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Economic foundations of the EU

European Public Law – introductory lecture. Economic foundations of the EU. Tamara Perišin. Why does the EU exist?. Schuman Declaration Art 3/3 TEU

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Economic foundations of the EU

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  1. European Public Law – introductory lecture Economic foundations of the EU Tamara Perišin

  2. Why does the EU exist? • Schuman Declaration • Art 3/3 TEU The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social marketeconomy, aiming at full employment and social progress, and a high level of protection andimprovement of the quality of the environment. It shall promote scientific and technological advance.

  3. What are the advantages of economic integration for states? • Cheaper goods and services • A bigger selection of goods and services in the market • Higher living standards • Peace and security…

  4. Theory of absolute advantage A (England): 4 units of wine R 4 units of cloth B (Portugal): 6 units of wine R 3 units of cloth R – recources, production factors (labour, capital…) Unit – e.g. ton, hectoliter, bottle...

  5. A (England): 4 units of wine R 4 units of clothB (Portugal): 6 units of wine R 3 units of cloth Enterpreneur from Portugal has R and produces 3 units of cloth  invests his R in producing wine instead and produces 6 units of wine  takes his wine to England (where 1 unit of wine buys 1 unit of cloth) and sells it, thus getting 6 units of cloth  with 1 R, instead of 3 units of cloth he now has 6 units of cloth.

  6. A (England): 4 units of wine R 4 units of clothB (Portugal): 6 units of wine R 3 units of cloth Enterpreneur from England has R and produces 4 units of wine  invests his R in producing cloth and produces 4 units of cloth  takes his cloth to Portugal (where 1 unit of cloth buys 2 units of wine) and sells it, thus getting 8 units of wine  with 1 R, instead of 4 units of wine, he now has 8 units of wine.

  7. What if a state si not better in anything? E.g.: less developed countries often are not more successful in any branch of production. Sometimes all production there (food, techology, clothes...) is more expensive than in developed countries. Does free trade pay off for everyone even in that case?

  8. Theory of comparative advantage A (England): 4 units of wine R 4 units of cloth B (Moldova): 3 units of wine R1.5 units of cloth R – resources, production factors (labour, capital…)

  9. A (England): 4 units of wine R 4 units of clothB (Moldova): 3 units of wine R 1.5 units of cloth Enterpreneur from Moldova has R and makes 1.5 unit of cloth • invests his R in wine production and produces 3 units of wine • Takes his wine to England (where 1 unit of wine buys 1 unit of cloth) and sells it, thus getting 3 units of cloth  With 1 R, instead of 1.5 units of cloth, he gets 3 units of cloth.

  10. A (England): 4 units of wine R 4 units of clothB (Moldova): 3 units of wine R 1.5 units of cloth For the enterpreneur from England everything is still the same!!! (Enterpreneur from England has R and makes 4 units of wine  invests his R in producing cloth and produces 4 units of cloth  takes his cloth to Moldova (where 1 unit of cloth buys 2 units of wine) and sells it, thus getting 8 units of wine.  with 1 R, instead of 4 units of wine, he now has 8 units of wine.)

  11. Free trade - protectionism • Protectionism - Preventing free trade in order to protect domestic production; - Harmful globally as well as to the state that relies on it. • Then why is there protectionism in the first place?

  12. What are the stages of economic integration? 1. Free trade area - SAA, WTO... 2. Customs union 3. Common market 4. Economic union 5. Monetary union 6. Economic-monetary union - EU 7. Complete economic union

  13. If the EU was just a free trade area... 10 % 15 % 0 % 0 % 20 %

  14. 15 % 10 % 0 % 0 % 20 %

  15. 15 % 10 % 0 % 0 % 20 %

  16. 15 % 10 % FREE TRADE AREA 0 % 5 % 10 % 0 % 20 %

  17. Kako izgleda carinska unija? 15 % 15 % CUSTOMS UNION 0 % 0 % 15 %

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