow band

low deficit

low debt