lecture 1 introduction to europe lecture 1 introduction to europe european economic issues

Lecture 1Introduction to Europe

Lecture 1Introduction to Europe

European Economic Issues

European Economic Issues

European Economic IssuesEuropean Economic Issues

• Introduction to the EU: Some descriptive data and first Introduction to the EU: Some descriptive data and first impressionsimpressions

• The origins of the EU:The origins of the EU:– Theory: Why Economists advocate Free TradeTheory: Why Economists advocate Free Trade– Free Trade Areas, Customs Union, Common Market & Free Trade Areas, Customs Union, Common Market &

Single European MarketSingle European Market– Trade Creation and Trade DiversionTrade Creation and Trade Diversion– Europe & Globalisation (The Multi-fibre agreement)Europe & Globalisation (The Multi-fibre agreement)

• Common Agricultural Policy, Fisheries Policy and Common Agricultural Policy, Fisheries Policy and Transport Transport

• Foreign Exchange theory, the origins of the European Foreign Exchange theory, the origins of the European Monetary System, Optimal Currency area & European Monetary System, Optimal Currency area & European Business Cycle & the EuroBusiness Cycle & the Euro

• European Competition Policy European Competition Policy • Regional Aid and Social CohesionRegional Aid and Social Cohesion

European Economic IssuesEuropean Economic Issues

• Introduction to the EU: Some descriptive data and first Introduction to the EU: Some descriptive data and first impressionsimpressions

• Much of the material for this lecture is drawn from Chapter Much of the material for this lecture is drawn from Chapter 2 of:2 of:

• Baldwin & Wyplosz: The Economics of European IntegrationBaldwin & Wyplosz: The Economics of European Integration• McGraw Hill, 2009, 3McGraw Hill, 2009, 3rdrd Edition. Edition.

• The graphics are in turn drawn from the Eurostat data The graphics are in turn drawn from the Eurostat data bases and up-to-date data can be accessed atbases and up-to-date data can be accessed at

• http://epp.eurostat.ec.europa.eu/portal/page?http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1090,30070682,1090_33076576&_dad=portal&_sch_pageid=1090,30070682,1090_33076576&_dad=portal&_schema=PORTALema=PORTAL

Facts: PopulationFacts: Population

•Source: Baldwin & Wyplosz


•http://epp.eurostat.ec.europa.eu/portal

/page?_pageid=1090,30070682,1090_3

3076576&_dad=portal&_schema=POR

TAL

•http://epp.eurostat.ec.europa.eu/portal

/page?_pageid=1090,30070682,1090_3

3076576&_dad=portal&_schema=POR

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http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1090,30070682,1090_33076576&_dad=portal&_schema=PORTAL









• 6 big nations:6 big nations:– > 35 million (Germany, the UK, France, Italy, Spain > 35 million (Germany, the UK, France, Italy, Spain

and Poland).and Poland).• 2 Mid Sized: 2 Mid Sized:

– Romania 22 & Netherlands 16 million people. Romania 22 & Netherlands 16 million people. • 9 ‘small’ nations (size of a big city): 9 ‘small’ nations (size of a big city):

– 8 to 11 million: (Greece, Belgium, Portugal, Sweden, 8 to 11 million: (Greece, Belgium, Portugal, Sweden, Austria, Czech Republic, Bulgaria and Hungary). Austria, Czech Republic, Bulgaria and Hungary).

• 11 ‘tiny’ nations: 11 ‘tiny’ nations: – (size of a moderate to small city)(size of a moderate to small city)– together make up less than 5 per cent of EU25 together make up less than 5 per cent of EU25

populationpopulation– (Slovak Republic, Denmark, Finland, Ireland, (Slovak Republic, Denmark, Finland, Ireland,

Lithuania, Latvia, Slovenia, Estonia, Cyprus, Lithuania, Latvia, Slovenia, Estonia, Cyprus, Luxembourg and Malta.) Luxembourg and Malta.)

