The European Union in

historical perspective:
main political steps

Prof. Radu Vranceanu

European Economics
ESSEC BBA, 2024-2025
The map of Europe - and the
EU

2
EU: Founders and early members
Total area Population Year of joining
(km2) (‘000) 2020 the EU
Austria 83.858 9006 1995
Belgium 30,518 11,589 1957*
Denmark 43,098 5,792 1973
Germany 357,031 83,783 1957*
Greece 131,957 10,423 1981
Finland 338,150 5,540 1995
France 549,087 65,273 1957*
Ireland 70,295 4,937 1973
Italy 301,323 60,461 1957*
Luxemburg 2,586 625 1957*
Netherlands 35,518 17,134 1957*
Portugal 91,909 10,196 1986
Spain 504,890 46,754 1986
Sweden 449,974 10,099 1995

Source:Eurostat
* EU founding states 3
The latecomers – Eastern Europe
Total area Population Year joining
(km2) (‘000) the EU
Czech Republic 78,865 10,789 2004
Cyprus 9,251 1,207 2004
Estonia 45,227 1,326 2004
Hungary 93,034 9,660 2004
Latvia 64,589 1,886 2004
Lithuania 65,300 2,722 2004
Malta 316 441 2004
Poland 312,685 37,846 2004
Slovakia 49,033 5,459 2004
Slovenia 20,273 2,078 2004
Bulgaria 110,994 7,327 2007
Romania 238,391 19,237 2007
Croatia 56,594 4,105 2013

Source:Eurostat 4
GDP per capita at market
prices, 2023 (Eurostat)
GDP per capita (PPS,
EA=100), 2023
An aging continent: a
declining number of children
per women

7
Clusters depending on organisation of
public sector, labor market
institutions, and macro performances
Clusters
CONTINENTAL Austria, Germany, Netherlands,
Luxemburg, Switzerland (not EU)
SOUTHERN Spain, Portugal, Greece, Cyprus, Malta,
Italy
NORDIC Denmark, Sweden, Finland, Norway (not
EU), Iceland (Not EU)
EASTERN EUROPE
ANGLO-SAXON Ireland, UK (no longer EU)

Where to place France, Belgium ?

And the Baltics ?
European countries non-EU
members
• United Kingdom
• European Free Trade Area - EFTA.
A four-member organization: free trade
They participate in the European Single Market and are part of the Schengen Area. They are not, however, members of the
European Union Customs Union. Retain full rights to enter into bilateral trade arrangements with other countries.

• Switzerland (GDP – 99.995 USD /2023 – World Bank)

European • Norway (GDP – 87.961 USD /2023)
Economic
Area (EEA)
• Iceland
• Lichtenstein

• Candidate countries
• Albania (since 2014)
• Republic of North Macedonia
• Montenegro
• Serbia
• Bosnia and Herzegovina
• Turkey (associated since 1963, candidate country since 1999, little progress since)
• Ukraine (June 2022)
• Moldova (June 2022)
• Potential candidates (not yet granted status of candidate) – Kosovo,
Georgia
The official website of https://european-
union.europa.eu/
the EU index_en

10
Some history : the origins

• In the past, Charlemagne (800), Napoleon and Hitler brought together, by the
sword, virtually the entire land of the original European Economic Community
• By the beginning of the 14th century, Dante Alighieri argued in On Monarchy in
favor of a supranational power (that would respect diversity between people)
• Charles-Irénée Castel de Saint-Pierre (1658-1743) - Projet pour rendre la paix
perpétuelle en Europe - a proposal for a federal organization of the EU, to
bypass national interests and conflicts
• 1929: Aristide Briand, presented the first European project to the League of
Nations
• Arrived the WW2
• 1945: at the end of WW2, nation states were recreated but no longer trust
themselves to be able to play an autonomous role in the world stage

