European Financial Integration

European Financial Integration The Dream of a United Europe against the Nightmare of the Financial Crisis Maria Sotiropoulou (3235) Supervisor: Dimitrios Xenakis University of Crete: Department of Political Science Rethymnon, 2019 “Europe’s nations should be guided towards the Superstate without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation.” -Jean Monnet, Architect of European Unity 1 Table of Contents Abstract: ................................................................................................................................ 3 Keywords: ............................................................................................................................. 4 Part 1: Introduction ................................................................................................................ 6 1.1. Historical Background of the European Union: From the ECSC Treaty to the Federalization of the EU............................................................................................................ 6 1.2. Treaties of the European Union ................................................................................... 10 1.2.1. Treaty of Paris ............................................................................................................... 10 1.2.2. Treaty of Rome (Treaty of establishing the European Economic Community) ............. 11 1.2.3.. Treaty of the European Union (TEU) – The Maastricht Treaty ................................... 12 1.2.4. Treaty of Amsterdam ..................................................................................................... 13 1.2.5. Treaty of Nice ................................................................................................................ 14 1.2.6. Treaty of Lisbon............................................................................................................. 14 1.2.7.. The EU Treaties as a tool of progress towards European Integration ........................ 15 Part 2: Trading in the European Union................................................................................ 16 2.1. The Customs Union of the EU ......................................................................................... 16 2.2. The European Single Market ............................................................................................ 19 2.3. Industry and Innovation within the EU ............................................................................ 20 2.4. EU Competitiveness Policies ........................................................................................... 22 2.5. Entrepreneurship and Small and Medium-Sized Enterprises (SME’s) ............................ 25 Part 3: The Financial Policies of the European Union ........................................................ 27 3.1. The Economic and Monetary Union ........................................................................... 27 3.2. The Budget of the European Union ............................................................................. 29 3.3. The Standard Annual Budget Procedure ..................................................................... 30 3.4. The Euro Area ............................................................................................................. 33 3.5. The Role of the European Central Bank ...................................................................... 37 Part 4: The European Integration during the Era of the Economic Crisis ........................... 39 4.1. The Rising of the Economic Crisis .............................................................................. 39 4.2. EU Crisis Regulation Mechanisms .............................................................................. 43 2 4.2.1. The European Stability Mechanism (ESM) .................................................................. 44 4.2.2. The European Financial Stability Facility (EFSF) ....................................................... 45 4.2.3. The European Financial Stabilisation Mechanism (EFSM) ......................................... 46 4.2.4. The Fiscal Compact....................................................................................................... 46 4.3. Results and Outcome ................................................................................................... 47 Part 5. Conclusion - Epilogue.............................................................................................. 50 Bibliography: ....................................................................................................................... 52 Abstract: This Thesis Paper asks the crucial question of whether the European Financial Integration is possible or not during the Economic Crisis. In order for the current situation of the economic and the political dispute across Europe to be understood, one shall closely examine the history and evolution of the Union, as well as the progress of the establishment of institutions concerning the financial policies. Thus, a close and detailed analysis of the evolution of the EU throughout history is considered notable for our question to be answered. Η παρακάτω Πτυχιακή Εργασία θέτει το κρίσιμο ερώτημα των δυνατοτήτων της Ευρωπαϊκής Οικονομικής Ενοποίησης εν μέσω της Οικονομικής Κρίσης. Με σκοπό να γίνει η δεδομένη κατάσταση, αναφορικά με τις οικονομικές και πολιτικές διαφωνίες στην Ευρώπη, πλήρως κατανοητή, πρέπει κανείς να εξετάσει αναλυτικά την ιστορία και την εξέλιξη της Ένωσης, καθώς και την πρόοδο της εγκαθίδρυσης των θεσμών σχετιζόμενων με τις οικονομικές πολιτικές. Επομένως, μια στενή και λεπτομερής ανάλυση της εξέλιξης τη ΕΕ καθ’ όλη τη διάρκεια της ιστορίας θεωρείται αναγκαία ώστε να απαντηθεί το ερώτημά μας. 3 Keywords: EU: European Union ECSC Treaty: Treaty establishing the European Coal and Steel Community EDC: European Defense Community EEC: European Economic Community EAEC (aka Euratom): European Atomic Energy Community CET: Common External Tariff CCP: Common Commercial Policy CAP: Common Agricultural Policy TEU: Treaty on European Union TFEU: Treaty on the Functioning of the European Union SEA: Single European Act UCC: Union Customs Code SMEs: Small and Medium-sized Enterprises R&D: Research and Development EMU: European Monetary Union ECU: European Currency Unit EMI: European Monetary Institute ESF: European Social Fund ERDF: European Regional Development Fund ECB: European Central Bank ESCB: European System of Central Banks GDP: Gross Domestic Product SGP: Stability and Growth Pact 4 IMF: International Monetary Fund ESM: European Stability Mechanism EFSF: European Financial Stability Facility EFSM: European Financial Stabilisation Mechanism 5 Part 1: Introduction 1.1.Historical Background of the European Union: From the ECSC Treaty to the Federalization of the EU When discussing about the dream of the European Federalization, and unity between the European countries, citizens and cultures, it shall be emphasized how it wasn’t always considered as unified as it is viewed by the modern generations today. In order for the current situation of the Union to be clearly understood, notably concerning the financial sector and the benefits of the affiliation of a country in the Euro Area, and the complexities which arise with this action, one shall carefully underline the progress of the financial system and the economy from the creation of the Union, up until today. Through the historical background, we might also understand and notice certain events that lead to the current financial and political situation, as well as the financial crisis. With the ending of the World War II, citizens were asking from the -already deeply hurt from war crimes and hostilities- European countries, for the creation of a “safety valve” in order for any possible re-creation of the treacherous events to be avoided. In 1948, with the signing of the Marshall Plan (officially the European Recovery Program – ERP1) the Secretary of State of the United States of America, George C. Marshall promised to provide the European Western Countries with a very generous financial assistance, if only they agreed on a comprehensive financial program that would rebuild Europe. Thus, the Organization for European Economic Co-operation was created for the reconstruction of Europe after World War II2. Therefore, multiple notable steps towards unity were taken, with the establishment of the Council of Europe in 1949 of the European Court of Human Rights in 1950, organs which are still in action today. Though, the most crucial federalizing and unifying step was taken a few years later. Hoping on a future of co-operation and communication between the European countries, on the April of 1951, with the help of the Schuman Plan, (proposed by the French 1 History.state.gov. (2019). Milestones: 1945–1952 - Marshall Plan, 1948. [online] Available at: https://history.state.gov/milestones/1945-1952/marshall-plan [Accessed 20 Aug. 2019]. 2 Warren, C. (1998). In the Stream of : Shaping foreign policy for a new era. [online] Google Books. Available at: https://books.google.gr/books?id=YipOlJqr6msC&pg=PA165&redir_esc=y&hl=el#v=onepage&q&f=f alse [Accessed 20 Aug. 2019]. 6 Foreign Minister Robert Schuman in 19503) the European Coal and Steel Community was established, which was considered the biggest innovation towards unity up until that moment. With the help of the influential supporter of the European unity and founding father of the European Union, French diplomat, politician and economist, Jean Monnet4, it was proven that the goals of the policies of the Community were incredibly ambitious, and were concluding not only the creation of a free trade area within the union, but also the creation and establishment of a substructure for a common, open market for certain raw materials of any industrialized society5. Though, the perceived success of the ECSC provided Europe with an impetus for further integration. Thus, it paved the way for the creation of two additional European Communities that were to be created in 1957, which was the projected European Defense Community6. Unfortunately, the EDC project collapsed due to the still outstanding question of West Germany’s contribution to the defense of the West. Therefore, the failure of the project highlighted how there were still major difficulties ahead concerning the quasi-federalist approaches in such politically sensitive areas7. However, even the fact that such an ambitious and hopeful action as the EDC project came so close to the adaption, proved that the ideas based on the Schuman view, that political union and unity could be achieved through economic integration, could as well be successful and realistic in the future. Hence, in April 1956, the Foreign Ministers signed the two Treaties of Rome, and the most crucial of them established the European Economic Community (EEC) and the European Atomic Energy Community (Euratom)8. The EEC was basically bringing together six countries and founding members, Belgium, Germany, France, Italy, Luxembourg and the Netherlands to work 3 Encyclopedia Britannica. (2019). Schuman Plan | European history. [online] Available at: https://www.britannica.com/event/Schuman-Plan [Accessed 20 Aug. 2019]. 4 Whitman, A. (1979). Jean Monnet, 90, Architect of European Unity, Dies. [online] Nytimes.com. Available at: https://www.nytimes.com/1979/03/17/archives/jean-monnet-90-architect-of-european- unity-dies-jean-monnet-dead-at.html [Accessed 20 Aug. 2019]. 5 Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 6 ibid 7 ibid 8 ibid 7 towards integration and economic growth, through trade9, and was consider one of the biggest steps towards the creation of an open, single market. Since EEC’s main ambition was the establishment of a common market, it was to be based on the following policy guidelines10: 1. The removal of all tariffs and quantitative restrictions on internal trade. This would make the Community a free trade area. 2. The erection of a Common External Tariff (CET). This would mean the goods entering the community would do so on the same basis no matter what their point of entry. No member state would therefore be in a position to gain a competitive advantage by, say, reducing its external tariffs on vital raw materials. The CET would take the Community beyond a mere free trade area and turn it into a Customs Union. It would also serve as the basis for the development of a common external trade policy, known as the Common Commercial Policy (CCP). 3. The prohibition of a range of practices having as their effect the distortion or prevention of competition between member states. 