Facts: Income per capitaFacts: Income per capita



• 11 high income – over €20,000 11 high income – over €20,000 – Denmark, Ireland, Austria, Netherlands, Belgium, Denmark, Ireland, Austria, Netherlands, Belgium,

Finland, Italy, Germany, France, UK and Sweden. Finland, Italy, Germany, France, UK and Sweden. • 9 medium income category – from €10,000 to €20,0009 medium income category – from €10,000 to €20,000

– Spain, Greece, Portugal, Cyprus, Hungary, Spain, Greece, Portugal, Cyprus, Hungary, Slovenia, the Czech Republic, Malta and the Slovenia, the Czech Republic, Malta and the Slovak Republic. Slovak Republic.

• 6 low income nations, less than €10,0006 low income nations, less than €10,000– Estonia, Poland, Lithuania, Latvia, Bulgaria, Estonia, Poland, Lithuania, Latvia, Bulgaria,

Romania, and TurkeyRomania, and TurkeyNB: Turkey’s income is half that of the richest-NB: Turkey’s income is half that of the richest-

of-the-poor, Estonia. of-the-poor, Estonia. • Luxembourg is in the super-high income category by Luxembourg is in the super-high income category by

itself. itself. – per capita income is almost twice that of Franceper capita income is almost twice that of France– about 40% of Luxembourgers work so the about 40% of Luxembourgers work so the averageaverage

worker earns over €100,000 a year! worker earns over €100,000 a year!

GDP v GNP: Does it matterGDP v GNP: Does it matter

• For small countries it can: e.g. Ireland For small countries it can: e.g. Ireland GDP>GNPGDP>GNP

IrelandIreland 19951995 20042004 20072007

Gross National Product (nominal) Gross National Product (nominal) 46,99446,994 124,250124,250 161208161208



IrelandIreland 19951995 20042004 20072007


Gross Domestic Product (nominal) Gross Domestic Product (nominal) 5314753147 148556148556 190601190601



IrelandIreland 19951995 20042004 20072007


Gross Domestic Product (nominal) Gross Domestic Product (nominal) 5314753147 148556148556 190601190601

Nominal GNP per capitaNominal GNP per capita 1304913049 3072630726 3715337153

Nominal GDP per capitaNominal GDP per capita 1475814758 3673736737 4392743927

GDP is more than GNP by:GDP is more than GNP by: 13%13% 20%20% 18%18%

•Matters when have many migrant workers Matters when have many migrant workers (sending money back) or foreign investors (sending money back) or foreign investors sending profits awaysending profits away•UK GDP is less than GNP by:UK GDP is less than GNP by: 2% - so goes opposite way2% - so goes opposite way

•Matters when have many migrant workers Matters when have many migrant workers (sending money back) or foreign investors (sending money back) or foreign investors sending profits awaysending profits away•UK GDP is less than GNP by:UK GDP is less than GNP by: 2% - so goes opposite way2% - so goes opposite way


•22,000•22,000


Facts: Size of EconomiesFacts: Size of Economies



• Economic size distribution is VERY uneven.Economic size distribution is VERY uneven.• Six nations (Germany, the UK, France, Italy, Spain Six nations (Germany, the UK, France, Italy, Spain

and the Netherlands) account for more than 80% of and the Netherlands) account for more than 80% of EU25’s economy. EU25’s economy.

• Other nations are small, tiny or miniscule. Other nations are small, tiny or miniscule. • ‘‘Small’ is an economy that accounts for between 1% Small’ is an economy that accounts for between 1%

and 3% of the EU25’s output:and 3% of the EU25’s output:– Sweden, Belgium, Austria, Denmark, Poland, Sweden, Belgium, Austria, Denmark, Poland,

Finland, Greece, Portugal and Ireland.Finland, Greece, Portugal and Ireland.• ‘‘Tiny’ is one that accounts for less than 1% of the Tiny’ is one that accounts for less than 1% of the

total: total: – Czech Republic, Hungary, Slovak Republic, Czech Republic, Hungary, Slovak Republic,

Bulgaria, Romania, Luxembourg, Slovenia, Bulgaria, Romania, Luxembourg, Slovenia, Lithuania, and Cyprus.Lithuania, and Cyprus.

