The European Economic Community - Essay Example

The European Economic Community The end of World War-II is considered an important milestone towards the reconstruction and integration of the European community. It was on 25th March 1957 that a formal vision of Common European Market was set in motion by the Treaty of Rome, with the aim of increasing economic prosperity and contributing towards a closer union among the governments and peoples of Europe (Hansen, 2002). Thus the European Economic Community (EEC) came into being and started working towards the common interest of the European region. In the beginning the key driving force behind the formation of EEC was to create a common market and begin the era of borderless movement of people, goods and services1. This resulted in the benefits of four freedoms namely, capital, labor, products and services to the European community. In subsequent years, the movement gathered momentum, and as the policies of liberalization and globalization started having bigger impacts on the world polity, the EEC saw more relevance for it. Stated objective of formation of EEC is of course protecting the economic interests, but the region has also learnt quite a few lessons from the history as well. Germany used to be a loose confederation of independent states till 1870. On January 18, 1871, these states united under a Prussian king who had the title “Kaiser, of the German Empire”. Bismarck was the first Chancellor or Prime Minister of the unified Germany. This resulted in gradual expansion of Germany and alternation of distribution of power within Europe and a new world order (Henig, 2002). This shift is balance of power made the group of nations like Britain, Russia and France together. Gradually the imperialistic urge started crossing the borders and entered into the African region. All such events led to the two world wars and massive devastation on all sides. Therefore, formation of a common platform is also the efforts towards averting the recurrence of such wars. The stated objectives for the EEC include2; Laying the foundations for a closer union among the peoples of Europe. Ensuring economic and social progress of their respective countries by initiating common and mutually acceptable steps towards eliminating the barriers dividing Europe. Working towards improvement of the living and working conditions of European citizens and for better social and cultural ties amongst the people of the region To pave way for a healthy understanding for removal of the existing trade barriers and subsequent concerted efforts for fair competition and balanced trade To ensure that the benefits of development also percolates down to the lesser developed partners of the European region Economic strengthening the European region, so that it can take on other countries regions in this globalization regime. To safeguard the strategic and sovereign interests of Europe and provide a safe and secure life to its people. The common commercial policies are an important step towards safeguarding the interests of the region particularly while dealing with the outside world. After the treaty of Rome, a need was being felt to serve the interests of the customs union with a Common Customs Tariff (CCT) to deal with the third parties. Established by Article 113 [133] of the Treaty of Rome, Common Commercial Policies therefore took shape in 1961 to safeguard the common interests of the EU nations3. This effectively meant that the EU region will act as one country while dealing with any other country or organization for trade and commercial interests. The enthusiastic response from some of the countries while deciding to join the club is also a testimony to the hopes and aspirations of the citizens of those nations. In fact a number of countries joined the EEC by going in for referendum, which was in most of the cases approved by the people with huge margins (The Economist, 2004). As we progress into the 21st century, the economic interests have acquired a central stage in matters concerning the power and prosperity of the nations. With the beginning of the new form of market driven economies, globalization has filtered down to almost all walks of life like, media, culture, and of course the trade and business practices. With the progress of science and IT, networking of people, societies and civilizations has further led to the fusion of technology and social fabric. Under such situations common policies of coherent groups play crucial roles in shaping the competitive environment. Therefore a group of nations like European Union can greatly help in the development and progress of the societies. But the moot question is to what extent the European Economic Community has been able to overcome the difficulties of integration, and adopt common policies towards the outside world. The Common Commercial Policies expected a degree of autonomy and competitiveness from the member states, which have been achieved with limited success so far, as is evident from OECD (2007) ‘EU country note’, which states that competition in network industries remains patchy while implementation