4. Measures to promote not only the free movement of goods between the member states, but also the free movement of persons, services and capital.11 Even though the EEC Treaty was possibly the most important step towards the European Financial Federalization up until then, it was obviously very different in character form the constitutions of nation states12. Hence, the formation of both communities, the EEC and Euratom, was met with protest due to a fear that state sovereignty might be infringed. Furthermore, another political crisis was triggered regarding the proposals for the financing of the Common Agricultural Policy (CAP), which came into force in 1962. 9 Eur-lex: Access to the European Union Law. (2019). Treaty of Rome (EEC). [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3Axy00203 [Accessed 21 Aug. 2019]. 10 Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 11 12 ibid Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 8 It seemed like the transitional13 period where decisions were made by unanimity had come to an end, and majority voting in the Council had started to take effect. The French President Charles de Gaulle’s opposition to supranationalism and fear of the other members challenging the CAP led to an empty-chair policy in which French representatives were withdrawn from the European institutions until the French veto was reinstated. Eventually, the Luxembourg Compromise of January 29, 1966, instituted a gentlemen’s agreement permitting members to use a veto on issues of national interest. On July 1, 1967, the Merger Treaty came into force, combining the institutions of the ECSC and EURATOM into that of the EEC. Collectively, they were known as the European Communities. The Communities still had independent personalities although they were increasingly integrated. Future treaties granted the Community new powers beyond simple economic matters, edging closer to the goal of political integration and a peaceful, united Europe14. On June of 1987, the -until then- twelve member countries of the EEC decided on forming a more complete single market, until the 31st of December 1992, thus they signed the Single European Act15. A year before this deadline, on December of 1991, in Maastricht, they decided on creating an economic and monetary union within the market, along with co-operation on a common law, common foreign and security policies, transforming the EEC into the European Union, as it is today. The ever-growing number of country members of the EU was proving how appealing the idea of the European Integration was compared to an intergovernmental cooperation, while the countries who were at first against the idea were then asking for participation in the process. EU’s enlargements, especially after 2004 and 2007 were making the union even more compelling and effective, showing that the dream of the Federalization was becoming realistic after all. 13 Courses.lumenlearning.com. (2019). The European Economic Community | History of Western Civilization II. [online] Available https://courses.lumenlearning.com/suny-hccc- at: worldhistory2/chapter/the-european-economic-community/ [Accessed 21 Aug. 2019]. 14 ibid 15 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis. 9 1.2.Treaties of the European Union In order for the progress of the EU to be completely understood, -especially concerning the financial and economic sector of the Union- the most crucial treaties need to be examined. Considering the treaties as tools of progress for the Union, we realize how step-by-step they took the EU even further on forming a unity. 1.2.1. Treaty of Paris Also known as the Treaty of Establishing the European Coal and Steel Community, as aforementioned, the Treaty of Paris was signed on April 18st 1951 by Belgium, France, Italy, the Federal Republic of Germany, Luxembourg and the Netherlands16. Basically, the aim of the treaty was the organization of the free movement of coal and steel, and the freeing of access to sources of production17. It is considered to be the first origin of the European Union as we know it today. Since it was created in the 1951, during the aftermath of World War II, the Treaty of Paris represented the first step towards European integration. Through the common market of coal and seal, the treaty was contributing to an immense economic expansion, improvement and growth of the employment, and better living standards for the European citizens. Hence, since the European institutions were ensuring an organized and orderly supply of coal and steel to the common market, they were also ensuring equal access to the sources of production, the establishment of lower prices and improved working conditions. Therefore, all the above was accompanied with the growth in international trade and the modernization of the production system18. Finally, by creating a common market, the Treaty of Paris introduced the free movement of products without customs, duties or taxes. It promoted the prohibition of discriminatory measures or practices, subsidies, state aids or special charges that were usually imposed by certain states and other restrictive practices concerning trade. 16 European Parliament. (2019). Treaty of Paris. [online] Available at: http://www.europarl.europa.eu/about-parliament/en/in-the-past/the-parliament-and-the-treaties/treatyof-paris [Accessed 23 Aug. 2019]. 17 Treaty establishing the European Coal and Steel Community, ECSC Treaty. (2019). EUR-Lex: Access to European Union Law. [online] Available at: content/EN/TXT/?uri=LEGISSUM:xy0022 [Accessed 23 Aug. 2019]. 18 ibid 10 https://eur-lex.europa.eu/legal- 1.2.2. Treaty of Rome (Treaty of establishing the European Economic Community) As mentioned before, two treaties were signed on 25 March 1957 - the Treaty establishing the European Economic Community (EEC) and the Treaty establishing the European Atomic Energy Community (EAEC or Euratom). The Treaty of Rome has been amended on a number of occasions, and today it is called the Treaty on the Functioning of the European Union19. The basic aim of the treaty and the creation of a common market was the transformation of the conditions of trade and production of the territory of its six members (Belgium, Germany, France, Italy, Luxembourg and the Netherlands) and for it to serve as a step towards the closer political unification of Europe. Hence, the signatory countries agreed to lay the foundations of an ‘even closer union’ among the European citizens, and to ensure the economic and social progress of their countries by a joint action to eliminate trade and other barriers between them. They promised to reduce the economic and social differences between the EEC’s various regions, and to gradually abolish restriction on international trade through a common trade policy, abide by the principles of the UN charter. Furthermore, Article 2 of the EEC Treaty clearly states: “The Community shall shave as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.20.” Specifically, concerning the creation of the common market, the treaty established an area in which the signatory countries had agreed to gradually align their economic policies, therefore it created a single economic area providing the countries with free 19 EUR-Lex: Access to European Union Law. (2019). Treaty establishing the European Economic Community (EEC Treaty). [online] Available at: https://eur-lex.europa.eu/legal- content/EN/TXT/?uri=LEGISSUM:xy0023 [Accessed 23 Aug. 2019]. 20 Eur-lex: Access to the European Union Law. (2019). Treaty Establishing the European Community - Preable. [online] Available at: https://eur-lex.europa.eu/legal- content/EN/TXT/?uri=CELEX%3A11992E%2FTXT [Accessed 21 Aug. 2019]. 11 competition between companies. It further layed the basis for approximating the conditions of governing trade in products and services over and above those already covered by the ECSC Treaty and Euratom. On the sector of the customs union, its abolished customs duties between the six signatories and established a common external tariff on imports from outside the EEC, and therefore replacing the previous tariffs on the different European states. Also, the customs union was accompanied by a common trade policy. The police were managed by the EEC and no longer at a national country level the most important treaties of the establishment of the European Union, came to fill in the gaps left by the Treaty of Rome21 since it was the first major revision of the treaty. It was signed in Luxembourg on the 17st of February 1986 and in The Hague (The Netherlands on the 28st of February 1986, being entered into force in 1987. The treaty was in order to add a new momentum to the idea of the European integration, and to finally complete the internal market, by the 31st of December 199222. By creating new Community competencies and reforming the institutions, the SEA opened the way for the further political integration and the establishment of the economic and monetary union that would be later enshrined in the Treaty on the European Union (the Maastricht Treaty)23. It is important to state that the SEA was a Treaty relating to the creation of a common foreign and security policy, apart from amending the EEC Treaty. It introduced several new policy areas in which decision would be taken by qualified majority. These areas included the internal market, the economic and social cohesion, social policy, research and development, environment and common foreign policy. 1.2.3. Treaty of the European Union (TEU) – The Maastricht Treaty One of the most important and crucial steps on the history of the European Union and its’ establishment, was the Maastricht Treaty, signed on the 7th of February 199224. It is considered as the most ambitious and earnest treaty, since for many, it created the European Union. With the Maastricht Treaty, the Union is encompassed with three separate strands (so-called pillars). 21 Mousis, N. (2018). European Union : Law, Economy, Policies. Athens: Papazisis. 22 ibid 23 Eur-lex: Access to European Union Law. (2019). The Single European Act. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM:xy0027 [Accessed 23 Aug. 2019]. 24 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis. 12 • 1st Pillar: The European Communities The pillar is responsible for the traditional activities, working and decisionmaking procedures of the three EU organizations, the European Economic Community, the European Coal and Steel Community and Euratom. • 2nd Pillar: Common Foreign and Security Policy The pillar aims at safeguarding the EU’s common values, fundamental interests and independence, at strengthening the security of the EU and its member countries and preserving peace and international security in line with United Nations’ principles. It promotes international co-operation and develops and consolidates democracy and the rule of law, respect for human rights and fundamental freedoms. • 3rd Pillar: Cooperation on justice and home affairs This pillar provides the public with a high level of safety by establishing rules and controls for the Union’s external borders, fighting against terrorism, organized crime, drug trafficking and international fraud. It creates the European Police Office (Europol), and develops a common asylum policy25 The Maastricht Treaty also sets the basis for the creation of the Economic and Monetary Union, within which countries must coordinate their economic policies, provide multilateral surveillance of this coordination and respect financial and budgetary discipline. With the Maastricht Treaty, discussions also started on the establishment of a common currency, the Euro. It was introduced in three stages, which will be further explained. 1.2.4. Treaty of Amsterdam The Treaty signed in Amsterdam on the 17st of June 1997, did not bring any major changes and innovation on the European integration process, but did bring certain crucial progresses on numerous policies26. Essentially, its goal was to update and clarify certain sectors and gaps of the Maastricht Treaty on the European Union. Furthermore, the substantial changes the Treaty introduces were also designed to 25 Eur-lex: Access to European Union Law. (2019). Treaty of Maastricht on European Union. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM:xy0026 [Accessed 23 Aug. 2019]. 