tutor2u European Economy in Focus 2006 Edition Author: Geoff Riley (Head of Economics, Eton College) European Economy in Focus Tutor2u Page 1 of 145
THE EUROPEAN UNION IN FOCUS 2006 EDITION 1 INTRODUCTION TO THE ECONOMICS OF THE EU 7 1.1 The population of the European Union 8 1.2 The European Union in a Global Perspective 8 1.3 Trade Patterns and Trade Blocs in the World Economy 10 1.4 The European Union Budget 13 1.5 The UK s Trade with the European Union 15 2 TRADE AND THE EU SINGLE MARKET 17 2.1 Trade creation and trade diversion 19 2.2 The Four Freedoms in the Single Market 22 2.3 Evaluating the impact of the Single Market 23 2.4 Price Differentials within the Single Market 24 2.5 Inward Investment into the European Single Market 26 2.6 Fiscal harmonization 28 2.7 Tax dumping 30 2.8 Suggestions for further research on the single market and fiscal harmonization 30 3 EUROPEAN MONETARY UNION 31 3.1 Monetary Policy in the Euro Zone - The European Central Bank 31 3.2 Joining the Euro Meeting the Convergence Criteria 32 3.3 The Case for UK Membership of the Euro 32 3.4 The Case against UK Participation 33 3.5 Optimal Currency Areas 34 3.6 Staying outside the Euro Zone retaining the freedom to choose 35 3.7 Labour and the Euro - the 5 Economic Tests 36 3.8 The Importance of Economic Convergence 36 3.9 Suggestions for further reading and research on European Monetary Union 41 4 MACROECONOMIC DEVELOPMENTS IN THE EURO ZONE 42 4.1 Short Term Economic Growth 42 4.2 Macro performance of selected countries 43 4.3 Unemployment 46 4.4 Inflation and interest rates 46 European Economy in Focus Tutor2u Page 2 of 145
4.5 The Euro Exchange Rate 49 4.6 The Fiscal Stability and Growth Pact 50 4.7 Suggestions for further research on developments in the Euro Zone 54 5 LIVING STANDARDS AND POVERTY IN THE EU 55 5.1 Defining and Measuring the Standard of Living 55 5.2 Living Standards: The Purchasing Power Parity Adjustment 57 5.3 European Regional Policy 58 5.4 Instruments of regional policy 60 5.5 Has EU Regional Policy Worked? 61 5.6 Regional policy and infrastructure 62 5.7 Enlargement and Regional Policy 62 5.8 EU Regional Policy and the UK 63 5.9 The Importance of the regional Issue 64 6 ENLARGEMENT OF THE EU 65 6.1 The Economic Structure of the New Member States 65 6.2 Joining the European Union Requirements for Entry 70 6.3 Advantages of Enlargement for Accession Countries 70 6.4 Disadvantages and Costs for Accession Countries 75 6.5 Advantages of Enlargement for the EU 75 6.6 Disadvantages of Enlargement for the EU 77 6.7 European Enlargement and the Labour Migration Issue 78 6.8 Enlargement and Tax Competition between Nations 80 6.9 Enlargement and the Single Currency 81 6.10 Comparative Advantage and Trade 82 6.11 Suggestions for Further Research on EU Enlargement 84 7 UNEMPLOYMENT IN THE EUROPEAN UNION 85 7.1 Economic and Social Costs of Unemployment 86 7.2 Explanations for high unemployment 87 7.3 Reforming Europe s Labour Markets 90 7.4 Suggestions for Further Research on Unemployment in Europe 92 8 THE COMMON AGRICULTURAL POLICY 93 8.1 Background to the CAP 93 European Economy in Focus Tutor2u Page 3 of 145
8.2 The Economics of Farm Support 94 8.3 Costs of the CAP Government Failure 97 8.4 The Environmental Costs of the CAP 99 8.5 CAP and Developing Countries 101 8.6 Europe and Developing Countries - Reforming the EU Sugar Regime 103 8.7 Farm Reforms Lessons from New Zealand 105 8.8 Reforming the CAP the Long March 105 8.9 Costs and Benefits of CAP Reform 107 8.10 EU Enlargement and CAP reform 108 8.11 Winners and Losers from CAP Reform 108 8.12 Suggestions for further reading and research on the Common Agricultural Policy 109 9 EUROPEAN FISHERIES POLICY 110 9.1 Resource depletion - the long term decline in European fish stocks 110 9.2 The Common Fisheries Policy (CFP) 111 9.3 EU Fisheries Reform Deals 112 9.4 Controlling fish stocks lessons from Iceland 112 9.5 Web Links for Further Research on the Fisheries Issue 113 10 EUROPEAN ENVIRONMENT POLICY 114 10.1 Concerns over environmental damage 114 10.2 Europe s commitments to the Kyoto protocol 114 10.3 The main principles and instruments of EU environmental policy 115 10.4 Environmental taxation 115 10.5 The polluter pays principle 116 10.6 Difficulties with environmental taxation 117 10.7 Pollution Regulation European Directives 117 10.8 Pollution Emissions Trading 118 10.9 Policies towards Waste Management 119 10.10 Web Links for Further Research on European Environmental Issues and Policy 120 11 EUROPEAN TRANSPORT POLICY 121 11.1 The Economic Importance of Transport 121 11.2 The main characteristics of transport 122 11.3 The growth of demand for transport in Europe 122 11.4 The European Aviation Industry 124 European Economy in Focus Tutor2u Page 4 of 145
11.5 Suggestions for further research on European Transport Policy 127 12 EUROPEAN UNION COMPETITION POLICY 129 12.1 Anti-Trust Policy - Abuses of a Dominant Market Position 130 12.2 Anti-Competitive Practices: 131 12.3 Market Liberalisation 135 12.4 State Aid in Markets 135 12.5 European Merger Policy 136 12.6 Suggestions for further research on European Competition Policy 138 13 REVISION ADVICE 139 13.1 The Nature of a Synoptic Paper 139 13.2 The Economist s Toolkit 140 13.3 The AQA Exam on the Economics of the European Union 140 13.4 Strategies for scoring high marks on the European paper 141 European Economy in Focus Tutor2u Page 5 of 145