11
Some history : the origins

• The US diplomacy in 1947 – strong support of a federal organization of Europe

• 1947: US army general George Marshall (US Minister of Foreign Affairs –
Harry Truman administration), presented the European Recovery Plan.
Financial support to European recovery.
• 1948: negotiations between European countries as a group and the US (not
bilateral)!
• 1948: Netherlands, Belgium and Luxemburg set up the Benelux Union as a
custom union (and a program of progressing toward an economic union)
• 1948: creation of WEU, a defense agreement between the UK, France,
Belgium, the Netherlands, and Luxemburg, superseded by creation of NATO
one year later, 1949. WEO officially ceased its activity in 2010.
Some history : the origins

• Jean Monet : diplomat, the architect of the European unity (worked as an

Anglo-French coordinator in the WW1, deputy secretary-general of the
League of Nations, then coordinator of war efforts in WW2 in London;
member of Charles de Gaulle first government, head of the planning agency)
• 1950: One of the Monet’s proposals, implemented by Robert Schuman, the
French foreign affairs minister, was to place West German and French coal and
steel industries under a single High Authority to supervise their development.
(the French were afraid that if Germany kept full control over its iron and coal
industries, it might once again dominate Europe)
• 1951: Treaty of Paris : establishes the European Coal and Steel Community
(ECSC) between six countries: Germany, France, Italy, the Netherlands,
Belgium and Luxembourg (Jean Monet became its first president)
The Treaty of Rome, 1957

1957: Treaties of Rome Objectives of the EEC: By means of:

• The European Economic • Promotion of a continuous, • The common market
Community (EEC), main goal: harmonious, sustainable and • Economic and monetary
to create a common market : balanced development union
free movements of goods, through the EU • Common policies
people, services and capital. • A high level of employment • Freedom of movement of
• The EURATOM and social protection goods, persons, services and
• A high degree of capital
competitiveness • Undistorted competition
• Rising standards of living • Common agricultural policy
• Protection of the • Coordinating policies:
environment employment, education,
• Economic and social cohesion research, etc.
between member states
 European arrangements: 1958-
1973

1958. Charles de Gaulle became prime minister (and subsequently president) of France. A strong
partnership with Konrad Adenauer, the German chancellor.
1961. A summit decided to include political cooperation within the scope of the EC (absent in the Treaty of
Rome).
1961. The UK applied for EEC membership but met the opposition of Charles de Gaulle.
1962. The Common Agricultural Policy was set up with a protectionist goal. Output starts to increase.
1967. The ECSC, Euratom and EEC were merged into a single organization, the European Community.
1968. The six countries founding the Treaty of Rome removed customs duties on goods imported from
each other, allowing free cross-border trade for the first time. They also apply the same duties on their
imports from outside countries. The world’s biggest trading group is born. Trade among the six and
between the EU and the rest of the world grows rapidly.
1972. Exchange Rate Mechanism : The first monetary arrangement, around a fixed exchange rate regime /
short lived
1973. The first enlargement: UK, Denmark, Ireland. (Norway first applied, then rejected the Treaty by
referendum)

15
 European arrangements: 1973-
2007

Treaty on European
Union (Maastricht
Creation of the Treaty), completed by
European Monetary The single currency –
the Amsterdam Treaty
System (quasi fixed euro (11 initially; 19
1997, the Nice Treaty
exchange rate Greece enters the countries in 2017) ; the
2001, and the Lisbon
mechanism) European Community SGP
Treaty 2009

1979 1986 1993 2004–2007

1979 1981 1991 1999

first elections for the Spain and Portugal Copenhagen treaty 8 Baltic and Eastern
European Parliament follow European countries +
Malta & Cyprus join the
EU ; 2007: Bulgaria and
Romania.
 European arrangements: 2008-
2022

July, Resilience and

December 1st: Lisbon
Recovery Facility of
Treaty (a light version
The Fiscal Compact – The Banking Union: 750 bn to be
of the defunct EU
a modern version of Single Supervisory borrowed by the EU February 2022. The
Constitution –
the Stability and Mechanism and directly – the NEXT war in Ukraine, Mai
worked out and
Growth Pact Single Resolution GENERATION EU, the 2022 the EU Strategic
dropped in 2004-
(suspended in 2019) Mechanism common response to Compass
2005).
the COVID crisis