26 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis. 13 prepare the Union for a future enlargement and integration. The key areas of the Treaty were the promotion of economic and social progress within a high level of employment and a balanced, sustainable development, and to assert the EU’s identity on the international chess game.27 1.2.5. Treaty of Nice The Treaty of Nice was signed on the 26th of February 2001, only three and a half years after the Treaty of Amsterdam. Mainly, it was preparing the European countries for the co-operation and collaboration with another ten countries and did not contribute much to the integration process28. Apart from that, it is still considered an important treaty, therefore mentioned. Its aim was to reform the institutional structure of the European Union to withstand the challenges of the new enlargement29. 1.2.6. Treaty of Lisbon The most recent Treaty was signed by the heads of state of the 27 member countries of the European Union, on the 13st of December 200730. By 19 February 2008, the Treaty of Lisbon was adopted by the European Parliament31. It was finally entered into force on 1 December 2009, after being ratified by all 27 member states. After numerous discussions and negotiations, the Treaty of Lisbon was able to reform how EU institutions operated and decisions were taken to make these suitable for a Union which had grown to 28 member-states and successive enlargements32. It successfully reformed the EU’s internal and external policies, and most notably, by giving the European Parliament further legislative powers, ensured greater democracy and voices heard in the EU decision making process. Furthermore, after the Treaty, the president of the European Commission is now chosen and elected based on the outcome of the 27 Eur-lex: Access to European Union Law. (2019). The Amsterdam Treaty. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=legissum:4301858 [Accessed 23 Aug. 2019]. 28 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis. 29 Treaty of Nice. [online] Available at: http://www.europarl.europa.eu/about-parliament/en/in-the- past/the-parliament-and-the-treaties/treaty-of-nice [Accessed 23 Aug. 2019]. 30 31 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis Treaty of Lisbon. (2019). European Parliament. [online] Available at: http://www.europarl.europa.eu/about-parliament/en/in-the-past/the-parliament-and-the-treaties/treatyof-lisbon [Accessed 24 Aug. 2019]. 32 EUR-Lex: Access to European Union Law. (2019). The Treaty of Lisbon. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=legissum:ai0033 [Accessed 24 Aug. 2019]. 14 European elections. Finally, concerning the financial sector, the European Central Bank (ECB) -which will be later on discussed- became formally recognized as an EU institution by being listed in Article 1333 of the Treaty on European Union. 1.2.7.. The EU Treaties as a tool of progress towards European Integration The continuing discussions and negotiations between country-members of the Union led to a very much successful and democratic outcome, the signing of Treaties. After the treacherous events of World War II, Europe was left collapsed and demolished. Right at the moment when citizens were starting to believe that this poor situation between states would remain the same forever, communication and cooperation led the way for democracy. This process began in 1951, with the ECSC Treaty concerning the creation of a Customs Union between the six European countries. The Customs Union was further enlarged in 1957 on all the financial and economic sectors of the Union, with the signing of the EEC Treaty. The Single European Act of 1987 aimed at the total integration of the Single Market and the establishment of a co-operation policy between the country-members. The Maastricht Treaty signed in 1997 brought the Union one step closer to the integration process by authorizing the creation of the Economic and Monetary Union. Furthermore, the Amsterdam Treaty (1997) enlarged the process in multiple jurisdiction sectors, and the Treaty of Nice (2001) prepared the Union for the enlargement of twelve more countries. Finally, the Lisbon Treaty of 2007 reinforced the EU institutions for a more successful co-ordination with 27 country-members34. The further amelioration and breakthrough into the integration process was paired with the enlargement of the Union35. Notably, the courageous act of the transformation of the European Economic Community into the European Union, came as an answer to the ending of the Cold War, and the period of realism on the field of International Affairs. The Western leaders were suggesting the establishment of the common currency and political Union in order for the European Federalization to be completed, against the threat of the German imperialism and expansionism. Today, the European Union is characterized 33 Eur-lex: Access to European Union Law. (2019). Official Journal of the European Union - Article 13. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12016M013 [Accessed 24 Aug. 2019]. 34 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis 35 Glencross, A. (2014). The Politics of European Integration: Political Union or a House Divided? Wiley Blackwell. 15 by decision making process with a much more intense supranational system, a common currency and a coordinated foreign policy36. Though, it remains far behind the idea of a strong federalist Union. Part 2: Trading in the European Union 2.1. The Customs Union of the EU When discussion about a Customs Union, we are describing a step towards economic integration, through which member-countries, are obliged, through signing a Treaty, to not impose any custom duty within the Union37. Notably, what distinguishes a customs union from a free trade area is the setting of common external tariffs between the member-countries38. The EU Customs Union is considered a unique example of an area where a number of European countries apply a uniform system for handling the import, export and transit of goods and implement a common set of rules called the Union Customs Code (UCC)39. The only uniform system of customs duties is being used on imports internationally, from outside the EU and there are no customs duties at the borders between the EU countries. Specifically, Article 28 of the Treaty on the Functioning of the European Union (2007) states how all trade in goods between EU countries must be free of customs duties and that member states must apply a common customs tariff for goods imported from outside the EU40. Duty on goods from the outside of the EU is generally paid when they first enter, but after that, there is nothing more to pay, no more checks and all goods move freely within the EU Customs Union41. The establishment and successfulness of the EU 36 ibid 3737 38 Mousis, N. (2010). Guide to European Policies. Athens: Papazisis. BBC News. (2016). Reality Check: What is a customs union?. [online] Available at: https://www.bbc.com/news/uk-36906796 [Accessed 24 Aug. 2019]. 39 Taxation and Customs Union - European Commission. (2019). EU Customs Union – unique in the world - Taxation and Customs Union - European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/facts-figures/eu-customs-union-unique-world_en [Accessed 24 Aug. 2019]. 40 BBC News. (2016). Reality Check: What is a customs union?. [online] Available at: https://www.bbc.com/news/uk-36906796 [Accessed 24 Aug. 2019]. Taxation and Customs Union - European Commission. (2019). EU Customs Union – unique in the 41 world - Taxation and Customs Union - European Commission. [online] Available at: 16 Customs Union is crucial for the proper functioning of the single market. In practice, National customs services in all of the 28 member-countries of the EU work together as one to manage the day-to-day economic and financial operations of the Customs Union. Specifically, it is the European Commission which proposes the EU customs legislation and monitors its implementation. The duties of the Customs Union are implemented by the national customs offices of the country members, as the officials of the EU Customs handle the logistics of a huge volume of imported goods to the EU42. Notably, studies have showed that the EU consists of the largest trading block worldwide, thus accounting for 15% of the world trade, alongside with the United States of America and China. More specifically, in 2017 the value of the EU trade with other countries amounted to €3.7 trillion. Half of the EU’s external trade was with five main trading partners: The United States of America, China, Switzerland, Russia and Turkey43. Managing this volume of international trade in 2017, almost 332 million customs declarations were handled by more than 2,100 EU customs offices, working 24 hours a day and 365 days a year. https://ec.europa.eu/taxation_customs/facts-figures/eu-customs-union-unique-world_en [Accessed 24 Aug. 2019]. 42 Kenton, W. (2019). European Customs Union. [online] Investopedia. Available at: https://www.investopedia.com/terms/e/european-customs-union.asp [Accessed 24 Aug. 2019]. Taxation and Customs Union - European Commission. (2019). EU Customs Union – unique in the 43 world - Taxation and Customs Union - European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/facts-figures/eu-customs-union-unique-world_en [Accessed 24 Aug. 2019]. 17 Figure 1: Exports of the EU. Source: EUROSTAT Figure 2: Imports of the EU. Source: EUROSTAT Furthermore, the Customs Union is also responsible for enforcing certain rules which are designed to maximize security within the Union. These specific rules focus on the areas such as the protection of European citizens’ health and safety in the region, through the enforcement of regulation governing the import of potentially dangerous goods, such as but not limited to contaminated food or faulty electrical products. Throughout those rules, it also aims at ensuring that technology exports that could be used in the manufacture of weapons are specifically for legitimate purposes, and at the 18 protection of the environment through the prevention of actions such as smuggling of endangered or protected plans, animals or prohibited products such as ivory. Finally, it focuses on the co-operation with law enforcement officials in order to clamp down on illegal activities, for example drugs or weapon trafficking, tax evasion, trading of counterfeit goods and weapon trafficking44. The first ten years of the existence of the European Economic Community were the golden years of the Customs Union45. The elimination and extinction of customs and restrictions on imports and exports and the establishment of the Union Customs Code created the basis for a single market and all the economic policies referring to it. 2.2. The European Single Market The Single Market, (also known as the Internal Market, or Common Market) is considered the highlight of years of discussions and jurisdictions. The process firstly began with the Treaty of Rome, which paved the way for the free movement of goods, persons, services and capital46.The success arising from the creation of complete, common market, beyond any national borders is what distinguishes the European Union from the rest of the regional organizations which have not moves further than the extinction of customs47. It refers to the Union as one, big territory, without any internal borders or different obstacles to the free movement of goods and services. The idea of a functioning, successful single market stimulates competition and trade, improves efficiency and raises quality. Notably, concerning the EU, the European Single Market is on of the Union’s greatest and most admirable achievements. Over the past few years, it has successfully fueled the Union with economic growth, and has made the everyday of the European business and consumers easier and more efficient48. 44 Kenton, W. (2019). European Customs Union. [online] Investopedia. Available at: https://www.investopedia.com/terms/e/european-customs-union.asp [Accessed 24 Aug. 2019]. 45 Mousis, N. (2010). Guide to European Policies. Athens: Papazisis. 46 Glencross, A. (2014). The Politics of European Integration: Political Union or a House Divided?. Wiley Blackwell. 