Download - EC4333 Lecture 2 2008 Lisbon and Budgets
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Lisbon
EC433 Lecture 2Dr Stephen Kinsella
BudgetCU Theory
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Last Week
EU is an economic solution to a political Problem
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Today’s Main Message
“History affects current spending priorities and affects the path of economic integration”
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Lisbon
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What is Lisbon?
What does it do?
What does it mean?
Why did it fail?
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What is Lisbon?
Amends Previous Treaties
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Why?
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Lots of Reasons.
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Streamline Bureaucracy
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Introduce Qualified Majority Voting
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What does this mean?
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No. Veto.
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No. Veto.
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Presidency
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EC Council
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Foreign Affairs High Rep
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EU Parliament:More PowersFewer MEPS
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Defense Policy:Mutual Assistance
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Climate ChangeHuman RightsCompetencies
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Competencies
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CompetenciesExclusive
JointNational
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OK.
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That was Lisbon.
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What did it mean?
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“StreamliningExpandingEnhancing”
Common ValuesCommon Justice
Common Foreign AffairsCommon Defense
Common Climate ChangeCommon Voting Rules
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Why did it fail?
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O’Rourke: ClassECB: Economy
FF: Lack of Preparation
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Think there will be another referendum?
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Moving on.
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30
1. Formation of the Customs Union, 1958- 1986
2. Single Market program, 1986-1992
3. European Economic and Monetary Union, 1992-present
3 big increases in EU economic integration
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Stage of Integratio
n
No Internal Barriers
Common External
Tarrif
Factor+Asset Mobility
Common Currency
Common Ec. Policy
FTA X
CU X X
Single Mkt X X X
Monetary Union
X X X X
Economic Union
X X X X X
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Budget
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Budget Priorities
Research AdminOther AidRegional CAP
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1.27% of
GDP
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Transaction Cost Ecs
For the Firm
Costs of compliance with contracts, social conventions, supply-chain problems.
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Phases of Ec. Integration
EMU
Common Mkt
Economic Union
Customs Union
Free Trade Area
Integration
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Costs from
Fragmented
Markets
Legal,
Regulatory
Costs Macro Costs
Source: McDonald & Dearden, pg. 44
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Why is Trade good?
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What is FreeTrade?Absence of tariffs, quotas, or other governmental impediments to international trade allows each country to
specialize in the goods that it can produce cheaply and efficiently relative to other countries.
SO?
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Trade Creation
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But first...
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Price, €
Quantity, (Items)
Supply Schedule
Demand Schedule
Eq. Price, P*
Eq. Quantity, Q*
CS
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Trade Creation is
“The increase in trade volume caused by union with a lower cost (more efficient) supplier within the trade bloc”
––Viner, 1950
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Punion post tax
Pworld post tax
Pworld pre tax
Punion pre tax
Supply Home
Demand Home
P*
C*
P
QB D
E F G
Trade Creation (High Cost to Low Cost)
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Punion post tax
Pworld post tax
Pworld pre tax
Punion pre tax
Supply Home
Demand Home
P*
C*
P
QB D
Trade Diversion (Low Cost to High Cost)
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CU Good iff
• TC > TD
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€ (bn) % GDP
(a) (b) (a) (b)
Barriers to trade 8 9 0.2 0.3
Technical Regs 57 71 2.0 2.4
Ecs. of Scale 60 61 2.0 2.4
X-inefficiency 46 46 1.6 1.6
Total 171 187 5.8 6.4
At 1985 Prices Source: Cecchini Report, Emerson et al, 1988.
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Movement of Labour
w2
w3
w4
w1
Wage, wSg
S(i-m)
Si
FEDB CA
1 2
3 4 5
DiDg
Quantity
of labour
Quantity
of
labour
Germany, g Ireland, i
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Effects of Economic Union
1. Location Effects
2. Accumulation Effects
3. Allocation Effects
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Price Dispersion(coefficient of variation)
1985 1993 1996% % %
Private Final Consumption 21.9 15.9 15.9Government final cons. 25.4 25.9 27.2
Gross fixed capital formation 12.8 14.5 13.5Construction 19.2 23.6 22.0
Machinery 9.1 6.7 7.7GDP 20.1 16.2 16.3
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El-Agraa, A.M., (2002), The European Union: Economics
and Policies, 6th ed., pgs. 149–164,
337.142 AGR.
Vox EU Columns Linked at the Site
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EC433 Lecture 2Dr Stephen Kinsella
LisbonBudget
CU Theory