2012 2013 2020 2022

2009 2012 2015 2020

The ESM is
established in Croatia joins the EU January, the UK is the June – the EU Green
response to the (the 28th state) first country to leave Deal – Europe to
global financial crisis, the EU become the first
as a conditional carbon neutral
lender for distressed continent (by 2050)
EU governments (600
bln euros)
 The Maastricht Treaty on
European Union – 1991 (the
seeds of political cooperation)

PROJECTS – (not all were realized…)

• Commitment to achieving an economic and monetary union
• Development of common foreign and defense policies
• Introducing the EU citizenship (freedom of movement, right of residence, right to
vote, etc)
• Extending EU powers in education, industry, health, infrastructures, culture, antitrust,
• Establishment of a Cohesion Fund for supporting less developed areas or countries
• Strengthening juridical, immigration and police cooperation between member states
• Implementing measures from the Social Charter on worker’s health and safety, equal
opportunity and integration of excluded persons
• Extension of legislative powers of the EP, etc
 The tenets of the EU –
Copenhagen criteria for
accession (1993)

Acceptance of the
Stability of democracy Functioning market
acquis Political commitment
and rule of law economy
communautaire
• Respect of human • (a body of • Proven ability to • To the goals of the
rights Community rights sustain competitive EU
• Protection of and obligations; 35 pressure from the • To the joint Economic
minorities chapters, 80000 economies of other and Monetary Union
pages) member states
The Lisbon Treaty, 2009

• Goal: to achieve a more efficient Europe, with simplified working methods

and voting rules, streamlined and modern institutions and an improved ability
to act in areas of major priority for today's Union.
• Effective and efficient decision-making: qualified majority or double majority
voting in the Council was extended to new policy areas (and blocking minority
of 4 members). A double majority will be achieved when a decision is taken
by 55% of the Member States representing at least 65% of the Union’s
population.
• However, in 2024, the unanimity rule still applies to many essential issues !
(CFSP, EU membership, EU finance, …)
• The Treaty of Lisbon creates the function of President of the European
Council elected for two and a half years.
The unanimity rule

The Council has to vote unanimously on a number of matters which the

member states consider to be sensitive. For example:
• common foreign and security policy (except for certain clearly defined cases
which require qualified majority, e.g. appointment of a special
representative)
• citizenship (the granting of new rights to EU citizens)
• EU membership
• harmonisation of national legislation on indirect taxation
• EU finances (own resources, the multiannual financial framework)
• certain provisions in the field of justice and home affairs (the European
prosecutor, family law, operational police cooperation, etc.)
• harmonisation of national legislation in the field of social security and social
protection.

21
 2020: UK leaves the EU

• Britain relationship with the European community:

• Not a member of the EEC in 1957
• Two failed applications in 1963 and 1967 (vetoed by France)
• 1973 UK joins EEC (Labour party was against it)
• 1975 UK holds referendum whether to stay in EEC – 67% votes YES
• 1985 “Thatcher rebate”: 1985 (some 110 bn euros in 30 years)
• 1992 negotiated exemption to adopting the Euro
• June 23, 2016: in a referendum, 52% of British voters (17,4 mil people) voted to leave
the EU
• Withdrawal from the European Union is possible under Article 50 of the Treaty on
European Union since 2007
• Brexit signed into operation on January 2020
• December 31, 2020. Separation effective, under a last-minute deal that preserved the
free trade agreement.
 The EU's institutional set-up

• The EU's broad priorities are set by the European Council, which brings together national
and EU-level leaders. The European Council sets the EU's overall political direction – but
has no powers to pass laws. Led by its President – currently Charles Michel (since 2019) –
and comprising national heads of state or government and the President of the
Commission, it meets for a few days at a time at least twice every 6 months.
• 720 directly elected MEPs (2024) represent European citizens in the European Parliament
• The interests of the EU are promoted by the European Commission, whose members are
appointed by national governments
• Governments defend their own country's national interests in the Council of the
European Union (Ministers).