47 ibid 48 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). The European single market - Internal Market, Industry, Entrepreneurship and SMEs - European 19 Basically, the strategy of the single market is the European Commission’s plan on unlocking the full potential of the Single, Internal Market. The idea of the Single Market is based at the heart of the European dream, since with its’ process it is enabling citizens to travel, live, work or study wherever they wish within the Union49. Although, sometimes the benefits provided from the Common Market do not materialize, since its’ rules are not yet widely known or implemented, or they are undermined by other barriers. Hence, while it’s increasing in a rapidly changing economic and political environment, it needs to adapt to new, innovative ideas and business models. To that end, the European Commission helps the successful co-ordination and functioning of the Single Market by taking certain measures. The Single Market need to enable a balanced development of the collaborative or “sharing” economy, which can offer the European consumers lower prices, while at the same time provide them with opportunities for innovative start-ups and existing companies. It has to focus on the provision of help on Small and Medium-sized Enterprises (SME’s) and start-ups to grow and flourish, and to also improve the opportunities given at businesses and professionals to move across borders. Keeping in mind equality and the protection of human rights, the common market is responsible for the prevention of discrimination against consumers based on nationality, place, or residence. Finally, the Commission is held accountable for the creation of a transparent, efficient public procurement and to ensure a culture of compliance and smart enforcement for a true Single Market50. 2.3. Industry and Innovation within the EU Even though the European Treaties did not concern a common industrial policy, they were monitoring the industrial and economic sector of EU’s members51. Indeed, Treaties such as the ESCS Treaty, the Euratom Treaty and EEC Treaty did manage the industrial subject, which was much more detailed, examined and enhanced the past few years. Commission. [online] Available at: https://ec.europa.eu/growth/single-market_en [Accessed 24 Aug. 2019]. 49 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). The Single Market Strategy - Internal Market, Industry, Entrepreneurship and SMEs - European Commission. [online] Available at: https://ec.europa.eu/growth/single-market/strategy_en [Accessed 24 Aug. 2019]. 50 ibid 51 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis. 20 Within the context of the European Union, industry is one of the crucial factors concerning the European economy. It is considered the engine of innovation, productivity growth and exports, as it offers quality jobs to Europeans. EU’s industry is estimated to account for 80% of Europe’s exports and private innovations and provide the European citizens with high-skilled jobs. Europe is provided with a global competitive advantage concerning high value-added products and services. Thus, innovation and competitiveness are at the heart of the European Commission’s agenda, and as we stand on the brink of the new industrial and technological revolution, it is committed to the support and transformation of the European industry52. Concerning the industrial policy of the EU, the Commission is investing in industry for a modern, clean and fair economy. They aim at the promotion of industrial competitiveness through numerous crucial initiatives and empower citizens, revitalize regions of Europe and have the best technologies for the efficient, innovative industry of the future53. However, during the era of technological and digital innovation, the industrial structure of the EU is undergoing major transformations. Hence, in order for the European industry to stay competitive in global markets, a modernization effort is required which embraces digital and technological change and integrates products and services. Finally, keeping in mind the protection of the environment, the industry aims at the use of less energy and the reduce of waste and avoidance of pollution54. Furthermore, the industry sector consists of one of the largest employers of the EU for European citizens. Specifically, for the past few years it was the main employer in the Czech Republic (29.0%), Poland (23.7%) and Slovenia (22.7%), while agricultural activity was still the largest employer in Romania (24.0%)55. 52 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). Industry - Internal Market, Industry, Entrepreneurship and SMEs - European Commission. [online] Available at: https://ec.europa.eu/growth/industry_en [Accessed 24 Aug. 2019]. 53 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). Industrial policy - Internal Market, Industry, Entrepreneurship and SMEs - European Commission. [online] Available at: https://ec.europa.eu/growth/industry/policy_en [Accessed 24 Aug. 2019]. 54 ibid 55 Eurostat: Your key to European statistics. (2019). Which sector is the main employer in the EU Member States?. [online] Available at: https://ec.europa.eu/eurostat/web/products-eurostat-news//DDN-20171024-1 [Accessed 25 Aug. 2019]. 21 Figure 3 Source: Eurostat As aforementioned, one of the major sectors of EU’s industry is its’ connection with innovation in the digital era. Industry accounts for 80% of Europe's exports. Some 65% of private sector research and development (R&D) investment comes from manufacturing56. Thus, when discussing about the industrial modernization of the EU, we include the successful commercialization of both product and service innovations, the industrial exploitation of innovative digital manufacturing technologies, and innovative and sustainable business models57. 2.4. EU Competitiveness Policies The reason of existence for the single market is the freedom in competitiveness policies of enterprises of all country members. Thus, this is why a common competitiveness policy is of great importance for the successfulness and preservation of the single market58. In order for the European competitiveness policies to be 56 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). Industry - Internal Market, Industry, Entrepreneurship and SMEs - European Commission. [online] Available at: https://ec.europa.eu/growth/industry_en [Accessed 24 Aug. 2019]. 57 ibid 58 Mousis, N. (2018). European Union: Law, Economy, Policies. Athens: Papazisis. 22 completely understood, we firstly need to describe the meaning behind competitiveness itself. Competitiveness is the ability of a business, an organization, a sector or even a country to effectively and successfully sell and supply good, services and capital in a given market, make great use of the opportunities given to them by globally integrated markets, and benefit from international worldwide trade. Competitiveness is usually determined by the level of an economy’s productivity and diversification and the quality of services and goods this economy delivers to the market59. By ensuring a successful competitiveness within the company level (microeconomy level), it enables a company’s integration into Global Value Chains, by contributing to country-level competitiveness and therefore leading to economic growth and job creation for citizens. At a national level, competitiveness is mostly determined by numerous macro-economic, meso-economic and micro-economic level drivers (as seen in figure 4). The most crucial factors which allow countries and business to make the best used of opportunities from international trade are an effective and open research and innovation system, access to affordable capital, professional advice and market information, and also other notable factor such as but not limited to education, research, transportation and digital infrastructure60. 59 International Cooperation and Development - European Commission. (2019). Competitiveness - International Cooperation and Development - European Commission. [online] Available at: https://ec.europa.eu/europeaid/sectors/economic-growth/private-sectordevelopment/competitiveness_en [Accessed 25 Aug. 2019]. 60 ibid 23 Thus, competitiveness within the EU is ultimately dependent on its ability to employ a large share of its workforce and at the same time keeping a productive manner. Hence, productivity is considered a key driver of competitiveness and it is hardly surprising that this issue has moved to the top of the Union’s policy agenda and strategy goals61. Figure 4: System map of competitiveness factors. Source: European Commission 61 Grilo, I. and Koopman, G. (2006). Productivity and Microeconomic Reforms: Strengthening EU Competitiveness. [S.l.]: Journal of Industry, Competition and Trade. 24 2.5. Entrepreneurship and Small and Medium-Sized Enterprises (SME’s) During the era of innovation and the rise of entrepreneurship, small and mediumsized enterprises (SME’s) are characterized the backbone of Europe’s economy. It is undoubtable that the expansion of European SME’s into international markets is considered an important EU policy objective that can significantly benefit the economy of both Europe and the member-countries themselves, nationally and globally62. In the past few years, SME’s represent 99% of all businesses in the Union. Notably, during the past five years, they have helped on the creation of around 85% of new jobs and have provided the EU with two thirds of the total private sector employment. It is therefore obvious how and why SME’s and entrepreneurship are considered as key for economic growth, job creation, innovation and social integration and inclusion within the Union63.The fostering of SME and innovation and entrepreneurship in general, are major factors in driving economic development forward because of their impacts on wealth generation, innovation, skills and capabilities, as well as the opening up of new markets, job creation and job satisfaction64. Supporting SMEs’ economic activities inside and outside the Union is furthermore embedded in EU’s overall 2020 competitiveness strategy, as outlined in the Europe 2020 Communication on Industrial Policy and the EU 2010 Trade, Growth and World Affairs strategy65. 62 Cernat, L., Norman-López, A. and Duch T-Figueras, A. (2014). SMEs are more important than you think! - Challenges and opportunities for EU exporting SMEs. [online] EconPapers: Economics at your fingerprints. Available at: http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152792.pdf [Accessed 26 Aug. 2019]. 63 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). Entrepreneurship and Small and medium-sized enterprises (SMEs) - Internal Market, Industry, Entrepreneurship and SMEs - European Commission. [online] Available at: https://ec.europa.eu/growth/smes_en [Accessed 25 Aug. 2019]. 64 McCann, P. and Ortega-Argilés, R. (2016). Smart specialisation, entrepreneurship and SMEs: issues and challenges for a results-oriented EU regional policy. Small Business Economics. 65 Cernat, L., Norman-López, A. and Duch T-Figueras, A. (2014). SMEs are more important than you think! - Challenges and opportunities for EU exporting SMEs. [online] EconPapers: Economics at your fingerprints. Available at: http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152792.pdf [Accessed 26 Aug. 2019]. 25 Aiming at helping European SME’s, the Union is trying to create a businessfriendly environment, by establishing the Small Business Act for Europe (SBA)66. EU’s SBA is an overachieving, ambitious framework on the European SME’s policies which aims at improving the approach to entrepreneurship, at simplifying the regulatory and policy environment for SME’s and removing the remaining barriers to the development of the enterprises67. The Act’s main priorities are to promote entrepreneurship with a less regulatory burden and to help SME’s have an ease access to finance and to markets and internationalization, as the EU’s tries to consulate and listen to SME’s and young entrepreneurs. It is important to keep in mind certain facts considering SME’s, proving the crucial part they play in EU’s economy and economic development, provided by the European Commission and Eurostat: 1. There are more than 750,000 EU exporting firms, of which more than 80% are SMEs (over 600,000 exporters). 2. The value of SME exports is larger than the public might know. With over 500 billion euros of merchandised exports, SMEs account for over a third of EU’s total exports. These exporting SMEs employ more than 6 million European citizens throughout the Union. 3. Certain surveys of EU exporting SMEs have identified a wide range of potential trade barriers. Many of the barriers affect the exporting firms from small to large. Therefore, the various EU trade policy initiatives, although they might not be specifically aimed for SMEs, might offer good exporting opportunities for all EU exporters68. 66 Internal Market, Industry, Entrepreneurship and SMEs - European Commission. (2019). The small business act for Europe - Internal Market, Industry, Entrepreneurship and SMEs - European Commission. [online] Available at: https://ec.europa.eu/growth/smes/business-friendly-environment/small-businessact_en [Accessed 25 Aug. 2019]. 67 ibid 68 Cernat, L., Norman-López, A. and Duch T-Figueras, A. (2014). SMEs are more important than you think! - Challenges and opportunities for EU exporting SMEs. [online] EconPapers: Economics at your fingerprints. Available at: http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152792.pdf [Accessed 26 Aug. 2019]. 