of the liberalization policies by individual countries are not in sync with the EU level as a whole. If we take a look at the events unfolding in the past, the economies of the European region in general and some of the member states in particular saw smooth progress. During the period from 1950 to 1960, German GDP grew at an average of 7.9% a year (The Economist, 2004a). The region saw spread of affluence on a wider scale. In fact the Western Europe came out with better developmental figures and surpassed even the American growth rates. Average income in Western Europe countries reported a growth rate which helped in bridging the gap in average income levels amongst Europeans and Americans. The gap which was more than 60 percent during 1950s came down to around 30 percent by 1973 (The Economist, 2004a). Ireland is another success story, which joined the EU has helped to a great extent. In 1973 when Ireland joined the union, its average income per person was only about 62 percent of the EEC average, but this figures zoomed to about 121 percent of EU average in 2002. This goes on to show that joining the EEC has indeed brought about remarkable changes in the economic conditions, but the uniformity of such benefits has perhaps proved elusive so far. The combined GDP per inhabitant in terms of purchasing power standard (PPS) in the year 2005 for the EU-27 has been pegged at 22,600, the third largest in the world. America with 35,200 and Japan with 25,800 are the only ones ahead of the 27 member European group4. This picture gives some idea of what the region is capable of achieving if it is able to iron out the differences. Analysts have also come out with skeptical details about what the region is lagging to make sure all round development. Opinions were expressed to the effect that the European Union and CFSP appeared to provide a semblance of unanimity on paper, but on the surface, the interests of nations forming part of the union forces them to take different stand on a range of issues (Anderson, 2001). Anderson further lists out factors like, lack of participation or concern by the Member States; perceived competition between the Commission and the Member States; inconsistent Member State positions; and slowness as the reasons for the EU not being able to come out with effective and unanimous stands. A glimpse of such a dilemma is apparent in the adoption of Euro by member states. While Denmark and the UK have opted out of the common currency, a number of other newly joined nations are yet to make substantial progress towards meeting the conditions for adopting a single currency. Therefore, the European Monetary Union (EMU), considered an important step towards the integration of the economies of the partner states could not be fully realized so far. The decision to form the EMU has also been enshrined in the Maastricht Treaty5. Dür (2008) points out that in order to realize the benefits of a common platform like EEC, the member countries have to take into account a wide range of economic policies prevailing around their borders, the kind of relations they are able to have with their exporters and importers. It is contended that improved balance of concessions on account of better bargaining power helps in coming out with liberal policies. But at the same time, non-member nations too realize the emerging threat from such a scenario and brace themselves up for the challenge. Such governments ‘find themselves in a dilemma, because they know that reducing domestic protection may impose costs on import-competing producers.’ In addition the mutual benefits granted by respective governments for imports and exports also come in the way of EEC’s functioning as a cohesive entity. In fact the history is replete with examples of mutual distrust amongst some of the key members of the EEC. For example, during the 1960s France vetoed the entry of Britain into the EU two times, because the French government believed that Britain is near to the US on a range of matters and not with the EU counterparts (Hansen, 2002). If we take a look around the manner in which the political decisions are being taken today, it appears that despite having the common interest of the EU members, Britain continues to be closer to USA on a number of issues like planning to take ahead the war on terror, reaching to the countries like Pakistan for the resolution of the Afghanistan issue etc. The world is in the midst of a recession, some call it the worst ever during the last 100 years and even more damaging than the recession of 1930s (BBC, 2009). Bracken (2004) underlines that it was since early 1990s when the term ‘Globalization’ became a catch phrase as it started entering into all walks of life even in developing economies. We’ve come a long way since then and today we find that the global economy is once again at crossroads, reason the recessionary trends set in all around the globe. The European community is also feeling the pinch as a number of banks in the region are showing signs of failure. The present crisis started off with the sub-prime fiasco in US. The sub-prime crisis then resulted