How the Globalized Economy Works Today 333Eu ro pEan Economic inTEGraTion
The establishment of the Eu ro pean Union (discussed in Chapter 7) and the accompa-
nying economic integration have had a major impact on the international po liti cal econ-
omy and have become models for other regions. Eu ro pean economic integration was
predicated on the notion that a larger market, along with the free movement of goods
and ser vices, would permit economies of scale and specialization to stimulate growth,
competition, and innovation while enhancing opportunities for investment— all goals
compatible with liberal economics. The Eu ro pean Union has generally proven success-
ful in achieving some of these objectives, creating a single market and developing a
monetary union. Yet to achieve these objectives, the EU has relied on some protec-
tionist mea sures, and in doing so, may have only diverted trade from one group to
another.
The impetus for expanded Eu ro pean economic integration lay in part in Eu rope’s
sluggish economic growth in the 1970s and 1980s, a time when the United States and
Japan were increasingly competitive. To stimulate Eu rope’s growth, and hence its inter-
national competitiveness, the Single Eu ro pean Act of 1987 accelerated the integration
pro cess, setting the goal of achieving a single market by 1992. That effort involved
removing physical, fiscal, and technical barriers to trade and harmonizing national stan-
dards by adopting more than 300 community directives. Some parts of the goal— the
elimination of customs barriers— were quickly achieved; other areas— labor mobility—
have proved more problematic. Although most countries eliminated passport controls
and adopted similar visa rules, recognition of education and professional qualifications
has proven a thorny issue. Abolishing technical barriers to trade has been difficult
because of differing health and safety standards, but the pro cess is ongoing, as is the
effort to break state monopolies and eliminate state aids to specific sectors.
The overall results have been positive, with the growth of all types of economic
transactions across state borders deepening integration among the national economies
of the 28 member states. Exports of goods and ser vices constitute more than one- third
of the GDP for the average EU member. More than 70 percent of total trade in goods
is conducted with other EU members. Not only is trade integrated but so are capital
flows; cross- border mergers and acquisitions have accelerated. The broad consensus is
that Eu ro pean integration has resulted in greater trade creation and had a positive
welfare effect on member and nonmember states.^6
The EU is more than a regional trading area or a single market. During the discus-
sions for the single market, the outlines of a monetary union were also negotiated. With
monetary stability and a single currency, the union would grow and prosper even more.
The Eu ro pean Monetary Union, set forth in the Maastricht Treaty in 1991, called for
the establishment of a single currency, the euro; it became the unit of exchange for
businesses in 1998 and for consumers in 2002. Thereafter, the individual 17 members