26 Consequently, we understand that SME’s are not to be considered as a negligible player in the Unions exports performance and are the key to economic innovation and growth for both the citizens and EU itself. Part 3: The Financial Policies of the European Union 3.1. The Economic and Monetary Union The Economic and Monetary Union (EMU) is the first level of the multinational economic integration that Europe is aiming at, which requires the existence of a common currency and coordinated and synchronized economic financial policies of country-members of the EU69. EMU therefore represents a major step in the integration of EU economies70. EMU is an “umbrella term” concerning the policies of EU, aimed at converging the economies of country-members. Those policies cover the 19 states of the Eurozone, as well as the non-euro EU states. Therefore, EMU provides Europe with opportunities for economic stability, higher growth and more employment, which outcome of direct benefit to EU citizens71. The decision to establish EMU was taken with the signing of the Maastricht Treaty in 1991, but the idea of it takes us further before the Treaty. In June of 1988 the European Council confirmed the objective of the progressive and democratic realization of EMU. It mandated a committee chaired by Jacques Delors, the then President of the European Commission, to study and propose concrete stages leading to this Union72. Thus, the process resulted in the Delors Report, which proposed that the Economic and Monetary Union should be achieved in three discrete but evolutionary steps73. In June of 1989, the European Council decided that the first stage shall begin on the 1st of July 1990, and on this date, all restrictions on the movement of capital between 69 Mousis, N. (2010). Rulebook of European Policies. Athens: Papazisis. 70 European Commission. (2019). What is the Economic and Monetary Union? (EMU). [online] Available at: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy- coordination/economic-and-monetary-union/what-economic-and-monetary-union-emu_en [Accessed 26 Aug. 2019]. 71 72 ibid European Central Bank. (2019). Economic and Monetary Union. [online] Available at: https://www.ecb.europa.eu/ecb/history/emu/html/index.en.html [Accessed 26 Aug. 2019]. 73 ibid 27 the country-members of the EU were abolished. The first stage meant the ultimate beginning of the process,74 and was aiming at completely freeing the Union from any capital transactions. It managed to increase co-operation between central national banks of Europe, and the better coordination using the European Currency Unit (ECU) -which was the forerunner of the Euro75-. The first step also improved the economic convergence of EU and promoted the coordination of the national monetary policies of country-members, aiming at achieving price stability. The second stage of the process started on the 1st of January 1994 and was completed on the 31st of December 199876. The process began with the establishment of the European Monetary Institute (EMI), which mirrored the state of monetary integration within the European Community77. Though, the Institute did not have the responsibility to conduct the monetary policy of the Union, or any rights on intervening in foreign exchange. This responsibility still remained at the preserve of national authorities of the country-members. Hence, the main objectives of the Institute were the strengthening of the central bank co-operation and monetary policy coordination between states, and to prepare the Community for the establishment of the European System of Central banks, in order for a single monetary policy and a single currency to be established in stage three of the process78. Finally, the third stage came on the 1st of January 1999, which commenced with the fixing of exchange rates of the national currencies of 11 country-members which were initially participating in the Monetary Union. On January 1st of 2001, the number of participating countries increased to 12, with Greece entering the process. On January 1st of 2007, Slovenia became the 13th member of the Euro Area, followed by Cyprus, Malta, and Slovakia in 2009, Estonia in 2011, Latvia in 2014 and finally, Lithuania on 2015. When a country joins the Euro Area, its national central bank automatically becomes part of the Ecosystem. 74 75 Mousis, N. (2010). Rulebook of European Policies. Athens: Papazisis. European Central Bank. (2019). Economic and Monetary Union. [online] Available at: https://www.ecb.europa.eu/ecb/history/emu/html/index.en.html [Accessed 26 Aug. 2019]. 76 77 Mousis, N. (2010). Rulebook of European Policies. Athens: Papazisis. European Central Bank. (2019). Economic and Monetary Union. [online] Available at: https://www.ecb.europa.eu/ecb/history/emu/html/index.en.html [Accessed 26 Aug. 2019]. 78 ibid 28 3.2.The Budget of the European Union The European Union has a certain budget, with which it finances policies carried out at the European level, such as agriculture, regional development, space, transEuropean networks, research and innovation, health, education, culture, migration, border protection and humanitarian aid79. The budgetary system of EU has severely developed over the decades, synchronizing with the evolution of the Union itself80. Moreover, EU budget has a number of specific features and follows several principles. Thus, the three main parts of the EU’s budgetary system are the multinational financial framework, which consists of the Union’s long-term budget, the Union’s annual budget and its’ revenue, which is mostly own resources81. The basic Treaties which established the budgetary system of the Union were the Treaty on the Functioning of the EU and the Treaty on European Union82. The first managed to set out the basic principles on governing the budget procedures, and the principle of sound financial management. It also established the principle of funding the budget from EU’s very own resources, and creating a multiannual financial framework, which would represent annual expenditure ceilings for at least five years. Lastly, it created a schedule for the upcoming financial year, and the procedure for the budget implementation and control83. The Treaty on European Union made it to largely address the budget for funding the Union’s common foreign and security policy. 79 European Commission. (2019). 2018 Annual Management and Performance Report for the EU Budget. [online] Available at: https://data.consilium.europa.eu/doc/document/ST-10757-2019-REV1/en/pdf [Accessed 26 Aug. 2019]. 80 European Council - Council of the European Union. (2019). EU budgetary system - Consilium. [online] Available at: https://www.consilium.europa.eu/en/policies/eu-budgetary-system/ [Accessed 26 Aug. 2019]. 81 ibid 82 European Commission. (2019). EU treaties. [online] Available at: https://ec.europa.eu/info/about- european-commission/eu-budget/how-it-works/budget-law/treaties_en [Accessed 27 Aug. 2019]. 83 Eur-lex: Access to European Union Law. (2019). Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union. [online] Available at: https://eurlex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12012E/TXT [Accessed 27 Aug. 2019]. 29 Specifically, it provides the legal basis for any country of Europe to join the Union (on Article 19) and values on which EU is based (on Article 2)84. But what is it the EU’s budget exactly does? With the help of the European budgetary system, citizens looking for a job can count on the support from the future budget, which can provide them with a significant contribution to job creation, through the European Social Fund (ESF) and the European Regional Development Fund (ERDF)85. By funding the Erasmus+ program86, it allows to over four million European students to study abroad, and helps boost skills and employment, with a budget of almost 15 billion euros. Furthermore, the budget fully promotes European culture, with an amount of 1.5 billion euros supporting the Creative Europe Programme87. 3.3.The Standard Annual Budget Procedure The exact budgetary procedure of the European Union consists of numerous complex actions, aiming at establishing both the overall amount and distribution of annual EU expenditure and the revenue necessary to cover it, and in exercising control over the implementation of the budget88. Furthermore, we understand how the procedure itself involves the preparation and adoption of the budget. The process is described with three stages in order for it to be understood and successful, which is beforehand agreed by EU institutions on a ‘pragmatic’ calendar each year in due time before the start of the budgetary procedure based on the present practice. Specifically: 84 Eur-lex: Access to European Union Law. (2019). Joining the EU - the accession process. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM:l14536 [Accessed 27 Aug. 2019]. 85 European Commission. (2019). What the EU budget does: some examples. [online] Available at: https://ec.europa.eu/info/about-european-commission/eu-budget/spending/what-budget-does_en [Accessed 27 Aug. 2019]. 86 Erasmus+ - European Commission. (2019). Erasmus+. [online] Available at: https://ec.europa.eu/programmes/erasmus-plus/ [Accessed 27 Aug. 2019]. 87 Creative Europe - European Commission. (2019). Creative Europe Programme. [online] Available at: https://ec.europa.eu/programmes/creative-europe [Accessed 27 Aug. 2019]. 88 Factsheets on the European Union - European Parliament. (2019). The budgetary procedure | Fact Sheets on the European Union | European Parliament. [online] http://www.europarl.europa.eu/factsheets/en/sheet/10/the-budgetary-procedure 2019]. 30 Available at: [Accessed 27 Aug. • Stage 1: Establishing of the Draft Budget by the Commission. Firstly, the European Parliament and the European Council lay down guidelines on the priorities for the budget. The Commission draws up the draft budget and forwards it to the Council and Parliament by 1 September at the latest, but by the end of April or beginning of May according to the pragmatic timetable. The Commission is able to modify the draft budget at a later stage to take account of new developments, but no later than the point at which the Conciliation Committee is convened89. • Stage 2: Establishment of the Council’s position on the Draft Budget On the next step, The Council adopts its position on the draft budget and forwards it to Parliament by 1 October at the latest, but by the end of July according to the pragmatic timetable. The Council must inform the Parliament in full of the reasons which have led it to adopt its position. • Stage 3: Parliament’s Reading After the aforementioned, the European Parliament has 42 days in which it is able to react. Within that period, it may either approve the Council’s position or decline to take a decision, in which case the budget is deemed finally adopted, or else the Parliament can adopt amendments by a majority of its component members, in which case the amended draft is referred back to the Council and to the Commission. The President of Parliament, in agreement with the President of the Council, must then immediately convene a meeting of the Conciliation Committee. • Stage 4: Meeting of the Conciliation Committee and Adoption of the Budget Beginning from the day on which the budget is convened, the Conciliation Committee (composed of the representatives of the members of the Council and an equal number of representatives of Parliament) has 21 days to agree on a joint text. It must take its decision by a qualified majority of the members of the Council or their representatives and by a majority of the representatives of Parliament. The Commission takes part in the Conciliation Committee’s proceedings and takes all the necessary initiatives to seek to reconcile the positions of Parliament and the Council90. If the Conciliation Committee fails to find an agreement on a joint text within the 89 ibid 90 ibid 31 21 days referred to above, a new draft budget shall be submitted by the Commission. If the Conciliation Committee does agree on a joint text within the deadline, then Parliament and the Council have 14 days from the date of that agreement in which to approve the joint text. The following table summarizes the possible outcomes at the end of that 14-day period. Table 1: Process of approval of the Conciliation Joint Text. Source: European Parliament Positions on the joint text + = adopted Parliament Council + − = rejected Outcome + Joint text adopted − Back Parliament position, possibly None Joint text adopted + Joint text adopted − New draft budget from Commission None Joint text adopted + New draft budget from Commission − New draft budget from Commission None New draft budget from Commission None = no decision taken None − • Supplementary and Amending Budgets: In the event of unavoidable, exceptional or unforeseen possible circumstances, the European Commission may propose draft amending budgets amending the adopted budget for the current year. These amending budgets are subject to the same rules as the general budget91. 