in failure of couple of banks in US; the trend gradually spread over to other countries because other countries too had stakes in companies and banks of America – thanks to the process of globalization. Therefore, in order to take on the recession a group like the ‘European Economic Community’ is supposed to come out with common measures for tackling the recession. But the real politic seems to suggest that the kind of bonhomie required in such situations is missing to a great extent. With 27 members now in its fold the European Union is now representing a large part of the Europe6. But the ground reality is almost all countries are reeling under the influence of recession started from America. Why is it that such a strong group still finds its members states in disarray because the policies in another country have resulted in slowing down in economy? The root cause of the recessionary trends can traced to the borrowings on easy terms by the banks and financial institutions. Banking and finance industry is considered key to the developmental activities and the economic conditions of the country. The banks and institutions will lend the money at higher rates to individuals and corporate clients. This trend started off from US with a rise in financial sector borrowings at a rate of 10 percent a year from 2002 to 2007. The result of all this is the debt of financial sector has risen sharply from (Calbreath, 2008). It now stands at 74 percent higher than it was in 2000 and 10 times higher than in 1980. As a result of globalisation the indicators in the economies of almost all EU nations have been impacted, because these too have been dependent on cues from US markets. This trend of borrowing also impacted the banking and finance industry in EU as well. European Union has officially admitted to facing the recession, and the forecasting arm of the EU stated that7, “GDP within the region would drop at 1.9% this year.” That was in January 2009, and situation is changing quite rapidly every week. Besides a shrink in the economy, it has also been forecast that EU will face job cuts to the tune of 3.4 million owing to the fall in business and household spending and tighter lending by the banks8. Therefore, under the circumstances the basic philosophy behind the formation of the EEC that the union will strive to achieve closer social and economic cooperation in order to see an all round development of the European region become all the more relevant for the member states. Improving the social status and living conditions of the citizens of EU will only be possible if they are able to feel assured about their security, safety of jobs and living conditions. Being a group of 27 nations the EEC region can defiantly come out with their own set of policies in the immediate short term, with an intention of coming out with lesser damage from the recession period, while negotiating their policies with the outside world. This will not only help the EEC nations, but it will also prove to be a guiding force for other countries. References: 24/7 Wall St (2009). ‘EU Recession Gets “Official” Status’. Available online at http://247wallst.com/2009/01/19/eu-recession-ge/ (April 27, 2009) Anderson, Stephanie (2001). The Changing Nature of Diplomacy: The European Union, the CFSP and Korea. European Foreign Affairs Review 6: 465–482. BBC (2009). Recession worst for 100 years. Available online at http://news.bbc.co.uk/2/hi/uk_news/politics/7880189.stm (April 27, 2009) Bracken, Paul (2004), ‘The Multinational Corporation Today’. Yale SOM Working Paper No. OB-06, PM-05, OL-19, Yale School of Management, available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=514422#PaperDownload (April 27, 2009) Calbreath, Dean (2008). Americans addiction to borrowing root of crisis. Available online at http://www.signonsandiego.com/news/nation/20080921-9999-1n21debt.html (April 27, 2009) Dür, Andreas (2008). ‘Bargaining Power and Trade Liberalization: European External Trade Policies in the 1960s’. European Journal of International Relations. Sage Publications. Pp 645-669. EC (2009). The European Commission. Available online at http://ec.europa.eu/index_en.htm (April 27, 2009) Europa (2007). Treaty establishing the European Economic Community, EEC Treaty - original text (non-consolidated version). Available online at http://europa.eu/scadplus/treaties/eec_en.htm (April 27, 2009) Hansen, Peo (2002). European Integration, European Identity and the Colonial Connection. European Journal of Social Theory 2002; 5; 483 OECD (2007). Economic Policy Reforms: Going for Growth 2007 - European Union Country Note. Available online at http://www.oecd.org/dataoecd/48/19/38088845.pdf (Apr 27, 2009) The Economist (2004). ‘The future of Europe-A club in need of a new vision. The Economist print edition, April 29, 2004, NY The Economist (2004a). ‘Passport to prosperity’. The Economist print edition, Sep 23rd 2004, NY The Star Online (2009). ‘EU: recession will be deep and long-lasting’. Available online at http://biz.thestar.com.my/news/story.asp?file=/2009/1/20/business/20090120074108&sec=business (April 27, 2009) Read More