• Attention: the European Council is different from Council of the European Union and
different form the Council of Europe (the latter is not an EU body)
What does the Commission
do?
The European Commission is the EU's politically independent executive arm. It is
alone responsible for drawing up proposals for new European legislation, and it
implements the decisions of the European Parliament and the Council of the EU.
President : Ursula von der Leyen (since December 2019),

Manages EU policies
Represents the EU
Proposes new laws & allocates EU Enforces EU law
internationally
funding
• The Commission is • Sets EU spending • Together with the • Speaks on behalf of
the sole EU priorities, together Court of Justice, all EU countries in
institution tabling with the Council and ensures that EU law international
laws for adoption by Parliament. is properly applied bodies, in particular
the Parliament and • Draws up annual in all the member in areas of trade
the Council that: budgets for approval countries. policy and
by the Parliament humanitarian aid.
and Council. • Negotiates
• Supervises how the international
money is spent, agreements for the
under scrutiny by EU.
the
Court of Auditors.
 27 EU leaders

The law-making
process and
actors
The ordinary legislative
procedure

Reading : How the EU works 1 and 2

Financing the European Union
BUDGET 2023: 168,6 bill euros (out of a total GDP
of 15,810 bn euros (1%))

Traditional own resources:

1. A tax based on gross national income (GNI)
A standard percentage (max 1,4%) is levied on
the GNI of each EU country. This represents about
64% of the EU resources
2. Value added tax (VAT). A standard percentage
(0,3%) is levied on the harmonized VAT base of each
EU country. The VAT resource accounts for 12%.
3. Customs duties on imports from outside the EU,
for 13% (EU governments keep 25% to cover the cost
of collection).

4. From 2021 – new taxes on non-recycled plastic

bags (4% of total)
5. UK keeps on financing on behalf of past
commitments 6%
EU budget: Expenditures 2023
The budget must be balanced

30% – Cohesion policies

– helping underdeveloped EU
regions and disadvantaged sections
of society

In 1985, around 70 % of the EU

budget went on agriculture (CAP) as
direct aid to farmers and market-
related expenditures.
Today 33% goes to support to
agriculture

R&D, Strategi investments, External

actions and support

Defense : not much

93 % of the EU budget is managed by

national or regional governments.
The rest of 7% is administration of
the EU institutions (Commission,
27
Parliament, etc)
Contributor
s and
beneficiaire
s of EU
budget,
million
euros, 2021
The Eurobarometer July 2024
The Eurobarometer – July 2024
How to prepare for this class

• Knowledge of economic issues

• To be developed during the class – to be continuously updated
• Read the Financial Times every day ! Create your free FT account (with the Essec id)
• Read the Economist
• Behave as a professional economist in charge with economic analysis, economic
advice and short-term forecasting
• Key for doing well in this class is to know what’s happening in the world
economy ! Economic awareness !
• Macroeconomics
• International trade and EU cooperation
• Competition policies and industrial organization issue
How to prepare a country
report
• A brief outlook of the economic fundamentals.
• A broad assessment of the strengths and weaknesses of the country
• Consider the main policy reforms implemented in the last five years
• Combine economics with political challenges when needed
• Focus on one, two, max three elements from the list below ! Cannot address all of them !
A. Macroeconomic outlook – point out the main policy reforms
• Growth and employment
• Employment/Unemployment ; labor market issues, reforms
• Monetary and fiscal indicators (skip monetary policy issues for Euro Zone countries, we’ll cover it extensively in
class; focus on fiscal policy- any interesting fiscal programs Governments are implementing – present and discuss
figures)
• Main risks ? (housing bubbles, debt and fiscal deficits, lack of competitiveness, price stability, etc)

