334 CHAPTER NiNE ■ InternatIonal Po lItI cal economy
of the Eurozone could no longer use exchange rates or interest rates as instruments of
economic policy. Most observers agree that the euro has facilitated business transac-
tions and eliminated the uncertainty caused by fluctuations in exchange rates. But the
euro has come under unpre ce dented pressure since 2009, creating a financial crisis and
a situation that jeopardizes the future of the whole Eu ro pean integration proj ect. This
situation is discussed below.
The Eu ro pean Union very early recognized, just as international trade negotiators
did, that agriculture was dif er ent from other economic sectors. First, agricultural prices
dramatically fluctuate with weather and disease, so there has long been a strong incen-
tive to moderate the price fluctuations caused by supply volatility. Second, foodstufs
are viewed as vital for national security; in emergencies, no state wants its population
to depend on others for food. Third, in many countries, the well- organized farm sec-
tor enjoys disproportionate po liti cal power. For all these reasons, the EU adopted the
Common Agricultural Policy (CAP). The CAP has changed over time, moving gradu-
ally away from a production- oriented policy in which the EU purchases surplus crops from
farmers at guaranteed prices and then either stores the surplus, anticipating higher prices
in the future, or donates it to food aid programs, absorbing the losses. Since the 2003
reforms, the EU has moved toward a Single Payment Scheme, where each country
chooses whether the EU payment goes to the farm or the region. Farmers choose to
produce any commodity, except fruit, vegetables, or potatoes. Price interventions by
the EU are limited to wheat, butter, and types of milk. Large farmers are being phased
out of the program.
The CAP’s total bud get is 42 percent of the EU bud get, down from 71 percent in
- The CAP has proved to be one of the most controversial EU policies. Not only
has it been a major issue for states seeking membership and wanting their share of the
agricultural bud get, but it is also a critical issue in multilateral negotiations because
nonmembers pay more for EU agricultural products.
Have the EU’s policies contributed to economic globalization or proved an imped-
iment? Most economists agree that the openness of the Eu ro pean markets has bene-
fited Eu ro pe ans and become increasingly compatible with the goals of the multilateral
global system. Indeed, the EU has developed a web of preferential agreements with its
neighbors in the Mediterranean area and with former colonies having shared histories
in Africa, as well as with other regional trade agreements, including the North Amer-
ican Free Trade Agreement and Mercosur in Latin Amer i ca. In general, the EU has
enhanced that region’s global economic power, making it more competitive with both
the United States and China.
But are conditions in Europe— similarity of economic, po liti cal, and social systems;
a history of post– World War II cooperation; and the development of nascent commu-
nity po liti cal institutions— also pres ent in other parts of the world?