• Miniscule is one that accounts for less than one-Miniscule is one that accounts for less than one-tenth of 1%: tenth of 1%: – Latvia, Estonia and Malta.Latvia, Estonia and Malta.

Facts: EU15’s Global Trade PatternFacts: EU15’s Global Trade Pattern



• The EU trades mainly with Europe, The EU trades mainly with Europe, especially with itself:especially with itself:– about two-thirds of EU exports and about two-thirds of EU exports and

imports are to or from other Western imports are to or from other Western European nations European nations

– the EU’s exports to North America the EU’s exports to North America amount to only 10 per cent of its amount to only 10 per cent of its exports exports

– Asia’s share is only 8 per cent. Asia’s share is only 8 per cent. • About 80 per cent of EU exports consist About 80 per cent of EU exports consist

of industrial goods (‘intraindustry’ trade). of industrial goods (‘intraindustry’ trade).


Imports + Exports

GDP



• EU25 members are all comparatively open EU25 members are all comparatively open economies when it comes to trade in goods: economies when it comes to trade in goods: – openness ratio for the EU15 ranges from 17 per openness ratio for the EU15 ranges from 17 per

cent for Greece up to 75 per cent for the cent for Greece up to 75 per cent for the Belgium-Luxembourg Belgium-Luxembourg

– figures for the 10 newcomers are higher than figures for the 10 newcomers are higher than Greece’s Greece’s figures for Japan and the US are 10 per cent figures for Japan and the US are 10 per cent

and 8 per cent respectively.and 8 per cent respectively.• EU15 market is very important for all EU25: EU15 market is very important for all EU25:

– share of exports going to the EU15 ranges share of exports going to the EU15 ranges between 50 per cent to 80 per cent. between 50 per cent to 80 per cent.

EU:The Budget: ExpenditureEU:The Budget: Expenditure


Evolution of Spending PrioritiesEvolution of Spending Priorities


Evolution of Spending, LevelEvolution of Spending, Level


Funding of EU BudgetFunding of EU Budget

• EU’s budget must balance every year.EU’s budget must balance every year.

• Financing sources: four main types:Financing sources: four main types:

– Tariff revenue Tariff revenue

– ‘‘Agricultural levies’ (tariffs on agricultural Agricultural levies’ (tariffs on agricultural goods)goods)

– ‘‘VAT resource’ (like a 1 per cent value added VAT resource’ (like a 1 per cent value added tax – reality is complex) tax – reality is complex)

– GNP based (tax paid by members based on GNP based (tax paid by members based on their GNP).their GNP).

Funding of EU BudgetFunding of EU Budget

• MiscellaneousMiscellaneous

– relatively unimportant since 1977relatively unimportant since 1977

– taxes paid by eurocrats, fines and earlier taxes paid by eurocrats, fines and earlier surplusessurpluses

– pre-1970s direct member contributions.pre-1970s direct member contributions.

Evolution of Funding SourcesEvolution of Funding Sources


Contribution vs GDP, 1999, 2000Contribution vs GDP, 1999, 2000


Contribution vs GDP, 1999, 2000Contribution vs GDP, 1999, 2000

• Percentage of GDP per member is Percentage of GDP per member is approximately 1 percent regardless of per-approximately 1 percent regardless of per-capita income.capita income.

• EU contributions are not ‘progressive’, e.g. EU contributions are not ‘progressive’, e.g. richest nation, (L) pays less of its GDP than richest nation, (L) pays less of its GDP than the poorest nation (P).the poorest nation (P).

Net Contribution by MemberNet Contribution by Member


lecture 1 introduction to europe lecture 1 introduction to europe european economic issues

Documents

baldwin wyplosz slide

turkeys income

low income nations

small nations size

medium income category

nominal gdp

nominal gnp

population http