91 ibid 32 3.4. The Euro Area The Euro Area (also known as the Eurozone) consists of the group of countries of the EU which have adopted the Euro (€) as their national single currency92. The European Council of Madrid chose ‘Euro’ as the name for the single currency of the Monetary Union93. Although, as aforementioned, all country-members of the Union are part of Economic and Monetary Union (EMU) and coordinate their economic policy making supporting its’ economic and financial goals, certain countries have taken this coordination further by replacing their national currencies with the euro94. As of this exact moment, the Euro Area consists of the following countries in alphabetical order: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Any other states of the Union (except for the United Kingdom and Denmark) can join the Euro Area once they meet the exact criteria to do so, which are called the ‘convergence criteria’ or ‘Maastricht criteria’95 and were agreed by the country-members of the Union in 1991 as part of the official preparations for introduction of the currency96. At this point, no state has left the Eurozone and there are no provisions to do so or to be expelled from the area97. There exists a number of specific countries, such as Andorra, Monaco, the Vatican City and San Marino, which have signed formal agreements with the Union, and are thus able to use the euro as their official currency, 92 Interinstitutional style guide. (2019). Countries, languages, currencies. [online] Available at: http://publications.europa.eu/code/en/en-370300.htm [Accessed 28 Aug. 2019]. 93 Pelkmans, J. (2001). European Integration: Methods and Economic Analysis. 2nd ed. Essex: Pearson Education Limited. 94 European Commission - Policies, information and services. (2019). What is the euro area?. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/what-euro-area_en [Accessed 28 Aug. 2019]. 95 European Commission. (2019). Convergence criteria for joining. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/enlargement-euro-area/convergencecriteria-joining_en [Accessed 28 Aug. 2019]. 96 European Commission. (2019). Who can join and when?. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/enlargement-euro-area/who-can-join-andwhen_en [Accessed 28 Aug. 2019]. 97 Fox, B. (2019). Dutch PM: Eurozone needs exit clause. [online] EUobserver. Available at: https://euobserver.com/political/118925 [Accessed 28 Aug. 2019]. 33 but at the same time issue their own coins98. Additionally, some specific countries like Montenegro and Kosovo have adopted the euro unilaterally99. The aforementioned states are not officially members of the eurozone and do not seem to have any representation in the European Central Bank (ECB) or in the Eurogroup. Concerning the country-members outside the Eurozone, Denmark and the United Kingdom have 'opt-outs' from joining laid down in Protocols annexed to the Treaty, still, they can join in the future if they wish to, while at the same time, states such as Sweden has not yet qualified to be part of the area100. Notably, in order for member-countries of the Union to adopt the euro currency and enter the area, they are obliged to bring their national legislation in line with the relevant EU law and meet some specific conditions designed for the insurance of the economic and monetary convergence. These requirements, agreed by the EU Member States in Maastricht in 1991, are known as the convergence criteria101, as aforementioned. The Maastricht criteria were established by EU to measure the progress of countries’ preparedness and evolution in the process of adopting the euro and are specifically defined as a set of macroeconomic indicators102. 98 Eur-lex: Access to European Union Law. (2019). "Agreements on monetary relations (Monaco, San Marino, the Vatican and Andorra)". [online] Available at: https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=LEGISSUM:l25040 [Accessed 28 Aug. 2019]. 99 European Commission. (2019). The Euro outside the Euro area. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area_en [Accessed 28 Aug. 2019]. 100 European Commission. (2019). What is the euro area?. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/what-euro-area_en [Accessed 28 Aug. 2019]. 101 European Commission. (2019). Convergence criteria for joining. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/enlargement-euro-area/convergencecriteria-joining_en [Accessed 28 Aug. 2019]. 102 ibid 34 Table 2: The four Convergence Criteria. Source: European Commission103 Sound and What is measured: Price stability public finances Harmonised How it is measured: sustainable consumer price inflation Government Durability of Exchange rate convergence stability Long-term interest deficit and debt rate Exchange rate developments in ERM II A price performance that is sustainable Convergence criteria: Not more than 2 Participation in percentage points ERM II for at least and average Not under inflation not more excessive deficit above the rate of the 2 years without than 1.5 percentage procedure at the three best performing severe tensions, in points above the rate time of Member States in particular without of the three best terms of price devaluing against stability the euro examination performing Member States In accordance with the Maastricht Treaty, at least once every two years, or at the request of a country-member of the EU with a derogation, the European Commission and the European Central Bank can assess the progress made by the Eurozone candidate 103 European Commission. (2019). Convergence criteria for joining. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/enlargement-euro-area/convergencecriteria-joining_en#the-four-convergence-criteria [Accessed 28 Aug. 2019]. 35 countries and later on publish their conclusions in specific respective convergence reports104. Figure 5: The Eurozone, European Union and other countries using the Euro. Source: Political Geography Now105 The existence of those specific conditions for an EU country to join the euro area, is connected with the fact that the adoption of the single currency is considered a major step in a Member State’s economy. Once a country enters the Eurozone, its exchange 104 ibid 105 Political Geography Now. (2019). Which Countries Use the Euro? (Map of the Eurozone). [online] Available at: https://www.polgeonow.com/2014/08/map-which-countries-use-euro-plus- this.html [Accessed 28 Aug. 2019]. 36 rate is irrevocably fixed, and its monetary policies are automatically transferred to the responsibilities of the European Central Bank106. 3.5. The Role of the European Central Bank When discussing about the European Central Bank (ECB), we are referring to an official EU institution, placed at the heart of the Union and the Eurosystem (which consists of the ECB and the national central banks of the euro area107). Currently, more than 3,500 staff from all over the continent are estimated to work for the ECB, in Frankfurt, Germany108. The employees and experts perform a wide range of task while closely co-operating with the national banks of each country of the Eurosystem, and for the assurance of banking supervision, with the national supervisors with the Single Supervisory Mechanism. The main role of the ECB is the maintenance of price stability, and therefore the safeguarding of the value of the euro currency109. Specifically, the Article 127 of the Treaty on the Functioning of the European Union clearly states110: “The primary objective of the European System of Central Banks (hereinafter referred to as "the ESCB") shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, 106 European Commission. (2019). Who can join and when?. [online] Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/enlargement-euro-area/who-can-join-andwhen_en [Accessed 28 Aug. 2019]. 107 European Central Bank. (2019). Tasks. [online] Available at: https://www.ecb.europa.eu/ecb/tasks/html/index.en.html [Accessed 2 Sep. 2019]. 108 European Central Bank. (2019). Organisation. [online] Available at: https://www.ecb.europa.eu/ecb/orga/html/index.en.html [Accessed 2 Sep. 2019]. 109 European Central Bank. (2019). Tasks. [online] Available at: https://www.ecb.europa.eu/ecb/tasks/html/index.en.html [Accessed 2 Sep. 2019]. 110 Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 37 favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119111”. According to Article 129 of the TFEU: “The ESCB shall be governed by the decision-making bodies of the European Central Bank which shall be the Governing Council and the Executive Board112.” Thus, the key players and organizers of the ECB are the Governing Council and the Executive Board113. The Governing Council is considered to be the main decisionmaking body of the ECB and consists of the six members of the Executive Board and the governors of the national central banks of the 19 Eurozone countries114. The main objectives of the Executive Board are the adoption of the right guidelines and decisions which are considered necessary in order to ensure the performance of the needed tasks of the ECB and the Eurosystem115. It is responsible for the formulation of the European monetary policy, which includes any possible decisions relating to the monetary and economic objectives, key interest rate and the supply of reserves in the Eurosystem116. Finally, during the past few years, in the context of the Bank’s newly established responsibilities related to banking supervision, it aims at the adoption of decisions related to the general framework under which the supervisory decisions are being taken, and to therefore adopt the complete draft decisions which proposes the Supervisor Board. 111 Eur-lex: Access to European Union Law. (2019). Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union. [online] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12012E%2FTXT [Accessed 2 Sep. 2019]. 112 ibid 113 Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 114 European Central Bank. (2019). Governing Council. [online] Available at: https://www.ecb.europa.eu/ecb/orga/decisions/govc/html/index.en.html [Accessed 2 Sep. 2019]. 115 Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 116 ibid 38 Continuing, the Executive Board consists of its’ President, Vice-President and four other members117. All the members of the Board are appointed by the European Council and are acting by a qualified majority. The Boards’ main responsibility is the implementation of the monetary policy for the Eurozone, according with the specific guidelines and decisions taken by the aforementioned Governing Council. It manages the every-day business of the ECB and finally, it exercises certain powers which are delegated to it by the Governing Council118. Even though it appears as if the responsibilities of the Executive Board are subsumed within those of the Governing Council, in reality the Executive Board is participating actively in the establishment of policies, and the creation of labor programmes and decision-making of the Council119. Part 4: The European Integration during the Era of the Economic Crisis 4.1. The Rising of the Economic Crisis Faced with the most severe financial and economic crisis in decades, the Union has taken great pains and steps concerning the reform of its economic governance architecture in order to provide immediate relief to the countries of the Eurozone and prevent further financial emergencies120. The Eurozone crisis, which basically began after the financial crisis of 2008, consists of a complex political subject121. The crisis is closely connected with the stability of the financial and economic integration of the EU -in other words, the survival of the Euro- but also shows numerous other consequences 117 European Central Bank. (2019). Executive Board. [online] Available at: https://www.ecb.europa.eu/ecb/orga/decisions/eb/html/index.en.html [Accessed 2 Sep. 2019]. 118 Nugent, N. (2012). The Government and Policies of the European Union - Social Studies. Savvalas. 119 McNamara, K. (2002). Managing the Euro: The European Central Bank. The Institutions of the European Union. Oxford University Press, Oxford. [online] Available https://scholar.google.com/scholar?cluster=8324584452717750154&hl=en&oi=scholarr at: [Accessed 2 Sep. 2019]. 