B. Evolution of trade and foreign investment

• current account deficit/ surplus, main trading partners, does the country have any comparative
advantage in a particular industry?
• Any risks associated with trade? Treaties and trade conflicts

C. Industrial organization and industrial policy issues ;

• Regulation and industrial policy – point out any particularities specific to countries reviewed; important industries
• National champion firms
D. Social and environmental policies (briefly! – only if related to the economy)
• Environmental issues in economic perspective, Health systems. Education. Demography and the retirement
problem. Migration. Focus more if the country has any particular issue in this area (like slow population growth,
interesting health or schooling systems, substantial progress in the energetic transition). 32
Time: 10 to 12 min per country. You should have slides. Count about 2 min/slide.
• All team members should participate in preparing the document; work together,
cooperate ! Not an individual assessment, You will be graded as a group
• Use charts for the main indicators, present relevant facts and focus on original and
issues related to your countries.
• Make sure that your presentation is coherent, do not repeat graphs and discussions
• Be prepared to explain the graphs and policies you present. Use comparisons in the
data across countries, and across time.
• Prefer relative data (%, ratios) to absolute, nominal data.
• Use recent data.
• Look for interesting stories, representative of the economic problems of the day
encountered by these countries (economic press, The Economist, Financial Times)

Key data sources // USE Google Scholar and search for:

• Economic indicators: Eurostat, World Bank, Thomson Datastream, IMF Economic
Review
• OECD Country Studies – http://www.oecd.org/fr/
• VoxEU informations - https://voxeu.org/
• Policies: Financial Times, The Economist, Central Bank reports ( you can use Factiva
from the Learning Center to access any article)
Check the OECD Website
• For instance – France the latest reports
• https://www.oecd.org/en/publications/oecd-
economic-surveys-france-2024_bd96e2ed-en.html
• On the IMF – what about France
• National Bank of France
• VoxEu on France
• The Economist onFrance

34
 Some suggestions on what to
focus on:

• Greece & Portugal: small but interesting economies, Have in common the strong
contribution of tourism; their productive sector is based on what ? education and
productivity (Portugal); public finances (taxes, pensions in Greece). Tourism. The
current situation? What reforms are pending ? Labor markets relatively rigid, why?
• Spain & Italy. Large economies. Both from the South, with labor markets that are
relatively rigid. The public deficits high, public debts high. Risks in the banking
sector. Italy – more diversified, but also with a North/South divide.
• Germany & France: Large, powerful economies. Focus on comparing economic
performances between them (unemployment and export performance, public
deficit, )… Productivity issues (innovation and R&D); Germany’s mittelstand
network; labor market differences; labor reforms in France; France is less
industrialized, why ? Export competitiveness.
• Norway & Sweden: both are «welfare states», have a tradition of social
care(quite redistributive, less so now) Norway – out of the EU; which relationship
with the EU? monetary policy, evolution of the krone, inflation, employment,
sovereign oil fund (750 mld) – how is it managed; Sweden - the strong economic
growth, R&D, startups; monetary policy in Sweden... Unions and labor markets in
these countries
What to focus on:

• Poland, Hungary, Romania: formerly planed economies that have successfully

transited to a market economy. Evolution of macroeconomic indicators, growth,
unemployment; their production structures – the role of FDI ? They are
production bases for western firms? monetary and fiscal policy measures
undertaken
• UK & Ireland: two “anglo-saxon” models ; flexible labor markets, yet slow
productivity in UK. UK is big, while Ireland is small. Irish economy – how much
integration with the UK ? Why Ireland attracts so much FDI ? (taxation) Brexit –
and its consequences for both countries; How is the financial sector affected ?
London as a trading place ? UK monetary & fiscal policy; Ireland today; fiscal
policy, the corporate tax, the banking system, education ? Migration ? The trade
agreement between UK and the Republic of Ireland, the border
• Switzerland & Austria: Monetary policy and growth in Switzerland; the evolution
of the Swiss Franc CHF and its economic consequences; Austria low
unemployment, explanations? Vocational training; Migrant crisis in Austria.