EU policy and economic governance

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Interests, institutions and policies: Who runs the EU economy?

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Rooted in the 1957 Treaty of Rome, the common market and the institutional framework that made it possible remain pivotal within the EU today. Initiatives such as the Single European Act of 1987 and the Maastricht Treaty of 1992 aimed to solidify the common market and bolster the EU's role in the global economy, symbolised by the introduction of the euro as a potential competitor to the US dollar. Nevertheless, a series of challenges including the 2008 financial crisis, the subsequent euro crisis, Brexit, the pandemic, the economic downturn resulting from the war in Ukraine, and the rise of China, have profoundly tested the pillars of economic governance in Europe. This course will investigate these challenges and the EU's responses to them in order to assess its current standing and future outlook, both domestically and internationally.

The course will explore the breadth of EU activities across major policy domains, such as the common market, internal market regulation, the euro and economic and monetary union, the size of the EU budget, its sources of revenue and how it is spent on agriculture or cohesion. It will also review international trade and development policies, as well as EU democracy, enlargement and reform. For each EU policy under examination we will start by analysing its impact on different stakeholders, such as domestic and foreign producers, consumers, employers or workers, in order to identify the relevant actors, interests and conflicts at play. Does European intagration favour the centre at the expense of the perifery? Is the EU budget regressive? To what extent does joining or leaving the EU divert or create trade from third countries? Next, we will delve into the current institutional framework that shapes the interaction of all those conflicting interests, in order to understand the results of the policy process. Why has the stability and growth failed to maintain fiscal discipline in the Euro area under the reference targets? Why does Google invest so much in small peripheral countries such as Ireland or Portugal? Why is it so difficult to finalise a trade deal with Mercosur? Why has the signing of a trade agreement with the EU started a civil war in Ukraine in 2014? Why does Europe have a rising number of refugees? Finally, we will compare actual policy outcomes with those that would take place under different institutional settings in order to understand not only the reasons for the current economic governance structures but also existing debates and the prospects for future reform. What would happen if ECB governors were elected for life? What would happen if the EU were allowed to run deficits? What would happen if the commission president were directly elected? What would happen if the EU were to accept Ukraine or Turkey as members? What would happen if Germany were to leave the Euro area? What would happen if the digital euro were to replace existing money for everyday transactions? What would happen if the EU were allowed to set tariffs on energy imports? What would happen if the EU budget were to be approved by majority?

By the end of this course, students should be able to understand the economics behind major EU policies, the issues at stake and the conflicts they generate both domestically and internationally among state and non-state actors. They will also understand the institutional rules of the game that shape political interactions among all those interests, and contribute decisively to determining who runs the European economy. Finally, they will become aware of current debates about the reform of economic governance in the EU, which will help them foresee its future evolution and scope. Furthermore, the curriculum will introduce students to public policy analysis and institutional design, which may serve as a stepping stone for further academic pursuits or be directly transfered into non-academic careers.

Unlike conventional courses in EU institutions and policies, this module adopts a bottom-up methodology. Rather than dedicating the first half of the semester to the presentation of EU institutions, lectures and seminars will immerse students in pertinent EU policy cases right from the start. This pedagogical approach is designed to foster student engagement by spotlighting the immediate relevance of the subject matter and to cultivate logical and evidence-based problem-solving skills. Seminars will feature discussions and debates on contemporary issues, fostering independent research skills, readiness to offer and accept peer review, as well as an ability to use group discussions to elucidate complex issues.
1. The study of EU policy and economic governance: a bottom-up approach? Institutions and policies vs. policy and policy making. The common market: the first policy of the EU. The theory of economic integration: preferential trade agreements, free trade areas, customs unions, common markets. The common market: tariffs and quotas, common external trade policy, mobility of factors of production: labor and capital. Social and territorial effects of the common market: Winners and losers of the common market. National effects: trade creation and trade diversion. If Moldova were to join the EU customs union, which trade effect would prevail, trade creation or trade diversion? 2. The single market. Non-tariff barriers: physical, technical and fiscal barriers. Mutual recognition and harmonisation. The economic impact of the single market. The single market for services. The digital single market. Is Romania's car tax a fiscal barrier to trade? Single market policies: competition, industry and competitiveness policies, fiscal harmonisation, transport, energy, environment. Why is EU competition policy more restrictive than its US counterpart? 3. Economic and Monetary Union. The theory of optimal currency areas (OCA). The evolution of EMU. How EMU works. The European Central Bank and EU's monetary policy. The digital euro. Fiscal co-ordination. The Stability anf Growth Pact. The Six-pack. Eurobonds. 4. The EU budget. Financing the budget. Own resources. Eurobonds. Why is the revenue side of the EU budget regressive? Will the debt-funded growth of the EU budget as a result of the Covid-19 crisis become permanent? The common agricultural policy: theory, practice and impact. Evolution and reform. The impact of the war in Ukraine. Why is food more expensive in the EU than in the US? 5. Regional policy: theory, practice and impact. Why are cohesion funds conditional? Social policy. European Social Fund. From labor mobility to EU citizenship. The Schengen area, citizens' rights, justice. Erasmus. Why has the CJEU been so decisive in promoting an EU social policy agenda? 6. The EU's common commercial policy. The EU and the World Trade Organization. Trade deals. Trade defence measures. Why has the EU threatened the UK with WTO terms in case of a no-deal Brexit? Is the EU more protectionist than the US? Will an EU-Mercosur trade deal evever be ratified? Immigration policy. Development policy. Neighbourhood policy. Common foreign and security policy. Economic sanctions. Are economic sanctions against Russia working? 7. EU democracy, enlargement and reform. Brexit. The accession of Ukraine, Moldova and Georgia. Serbia and the Balkans. The accession of Turkey. Could Germany leave the Euro area? Who runs the European economy, national governments, supranational EU institutions, multinationals and powerful interest groups? Is EU economic governance democratic? What would it take to make it democratic?
Indicative reading: 

ESSENTIAL TEXTBOOKS: Baldwin, R., & Wyplosz, C. (2022). The Economics of European Integration 7th ed. McGraw Hill; Hix, S. and B. Hoyland (2022). The Political System of the European Union, 4th ed. Bloomsbury; De Grauwe, P. (2022). Economics of monetary union, 14th ed. Oxford University Press. ALTERNATIVE TEXTBOOKS: Wallace, H., M.A. Pollack, C. Roederer-Rynning, and A.R. Young (eds) (2020). Policy-Making in the European Union, Eighth edition. Oxford University Press; El-Agraa, A. (2015). The European Union Illuminated: Its Nature, Importance and Future. Palgrave Macmillan; El-Agraa, A. M. (2011). The European Union: economics and policies. Cambridge University Press. FURTHER READING ON ECONOMIC AND MONETARY UNION: Dyson, K., & Featherstone, K. (1999). The Road to Maastricht. Oxford University Press; Schelkle, W. (2017). The Political Economy of Monetary Solidarity: Understanding the Euro Experiment. Oxford University Press; Special issue (2006). 'Economic Governance in EMU Revisited'. Journal of Common Market Studies vol. 44, No. 4 (November); Pisani-Ferry, J. (2014). The Euro Crisis and Its Aftermath, Oxford University Press.

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