120 Bauer, M. and Becker, S. (2014). The Unexpected Winner of the Crisis: The European Commission’s Strengthened Role in Economic Governance. Journal of European Integration, [online] 36(3), pp.213-229. Available at: https://www.researchgate.net/publication/263685094_The_Unexpected_Winner_of_the_Crisis_The_E uropean_Commission's_Strengthened_Role_in_Economic_Governance [Accessed 2 Sep. 2019]. 121 Glencross, A. (2014). The Politics of European Integration: Political Union or a House Divided? Wiley Blackwell. 39 concerning the European economic and political aspect. It is crucial to state how this was the first Eurozone crisis since its’ creation in 1999. Figure 6: Timeline of the European Debt Crisis. Source: Bankrate.com Even though the U.S. economy had already started slipping into a recession from 2007, the financial collapse of the investment bank Lehman Brothers caused the financial crisis to start spreading across the world, by kicking the global financial crisis into high gear122. The crisis emerging in the United States immediately started affecting Europe. Everyone from the American Federal Reserve, government regulators, mortgage lenders, the shadow banking industry, ratings agencies and millions of American homeowners and households were implicated in this immense growth of the ‘housing bubble’ and the ‘fallout of the pop’. Within just a few days, the crisis started spreading to Europe. More specifically, economies in the Russian Federation and Pakistan contracted and the national governments from the United Kingdom to Germany stepped in to bail out the national banks, while Iceland started going bankrupt123. 122 Steiner, S. (2019). Timeline Of European Debt Crisis | Bankrate.com. [online] Bankrate. Available at: https://www.bankrate.com/banking/timeline-of-european-debt-crisis/ [Accessed 3 Sep. 2019]. 123 ibid 40 In 2009, the Greek budget deficit was revealed to be at the 12.7% of the annual GDP, which was nearly twice of what it was thought to be almost four times higher than what it was supposed to be. Therefore, its’ dept-to-GDP ratio was twice the limit allowed in the Treaty establishing the common currency, as one of the obligations of the treaty for the members was to keep "sound fiscal policies, with debt limited to 60% of GDP and annual deficits no greater than 3% of GDP124. Member countries of the EU were originally required to have government deficits of no more than the 3% of their GDP. Thus, the dept-to-GDP ratio was required to be no more than the 60% of each country’s GDP. The Stability and Growth Pact (SGP), -which consisted of a set of rules designed for the assurance that the EU countries would pursue sound public finances and would coordinate their fiscal policies125- was reformed in 2005 to allow a little more flexibility126. Unfortunately, the budget troubles of Greek started spreading even further. Specifically, even though the Greek Prime Minister at the time, George Papandreou declared that the budget deficit was at 12.7% of the GDP, Eurostat later reported that the Greek budget deficit in 2009 was in reality at the 13.6%127. Even further during 2009, Spain’s budget deficit totaled at the 11.2% of the GDP. By the May of 2010, Spain’s economic and financial problems came completely to light, and the Prime Minister Jose Luis Rodriguez Zapatero announced crucial cuts to the publics’ salaries and slashed pension and government funding128. 124 Hubbard, G. and Kane, T. (2014). Balance: The Economics of Great Powers From Ancient Rome to Modern America. Simon & Schuster. 125 European Commission. (2019). Stability and Growth Pact. [online] Available at: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eueconomic-governance-monitoring-prevention-correction/stability-and-growth-pact_en [Accessed 3 Sep. 2019]. 126 Steiner, S. (2019). Timeline Of European Debt Crisis | Bankrate.com. [online] Bankrate. Available at: https://www.bankrate.com/banking/timeline-of-european-debt-crisis/ [Accessed 3 Sep. 2019]. 127 Eurostat: News Release Euro-Indicators. (2010). Provision of deficit and debt data for 2009 - first notification. [online] Available at: https://ec.europa.eu/eurostat/documents/2995521/5046142/2- 22042010-BP-EN.PDF/0ff48307-d545-4fd6-8281-a621cbda385d?version=1.0 [Accessed 3 Sep. 2019]. 128 BBC News. (2010). Spain sets out austerity measures. https://www.bbc.co.uk/news/10134734 [Accessed 3 Sep. 2019]. 41 [online] Available at: On the 23st of April 2010, then Greek Prime Minister announced that Greece would take a 45-billion-euro loan from the Eurozone countries and the International Monetary Fund in order to avoid any possible default129. After Greece announced that they needed financial assistance, EU helped with three attempts at fiscal austerity measures between 2009 and 2010. The third measure finally passed in March of 2010 and it included a specific plan which would raise taxes and cut spending. After that, state pensions ended up being frozen, and civil service bonuses were cut and the public sector payrolls were slashed130. Basically, the main root causes for the sovereign debt crises of those countries erupting in the Union were reportedly a mix of: weak actual and potential growth; competitive weakness; liquidation of banks and sovereigns; large pre-existing debt-toGDP ratios; and considerable liability stocks (government, private, and non-private sector)131. On the 7th of April 2011, another country suffering from the debt crisis, Portugal, requested a bailout and managed to reach a deal during May. The deal basically gave them three-year loan of up to 78 billion euros, coming from the European Financial Stabilization Mechanism, the European Stability Facility and the International Monetary Fund (IMF)132. Even though sovereign debt had risen tremendously in only a few of the Euro Area countries which collectively only accounted for the 6% of the eurozone’s GDP133, it 129 Steiner, S. (2019). Timeline Of European Debt Crisis | Bankrate.com. [online] Bankrate. Available at: https://www.bankrate.com/banking/timeline-of-european-debt-crisis/ [Accessed 3 Sep. 2019]. 130 ibid 131 Petrakis, P., Kostis, P. and Valsamis, D. (2013). European Economics and Politics in the Midst of the Crisis: From the Outbreak of the Crisis to the Fragmented European Federation. New York and Heidelberg: Springer, [online] p.p. 274. Available at: https://www.springer.com/gp/book/9783642413438 [Accessed 11 Sep. 2019]. 132 European Commission. (2019). Financial assistance to Portugal. [online] Available at: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eufinancial-assistance/which-eu-countries-have-received-assistance/financial-assistance-portugal_en [Accessed 11 Sep. 2019]. 133 Rogoff, K. (2011). The Euro’s PIG-Headed Masters | by Kenneth Rogoff. [online] Project Syndicate. Available at: https://www.project-syndicate.org/commentary/the-euro-s-pig-headed- masters?barrier=accesspaylog [Accessed 11 Sep. 2019]. 42 became a problem for the EU as a whole134, leading to speculation of further contagion of other European countries and a possible break-up of the Euro Area. Totally. the financial crisis managed to force five out of 17 eurozone countries to seek help from other nations by the end of 2012. Figure 7: European Sovereign Debt vs. GDP. Source: Thomson Reuters135 4.2. EU Crisis Regulation Mechanisms As a result of the financial debt crisis, the institutions of the European Union were given many new and often unprecedented tasks136 and has thus led to the creation of 134 - SPIEGEL ONLINE, G. (2011). Time for Plan B: How the Euro Became Europe's Greatest Threat SPIEGEL ONLINE - International. [online] Spiegel Online. Available at: https://www.spiegel.de/international/europe/time-for-plan-b-how-the-euro-became-europe-s-greatestthreat-a-769329.html [Accessed 11 Sep. 2019]. 135 Esposito, D. (2019). The European Financial Crisis: Analysis and Novel Intervention. Harvard Univeristy - European Parliament. [online] Available at: https://scholar.harvard.edu/files/markesposito/files/eurocrisis.pdf [Accessed 12 Sep. 2019]. 136 De Witte, B. (2015). Euro Crisis Responses and the EU Legal Order: Increased Institutional Variation or Constitutional Mutation?. European Constitutional Law Review, [online] 11(3), pp.434457. Available at: https://www.cambridge.org/core/journals/european-constitutional-law- 43 new EU agencies with sometimes important decision-making powers that far exceed the tasks usually conferred on EU agencies137. In this part, the EU debt crisis regulation mechanisms and organs will be analyzed and criticized in order for the techniques to be completely understood. 4.2.1.. The European Stability Mechanism (ESM) The European Stability Mechanism (ESM) is part of the Union’s basic strategy which would safeguard financial stability in the eurozone. Just like its predecessor, the temporary European Financial Stability Facility (EFSF) which will be later on mentioned, the mechanism provides certain European countries which face or are threatened by crucial financial difficulties, with financial assistance, packages and strategies138. The mechanism was established on the October of 2012 though it had to be postponed until after the Federal Constitutional Court of Germany had confirmed the legality of the measures on 12 September 2012139140. As it is understood, ESM was created as a permanent solution to a problem that was arising early in the sovereign national debt crisis of each country, which was no other than the lack of a backstop for the eurozone countries that were no longer able to tap their markets. The ESM and the EFSF continue as separate legal entities, but as they both are institutions of the European Union, share facilities and operations. Finally, the two programs had 700 billion euros in their firepower, in order to help those countries in need141. After only a review/article/euro-crisis-responses-and-the-eu-legal-order-increased-institutional-variation-orconstitutional-mutation/DF863B246E0D3C48D071333782F94623 [Accessed 11 Sep. 2019]. 137 ibid 138 European Commission. (2019). European Stability Mechanism (ESM). [online] Available at: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eufinancial-assistance/loan-programmes/european-stability-mechanism-esm_en [Accessed 12 Sep. 2019]. 139 12 Spiegel Online. (2012). Two More Months of Limbo: Court to Rule on Euro Measures on Sept. - SPIEGEL ONLINE - International. [online] Available at: https://www.spiegel.de/international/europe/german-constitutional-court-to-rule-on-sept-12-on-esmand-fiscal-pact-a-844552.html [Accessed 12 Sep. 2019]. 140 Financial Rimes. (2012). German court backs ESM bailout fund | Financial Times. [online] Available at: https://www.ft.com/content/23f69368-fcaf-11e1-9dd2-00144feabdc0#axzz26Nl4Dulk [Accessed 12 Sep. 2019]. 141 European Stability Mechanism - Europa.eu. (2019). History | European Stability Mechanism. [online] Available at: https://www.esm.europa.eu/about-us/history#the_programmes [Accessed 12 Sep. 2019]. 44 few months, permanent bailout fund was entered into force for 16 signatory countries of the Union on the 27st of September 2012. I was successful in Estonia on the 4th of October 2012 after the completion of the ratification process that was needed for the programme142. 4.2.2. The European Financial Stability Facility (EFSF) Continuing its policy concerning the financial crisis regulation, the European Union created the European Financial Stability Facility (EFSF) on the 9th of May 2010. The facility was established as a legal instrument, whose goal was to reserve financial stability in the countries of the Euro area, by providing them with the financial assistance they might have needed143. The facility’s mandate is to issue bonds or other debt instruments on the European market with the support of the German Debt Management Office to raise the funds needed to provide loans to eurozone countries in financial need, to recapitalize banks or buy sovereign debt144. Only three Euro area countries asked the facility for financial aid. First was Ireland on February of 2011, then Portugal on June of 2011. Greece came back in March 2012145. At this point, it is crucial to note that the facility only raises funds after an aid request is made by a country146. The EFSF managed to issue 5 billion euros of five-year bonds in its inaugural benchmark issue on the 25th of January 2011, thus attracting an order book of 44.5 billion euros. This amount is a record for any sovereign bond in Europe, and 24.5 billion 142 Court Kaiser, S. and Rickens, C. (2012). Bailout Fund: Euro Zone Changing ESM to Satisfy German - SPIEGEL ONLINE - International. [online] Spiegel Online. Available at: https://www.spiegel.de/international/europe/esm-agreement-euro-zone-states-seek-to-assuage-germancourt-a-857027.html [Accessed 12 Sep. 2019]. 143 European Stability Mechanism - Europa.eu. (2019). History | European Stability Mechanism. [online] Available at: https://www.esm.europa.eu/about-us/history#the_programmes [Accessed 12 Sep. 2019]. 144 Thesing, G. (2011). ECB’s Stark Says Rescue Fund May Buy Bonds, Recapitalize Banks. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2011-01-22/ecb-s-stark-saysrescue-fund-may-buy-bonds-recapitalize-banks [Accessed 12 Sep. 2019]. 145 European Stability Mechanism - Europa.eu. (2019). History | European Stability Mechanism. [online] Available at: https://www.esm.europa.eu/about-us/history#the_programmes [Accessed 12 Sep. 2019]. 146 Stearns, J. (2012). Euro-Area Ministers Seal Rescue-Fund Deal to Stem Debt Crisis. [online] Bloomberg.com. Available https://www.bloomberg.com/politics?pid=20601068&sid=ajCcUH0_os58 [Accessed 12 Sep. 2019]. 45 at: euros more than the European Financial Stabilisation Mechanism (EFSM), a separate European Union funding vehicle, with a 5 euros billion issue in the first week of January 2011147. 4.2.3. The European Financial Stabilisation Mechanism (EFSM) In order for the crisis to be further regulated, the Union established the European Financial Stabilisation Mechanism (EFSM) on the 5th of January 2011, an emergency funding programme which relies upon funds raised on the financial markets and are guaranteed by the European Commission using the budget of the European Union as possible collateral if needed. The organ also runs under the supervision of the Commission and is aiming at preserving the financial stability in the continent, when providing the Eurozone member states with financial aid when they face an economic difficulty148. This exact Commission fund is estimated to raise up to 60 billion euros and is backed up by all the 27 European Union member countries149. Under this mechanism, the Union successfully placed in the national capital markets of each sovereign country a 5-billion-euro issue of bonds as part of the financial support package agreed for Ireland, at a borrowing cost for the EFSM of 2.59%. Just like the EFSF, the EFSM was replaced by the permanent rescue funding programme ESM, which was launched in September of 2012150. 4.2.4. The Fiscal Compact On the 2nd of March 2012, the European Union concluded the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), and it 147 Risk, H. (2011). EFSF inaugural bond meets record demand. [online] Euromoney. Available at: https://www.euromoney.com/article/b12kj4m1qnkvnw/efsf-inaugural-bond-meets-record-demand [Accessed 12 Sep. 2019]. 148 Bartha, E. (2019). A Mixed Day for European Debt. [online] Wall Street Journal. Available at: https://www.wsj.com/articles/SB10001424052748704405704576063642535867146 [Accessed 12 Sep. 2019]. 149 Jolly, D. (2019). Irish Bailout Begins as Europe Sells Billions in Bonds. [online] New York Times. Available at: https://www.nytimes.com/2011/01/06/business/global/06euro.html?_r=1&src=busln [Accessed 12 Sep. 2019]. 150 European Council. (2011). European Council Press Releases. [online] Available at: https://www.consilium.europa.eu/en/press/press-releases/latest-press-releases/newsroomrelated/ [Accessed 12 Sep. 2019]. 46 was entered into force on the 1st of January 2013151. Basically, the notable part and provision of the Treaty, is the requirement of a balanced budget rule in the domestic legal orders -which is the Fiscal Compact-. Twenty-two out of the twenty-five Contracting Parties to the Treaty are formally bound by the Compact, specifically the 29 countries of the Eurozone, plus Denmark, Romania and Bulgaria. Furthermore, TSCG invites the European Commission to report on the specific measures adopted by the Contracting Parties, according to Article 8 of the Treaty152. The Compact is considered to be a reform of the Stability and Growth Pact and is aiming at straightening the rules using the adoption of an automatic procedure for countries who are imposing financial penalties in cases of breaches of either the 3% deficit or the 60% debt rules153. 4.3. Results and Outcome On a political aspect, the goal of the establishment of the European Monetary Union, and the Euro Area as a result was the creation of a closer co-operation and communication between the European countries after the ending of the Cold War. On an economical aspect, the creation of the common currency would benefit on the enterprises and entrepreneurship of the Union, by eliminating any cost of the monetary transactions between countries of the Eurozone, making the competitiveness of prices easier154. As the EU tried multiple times to help the countries in need with both the establishment of institutions, the signing of Treaties and the aid with specific financial packages, it is important to understand that in a continent with so many different countries with sovereign national economies, it is difficult for the Union to establish a programme that will benefit every player equally. Thankfully, one of the visible 151 European Commission. (2019). The Fiscal Compact – Taking Stock. [online] Available at: https://ec.europa.eu/info/publications/fiscal-compact-taking-stock_en [Accessed 12 Sep. 2019]. 152 European Commission. (2017). Report from the Commission: presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. [online] Available at: https://ec.europa.eu/info/sites/info/files/c20171201_en.pdf [Accessed 12 Sep. 2019]. 153 European Council. (2019). Council reaches agreement on measures to strengthen economic governance. [online] Available at: https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/119888.pdf [Accessed 12 Sep. 2019]. 154 Glencross, A. (2014). The Politics of European Integration: Political Union or a House Divided? Wiley Blackwell 47 examples of success of the establishment of the European Stability Mechanism and the European Financial Stability Facility is the somewhat improvement of the performance of the countries that requested financial aid155. Countries which successfully exited the EFSF and ESM programmes without needing a follow-up arrangement were Cyprus on March of 2015, Ireland on December of 2013, following with Spain also on December of 2013 and finally Portugal on May of 2014. Unfortunately, even though Greece did make a significant progress, it ended up suffering from more initial and crucial problems than the rest of the counties, and thus had to entre a new financial aid programme in 2015156. Together, both the EFSM and the ESM helped Greece with the distribution of 204 billion euros, and now hold more than the half of the country’s public debt. Both programmes helped the country be able to tighten its national public finances, to take important steps towards repairing and modernizing its economy, and finally regain trust of international and European investors, something that the country had nearly lost at the beginning of the debt crisis157. 155 European Stability Mechanism - Europa.eu. (2019). History | European Stability Mechanism. [online] Available at: https://www.esm.europa.eu/about-us/history#the_programmes [Accessed 12 Sep. 2019]. 156 157 ibid Esm.europa.eu. (2019). Greece | European Stability Mechanism. [online] Available at: https://www.esm.europa.eu/assistance/greece#bringing_greece_back_to_growth 2019]. 48 [Accessed 12 Sep. Figure 8158 Figure 9159 Figure 10160 Figure 11161 158 European Stability Mechanism. (2019). Impact on Budgets | European Stability Mechanism. [online] Available at: https://www.esm.europa.eu/impact-budgets [Accessed 12 Sep. 2019]. 159 ibid 160 ibid 161 ibid 49 Figure 12162 The charts above show how the impact of cheap lending survive the period of the programmes and will stay powerful for many years to come. National sovereign savings have recently for Ireland concerning their improved financing conditions. Though, this effect is expected to unfortunately be temporary, when the more expensive loans provided initially under the EFSF programme finally mature163. Part 5. Conclusion - Epilogue After completing the analysis on the history of the European Union, the Treaties which established mostly the economic parts of the Union and provided it with major economic process, after examining the specific economic and financial policies as well as the industrial and business environment of the Union, and the competitiveness opportunities, we can now understand the meaning behind the idea of the European Integration, specifically concerning the economic aspect. From the beginning of the establishment of the Union, one could easily assume the failure of the ideal institution, as ongoing wars and disputes were making it impossible for unity, communication, respect and co-operation to be succeeded. Especially when we discuss about so many different countries, with different backgrounds and needs, on the financial area as well as the political and social aspect of each EU member. Someone could imagine the idea of the European Integration as a big dining table, in which every guest shall feel satisfied by the menu. EU is the host, and the menu is the Union’s agenda. It was easy for the Union to create a common economic policy, when 162 ibid 163 ibid 50 it only consisted of a few countries, but as EU grew, so did the responsibilities concern its’ country-members. When someone is a host at such a big event, they shall keep in mind that most of the guests might face certain difficulties, such as the fact that someone might be a vegetarian, or lactose intolerant. In the case of the EU, one shall also focus on the fact that not all economies are the same, especially when discussing about a continent so big, with so many individual cultures and ethnicities. Though, the European Union managed to make this dinner work, and the guests to be quite satisfied as well. Unfortunately, as it is widely known, history does have the tendency to repeat itself. After a few golden years of neo-liberalism and conversation between the European countries, the financial debt crisis knocked on Europe’s door, revealing significant and major problems that were hidden under the “sheets” of unity among nations. Euroscepticism started growing, far-right wing and nationalist parties expanded and countries began doubting the ability of the Union to continue as it promised; a Union. To the mind of a nationalist-inspired Eurosceptic, a state needs to exercise both domestic control and international power in order for it to be able to produce, sustain and express a shared conception of “power” and “nationality”164. For those people, holding historical grudges seem to be of greater importance than living well in the present of working together for a more prosperous economic future. Nevertheless, the abovementioned mindset is not what the Union is about. It might be true that the past years, from the beginning of the crisis up until today, could be considered as the darkest ages of the EU. With the United Kingdom finally deciding to exit the Union, and the nationalist parties across the continent having the “threat” of exiting as their main political agenda, it seems like Europe has a lot to discuss. Nobody can doubt that the integration and possible federalization process of the Union consists of a complex and delicate subject that needs to take care of each country differently, according to their financial situation, problems, and needs. Each new step towards the political, economic and institutional European Integration has been based on long term gains, even if they sometimes required short-term sacrifices165. Keeping 164 Morgan, G. (2015). The Idea of a European Superstate: Public Justification and European Integration. Princeton, New Jersey: Princeton University Press. 165 Hall, P. (2016). The Euro Crisis and the Future of European Integration - OpenMind. [online] OpenMind. Available at: https://www.bbvaopenmind.com/en/articles/the-euro-crisis-and-the-future-ofeuropean-integration/ [Accessed 13 Sep. 2019]. 51 that in mind, it seems like the future of Europe lies in the hands of national governments and politicians, as it does in European co-operation and conversation in general. EU institutionally gives each country the right and the ability to stand up, speak up and raise their voice. Sometimes, the dream of Unity might seem far from the reality of the Union as it is today. Though, provided that the EU gives each county adequate room for it to maneuver, converse, and democratically decide, this does not consist of an impossible dream. Bibliography: 1. BBC News. (2010). Spain sets out austerity measures. [online] Available at: https://www.bbc.co.uk/news/10134734 [Accessed 3 Sep. 2019]. 2. BBC News. (2016). Reality Check: What is a customs union? 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